See All of This Company's Exhibits
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0000950109-97-003176.txt : 19970425
0000950109-97-003176.hdr.sgml : 19970425
ACCESSION NUMBER: 0000950109-97-003176
CONFORMED SUBMISSION TYPE: 485BPOS
PUBLIC DOCUMENT COUNT: 5
FILED AS OF DATE: 19970424
EFFECTIVENESS DATE: 19970424
SROS: NONE
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
CENTRAL INDEX KEY: 0000880793
STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000]
STATE OF INCORPORATION: AR
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 485BPOS
SEC ACT: 1933 Act
SEC FILE NUMBER: 033-43773
FILM NUMBER: 97586139
FILING VALUES:
FORM TYPE: 485BPOS
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-06459
FILM NUMBER: 97586140
BUSINESS ADDRESS:
STREET 1: 800 SCUDDERS MILL RD
CITY: PLAINSBORO
STATE: NJ
ZIP: 08536
BUSINESS PHONE: 6092821429
485BPOS
1
FORM N-4
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1997
REGISTRATION NO. 33-43773
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-4
REGISTRATION STATEMENT UNDER THE [_]
SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 11 [X]
AND
REGISTRATION STATEMENT UNDER THE [_]
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 12 [X]
(CHECK APPROPRIATE BOX OR BOXES)
----------------
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
(EXACT NAME OF REGISTRANT)
MERRILL LYNCH LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(609) 282-1429
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
----------------
BARRY G. SKOLNICK, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
MERRILL LYNCH LIFE INSURANCE COMPANY
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
COPY TO:
STEPHEN E. ROTH, ESQ.
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
1275 PENNSYLVANIA AVENUE, NW
WASHINGTON, D.C. 20004-2404
----------------
The Registrant has registered an indefinite amount of securities pursuant to
Rule 24f-2 under the Investment Company Act of 1940. The Rule 24f-2 notice for
fiscal year 1996 was filed on February 26, 1997.
It is proposed that this filing will become effective (check appropriate
space):
[_]immediately upon filing pursuant to paragraph (b) of Rule 485
[X]on May 1, 1997 pursuant to paragraph (b) of Rule 485
(date)
[_]60 days after filing pursuant to paragraph (a) of Rule 485
[_]on __________ pursuant to paragraph (a) of Rule 485
(date)
EXHIBIT INDEX CAN BE FOUND ON PAGE C-10
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- --------------------------------------------------------------------------------
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495(A) UNDER THE 1933 ACT)
N-4 ITEM NUMBER AND CAPTION LOCATION
--------------------------- --------
PART A
1. Cover Page................ Cover Page
2. Definitions............... Definitions
3. Synopsis.................. Fee Table
4. Condensed Financial
Information.............. Accumulation Unit Value Table; Yields and
Total Returns
Part B: Calculation of Yields and Total
Returns
5. General Description of
Registrant, Depositor,
and Portfolio Companies.. Merrill Lynch Life Insurance Company; The
Accounts; Investments of the Accounts
6. Deductions and Expenses... Capsule Summary of the Contract (Fees and
Charges; Transfers; Withdrawals); Charges
and Deductions; Description of the
Contract (Accumulation Units; Transfers;
Withdrawals and Surrenders; Payments to
Contract Owners)
7. General Description of
Variable Annuity
Contracts................ Capsule Summary of the Contract (The
Accounts; The Funds; Premiums; Annuity
Payments; Transfers; Withdrawals, Ten Day
Review); The Accounts; Description of the
Contract; Other Information (Voting
Rights; State Regulation)
8. Annuity Period............ Capsule Summary of the Contract (Annuity
Payments); Description of the Contract
(Annuity Date; Annuity Options)
9. Death Benefit............. Capsule Summary of the Contract (Death
Benefit); Description of the Contract
(Death Benefit; Death of Annuitant);
Federal Income Tax (Taxation of Annuities)
10. Purchases and Contract
Value.................... Capsule Summary of the Contract (The
Accounts; Premiums); Description of the
Contract (Premiums; Premium Investments;
Accumulation Units); Other Information
(Reports to Contract Owners)
Part B: Other Information (Principal
Underwriter)
11. Redemptions............... Capsule Summary of the Contract (Ten Day
Review); Charges and Deductions;
Description of the Contract (Issuing the
Contract; Ten Day Right to Review;
Withdrawals and Surrenders; Payments to
Contract Owners; Annuity Options)
12. Taxes..................... Capsule Summary of the Contract (Fees and
Charges; Withdrawals) Charges and
Deductions (Premium Taxes; Other Charges);
Description of the Contract (Accumulation
Units; Death Benefit; Withdrawals and
Surrenders; Annuity Options); Federal
Income Taxes
N-4 ITEM NUMBER AND CAPTION LOCATION
--------------------------- --------
13. Legal Proceedings.......... Other Information (Legal Proceedings)
14. Table of Contents of the
Statement of Additional
Information............... Table of Contents of the Statement of
Additional Information
PART B
15. Cover Page................. Cover Page
16. Table of Contents.......... Table of Contents
17. General Information and
History................... Part A: Merrill Lynch Life Insurance
Company; The Accounts; Investments of the
Accounts
Part B: Other Information (General
Information and History)
18. Services................... Part A: Other Information (Experts)
Part B: Administrative Services
Arrangements
19. Purchase of Securities
Being Offered............. Part A: Other Information (Selling the
Contract)
20. Underwriters............... Part A: Other Information (Selling the
Contract)
Part B: Other Information (Principal
Underwriter)
21. Calculation of Performance
Data...................... Part A: Yields and Total Returns
Part B: Calculation of Yields and Total
Returns
22. Annuity Payments........... Part A: Capsule Summary of the Contract
(Annuity Payments); Description of the
Contract (Annuity Date; Annuity Options)
23. Financial Statements....... Other Information (Financial Statements);
Financial Statements of Merrill Lynch
Variable Annuity Separate Account A;
Financial Statements of Merrill Lynch Life
Variable Annuity Separate Account B;
Financial Statements of Merrill Lynch Life
Insurance Company.
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C to this Registration Statement.
PROSPECTUS
MAY 1, 1997
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
AND
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT B
FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT
ALSO KNOWN AS
MODIFIED SINGLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
MERRILL LYNCH LIFE INSURANCE COMPANY
Home Office: Little Rock, Arkansas 72201
Service Center: P.O. Box 44222,
Jacksonville, Florida 32231-4222
4804 Deer Lake Drive East,
Jacksonville, Florida 32246
Phone: (800) 535-5549
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
The individual deferred variable annuity contract described in this Prospectus
(the "Contract") is designed to provide comprehensive and flexible ways to
invest and to create a source of income protection for later in life through
the payment of annuity benefits. The Contract is issued by Merrill Lynch Life
Insurance Company ("Merrill Lynch Life") both on a nonqualified basis, and as
an Individual Retirement Annuity ("IRA") that is given qualified tax status.
Premiums will be allocated as the contract owner directs into one or more
subaccounts of Merrill Lynch Life Variable Annuity Separate Account A
("Account A") and/or Merrill Lynch Life Variable Annuity Separate Account B
("Account B"), (together, the "Accounts"). The assets of each of the
subaccounts will be invested in a corresponding mutual fund portfolio of the
Merrill Lynch Variable Series Funds, Inc.; AIM Variable Insurance Funds, Inc.;
Alliance Variable Products Series Fund, Inc.; and MFS Variable Insurance Trust
(each portfolio, a "Fund"; collectively, the "Funds"). Currently, there are
seventeen subaccounts available through Account A and one subaccount available
through Account B. Three additional subaccounts previously available though
Account A are no longer available for the allocation of premiums or contract
value. Other subaccounts and corresponding investment options may be added in
the future. The value of a contract owner's investment in each subaccount will
vary with investment experience, and it is the contract owner who bears the
full investment risk with respect to his or her investments.
The Contract provides a choice of fixed annuity payment options. On the
annuity date, the entire contract value, after the deduction of a charge for
any applicable premium taxes, will be transferred to Merrill Lynch Life's
general account, from which the annuity payments will be made. Prior to the
annuity date, the contract owner may make transfers among Account A
subaccounts, limited transfers from Account A into Account B, and full or
partial withdrawals from the Contract to suit investment and liquidity needs.
Withdrawals may be taxable and may be subject to a contingent deferred sales
charge.
This Prospectus contains information about the Contract and the Accounts that
a prospective contract owner should know before investing. Additional
information about the Contract and the Accounts is contained in a Statement of
Additional Information, dated May 1, 1997, which has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
The Statement of Additional Information is available on request and without
charge by writing to or calling Merrill Lynch Life at the Service Center
address or phone number set forth above. The table of contents for the
Statement of Additional Information is included on page 40 of this Prospectus.
THE PURCHASE OF THIS CONTRACT INVOLVES CERTAIN RISKS. BECAUSE IT IS A VARIABLE
ANNUITY, THE VALUE OF THE CONTRACT REFLECTS THE INVESTMENT PERFORMANCE OF THE
SELECTED INVESTMENT OPTIONS. INVESTMENT RESULTS CAN VARY BOTH UP AND DOWN AND
CAN EVEN DECREASE THE VALUE OF PREMIUM PAYMENTS. THEREFORE, CONTRACT OWNERS
COULD LOSE ALL OR PART OF THE MONEY THEY HAVE INVESTED. MERRILL LYNCH LIFE
DOES NOT GUARANTEE THE VALUE OF THE CONTRACT. RATHER, CONTRACT OWNERS BEAR ALL
INVESTMENT RISKS.
AN ANNUITY IS INTENDED TO BE A LONG TERM INVESTMENT. WITHDRAWALS OR SURRENDER
OF THE CONTRACT PREMATURELY MAY RESULT IN SUBSTANTIAL PENALTIES. CONTRACT
OWNERS SHOULD CONSIDER THEIR INCOME NEEDS BEFORE PURCHASING THE CONTRACT.
ALL WITHDRAWALS FROM AND SURRENDER OF THE CONTRACT ARE SUBJECT TO TAX, AND IF
TAKEN BEFORE AGE 59 1/2 MAY ALSO BE SUBJECT TO A 10% FEDERAL PENALTY TAX.
THIS CONTRACT PROVIDES A GUARANTEED DEATH BENEFIT THAT IS PAYABLE ONLY UPON
THE DEATH OF THE CONTRACT OWNER. THE 5% GROWTH GUARANTEED ON CERTAIN PREMIUMS
FOR DEATH BENEFIT PURPOSES IS NOT A GUARANTEE OF CONTRACT VALUE, NOR IS IT
APPLICABLE TO ANY OTHER FEATURE OF THE CONTRACT.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ATTACHED
TO CURRENT PROSPECTUSES FOR THE FUNDS WHICH SHOULD ALSO BE READ AND KEPT FOR
REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TABLE OF CONTENTS
PAGE
----
DEFINITIONS................................................................ 4
CAPSULE SUMMARY OF THE CONTRACT............................................ 5
FEE TABLE.................................................................. 9
ACCUMULATION UNIT VALUES................................................... 13
YIELDS AND TOTAL RETURNS................................................... 15
MERRILL LYNCH LIFE INSURANCE COMPANY....................................... 16
THE ACCOUNTS............................................................... 16
INVESTMENTS OF THE ACCOUNTS................................................ 17
Merrill Lynch Variable Series Funds, Inc. ............................... 17
Domestic Money Market Fund............................................. 18
Prime Bond Fund........................................................ 18
High Current Income Fund............................................... 18
Quality Equity Fund.................................................... 18
Equity Growth Fund..................................................... 18
Natural Resources Focus Fund........................................... 19
American Balanced Fund................................................. 19
Global Strategy Focus Fund............................................. 19
Basic Value Focus Fund................................................. 19
Global Bond Focus Fund................................................. 19
Global Utility Focus Fund.............................................. 19
International Equity Focus Fund........................................ 20
Government Bond Fund................................................... 20
Developing Capital Markets Focus Fund.................................. 20
Reserve Assets Fund.................................................... 20
Index 500 Fund......................................................... 20
AIM Variable Insurance Funds, Inc. ...................................... 20
AIM V.I. Capital Appreciation Fund..................................... 21
AIM V.I. Value Fund.................................................... 21
Alliance Variable Products Series Fund, Inc. ............................ 21
Premier Growth Portfolio............................................... 22
MFS Variable Insurance Trust............................................. 22
MFS Emerging Growth Series............................................. 22
MFS Research Series.................................................... 22
Purchases and Redemptions of Fund Shares; Reinvestment................... 22
Material Conflicts, Substitution of Investments and Changes to Accounts.. 22
CHARGES AND DEDUCTIONS..................................................... 23
Contract Maintenance Charge.............................................. 23
Mortality and Expense Risk Charge........................................ 23
Administration Charge.................................................... 24
Contingent Deferred Sales Charge......................................... 24
Premium Taxes............................................................ 25
Other Charges............................................................ 25
DESCRIPTION OF THE CONTRACT................................................ 26
Ownership of the Contract................................................ 26
Issuing the Contract..................................................... 26
Ten Day Right to Review.................................................. 26
Contract Changes......................................................... 26
Premiums................................................................. 27
Premium Investments...................................................... 27
Accumulation Units....................................................... 27
Death Benefit............................................................ 28
Death of Annuitant....................................................... 29
Transfers................................................................ 29
Dollar Cost Averaging.................................................... 30
2
PAGE
----
Merrill Lynch Retirement Plus Advisor SM................................. 30
Withdrawals and Surrenders............................................... 31
Payments to Contract Owners.............................................. 32
Annuity Date............................................................. 32
Annuity Options.......................................................... 33
Unisex................................................................... 34
FEDERAL INCOME TAXES....................................................... 34
Introduction............................................................. 34
Merrill Lynch Life's Tax Status.......................................... 34
Taxation of Annuities.................................................... 35
Internal Revenue Service Diversification Standards....................... 36
IRA Contracts............................................................ 37
Transfers, Assignments, or Exchanges of a Contract....................... 37
Withholding.............................................................. 37
Possible Changes in Taxation............................................. 38
Other Tax Consequences................................................... 38
OTHER INFORMATION.......................................................... 38
Voting Rights............................................................ 38
Reports to Contract Owners............................................... 38
Selling the Contract..................................................... 39
State Regulation......................................................... 39
Legal Proceedings........................................................ 39
Experts.................................................................. 40
Legal Matters............................................................ 40
Registration Statements.................................................. 40
Table of Contents of the Statement of Additional Information............. 40
3
DEFINITIONS
Accounts: Two segregated investment accounts of Merrill Lynch Life Insurance
Company, named Merrill Lynch Life Variable Annuity Separate Account A and
Merrill Lynch Life Variable Annuity Separate Account B. (See page 16.)
account value: The value of a contract owner's interest in a particular
Account.
accumulation unit: An index used to compute the value of the contract owner's
interest in a subaccount prior to the annuity date. (See page 27.)
annuitant: The person on whose continuation of life annuity payments may
depend.
annuity date: The date on which annuity payments begin. (See page 32.)
beneficiary: The person to whom payment is to be made on the death of the
contract owner.
Contract: The variable annuity offered by this Prospectus.
contract anniversary: The same date each year as the date of issue of the
Contract.
contract owner: The person entitled to exercise all rights under the Contract.
(See page 26.)
contract value: The value of a contract owner's interest in the Accounts.
contract year: The period from one contract anniversary to the day preceding
the next contract anniversary.
date of issue: The date on which an initial premium is received and required
contract owner information is approved by Merrill Lynch Life. (See page 26.)
due proof of death: A certified copy of the death certificate, Beneficiary
Statement, and any additional paperwork necessary to process the death claim.
Funds: The mutual funds, or separate investment portfolios within a series
mutual fund, designated as eligible investments for the Accounts. (See page
17.)
Individual Retirement Account or Annuity ("IRA"): A Contract issued in
connection with a retirement arrangement that receives favorable tax status
under Section 408 of the Internal Revenue Code.
monthiversary: The same date of each month as the date on which the Contract
was issued.
net investment factor: An index used to measure the investment performance of
a subaccount from one valuation period to the next. (See page 28.)
nonqualified contract: A Contract issued in connection with a retirement
arrangement other than a qualified arrangement described under Section 401,
403, 408, 457 or any similar provisions of the Internal Revenue Code.
premiums: Money paid into the Contract. (See page 27.)
subaccount: A division of each of the Accounts consisting of the shares of a
particular Fund held by that Account.
valuation period: The interval from one determination of the net asset value
of a subaccount to the next. Net asset values are determined as of the close
of business on each day the New York Stock Exchange is open. (See page 28.)
variable annuity: A contract with a value that reflects investment experience
prior to the annuity date, and provides periodic payments of set amounts after
the annuity date.
4
CAPSULE SUMMARY OF THE CONTRACT
The following capsule summary is intended to provide a brief overview of the
Contract. More detailed information about the Contract can be found in the
sections of this Prospectus that follow, all of which should be read in their
entirety.
THE ACCOUNTS
Premiums will be allocated to Merrill Lynch Life Variable Annuity Separate
Account A ("Account A") and/or Merrill Lynch Life Variable Annuity Separate
Account B ("Account B") segregated investment accounts (together, the
"Accounts"), as directed by the contract owner. The Accounts are divided into
subaccounts corresponding to the Funds in which contract value may be
invested. Premiums are not invested directly in the underlying Funds. For the
first 14 days following the date of issue, all premiums directed into Account
A will be allocated to the Domestic Money Market Fund Subaccount. Thereafter,
the account value will be reallocated to the Account A subaccounts selected.
In the Commonwealth of Pennsylvania, all premiums will be invested as of the
date of issue in the subaccounts selected by the contract owner. Account A
account value may be periodically transferred among Account A subaccounts,
subject to certain limitations. Currently, a contract owner may allocate
premiums or contract value among a total of eighteen subaccounts. The contract
value and annuity payments will reflect the investment performance of the
Funds selected. (See THE ACCOUNTS on page 16 and TRANSFERS on page 29.)
THE FUNDS
The Funds are separate investment mutual fund portfolios of the Merrill Lynch
Variable Series Funds, Inc. ("Merrill Variable Funds"); AIM Variable Insurance
Funds, Inc. ("AIM V.I. Funds"); Alliance Variable Products Series Fund, Inc.
("Alliance Fund"); and MFS Variable Insurance Trust ("MFS Trust") (each
portfolio, a "Fund"; collectively, the "Funds"). The following eighteen Funds
are currently available for contract owner investment (seventeen available
through Account A and one available through Account B), each with a different
investment objective: Domestic Money Market Fund, Prime Bond Fund, High
Current Income Fund, Quality Equity Fund, Equity Growth Fund, Global Strategy
Focus Fund, Basic Value Focus Fund, Global Bond Focus Fund, International
Equity Focus Fund, Government Bond Fund, Developing Capital Markets Focus
Fund, Index 500 Fund, and Reserve Assets Fund, each of Merrill Variable Funds;
AIM V.I. Capital Appreciation Fund and AIM V.I. Value Fund, each of AIM V.I.
Funds; Premier Growth Portfolio of Alliance Fund; and MFS Emerging Growth
Series and MFS Research Series, each of MFS Trust. (Subaccounts investing in
the Natural Resources Focus Fund, the American Balanced Fund, and the Global
Utility Focus Fund of Merrill Variable Funds were closed to allocations of
premiums and contract value following the close of business on December 6,
1996.) Other investment options may be added in the future. (See INVESTMENTS
OF THE ACCOUNTS on page 17.)
Detailed information about the investment objectives of the Funds can be found
under INVESTMENTS OF THE ACCOUNTS on page 17 and in the attached prospectuses
for the Funds.
PREMIUMS
The Contract generally allows contract owners the flexibility to make premium
payments as often as desired. The Contract is purchased by making an initial
premium payment of $5,000 or more on a nonqualified Contract and $2,000 or
more on an IRA Contract. Subsequent premium payments generally must be $100 or
more and can be made at any time prior to the annuity date. Maximum annual
contributions to IRA Contracts are limited by federal law. Under an automatic
investment feature, subsequent premium payments can be systematically made
from a Merrill Lynch, Pierce, Fenner & Smith Incorporated brokerage account. A
Financial Consultant should be contacted for additional information. Merrill
Lynch Life reserves the right to refuse to accept subsequent premium payments,
if required by law. (See PREMIUMS on page 27.)
FEES AND CHARGES
A charge is made to reimburse Merrill Lynch Life for expenses related to
maintenance of the Contract. A $40 contract maintenance charge will be
deducted from the contract value on each
5
contract anniversary that occurs on or prior to the annuity date. It will also
be deducted when the Contract is surrendered, if it is surrendered on any date
other than a contract anniversary. This charge will be waived on all Contracts
with a contract value equal to or greater than $50,000 on the date the charge
would otherwise be deducted, and in certain circumstances where multiple
contracts are owned. It is not deducted after the annuity date.
A mortality and expense risk charge is imposed on the Accounts. It equals
1.25% annually for Account A and 0.65% annually for Account B and is deducted
daily from the net asset value of the Accounts. Of this amount, 0.75% annually
for Account A and 0.35% annually for Account B is attributable to mortality
risks assumed by Merrill Lynch Life for the annuity payment and death benefit
guarantees made under the Contract. The remainder, 0.50% annually for Account
A and 0.30% annually for Account B, is attributable to expense risks assumed
by Merrill Lynch Life should the contract maintenance and administration
charges be insufficient to cover all Contract maintenance and administration
expenses.
An administration charge is made to reimburse Merrill Lynch Life for costs
associated with the establishment and administration of the Contract. A charge
of 0.10% annually will be deducted daily only from the net asset value of
Account A. No administration charge is imposed on the assets of Account B.
A contingent deferred sales charge may be imposed on withdrawals and
surrenders from Account A. The maximum contingent deferred sales charge is 7%
of premium withdrawn during the first year after that premium is paid,
decreasing by 1% annually to 0% after year seven. No contingent deferred sales
charge will be imposed on withdrawals or surrenders from Account B. In
addition, no contingent deferred sales charge will be imposed on withdrawals
or surrenders from Contracts purchased by employees of Merrill Lynch Life or
its affiliates or from Contracts purchased by the employees' spouses or
dependents, where permitted by state regulation.
A charge for any premium taxes imposed by a state or local government will be
deducted from the contract value on the annuity date. Premium tax rates vary
from jurisdiction to jurisdiction and currently range from 0% to 5%. In those
jurisdictions that do not allow an insurance company to reduce its current
taxable premium income by the amount of any withdrawal, surrender or death
benefit paid, Merrill Lynch Life will also deduct a charge for these taxes on
any withdrawal, surrender or death benefit effected under the Contract.
Merrill Lynch Life reserves the right, subject to any necessary regulatory
approval, to charge for assessments or federal premium taxes or federal, state
or local excise, profits or income taxes measured by or attributable to the
receipt of premiums. Merrill Lynch Life also reserves the right to deduct from
the Accounts any taxes imposed on the Accounts' investment earnings. (See
MERRILL LYNCH LIFE'S TAX STATUS on page 34.)
Detailed information about fees and charges imposed on the Contract can be
found under CHARGES AND DEDUCTIONS on page 23.
ANNUITY PAYMENTS
The Contract provides a choice of fixed annuity payment options. On the
annuity date, the entire contract value will be transferred to Merrill Lynch
Life's general account, from which the annuity payments will be made. The
amount of each payment is predetermined.
The contract owner selects an annuity date when annuity payments will begin.
Contract owners may change the annuity date up to 30 days prior to that date.
However, the annuity date for nonqualified Contracts may not be later than the
annuitant's 85th birthday. The annuity date for IRA Contracts will not be
later than when the owner/annuitant reaches the age of 70 1/2 unless the
contract owner selects a later annuity date.
If the contract value on the annuity date after the deduction of any
applicable premium taxes is less than $5,000 (or a different minimum amount,
if required by state law), Merrill Lynch Life
6
may pay the annuity benefits in a lump sum, rather than as periodic payments.
If any annuity payment would be less than $50 (or a different minimum amount,
if required by state law), Merrill Lynch Life may change the frequency of
payments so that all payments will be at least $50 (or the minimum amount
required by state law). All annuity payments will be directly transferred to
the contract owner's designated Merrill Lynch, Pierce, Fenner & Smith
Incorporated brokerage account, unless otherwise specified.
Details about the annuity options available under the Contract can be found
under ANNUITY OPTIONS on page 33.
TRANSFERS
Once each contract year, contract owners may transfer from Account A to
Account B an amount equal to any gain in account value and/or any premium not
subject to a contingent deferred sales charge. Where permitted by state
regulation, once each contract year, contract owners may transfer all or a
portion of the greater of that amount or 10% of premiums subject to a
contingent deferred sales charge (minus any of that premium already withdrawn
or transferred). Additionally, where permitted by state regulation, periodic
transfers of all or a portion of the greater amount, determined at the time of
each periodic transfer, are permitted, on a monthly, quarterly, semi-annual or
annual basis.
This is the only amount which may be transferred from Account A to Account B
during that contract year. There is no charge imposed on the transfer of this
amount. No transfers are permitted from Account B to Account A.
Prior to their annuity date, contract owners may transfer all or part of their
Account A value among the subaccounts of Account A up to six times per
contract year without charge. Additional transfers among seventeen available
Account A subaccounts may be made at a charge of $25 per transfer. Contract
owners may elect a Dollar Cost Averaging feature in which Account A value
invested in the Domestic Money Market Subaccount may be systematically
transferred among the other Account A subaccounts on a monthly basis without
charge, subject to certain limitations. In addition, through participation in
the Merrill Lynch RPA SM program, contract owners may have their Account A
values allocated in accordance with an investment program consistent with the
contract owner's investment profile. (See TRANSFERS on page 29; DOLLAR COST
AVERAGING on page 30; and MERRILL LYNCH RETIREMENT PLUS ADVISOR SM on page
30.)
Effective following the close of business on December 6, 1996, transfers may
no longer be made to the Natural Resources Focus Subaccount, the American
Balanced Subaccount, or the Global Utility Focus Subaccount.
WITHDRAWALS
Contract owners may make up to six withdrawals from the Contract per contract
year. Value withdrawn from Account A is generally subject to a contingent
deferred sales charge. (See CONTINGENT DEFERRED SALES CHARGE on page 24.)
However, a contingent deferred sales charge will not be applied to the first
withdrawal in any contract year out of Account A to the extent that the
withdrawal consists of gain and/or any premium not subject to such a charge.
Where permitted by state regulation, a contingent deferred sales charge will
not be applied to that portion of the first withdrawal from Account A in any
contract year that does not exceed the greater of any gain in account value
and/or any premium not subject to a contingent deferred sales charge and 10%
of premiums subject to a contingent deferred sales charge (minus any of that
premium already transferred out of Account A). Additionally, where permitted
by state regulation, the amount withdrawn may be elected to be paid on a
monthly, quarterly, semi-annual or annual basis.
The first withdrawal of the contract year out of Account A will be treated as
withdrawing gain in account value first, followed by premium not subject to a
contingent deferred sales charge, then followed by premium subject to such a
charge. If the amount withdrawn is paid on a monthly, quarterly, semi-annual
or annual basis, all such payments will be treated in the same way. All
subsequent withdrawals in a contract year will be treated as withdrawing
premium accumulated the longest first. (See WITHDRAWALS AND SURRENDERS on page
31.)
7
Value withdrawn from Account B is not subject to any contingent deferred sales
charge. In addition, no contingent deferred sales charge will be imposed on
withdrawals from Contracts purchased by employees of Merrill Lynch Life or its
affiliates or from Contracts purchased by the employees' spouses or
dependents, where permitted by state regulation.
In addition to the six withdrawals permitted each contract year, the value in
Account B may be automatically withdrawn on a monthly, quarterly, semi-annual,
or annual basis. These automatic withdrawals are not subject to any contingent
deferred sales charge. (See WITHDRAWALS AND SURRENDERS on page 31.)
Withdrawals will decrease the contract value. Withdrawals from either Account
A or Account B are subject to tax and prior to age 59 1/2 may also be subject
to a 10% federal penalty tax. (See FEDERAL INCOME TAXES on page 34.)
DEATH BENEFIT
The Contract provides a death benefit feature that guarantees a death benefit
if the contract owner dies prior to the annuity date, regardless of investment
experience. A Contract's death benefit is equal to the greater of (a) the sum
of the excess, if any, of premiums paid into Account A with interest on them
from the date received at an interest rate compounded daily to yield 5%
annually, over transfers to Account B and withdrawals from Account A
multiplied by a rate compounded daily from the date of transfer or withdrawal
to yield 5% annually, plus the value of Account B; or (b) the contract value.
There are limits on the period during which interest will accrue for purposes
of this calculation. For Contracts issued beginning June 1, 1995 (or later as
state approvals are obtained), interest shall accrue only until the earliest
of the last day of the 20th contract year, the last day of the contract year
in which the contract owner (annuitant when the contract owner is not a
natural person) attains age 80, or the date of the contract owner's
(annuitant's when the contract owner is not a natural person) death. For
Contracts issued prior to June 1, 1995, and for Contracts issued on or after
that date but before state approvals are obtained, interest shall accrue only
until the last day of the 20th contract year. If the contract owner dies prior
to the annuity date, Merrill Lynch Life will pay the Contract's death benefit
to the owner's beneficiary. (See DEATH BENEFIT on page 28.)
TEN DAY REVIEW
When the contract owner receives the Contract, it should be reviewed carefully
to make sure it is what the contract owner intended to purchase. Generally,
within 10 days after the contract owner receives the Contract, it may be
returned for a refund. Some states allow a longer period of time to return the
Contract. The Contract must be delivered to Merrill Lynch Life's Service
Center or to the Financial Consultant who sold it for a refund to be made.
Merrill Lynch Life will then refund to the contract owner the greater of all
premiums paid into the Contract or the contract value as of the date the
Contract is returned. For contracts issued in the Commonwealth of
Pennsylvania, Merrill Lynch Life will refund the contract value as of the date
the Contract is returned. The Contract will then be deemed void. (See TEN DAY
RIGHT TO REVIEW on page 26.)
8
FEE TABLE
A.Contract Owner Transaction Expenses
1. Sales Load Imposed on Premium...................................... None
2. Contingent Deferred Sales Charge
COMPLETE YEARS ELAPSED SINCE CONTINGENT DEFERRED SALES CHARGE AS A
PAYMENT OF PREMIUM PERCENTAGE OF PREMIUM WITHDRAWN
---------------------------- -------------------------------------
0 years 7.00%
1 year 6.00%
2 years 5.00%
3 years 4.00%
4 years 3.00%
5 years 2.00%
6 years 1.00%
7 or more years 0.00%
3. Transfer Fee........................................................ $25
The first 6 transfers among Separate Account A subaccounts in a contract
year are free. A $25 fee may be charged on all subsequent transfers. These
rules apply only to transfers among Separate Account A subaccounts. They do
not apply to transfers from Separate Account A to Separate Account B. No
transfers may be made from Separate Account B.
B. Annual Contract Maintenance Charge...................................... $40
The Contract Maintenance Charge will be assessed annually on each
contract anniversary, only if the contract value is less than $50,000.
C. Separate Account Annual Expenses (as a percentage of account value)
SEPARATE ACCT A SEPARATE ACCT B
--------------- ---------------
Mortality and Expense Risk Charge......... 1.25% .65%
Administration Charge..................... .10% .00%
---- ---
Total Separate Account Annual Expenses.... 1.35% .65%
D. Fund Expenses for the Year Ended December 31, 1996 (a)(b)(c)(d)(e) (as a
percentage of each Fund's net assets)
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
-----------------------------------------------------------
HIGH NATURAL GLOBAL
RESERVE PRIME CURRENT QUALITY EQUITY RESOURCES STRATEGY
ANNUAL EXPENSES ASSETS BOND INCOME EQUITY GROWTH FOCUS* FOCUS(C)
--------------- ------- ----- ------- ------- ------ --------- --------
Investment Advisory
Fees................... .50% .44% .49% .44% .75% .65% .65%
Other Expenses.......... .11% .05% .05% .05% .06% .13% .06%
Total Annual Operating
Expenses............... .61% .49% .54% .49% .81% .78% .71%
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. (CONT'D)
-----------------------------------------------------------
DOMESTIC BASIC GLOBAL GLOBAL INTERNATIONAL
AMERICAN MONEY VALUE BOND UTILITY EQUITY
ANNUAL EXPENSES BALANCED* MARKET FOCUS FOCUS(C) FOCUS* FOCUS
--------------- --------- -------- ----- -------- ------- -------------
Investment Advisory
Fees................... .55% .50% .60% .60% .60% .75%
Other Expenses.......... .05% .04% .06% .09% .06% .14%
Total Annual Operating
Expenses............... .60% .54% .66% .69% .66% .89%
ALLIANCE
VARIABLE
MERRILL LYNCH PRODUCTS
VARIABLE SERIES AIM VARIABLE SERIES MFS VARIABLE
FUNDS, INC. (CONT'D) INSURANCE FUNDS, INC. FUND, INC. INSURANCE TRUST
-------------------------------- --------------------- ------------ -------------------
DEVELOPING AIM V.I. MFS
CAPITAL CAPITAL AIM V.I. PREMIER EMERGING MFS
GOVERNMENT MARKETS INDEX 500 APPRECIATION VALUE GROWTH GROWTH RESEARCH
ANNUAL EXPENSES BOND (A)(C) FOCUS (B) FUND(A) FUND FUND PORTFOLIO(D) SERIES(E) SERIES(E)
--------------- ----------- ---------- --------- ------------ -------- ------------ --------- ---------
Investment Advisory
Fees................... .50% 1.00% .30% .64% .64% .72% .75% .75%
Other Expenses.......... .09% .25% .30% .09% .09% .23% .25% .25%
Total Annual Operating
Expenses............... .59% 1.25% .60% .73% .73% .95% 1.00% 1.00%
- --------
* Closed to allocations of premiums or contract value following the close of
business on December 6, 1996.
9
EXAMPLES OF CHARGES
If the Contract is surrendered at the end of the applicable time period:
The following cumulative expenses would be paid on each $1,000 invested,
assuming 5% annual return on assets:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Separate Account B subaccount investing
in:
Reserve Assets Fund.................... $83 $ 91 $101 $156
Separate Account A subaccount investing
in:
Prime Bond Fund........................ $89 $109 $132 $220
High Current Income Fund............... $90 $111 $134 $226
Quality Equity Fund.................... $89 $109 $132 $220
Equity Growth Fund..................... $92 $119 $149 $254
Natural Resources Focus Fund*.......... $92 $118 $147 $251
Global Strategy Focus Fund............. $91 $116 $143 $244
American Balanced Fund*................ $90 $113 $138 $232
Domestic Money Market Fund............. $90 $111 $134 $226
Basic Value Focus Fund................. $91 $115 $141 $239
Global Bond Focus Fund................. $91 $115 $142 $242
Global Utility Focus Fund*............. $91 $115 $141 $239
International Equity Focus Fund........ $93 $122 $153 $263
Government Bond Fund................... $90 $112 $137 $231
Developing Capital Markets Focus Fund.. $97 $133 $171 $299
Index 500 Fund......................... $90 $113 $138 $232
AIM V.I. Capital Appreciation Fund..... $92 $117 $144 $246
AIM V.I. Value Fund.................... $92 $117 $144 $246
Premier Growth Portfolio............... $94 $124 $156 $269
MFS Emerging Growth Series............. $94 $125 $158 $274
MFS Research Series.................... $94 $125 $158 $274
If the Contract is annuitized, or not surrendered, at the end of the applicable
time period:
The following cumulative expenses would be paid on each $1,000 invested,
assuming 5% annual return on assets:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Separate Account B subaccount investing
in:
Reserve Assets Fund.................... $13 $ 41 $ 71 $156
Separate Account A subaccount investing
in:
Prime Bond Fund........................ $19 $ 59 $102 $220
High Current Income Fund............... $20 $ 61 $104 $226
Quality Equity Fund.................... $19 $ 59 $102 $220
Equity Growth Fund..................... $22 $ 69 $119 $254
Natural Resources Focus Fund*.......... $22 $ 68 $117 $251
Global Strategy Focus Fund............. $21 $ 66 $113 $244
American Balanced Fund*................ $20 $ 63 $108 $232
Domestic Money Market Fund............. $20 $ 61 $104 $226
Basic Value Focus Fund................. $21 $ 65 $111 $239
Global Bond Focus Fund................. $21 $ 65 $112 $242
Global Utility Focus Fund*............. $21 $ 65 $111 $239
International Equity Focus Fund........ $23 $ 72 $123 $263
Government Bond Fund................... $20 $ 62 $107 $231
Developing Capital Markets Focus Fund.. $27 $ 83 $141 $299
Index 500 Fund......................... $20 $ 63 $108 $232
AIM V.I. Capital Appreciation Fund..... $22 $ 67 $114 $246
AIM V.I. Value Fund.................... $22 $ 67 $114 $246
Premier Growth Portfolio............... $24 $ 74 $126 $269
MFS Emerging Growth Series............. $24 $ 75 $128 $274
MFS Research Series.................... $24 $ 75 $128 $274
- --------
* Closed to allocations of premiums or contract value following the close of
business on December 6, 1996.
10
The preceding Fee Table and Examples are intended to assist investors in
understanding the costs and expenses that a contract owner will bear, directly
or indirectly. The Fee Table and Examples include expenses and charges of the
Accounts as well as the Funds. The Examples also reflect the $40 contract
maintenance charge as .0011% of average assets, determined by dividing the
total amount of such charges collected by the total average net assets of the
subaccounts. See the CHARGES AND DEDUCTIONS section in this Prospectus and the
Fund prospectuses for a further discussion of fees and charges.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR ANNUAL RATES OF RETURN OF ANY FUND. ACTUAL EXPENSES AND ANNUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR THE PURPOSE OF THE
EXAMPLES.
The Fee Table and Examples do not include charges to contract owners for
premium taxes. Premium taxes may be applicable. Refer to the PREMIUM TAXES
section in this Prospectus for further details.
NOTES TO FEE TABLE
(a) The Fee Table does not reflect any fees waived or expenses assumed by
Merrill Lynch Asset Management, L.P. ("MLAM") during the year ended
December 31, 1996 with respect to any Fund because such waivers and
assumption of expenses were made on a voluntary basis and MLAM may
discontinue or reduce any such waiver or assumption of expenses at any
time without notice. During the fiscal year ended December 31, 1996, MLAM
waived management fees and reimbursed expenses totaling 0.44% for the
Government Bond Focus Fund and 0.60% for the Index 500 Fund, after which
each such Fund's total expense ratio, net of reimbursement, was 0.15% for
the Government Bond Focus Fund, and 0.00% for the Index 500 Fund. See also
note (b).
(b) MLAM and Merrill Lynch Life Agency, Inc. have entered into a Reimbursement
Agreement that limits the operating expenses paid by each Fund of the
Merrill Variable Funds in a given year to 1.25% of its average net assets.
This Reimbursement Agreement is expected to remain in effect for the
current year. Pursuant to this Reimbursement Agreement, the Developing
Capital Markets Focus Fund was reimbursed for a portion of its operating
expenses for 1996. Absent the reimbursement, "Other Expenses" for this
Fund would have been 0.31%. Expenses shown for all other Funds of the
Merrill Variable Funds do not reflect any reimbursement under the
Reimbursement Agreement.
(c) Effective following the close of business on December 6, 1996, (i) the
International Bond Fund was merged with and into the former World Income
Focus Fund; the World Income Focus Fund was renamed the Global Bond Focus
Fund and its investment objective was modified; (ii) the Flexible Strategy
Fund was merged with and into the Global Strategy Focus Fund; and (iii)
the Intermediate Government Bond Fund was renamed the Government Bond Fund
and its investment objective was modified. See the accompanying prospectus
for Merrill Variable Funds for additional information regarding these
changes.
(d) The Fee Table reflects fees waived or expenses assumed by Alliance Capital
Management L.P. ("Alliance") during the year ended December 31, 1996. Such
waivers and assumption of expenses were made on a voluntary basis and
Alliance may discontinue or reduce any such waiver or assumption of
expenses at any time without notice; however, Alliance intends to continue
such reimbursements for the foreseeable future. During the fiscal year
ended December 31, 1996, Alliance waived management fees totaling 0.28%
for the Premier Growth Portfolio. Without such reimbursements, "Investment
Advisory Fees" would have been 1.00% and "Total Annual Operating Expenses"
would have been 1.23%.
(e) Subject to termination or revision at the sole discretion of MFS, MFS has
agreed to bear expenses, except for management fees, of the MFS Emerging
Growth Series and the MFS Research Series (the "Series") such that each
Series' "Other Expenses" do not exceed 0.25% of the average daily net
assets of the Series. The obligation of MFS to bear "Other Expenses" for a
Series terminates on the last day of the Series' fiscal year in which
"Other
11
Expenses" are less than or equal to 0.25%. Absent this expense arrangement,
"Other Expenses" for the MFS Emerging Growth Series and MFS Research Series
would be 0.41% and 0.73%, respectively, and "Total Operating Expenses"
would be 1.16% and 1.48%, respectively, for these Series for the year
ending December 31, 1996.
12
ACCUMULATION UNIT VALUES
(CONDENSED FINANCIAL INFORMATION)
SUBACCOUNTS
-------------------------------------------------------------------------------
DOMESTIC MONEY MARKET PRIME BOND
--------------------------------------- ---------------------------------------
1/1/96 1/1/95 1/1/94 1/1/96 1/1/95 1/1/94
TO TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/96 12/31/95 12/31/94
------------- ------------ ------------ ------------- ------------ ------------
(1) Accumulation unit value at
beginning of period...................... $11.09 $10.64 $10.37 $13.29 $11.21 $11.94
(2) Accumulation unit value at
end of period............................ $11.50 $11.09 $10.64 $13.40 $13.29 $11.21
(3) Number of accumulation units
outstanding at end of period............. 22,091,953.20 25,642,773.0 32,396,626.5 34,996,244.10 31,553,814.4 29,135,349.6
---------------------------------------
HIGH CURRENT INCOME
---------------------------------------
1/1/96 1/1/95 1/1/94
TO TO TO
12/31/96 12/31/95 12/31/94
------------- ------------ ------------
(1) Accumulation unit value at
beginning of period...................... $14.08 $12.18 $12.80
(2) Accumulation unit value at
end of period............................ $15.46 $14.08 $12.18
(3) Number of accumulation units
outstanding at end of period............. 24,631,752.80 23,078,926.0 18,784,994.7
QUALITY EQUITY EQUITY GROWTH
--------------------------------------- ---------------------------------------
1/1/96 1/1/95 1/1/94 1/1/96 1/1/95 1/1/94
TO TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/96 12/31/95 12/31/94
------------- ------------ ------------ ------------- ------------ ------------
(1) Accumulation unit value at
beginning of period...................... $13.77 $11.38 $11.67 $14.25 $9.90 $10.82
(2) Accumulation unit value at
end of period............................ $16.01 $13.77 $11.38 $15.20 $14.25 $9.90
(3) Number of accumulation units
outstanding at end of period............. 42,908,676.70 39,846,415.5 33,600,288.0 26,282,042.40 21,157,583.8 14,844,233.7
FLEXIBLE STRATEGY
---------------------------------------
1/1/96 1/1/95 1/1/94
TO TO TO
12/31/96 12/31/95 12/31/94
------------- ------------ ------------
(1) Accumulation unit value at
beginning of period...................... $13.00 $11.22 $11.87
(2) Accumulation unit value at
end of period............................ ** $13.00 $11.22
(3) Number of accumulation units
outstanding at end of period............. 0.00 19,761,710.2 18,841,816.9
AMERICAN BALANCED NATURAL RESOURCES FOCUS
--------------------------------------- ---------------------------------------
1/1/96 1/1/95 1/1/94 1/1/96 1/1/95 1/1/94
TO TO TO TO TO TO
12/31/96 2/31/95 12/31/94 12/31/96 12/31/95 12/31/94
------------- ------------ ------------ ------------- ------------ ------------
(1) Accumulation unit value at
beginning of period...................... $13.37 $11.21 $11.86 $12.56 $11.30 $11.29
(2) Accumulation unit value at
end of period............................ $14.47 $13.37 $11.21 $14.06 $12.56 $11.30
(3) Number of accumulation units
outstanding at end of period............. 12,953,901.30 13,988,384.1 12,253,488.1 2,971,830.10 3,136,512.9 3,158,540.0
GLOBAL STRATEGY FOCUS
---------------------------------------
1/1/96 1/1/95 1/1/94
TO TO TO
12/31/96 12/31/95 12/31/94
------------- ------------ ------------
(1) Accmulation unit value at
beginning of period...................... $12.85 $11.78 $12.12
(2) Accumulation unit value at
end of period............................ $14.35 $12.85 $11.78
(3) Number of accumulation units
outstanding at end of period............. 54,187,786.60 39,315,443.7 40,759,049.2
BASIC VALUE FOCUS GLOBAL BOND FOCUS
--------------------------------------- ---------------------------------------
1/1/96 1/1/95 1/1/94 1/1/96 1/1/95 1/1/94
TO TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/96 12/31/95 12/31/94
------------- ------------ ------------ ------------- ------------ ------------
(1) Accumulation unit value at
beginning of period...................... $13.60 $10.98 $10.88 $11.45 $9.94 $10.52
(2) Accumulation unit value at
end of period............................ $16.19 $13.60 $10.98 $12.20 $11.45 $9.94
(3) Number of accumulation units
outstanding at end of period............. 28,054,066.00 20,468,571.0 13,875,148.9 7,186,613.40 6,621,174.7 6,989,051.9
GLOBAL UTILITY FOCUS
---------------------------------------
1/1/96 1/1/95 1/1/94
TO TO TO
12/31/96 12/31/95 12/31/94
------------- ------------ ------------
(1) Accumulation unit value at
beginning of period...................... $11.75 $9.58 $10.61
(2) Accumulation unit value at
end of period............................ $13.10 $11.75 $ 9.58
(3) Number of accumulation units
outstanding at end of period............. 10,020,789.90 11,837,175.7 12,374,137.9
- -----
**Effective following the close of business on December 6, 1996, the Flexible
Strategy Fund was merged with and into the Global Strategy Focus Fund.
13
INTERNATIONAL
EQUITY FOCUS RESERVE ASSETS
--------------------------------------- ------------------------------------
1/1/96 1/1/95 1/1/94 1/1/96 1/1/95 1/1/94
TO TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/96 12/31/95 12/31/94
------------- ------------ ------------ ------------ ----------- -----------
(1)Accumulation
unit value at
beginning of
period........ $11.31 $10.87 $10.96 $11.29 $10.76 $10.43
(2)Accumulation
unit value at
end of
period........ $11.90 $11.31 $10.87 $11.79 $11.29 $10.76
(3)Number of
accumulation
units
outstanding at end of period..26,446,868.60 21,726,485.8 21,157,145.1 890,380.20 1,002,197.4 1,286,558.6
INTERNATIONAL BOND
------------------------------------
1/1/96 1/1/95 5/16/94*
TO TO TO
12/31/96 12/31/95 12/31/94
-------------- ----------- ---------
(1)Accumulation
unit value at
beginning of
period........ $11.40 $9.93 $10.00
(2)Accumulation
unit value at
end of
period........ *** $11.40 $9.93
(3)Number of
accumulation
units
outstanding at end of period.. 0.00 1,191,641.1 464,604.1
DEVELOPING CAPITAL
GOVERNMENT BOND FUND MARKETS FOCUS
--------------------------------------- ------------------------------------
1/1/96 1/1/95 5/16/94* 1/1/96 1/1/95 5/16/94*
TO TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/96 12/31/95 12/31/94
------------- ------------ ------------ ------------ ----------- -----------
(1)Accumulation
unit value at
beginning of
period........ $11.42 $10.08 $10.00 $9.16 $9.38 $10.00
(2)Accumulation
unit value at
end of
period........ $11.59 $11.42 $10.08 $9.99 $9.16 $9.38
(3)Number of
accumulation
units
outstanding at end of period.. 7,173,354.60 3,417,936.4 1,484,500.1 7,960,705.20 4,912,543.0 2,702,530.7
INDEX 500 FUND
--------------
1/1/96
TO
12/31/96
--------------
(1)Accumulation
unit value at
beginning of
period........ $0.00
(2)Accumulation
unit value at
end of
period........ $10.12
(3)Number of
accumulation
units
outstanding at end of period.. 33,052.40
AIM V.I. ALLIANCE MFS EMERGING MFS
CAPITAL AIM V.I. PREMIER GROWTH RESEARCH
APPRECIATION VALUE GROWTH SERIES SERIES
------------- ------------ ------------ ------------ -----------
1/1/96 1/1/96 1/1/96 1/1/96 1/1/96
TO TO TO TO TO
12/31/96 12/31/96 12/31/96 12/31/96 12/31/96
------------- ------------ ------------ ------------ -----------
(1)Accumulation
unit value at
beginning of
period........ $ 0.00 $ 0.00 $ 0.00 $0.00 $ 0.00
(2)Accumulation
unit value at
end of
period........ $10.03 $10.26 $10.00 $9.83 $10.08
(3)Number of
accumulation
units
outstanding at end of period.. 53,080.90 29,828.90 14,562.50 23,931.10 25,095.40
- ----
* Commencement of business
*** Effective following the close of business on December 6, 1996, the
International Bond Fund was merged with and into the former World Income
Focus Fund; the World Income Focus Fund was renamed the Global Bond Focus
Fund and its investment objective was modified.
14
YIELDS AND TOTAL RETURNS
From time to time, Merrill Lynch Life may advertise yields, effective yields,
and total returns for the Account A subaccounts and the Account B subaccount.
These figures are based on historical earnings and do not indicate or project
future performance. Merrill Lynch Life also from time to time may advertise
performance of the subaccounts relative to certain performance rankings and
indices. More detailed information as to the calculation of performance
information, as well as comparisons with unmanaged market indices, appears in
the Statement of Additional Information.
Effective yields and total returns for a subaccount are based on the
investment performance of the corresponding Fund. A Fund's performance in part
reflects that Fund's expenses. Merrill Lynch Asset Management, L.P. ("MLAM")
and Merrill Lynch Life Agency, Inc. (see SELLING THE CONTRACT on page 39) have
entered into a Reimbursement Agreement that limits the operating expenses paid
by each Fund of the Merrill Variable Funds in a given year to 1.25% of its
average net assets.
The yields of the Domestic Money Market Subaccount and the Reserve Assets
Subaccount refer to the annualized income generated by an investment in each
subaccount over a specified 7-day period. The yield is calculated by assuming
that the income generated for that 7-day period is generated each 7-day period
over a 52-week period and is shown as a percentage of the investment. The
effective yield is calculated similarly but, when annualized, the income
earned by an investment in the subaccount or Account is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment.
The yield of an Account A subaccount (other than the Domestic Money Market
Subaccount) refers to the annualized income generated by an investment in the
subaccount over a specified 30-day or one-month period. The yield is
calculated by assuming that the income generated by the investment during that
30-day or one-month period is generated each period over a 12-month period and
is shown as a percentage of the investment.
The average annual total return of a subaccount refers to return quotations
assuming an investment under a Contract has been held in each subaccount for
1, 5 and 10 years, or for a shorter period, if applicable. The average annual
total return quotations represent the average compounded rates of return that
would equate an initial investment of $1,000 under a Contract to the
redemption value of that investment as of the last day of each of the periods
for which return quotations are provided. Average annual total return
information shows the average percentage change in the value of an investment
in a subaccount (including any contingent deferred sales charge that would
apply if an owner terminated the Contract at the end of each period indicated,
but excluding any deductions for premium taxes).
Merrill Lynch Life may, in addition, advertise or present yield or total
return performance information computed on different bases. Merrill Lynch Life
may present total return information computed on the same basis as described
above, except the information will not reflect a deduction for the contingent
deferred sales charge. This presentation assumes that an investment in the
Contract will persist beyond the period when the contingent deferred sales
charge applies, consistent with the long-term investment and retirement
objectives of the Contract. Merrill Lynch Life may also advertise total return
performance information for the Funds, but this information will always be
accompanied by average annual total returns for the corresponding subaccounts.
Merrill Lynch Life may also present total return performance information for a
subaccount for periods prior to the date the subaccount commenced operations
based on the performance of the corresponding Fund and the assumption that the
subaccount was in existence for the same periods as those indicated for the
corresponding Fund, with a level of fees and charges approximately equal to
those currently imposed under the Contracts. Merrill Lynch Life may also
present total performance information for a hypothetical Contract assuming
allocation of the initial premium to more than one subaccount or assuming
monthly transfers from the Domestic Money Market Subaccount to designated
subaccounts under a dollar cost averaging program. This information will
reflect the performance of the affected subaccounts for the duration of the
allocation under the hypothetical Contract. It also will reflect the deduction
of charges described
15
above except for the contingent deferred sales charge. This information may
also be compared to various indices.
Advertising and sales literature for the Contracts may also compare the
performance of the subaccounts and Funds to the performance of other variable
annuity issuers in general or to the performance of particular types of
variable annuities investing in mutual funds, or series of mutual funds, with
investment objectives similar to each of the Funds corresponding to the
subaccounts.
Performance information may also be based on rankings by services which
monitor and rank the performance of variable annuity issuers in each of the
major categories of investment objectives on an industry-wide basis. Some
services' rankings include variable life insurance issuers as well as variable
annuity issuers, while others' rankings compare only variable annuity issuers.
Performance analysis prepared by services may rank such issuers on the basis
of total return, assuming reinvestment of distributions, but do not take sales
charges, redemption fees or certain expense deductions at the separate account
level into consideration. In addition, some such services prepare risk-
adjusted rankings, which consider the effect of market risk on total return
performance. This type of ranking provides data as to which funds provide the
highest total return within various categories of funds defined by the degree
of risk inherent in their investment objectives. Ranking services Merrill
Lynch Life may use as sources of performance comparison are Lipper, VARDS,
CDA/Weisenberger, Morningstar, MICROPAL, and Investment Company Data, Inc.
Advertising and sales literature for the Contracts may also compare the
performance of the subaccounts to the Standard & Poor's Index of 500 Common
Stocks, the Morgan Stanley EAFE Index, the Russell 2000 Index and the Dow
Jones Indices, all widely used measures of stock market performance. These
unmanaged indices assume the reinvestment of dividends, but do not reflect any
"deduction" for the expense of operating or managing an investment portfolio.
Other sources of performance comparison that Merrill Lynch Life may use are
Chase Investment Performance Digest, Money, Forbes, Fortune, Business Week,
Financial Services Weekly, Kiplinger Personal Finance, Wall Street Journal,
USA Today, Barrons, U.S. News & World Report, Strategic Insight, Donaghues,
Investors Business Daily, and Ibbotson Associates.
Advertising and sales literature for the Contracts may also contain
information on the effect of tax deferred compounding on subaccount investment
returns, or returns in general, which may be illustrated by graphs, charts or
otherwise and which may include a comparison at various points in time of the
return from an investment in a Contract (or returns in general) on a tax-
deferred basis (assuming one or more tax rates) with the return on a currently
taxable basis.
MERRILL LYNCH LIFE INSURANCE COMPANY
Merrill Lynch Life Insurance Company ("Merrill Lynch Life") is a stock life
insurance company organized under the laws of the State of Washington in 1986
and redomesticated under the laws of the State of Arkansas in 1991. Merrill
Lynch Life is an indirect wholly owned subsidiary of Merrill Lynch & Co.,
Inc., a corporation whose common stock is traded on the New York Stock
Exchange.
Merrill Lynch Life's financial statements can be found in the Statement of
Additional Information and should only be considered in the context of its
ability to meet any obligations it may have under the Contract.
All communications concerning the Contract should be addressed to Merrill
Lynch Life's Service Center at the address printed on the first page of this
Prospectus.
THE ACCOUNTS
Contract owners may direct their premiums into one or both of two segregated
investment accounts available to the Contract (the "Accounts"). The Merrill
Lynch Life Variable Annuity Separate Account A ("Account A") offers a variety
of investment options, each with a different investment objective, through its
subaccounts. The Merrill Lynch Life Variable Annuity Separate Account B
("Account B") offers a money market investment through its subaccount.
16
The Accounts were established on August 6, 1991, as separate investment
accounts. They are registered with the Securities and Exchange Commission as
unit investment trusts pursuant to the Investment Company Act of 1940. Their
registration does not involve any supervision by the Securities and Exchange
Commission over the investment policies or practices of the Accounts. The
Accounts each meet the definition of a separate account under the federal
securities laws. The Accounts' assets are segregated from all of Merrill Lynch
Life's other assets.
Obligations to contract owners and beneficiaries that arise under the Contract
are obligations of Merrill Lynch Life. Merrill Lynch Life owns all of the
assets in the Accounts. With respect to each Account, income, gains, and
losses, whether or not realized, from assets allocated to that Account are, in
accordance with the Contracts, credited to or charged against the Account
without regard to other income, gains or losses of Merrill Lynch Life. As
required, the assets in each Account will always be at least equal to the
reserves and other liabilities of the Account. If the assets exceed the
required reserves and other Contract liabilities (which will always be at
least equal to the aggregate contract value allocated to the Account under the
Contracts), Merrill Lynch Life may transfer the excess to its general account.
Arkansas insurance law provides that each Account's assets, to the extent of
its reserves and liabilities, may not be charged with liabilities arising out
of any other business Merrill Lynch Life conducts nor may the assets of either
Account be charged with any liabilities of the other Account.
There are seventeen subaccounts currently available through Account A and one
subaccount currently available through Account B. Effective following the
close of business on December 6, 1996, three additional subaccounts previously
available through Account A (the Natural Resources Focus Subaccount, the
American Balanced Subaccount, and the Global Utility Focus Subaccount) were
closed to allocations of premiums and contract value. All subaccounts invest
in a corresponding mutual fund portfolio of the Merrill Variable Funds; AIM
V.I. Funds; Alliance Fund; or MFS Trust. Additional subaccounts may be added
in the future.
The Accounts' financial statements can be found in the Statement of Additional
Information.
INVESTMENTS OF THE ACCOUNTS
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
The Merrill Lynch Variable Series Funds, Inc. ("Merrill Variable Funds") is
registered with the Securities and Exchange Commission as an open-end
management investment company. It currently offers the Accounts Class A shares
of sixteen of its separate investment mutual fund portfolios. The Reserve
Assets Fund is available only to Account B. The fifteen remaining Funds of
Merrill Variable Funds (three of which are closed to allocations of premiums
and contract value) are available only to Account A. These Funds' shares are
currently sold only to separate accounts of Merrill Lynch Life, ML Life
Insurance Company of New York (an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc.), and several insurance companies not affiliated with
Merrill Lynch Life or Merrill Lynch & Co., Inc. to fund benefits under certain
variable annuity and variable life insurance contracts. Shares of each of
these Funds may be made available to separate accounts of additional insurance
companies in the future.
Merrill Lynch Asset Management, L.P. ("MLAM") is the investment adviser to the
Funds of Merrill Variable Funds. MLAM is a worldwide mutual fund leader, and
together with its affiliate Fund Asset Management, L.P. had over $247 billion
in investment company and other portfolio assets under management as of March
31, 1997, including assets of certain affiliates. It is registered as an
investment adviser under the Investment Advisers Act of 1940. MLAM is an
indirect subsidiary of Merrill Lynch & Co., Inc. MLAM's principal business
address is 800 Scudders Mill Road, Plainsboro, New Jersey 08536. As the
investment adviser, MLAM is paid fees by these Funds for its services. The
fees charged to each of these Funds are set forth in the summary of investment
objectives below.
MLAM has entered into an agreement with Merrill Lynch Insurance Group, Inc.
("MLIG"), an affiliate of Merrill Lynch Life, with respect to administration
services for the Funds of Merrill Variable Funds in connection with the
Contracts and other variable life insurance and variable annuity contracts
issued by Merrill Lynch Life. Under this agreement, MLAM pays compensation to
MLIG in an amount equal to a portion of the annual gross investment advisory
fees paid by these Funds to MLAM attributable to contracts issued by Merrill
Lynch Life.
17
Details about these Funds, including their investment objectives, management,
policies, restrictions, their expenses and risks associated with investments
therein (including specific risks associated with investment in the High
Current Income Fund), and all other aspects of these Funds' operation can be
found in the attached prospectus for the Merrill Variable Funds and in their
Statement of Additional Information, which should also be read carefully
before investing. There is no guarantee that any Fund will be able to meet its
investment objective. Meeting the objectives depends upon future economic
conditions as well as upon how well these Funds' management anticipates
changes in those economic conditions.
DOMESTIC MONEY MARKET FUND. This Fund seeks preservation of capital,
liquidity, and the highest possible current income consistent with the
foregoing objectives by investing in short-term domestic money market
securities. The Fund invests in short-term United States government
securities; government agency securities; bank certificates of deposit and
bankers' acceptances; short-term corporate debt securities such as commercial
paper and variable amount master demand notes; repurchase agreements and other
domestic money market instruments. MLAM receives from the Fund an advisory fee
at the annual rate of 0.50% of the average daily net assets of the Fund.
PRIME BOND FUND. This Fund seeks to obtain as high a level of current income
as is consistent with the investment policies of the Fund and with prudent
investment management, and capital appreciation to the extent consistent with
the foregoing objective. The Fund invests primarily in long-term corporate
bonds rated in the top three ratings categories by established rating
services. MLAM receives from the Fund an advisory fee at the annual rate of
0.50% of the first $250 million of the combined average daily nets assets of
the Fund and High Current Income Fund; 0.45% of the next $250 million; 0.40%
of the next $250 million; and 0.35% of the combined average daily net assets
in excess of $750 million. The reduction of the advisory fee applicable to the
Fund is determined on a uniform percentage basis as described in the Statement
of Additional Information for the Merrill Variable Funds.
HIGH CURRENT INCOME FUND. This Fund seeks to obtain as high a level of current
income as is consistent with the investment policies of the Fund and with
prudent investment management, and capital appreciation to the extent
consistent with the foregoing objective. The Fund invests principally in
fixed-income securities that are rated in the lower rating categories of the
established rating services or in unrated securities of comparable quality
(commonly known as "junk bonds"). Because investment in such securities
entails relatively greater risk of loss of income or principal, an investment
in the High Current Income Fund may not be appropriate as the exclusive
investment to fund a Contract. In an effort to minimize risk, the Fund will
diversify its holdings among many issuers. However, there can be no assurance
that diversification will protect the Fund from widespread defaults during
periods of sustained economic downturn. MLAM receives from the Fund an
advisory fee at the annual rate of 0.55% of the first $250 million of the
combined average daily net assets of the Fund and Prime Bond Fund; 0.50% of
the next $250 million; 0.45% of the next $250 million; and 0.40% of the
combined average daily net assets in excess of $750 million. The reduction of
the advisory fee applicable to the Fund is determined on a uniform percentage
basis as described in the Statement of Additional Information for the Merrill
Variable Funds.
QUALITY EQUITY FUND. This Fund seeks to attain the highest total investment
return consistent with prudent risk. The Fund employs a fully managed
investment policy utilizing equity securities, primarily common stocks of
large-capitalization companies, as well as investment grade debt and
convertible securities. Management of the Fund will shift the emphasis among
investment alternatives for capital growth, capital stability, and income as
market trends change. MLAM receives from the Fund an advisory fee at the
annual rate of 0.50% of the first $250 million of average daily net assets;
0.45% of the next $50 million; 0.425% of the next $100 million; and 0.40% of
the average daily net assets in excess of $400 million.
EQUITY GROWTH FUND. This Fund seeks to attain long-term growth of capital by
investing in a diversified portfolio of securities, primarily common stocks,
of relatively small companies that management of the Fund believes have
special investment value, and of emerging growth companies regardless of size.
Such companies are selected by management on the basis of their long-term
potential for expanding their size and profitability or for gaining increased
market
18
recognition for their securities. Current income is not a factor in such
selection. MLAM receives from the Fund an advisory fee at the annual rate of
0.75% of the average daily net assets of the Fund. This is a higher fee than
that of many other mutual funds, but management of the Fund believes it is
justified by the high degree of care that must be given to the initial
selection and continuous supervision of the types of portfolio securities in
which the Fund invests.
NATURAL RESOURCES FOCUS FUND. This Fund seeks to attain long-term growth of
capital and protection of the purchasing power of capital by investing
primarily in equity securities of domestic and foreign companies with
substantial natural resource assets. MLAM receives from the Fund an advisory
fee at the annual rate of 0.65% of the average daily net assets of the Fund.
Merrill Lynch Life and Account A reserve the right to suspend the sale of
units of the Natural Resources Focus Subaccount in response to conditions in
the securities markets or otherwise.
The subaccount corresponding to this Fund was closed to allocations of
premiums and contract value following the close of business on December 6,
1996.
AMERICAN BALANCED FUND. This Fund seeks a level of current income and a degree
of stability of principal not normally available from an investment solely in
equity securities and the opportunity for capital appreciation greater than is
normally available from an investment solely in debt securities by investing
in a balanced portfolio of fixed income and equity securities. MLAM receives
from the Fund an advisory fee at the annual rate of 0.55% of the average daily
net assets of the Fund.
The subaccount corresponding to this Fund was closed to allocations of
premiums and contract value following the close of business on December 6,
1996.
GLOBAL STRATEGY FOCUS FUND. This Fund seeks high total investment return by
investing primarily in a portfolio of equity and fixed income securities,
including convertible securities, of U.S. and foreign issuers. The Fund seeks
to achieve its objective by investing primarily in securities of issuers
located in the United States, Canada, Western Europe, the Far East and Latin
America. MLAM receives from the Fund an advisory fee at the annual rate of
0.65% of the average daily net assets of the Fund.
Effective following the close of business on December 6, 1996, the Flexible
Strategy Fund was merged with and into the Global Strategy Focus Fund.
BASIC VALUE FOCUS FUND. This Fund seeks to attain capital appreciation, and
secondarily, income by investing in securities, primarily equities, that
management of the Fund believes are undervalued and therefore represent basic
investment value. Particular emphasis is placed on securities which provide an
above-average dividend return and sell at a below-average price/earnings
ratio. MLAM receives from the Fund an advisory fee at the annual rate of 0.60%
of the average daily net assets of the Fund.
GLOBAL BOND FOCUS FUND (FORMERLY, THE WORLD INCOME FOCUS FUND). This Fund
seeks to provide high total investment return by investing in a global
portfolio of fixed income securities denominated in various currencies,
including multinational currency units. The Fund seeks to achieve this
objective by investing in fixed income securities that have a credit rating of
A or better by Standard & Poor's or by Moody's or commercial paper rated A-1
by Standard & Poor's or Prime-1 by Moody's or obligations that MLAM has
determined to be of similar creditworthiness. MLAM receives from the Fund an
advisory fee at the annual rate of 0.60% of the average daily net assets of
the Fund.
Effective following the close of business on December 6, 1996, the
International Bond Fund was merged with and into the Global Bond Focus Fund.
GLOBAL UTILITY FOCUS FUND. This Fund seeks to obtain capital appreciation and
current income through investment of at least 65% of its total assets in
equity and debt securities issued by domestic and foreign companies which are,
in the opinion of management of the Fund, primarily engaged in the ownership
or operation of facilities used to generate, transmit or distribute
electricity, telecommunications, gas or water. MLAM receives from the Fund an
advisory fee at the annual rate of 0.60% of the average daily net assets of
the Fund.
19
The subaccount corresponding to this Fund was closed to allocations of
premiums and contract value following the close of business on December 6,
1996.
INTERNATIONAL EQUITY FOCUS FUND. This Fund seeks to obtain capital
appreciation and, secondarily, income by investing in a diversified portfolio
of equity securities, of issuers located in countries other than the United
States. Under normal conditions, at least 65% of the Fund's net assets will be
invested in such equity securities. MLAM receives from the Fund an advisory
fee at the annual rate of 0.75% of the average daily net assets of the Fund.
GOVERNMENT BOND FUND (FORMERLY, THE INTERMEDIATE GOVERNMENT BOND FUND). This
Fund seeks to achieve the highest possible current income consistent with the
protection of capital. It invests in debt securities issued or guaranteed by
the United States Government, its agencies or instrumentalities. MLAM receives
from the Fund an advisory fee at an annual rate of 0.50% of the average daily
net assets of the Fund.
DEVELOPING CAPITAL MARKETS FOCUS FUND. This Fund seeks long-term capital
appreciation by investing in securities, principally equities, of issuers in
countries having smaller capital markets. For purposes of its investment
objective, the Fund considers countries having smaller capital markets to be
all countries other than the four countries having the largest equity market
capitalizations. The Developing Capital Markets Focus Fund has established no
rating criteria for the debt securities in which it may invest, and will rely
on the investment adviser's judgment in evaluating the creditworthiness of an
issuer of such securities. In an effort to minimize the risk, the Fund will
diversify its holdings among many issuers. However, there can be no assurance
that diversification will protect the Fund from widespread defaults during
periods of sustained economic downturn. Because investment in the Developing
Capital Markets Focus Fund entails relatively greater risk of loss of income
or principal, an investment in the Fund may not be appropriate as the
exclusive investment to fund a Contract. MLAM receives from the Fund an
advisory fee at an annual rate of 1.00% of the average daily net assets of the
Fund.
RESERVE ASSETS FUND. This Fund seeks preservation of capital, liquidity, and
the highest possible current income consistent with the foregoing objectives
by investing in short-term money market securities. The Fund invests in short-
term United States government securities; government agency securities; bank
certificates of deposit and bankers' acceptances; short-term corporate debt
securities such as commercial paper and variable amount master demand notes;
repurchase agreements and other money market instruments. MLAM receives from
the Fund an advisory fee at the annual rate of 0.50% of the first $500 million
of the Fund's average daily net assets; 0.425% of the next $250 million;
0.375% of the next $250 million; 0.35% of the next $500 million; 0.325% of the
next $500 million; 0.30% of the next $500 million; and 0.275% of the average
daily net assets in excess of $2.5 billion.
INDEX 500 FUND. This Fund seeks investment results that, before expenses,
correspond to the aggregate price and yield performance of the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500 Index"). MLAM receives
from the Fund an advisory fee at an annual rate of 0.30% of the Fund's average
daily net assets.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM Variable Insurance Funds, Inc. ("AIM V.I. Funds") is registered with the
Securities and Exchange Commission as an open-end, series, management
investment company. It currently offers Account A two of its separate
investment portfolios. Shares of the Funds of AIM V.I. Funds are currently
offered only to insurance company separate accounts to fund the benefits of
variable annuity contracts and variable life insurance policies. Shares of
these Funds may be offered, in the future, to certain pension or retirement
plans.
A I M Advisors, Inc. ("AIM"), 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173, serves as the investment adviser to each of the Funds of AIM V.I.
Funds. AIM was organized in 1976, and, together with its domestic
subsidiaries, manages or advises 48 investment company portfolios (including
these Funds). As of March 18, 1997, the total assets of the mutual funds
advised or managed by AIM and its domestic subsidiaries were approximately $68
billion. AIM is a wholly owned subsidiary of A I M Management Group Inc., an
indirect subsidiary of AMVESCO plc (formerly INVESCO plc). As the investment
adviser, AIM is paid fees by these Funds for its services. The fees charged to
each of these Funds are set forth in the summary of investment objectives
below.
20
AIM V.I. Funds has entered into an Administrative Services Agreement with AIM,
pursuant to which AIM has agreed to provide certain accounting and other
administrative services to these Funds, including the services of a principal
financial officer and related staff. As compensation to AIM for its services
under the Administrative Services Agreement, these Funds reimburse AIM for
expenses incurred by AIM or its affiliates in connection with such services.
AIM has entered into an agreement with Merrill Lynch Life with respect to
administrative services for these Funds in connection with the Contracts.
Under this agreement, AIM pays compensation to Merrill Lynch Life in an amount
equal to a percentage of the average net assets of these Funds attributable to
the Contracts.
AIM V.I. CAPITAL APPRECIATION FUND. This Fund seeks capital appreciation
through investments in common stocks, with emphasis on medium-sized and
smaller emerging growth companies. AIM will be particularly interested in
companies that are likely to benefit from new or innovative products, services
or processes that should enhance such companies' prospects for future growth
in earnings. As a result of this policy, the market prices of many of the
securities purchased and held by this Fund may fluctuate widely. Any income
received from securities held by the Fund will be incidental, and a contract
owner should not consider a purchase of shares of the Fund as equivalent to a
complete investment program. The AIM V.I. Capital Appreciation Fund's
portfolio is primarily comprised of securities of two basic categories of
companies: (1) "core" companies, which AIM considers to have experienced
above-average and consistent long-term growth in earnings and to have
excellent prospects for outstanding future growth, and (2) "earnings
acceleration" companies which AIM believes are currently enjoying a dramatic
increase in profits. AIM receives from the Fund an advisory fee at an annual
rate of 0.65% of the Fund's average daily net assets.
AIM V.I. VALUE FUND. This Fund seeks to achieve long-term growth of capital by
investing primarily in equity securities judged by AIM to be undervalued
relative to the current or projected earnings of the companies issuing the
securities, or relative to current market values of assets owned by the
companies issuing the securities or relative to the equity markets generally.
Income is a secondary objective. The subaccount investing in this Fund should
not be selected by contract owners who seek income as their primary investment
objective. AIM receives from the Fund an advisory fee at an annual rate of
0.65% of the Fund's average daily net assets.
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Alliance Variable Products Series Fund, Inc. ("Alliance Fund") is registered
with the Securities and Exchange Commission as an open-end management
investment company. It currently offers Account A one of its separate
investment portfolios. This Fund is intended to serve as the investment medium
for variable annuity contracts and variable life insurance policies to be
offered by the separate accounts of certain insurance companies.
Alliance Capital Management L.P. ("Alliance"), a Delaware limited partnership
with principal offices at 1345 Avenue of the Americas, New York, New York
10105 serves as the investment adviser to each Fund of the Alliance Series
Fund. Alliance is an international investment manager supervising client
accounts with assets of December 31, 1996 totaling more than $182 billion (of
which approximately $63 billion represented the assets of investment
companies). Alliance Capital Management Corporation ("ACMC"), the sole general
partner of Alliance, is an indirect wholly-owned subsidiary of The Equitable
Life Assurance Society of the United States, which is in turn a wholly-owned
subsidiary of the Equitable Companies Incorporated, a holding company which is
controlled by AXA, a French insurance holding company. As the investment
adviser, Alliance is paid fees by this Fund for its services. The fees charged
to this Fund are set forth in the summary of investment objective below.
Alliance Fund Distributors, Inc. ("AFD"), an affiliate of Alliance, has
entered into an agreement with Merrill Lynch Life with respect to
administrative services for these Funds in connection with the Contracts.
Under this agreement, AFD pays compensation to Merrill Lynch Life in an amount
equal to a percentage of the average net assets of these Funds attributable to
the Contracts.
21
PREMIER GROWTH PORTFOLIO. This Fund seeks growth of capital by pursuing
aggressive investment policies. Since investments will be made based upon
their potential for capital appreciation, current income will be incidental to
the objective of capital growth. Because of the market risks inherent in any
investment, the selection of securities on the basis of their appreciation
possibilities cannot ensure against possible loss in value. This Fund is
therefore not intended for contract owners whose principal objective is
assured income and conservation of capital. Alliance receives from the Fund an
advisory fee at an annual rate of 0.72% of the Fund's average daily net
assets.
MFS VARIABLE INSURANCE TRUST
MFS Variable Insurance Trust ("MFS Trust") is registered with the Securities
and Exchange Commission as an open-end management investment company. It
currently offers Account A two of its separate investment portfolios. The
Funds of MFS Trust are intended to serve as the investment medium for variable
annuity contracts and variable life insurance policies to be offered by the
separate accounts of certain insurance companies.
Massachusetts Financial Services Company ("MFS"), a Delaware corporation, 500
Boylston Street, Boston, Massachusetts 02116, serves as the investment adviser
to each of the Funds of MFS Trust. MFS is America's oldest mutual fund
organization. MFS and its predecessor organizations have a history of money
management dating from 1924 and the founding of the first mutual fund in the
United States, Massachusetts Investors Trust. Net assets under the management
of the MFS organization were approximately $52.8 billion as of February 28,
1997. MFS is a subsidiary of Sun Life of Canada (U.S.), which, in turn, is a
wholly-owned subsidiary of Sun Life Assurance Company of Canada. As the
investment adviser, MFS is paid fees by each of these Funds for its services.
The fees charged to these Funds are set forth in the summary of investment
objectives below.
MFS has entered into an agreement with MLIG with respect to administrative
services for these Funds in connection with the Contracts and certain
contracts issued by ML Life Insurance Company of New York. Under this
agreement, MFS pays compensation to MLIG in an amount equal to a percentage of
the average net assets of these Funds attributable to such contracts.
MFS EMERGING GROWTH SERIES. This Fund seeks long-term growth of capital by
investing primarily (i.e., at least 80% of its assets under normal
circumstances) in common stocks of emerging growth companies. Emerging growth
companies include companies that MFS believes are early in their life cycle
but which have the potential to become major enterprises. Dividend and
interest income from portfolio securities, if any, is incidental to the Fund's
objective of long-term growth of capital. MFS receives from the Fund an
advisory fee at an annual rate of 0.75% of average daily net assets of the
Fund.
MFS RESEARCH SERIES. This Fund seeks to provide long-term growth of capital
and future income. The portfolio securities of the MFS Research Series are
selected by a committee of investment research analysts. This committee
includes investment analysts employed not only by the Adviser but also by MFS
International (U.K.) Limited, a wholly-owned subsidiary of MFS. The Series'
assets are allocated among industries by the analysts acting together as a
group. Individual analysts are then responsible for selecting what they view
as the securities best suited to meet the Series' investment objective within
their assigned industry responsibility. MFS receives from the Fund an advisory
fee at an annual rate of 0.75% of average daily net assets of the Fund.
PURCHASES AND REDEMPTIONS OF FUND SHARES; REINVESTMENT
The Accounts will purchase and redeem shares of the Funds to the extent
necessary to provide benefits under the Contract or for such other purposes as
may be consistent with the Contract. The Accounts will purchase and redeem
shares of the Funds at net asset value. Fund distributions to the Accounts are
automatically reinvested in additional shares of the Funds at net asset value.
MATERIAL CONFLICTS, SUBSTITUTION OF INVESTMENTS AND CHANGES TO ACCOUNTS
It is conceivable that material conflicts could arise as a result of both
variable annuity and variable life insurance separate accounts investing in
the Funds. Although no material conflicts
22
are foreseen, the participating insurance companies will monitor events in
order to identify any material conflicts between variable annuity and variable
life insurance contract owners to determine what action, if any, should be
taken. Material conflicts could result from such things as (1) changes in
state insurance law, (2) changes in federal income tax law or (3) differences
between voting instructions given by variable annuity and variable life
insurance contract owners. If a conflict occurs, Merrill Lynch Life may be
required to eliminate one or more subaccounts of Separate Account A or
Separate Account B or substitute a new subaccount. In responding to any
conflict, Merrill Lynch Life will take the action which it believes necessary
to protect its contract owners.
Merrill Lynch Life may substitute a different investment option for any of the
current Funds. Substitution may be made with respect to both existing
investments and the investment of future premiums. However, no such
substitution will be made without any necessary approval of the Securities and
Exchange Commission and applicable state insurance departments. Contract
owners will be notified of any substitutions. Additional investment options
may be added in the future as eligible investments through the Accounts.
In addition, Merrill Lynch Life may make additional subaccounts available to
either Account, eliminate subaccounts in either Account, deregister either or
both of the Accounts under the Investment Company Act of 1940 (the "1940
Act"), make any changes required by the 1940 Act, operate either or both
Accounts as a managed investment company under the 1940 Act or any other form
permitted by law, transfer all or a portion of the assets of a subaccount or
account to another subaccount or Account pursuant to a combination or
otherwise, and create new accounts. No such changes will be made without any
necessary approval of the Securities and Exchange Commission and applicable
state insurance departments. Contract owners will be notified of any changes.
CHARGES AND DEDUCTIONS
CONTRACT MAINTENANCE CHARGE
A charge is made to reimburse Merrill Lynch Life for expenses related to
maintenance of the Contract. These expenses include issuing Contracts,
maintaining records, and performing accounting, regulatory compliance, and
reporting functions. This $40 maintenance charge will be deducted from the
contract value on each contract anniversary that occurs on or prior to the
annuity date. It will also be deducted when the Contract is surrendered if it
is surrendered on any date other than a contract anniversary. The contract
maintenance charge will be deducted on a pro rata basis from among all
subaccounts in which contract value is invested. (See ACCUMULATION UNITS on
page 27 for a discussion of the effect the deduction of this charge will have
on the number of accumulation units credited to a Contract.) The contract
maintenance charge will never increase.
This charge will be waived on all Contracts with a contract value equal to or
greater than $50,000
on the date the charge would otherwise be deducted. It is not deducted after
the annuity date.
Currently, a contract owner of three or more Contracts will be assessed no
more than $120 in Contract Maintenance Charges annually, regardless of the
number of Contracts owned. Once Contract Maintenance Charges in an amount
equal to $120 have been paid in a calendar year by a contract owner, remaining
Contract Maintenance Charges to which the contract owner would otherwise be
subject in the same calendar year will be waived. Merrill Lynch Life reserves
the right to discontinue this waiver at any time.
MORTALITY AND EXPENSE RISK CHARGE
A mortality and expense risk charge is imposed on the Accounts. It equals
1.25% annually for Account A and 0.65% annually for Account B deducted daily
from the net asset value of the Accounts. Of this amount, 0.75% annually for
Account A and 0.35% annually for Account B is attributable to mortality risks
assumed by Merrill Lynch Life for the annuity payment and death benefit
guarantees made under the Contract. These guarantees include making annuity
payments unaffected by mortality experience and providing a minimum death
benefit under the Contract.
23
Additionally, of the total mortality and expense risk charge, 0.50% annually
for Account A and 0.30% annually for Account B is attributable to expense
risks assumed by Merrill Lynch Life should the contract maintenance and
administration charges be insufficient to cover all Contract maintenance and
administration expenses.
The mortality and expense risk charge is greater for Account A than for
Account B because a greater death benefit and higher administrative expenses
are attributable to Account A. If the mortality and expense risk charge is
inadequate to cover the actual expenses of mortality, maintenance, and
administration, Merrill Lynch Life will bear the loss. If the charge exceeds
the actual expenses, the excess will be added to Merrill Lynch Life's profit.
The mortality and expense risk charge will never increase.
ADMINISTRATION CHARGE
An administration charge is made to reimburse Merrill Lynch Life for costs
associated with the establishment and administration of Account A. This charge
covers such expenses as optional contract transactions (for example,
processing transfers and Dollar Cost Averaging transactions). A charge of
0.10% annually will be deducted daily only from the net asset value of Account
A. The administration charge will never increase.
CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge may be imposed on withdrawals and
surrenders from Account A. This charge reimburses Merrill Lynch Life for
expenses relating to the sale of the Contract, such as commissions,
preparation of sales literature, and other promotional activity. The charge is
imposed only on premium withdrawn or surrendered from Account A that was held
for less than seven years. However, where permitted by state regulation, up to
10% of this premium will not be subject to such a charge if withdrawn or
surrendered from Account A during the first withdrawal of the contract year,
whether paid in a lump sum or elected to be paid on a monthly, quarterly,
semi-annual or annual basis. In addition, where permitted by state regulation,
no contingent deferred sales charge will be imposed on any premium withdrawn
or surrendered from Contracts purchased by employees of Merrill Lynch Life or
its affiliates or from Contracts purchased by the employees' spouses or
dependents.
The maximum contingent deferred sales charge is 7% of the premium withdrawn
during the first year after that premium is paid, decreasing by 1% annually to
0% after year seven, as shown below.
NUMBER OF COMPLETE YEARS
ELAPSED SINCE PREMIUM WAS PAID CONTINGENT DEFERRED SALES CHARGE
------------------------------ --------------------------------
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
Contingent deferred sales charges are calculated on total premiums withdrawn
or surrendered from Account A, but not to exceed the account value. Gain in
account value is never subject to a contingent deferred sales charge. (See
page 31 for a discussion of the rules for determining whether a withdrawal is
considered to come from premiums or gain for contingent deferred sales charge
purposes.) For example, if a contract owner made a $5,000 premium payment to
Account A and withdrew the entire $5,000 three years later when there had been
no gain or loss on that premium, a 4% contingent deferred sales charge would
be imposed on the $5,000 withdrawal. If that contract owner had made a $5,000
premium payment to Account A and due to negative investment experience only
$4,500 remained in Account A when the contract owner withdrew it
24
three years later, a 4% contingent deferred sales charge would be imposed only
on $4,500 of the original premium. If instead the $5,000 premium payment the
contract owner made to Account A grew to $5,500 due to positive investment
experience, and the contract owner withdrew $200 of gain in account value as
the first withdrawal three years later, and thereafter withdrew the remaining
$5,300 in a subsequent withdrawal that same year, no contingent deferred sales
charge would be imposed on the $200 first withdrawn (as it represents gain in
account value and not premium) and a 4% contingent deferred sales charge would
be imposed only on $5,000 of the $5,300 subsequent withdrawal (as $300 of that
amount represents gain in account value).
When imposed, the contingent deferred sales charge will be deducted on a pro
rata basis from among the subaccounts in which the contract owner has
invested, on the basis of the contract owner's interest in each subaccount to
the Account A account value. (See WITHDRAWALS AND SURRENDERS on page 31 and
ACCUMULATION UNITS on page 27 for a discussion of the effect the deduction of
this charge will have on the number of accumulation units credited to a
Contract.)
To the extent that the contingent deferred sales charge is inadequate to
recover all sales expenses associated with the Contract, the deficiency will
be met by Merrill Lynch Life's surplus, which may be partly derived from the
mortality and expense risk charge on the Contract.
No contingent deferred sales charge will be imposed on withdrawals or
surrenders from Account B.
PREMIUM TAXES
Various states and municipalities impose a premium tax on annuity premiums
when they are received by an insurance company. In other jurisdictions, a
premium tax is paid on the contract value on the annuity date.
Premium tax rates vary from jurisdiction to jurisdiction and currently range
from 0% to 5%. Merrill Lynch Life will pay these taxes when due, and a charge
for any premium taxes imposed by a state or local government will be deducted
from the contract value on the annuity date. (See ACCUMULATION UNITS on page
27 for a discussion of the effect the deduction of this charge will have on
the number of accumulation units credited to a Contract.) In those
jurisdictions that do not allow an insurance company to reduce its current
taxable premium income by the amount of any withdrawal, surrender or death
benefit paid, Merrill Lynch Life will also deduct a charge for these taxes on
any withdrawal, surrender or death benefit effected under the Contract.
Premium tax rates are subject to change by law, administrative
interpretations, or court decisions. Premium tax amounts will depend on, among
other things, the contract owner's state of residence, Merrill Lynch Life's
status within that state, and the premium tax laws of that state.
OTHER CHARGES
Contract owners may make up to six transfers among Account A subaccounts per
contract year without charge. Additional transfers may be permitted at a
charge of $25 per transfer. (See TRANSFERS on page 29.)
Merrill Lynch Life reserves the right, subject to any necessary regulatory
approval, to charge for assessments or federal premium taxes or federal, state
or local excise, profits or income taxes measured by or attributable to the
receipt of premiums. Merrill Lynch Life also reserves the right to deduct from
the Accounts any taxes imposed on the Accounts' investment earnings. (See
MERRILL LYNCH LIFE'S TAX STATUS on page 34.)
In calculating the net asset values of the Funds, advisory fees and operating
expenses are deducted from the assets of each Fund. Information about those
fees and expenses can be found in the attached prospectuses for the Funds and
in the Statement of Additional Information for each Fund.
Fees associated with participation in the Merrill Lynch RPA SM program are
paid by the participating contract owner and are not deducted from the
contract value or imposed on the Accounts. (See MERRILL LYNCH RETIREMENT PLUS
ADVISOR SM on page 30.)
25
DESCRIPTION OF THE CONTRACT
OWNERSHIP OF THE CONTRACT
The contract owner is entitled to exercise all rights under the Contract.
Unless otherwise specified, the purchaser of the Contract will be the contract
owner. The contract owner may designate a beneficiary. The beneficiary will
receive all outstanding Contract benefits if the owner dies. The contract
owner may also designate an annuitant. The annuitant may be changed at any
time prior to the annuity date. If no annuitant is selected, the contract
owner will be the annuitant. If the annuitant is changed on a contract owned
by other than a natural person, the change will be treated as the death of the
contract owner for purposes of the Internal Revenue Code. Merrill Lynch Life
will then pay to the owner's beneficiary the contract value, less any
applicable fees and charges.
The Contract may be assigned to another owner upon notice to Merrill Lynch
Life's Service Center. The Contract may only be assigned to another owner in
full, not in part. An assignment to a new owner cancels all prior beneficiary
designations except for those prior beneficiary designations that have been
made irrevocably. Assignment of the Contract may have tax consequences or may
be prohibited on certain IRA Contracts, so the contract owner should consult
with a qualified tax adviser before assigning the Contract. (See FEDERAL
INCOME TAXES on page 34.)
Only spouses may be co-owners of the Contract. When co-owners are established,
they exercise all rights under the Contract jointly unless they elect
otherwise. Co-owner spouses must each be designated as beneficiary for the
other. Co-owners may also designate a beneficiary to receive benefits on the
surviving co-owner's death. IRA Contracts may not have co-owners.
ISSUING THE CONTRACT
A nonqualified Contract may generally be issued to contract owners who are
less than 85 years of age. Annuitants on nonqualified Contracts must also be
less than age 85 at issue. For IRA Contracts owned by natural persons, the
contract owner and annuitant must be the same person. Therefore, contract
owners and annuitants on IRA Contracts must be less than age 70 1/2 at issue.
Before issuing the Contract, Merrill Lynch Life requires certain information
from the prospective contract owner. Once that information is reviewed and
approved, and the prospective contract owner submits an initial premium, a
Contract will be issued. Generally, this review and approval process is
completed and the premium invested within two business days, but if any
necessary information has not been obtained within five business days, Merrill
Lynch Life will offer to return the premium and no Contract will be processed.
If the prospective contract owner instead consents, Merrill Lynch Life will
hold the premium until all necessary information is obtained, and will then
invest the premium within two business days after obtaining the information.
The initial premium will be invested as described under PREMIUM INVESTMENTS on
page 27.
The date of issue will be the date the required information and initial
premium are received at Merrill Lynch Life's Service Center.
TEN DAY RIGHT TO REVIEW
When the contract owner receives the Contract, it should be reviewed carefully
to make sure it is what the contract owner intended to purchase. Generally,
within 10 days after the contract owner receives the Contract, he or she may
return it for a refund. Some states allow a longer period of time to return
the Contract. The Contract must be delivered to Merrill Lynch Life's Service
Center or to the Financial Consultant who sold it for a refund to be made.
Merrill Lynch Life will then refund to the contract owner the greater of all
premiums paid into the Contract or the contract value as of the date the
Contract is returned. For contracts issued in the Commonwealth of
Pennsylvania, Merrill Lynch Life will refund the contract value as of the date
the Contract is returned. The Contract will then be deemed void.
CONTRACT CHANGES
Requests to change the owner, beneficiary, annuitant, or annuity date of a
Contract will take effect as of the date such a request is signed by the
contract owner, unless Merrill Lynch Life has
26
already acted in reliance on the prior status. Such changes may have tax
consequences. See FEDERAL INCOME TAXES on page 34. See also OWNERSHIP OF THE
CONTRACT on page 26.
PREMIUMS
Initial premium payments must be $5,000 or more on a nonqualified Contract and
$2,000 or more on an IRA Contract. Subsequent premium payments generally must
be $100 or more and can be made at any time prior to the annuity date. (The
$100 minimum may be waived in connection with premiums paid under IRA
Contracts that are held in Retirement Plan Operations (RPO) accounts of
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), in order to
transfer any existing cash balance of such account, in full, into a Contract.)
Merrill Lynch Life reserves the right to refuse to accept subsequent premium
payments, if required by law.
Premium payments can be made directly by the contract owner or debited from
his or her MLPF&S brokerage account and must be transmitted to Merrill Lynch
Life's Service Center at the address printed on the cover of this Prospectus.
Under an automatic investment feature, premium payments can also be made
systematically on a monthly, quarterly, semi-annual or annual basis from a
MLPF&S brokerage account. A Financial Consultant should be contacted for
additional information. The automatic investment feature may be canceled by
the contract owner at any time. Once canceled, it can not be activated again
until the next contract year. Maximum annual contributions to IRA Contracts
are limited by federal law.
PREMIUM INVESTMENTS
For the first 14 days following the date of issue, all premiums directed into
Account A will be held in the Domestic Money Market Subaccount. Thereafter,
the account value will be reallocated to the Account A subaccounts selected.
In the Commonwealth of Pennsylvania, all premiums will be invested as of the
date of issue in the subaccounts selected by the contract owner. Subsequent
premiums allocated to Account A will be directly placed in the subaccounts
selected as of the end of the valuation period in which they are received at
Merrill Lynch Life's Service Center. Premiums directed into Account B will be
directly placed in the Reserve Assets Subaccount on the issue date. Subsequent
premiums allocated to Account B will be directly placed in its Reserve Assets
Subaccount as of the end of the valuation period in which they are received at
Merrill Lynch Life's Service Center. Currently, a contract owner may allocate
his or her premium among eighteen subaccounts (seventeen available through
Account A and one available through Account B); allocations must be made in
increments that are even multiples of 10%. For example, 10% of a premium
received may be allocated to the Prime Bond Fund, 40% allocated to the High
Current Income Fund, and 50% allocated to the Quality Equity Fund. However, a
contract owner may not allocate 33 1/3% to the Prime Bond Fund and 66 2/3% to
the High Current Income Fund. If allocation instructions are not given with
subsequent premiums received, Merrill Lynch Life will allocate those premiums
according to the allocation instructions last received from the contract
owner. Merrill Lynch Life reserves the right to modify the limit on the number
of subaccounts to which future allocations may be made.
ACCUMULATION UNITS
Each subaccount has a distinct value, called the accumulation unit value. The
accumulation unit value varies daily, as described below. This value is used
to determine the number of subaccount accumulation units represented by a
contract owner's investment in a subaccount. When a contract owner invests a
premium or transfers an amount to a subaccount, accumulation units in that
subaccount are purchased and credited to the Contract. Conversely, when a
contract owner withdraws contract value or transfers an amount from a
subaccount, accumulation units credited to the Contract in that subaccount are
redeemed. Similarly, when a deduction is made under a Contract for the
contract maintenance charge, any contingent deferred sales charges, any
transfer charge and any premium taxes due, accumulation units credited to the
Contract in the subaccounts are redeemed. (See CHARGES AND DEDUCTIONS on page
23 for a discussion concerning the
27
allocation of charges to subaccounts.) The number of accumulation units in a
subaccount so purchased or redeemed for a Contract is based on the
subaccount's accumulation unit value as of the end of the valuation period
during which the purchase or redemption is made. It is determined by dividing
the dollar value of the amount of the purchase or redemption allocated to the
subaccount by the value of one accumulation unit for that subaccount for the
valuation period in which the transfer is effected. The number of accumulation
units in each subaccount credited to a Contract will therefore increase or
decrease as these transactions are effected.
The number of subaccount accumulation units credited to a Contract will not
change as a result of investment experience or the deduction of mortality and
expense risk and administration charges. Instead, these charges and investment
experience will be reflected in the accumulation unit value.
For each subaccount, the value of an accumulation unit was arbitrarily set at
$10 when it was established. Accumulation unit values may increase or decrease
from one valuation period to the next. A valuation period is the interval from
one determination of the net asset value of a subaccount to the next, measured
from the time each day the Funds are valued. The Funds are valued at the close
of business on each day the New York Stock Exchange is open. An accumulation
unit value for any valuation period is determined by multiplying the
accumulation unit value for the last prior valuation period by the net
investment factor for the subaccount for the current valuation period. The
Funds' investment performance, expenses, and the deduction of asset-based
charges affect the accumulation unit value.
The net investment factor is an index used to measure the investment
performance of a subaccount from one valuation period to the next. For any
subaccount, the net investment factor is determined by dividing the value of
the assets of the subaccount for that valuation period by the value of the
assets of the subaccount for the preceding valuation period, and subtracting
from the result the valuation period equivalent of the annual administration
and mortality and expense risk charges. Merrill Lynch Life may adjust the net
investment factor to make provisions for any change in the law that requires
it to pay tax on capital gains in the Accounts or for any assessments or
federal premium taxes or federal, state or local excise, profits or income
taxes measured by or attributable to the receipt of premiums. (See OTHER
CHARGES on page 25).
The net investment factor may be greater or less than one. Therefore, the
value of an accumulation unit may increase or decrease.
DEATH BENEFIT
Prior to the annuity date, the Contract provides a death benefit feature that
guarantees a death benefit if the contract owner dies, regardless of
investment experience. A Contract's death benefit is equal to the greater of
(a) the sum of the excess, if any, of premiums paid into Account A with
interest on them from the date received at an interest rate compounded daily
to yield 5% annually, over transfers to Account B and withdrawals from Account
A multiplied by a rate compounded daily from the date of transfer or
withdrawal to yield 5% annually, plus the value of Account B; or (b) the
contract value. There are limits on the period during which interest will
accrue for purposes of this calculation. For Contracts issued beginning June
1, 1995 (or later as state approvals are obtained), interest shall accrue only
until the earliest of the last day of the 20th contract year, the last day of
the contract year in which the contract owner (annuitant when the contract
owner is not a natural person) attains age 80, or the date of the contract
owner's (annuitant's when the contract owner is not a natural person) death.
For Contracts issued prior to June 1, 1995, and for Contracts issued on or
after that date but before state approvals are obtained, interest shall accrue
only until the last day of the 20th contract year. If the contract owner dies
prior to the annuity date, Merrill Lynch Life will pay the Contract's death
benefit to the owner's beneficiary. Unless the beneficiary has been
irrevocably designated, the contract owner may change the beneficiary at any
time prior to the annuity date.
If the owner's beneficiary is his or her surviving spouse, the spouse may
elect to continue the Contract in force on the same terms as applicable before
the owner's death, and the spouse will then become the contract owner and the
beneficiary until a new beneficiary is named.
28
The death benefit will be paid in a lump sum unless the beneficiary chooses an
annuity payment option available under the Contract. (See ANNUITY OPTIONS on
page 33.) However, if the contract owner dies before the annuity date, federal
tax law generally requires the entire contract value to be distributed within
five years of the date of death. Special rules may apply to the surviving
spouse. (See FEDERAL INCOME TAXES on page 34.)
The death benefit is determined as of the date Merrill Lynch Life receives due
proof of death at its Service Center. Due proof of death is received as of the
date Merrill Lynch Life receives a certified copy of the contract owner's
death certificate, the Beneficiary Statement, and any other paperwork
necessary to process the death claim. If other documents have not been
received by the 60th day following receipt of the certified death certificate,
due proof of death will be deemed to have been received and the death benefit
will be paid in a lump sum.
DEATH OF ANNUITANT
If the annuitant dies prior to the annuity date, and the annuitant is not the
contract owner, the owner may designate a new annuitant. If a new annuitant is
not designated, the contract owner will become the annuitant unless the owner
is not a natural person. If the contract owner is not a natural person, no new
annuitant may be named and the death benefit will be paid.
If the annuitant dies after the annuity date, while guaranteed amounts remain
unpaid, the contract owner may either (a) have payments continue for the
amount or period guaranteed; or (b) receive the present value of the remaining
guaranteed payments in a lump sum. If the contract owner dies while guaranteed
amounts remain unpaid, his or her beneficiary may either (a) have payments
continue for the amount or period guaranteed; or (b) receive the present value
of the remaining guaranteed payments in a lump sum.
TRANSFERS
Once each contract year, contract owners may transfer from Account A to
Account B an amount equal to any gain in account value and/or any premium not
subject to a contingent deferred sales charge, determined as of the date the
request is received. Where permitted by state regulation, once each contract
year, contract owners may transfer from Account A to Account B all or a
portion of the greater of that amount or 10% of premiums subject to a
contingent deferred sales charge determined as of the date the request is
received (minus any of that premium already withdrawn or transferred).
Additionally, where permitted by state regulation, periodic transfers of all
or a portion of the greater amount, determined at the time of each periodic
transfer, are permitted, on a monthly, quarterly, semi-annual or annual basis.
Periodic transfers may be canceled by the contract owner at any time. Once
canceled, they can not be activated again until the next contract year.
Generally, the amount transferred will be deducted on a pro rata basis from
among the affected Account A subaccounts, on the basis of the contract owner's
interest in each subaccount to the Account A account value, unless the
contract owner requests otherwise. However, if the amount will be transferred
on a monthly, quarterly, semi-annual or annual basis, it must be deducted on a
pro rata basis. This is the only amount which may be transferred from Account
A to Account B during that contract year. There is no charge imposed on the
transfer of this amount. No transfers are permitted from Account B to Account
A.
Prior to the annuity date, contract owners may transfer all or part of their
Account A value among the subaccounts of Account A up to six times per
contract year without charge. Additional transfers among Account A subaccounts
may be made at a charge of $25 per transfer. Currently, there is no charge for
additional transfers. The transfer charge will be deducted on a pro rata basis
from among the subaccounts from which account value is being transferred.
Merrill Lynch Life reserves the right to change the number of additional
transfers permitted each contract year, as appropriate.
Transfers among subaccounts may be made in specific dollar amounts or as a
percentage of Account A value. Requests to transfer dollar amounts must be for
at least $300 or the total value of a subaccount, if less. Requests to
transfer a percentage of Account A value are also subject to a
29
$300 minimum, with allocations in increments that are even multiples of 10%.
For example, 20% of the $1,500 Account A value in the Prime Bond Fund may be
transferred to the High Current Income Fund, but 15 1/2% may not.
Contract owners may make transfer requests in writing or by telephone, once
Merrill Lynch Life receives proper telephone transfer authorization. Transfer
requests may also be made through a Merrill Lynch Financial Consultant, or
another person designated by the owner, once Merrill Lynch Life receives
proper authorization. Transfers will take effect as of the end of the
valuation period on the date the request is received at Merrill Lynch Life's
Service Center. Telephone transfer requests received after 4:00 p.m. (ET) will
be deemed to have been received the following business day.
DOLLAR COST AVERAGING
The Contract offers an additional optional transfer feature called Dollar Cost
Averaging. This feature allows contract owners to reallocate value from the
Account A Domestic Money Market Subaccount to any of the remaining Account A
investment options. The main objective of the Dollar Cost Averaging feature is
to shield investment from short term price fluctuations. Since the same dollar
amount is transferred to selected subaccounts each month, more accumulation
units are purchased in a subaccount when their value is low and fewer
accumulation units are purchased when their value is high. Therefore, a lower
than average cost of purchasing accumulation units may be achieved over the
long term. This plan of investing allows contract owners to take advantage of
investment fluctuations, but does not assure a profit or protect against a
loss in declining markets.
Amounts will be transferred monthly to the subaccounts specified by the
contract owner. Amounts of $1,000 or more must be allotted for transfer each
month in the Dollar Cost Averaging feature. Allocations must be designated in
percentage increments that are even multiples of 10%. No specific dollar
amount designations may be made. Merrill Lynch Life reserves the right to
change these minimums.
Contract owners may apply for the Dollar Cost Averaging feature at any time
prior to the annuity date. Dollar Cost Averaging transfers may continue for
anywhere from 12 to 36 months (or to the annuity date, if earlier), subject to
availability of Domestic Money Market Subaccount value for this purpose. When
the Dollar Cost Averaging feature is elected, an amount equal to the total to
be transferred during the term of the feature must have been deposited into
the Domestic Money Market Subaccount. Should the owner's interest in the
Domestic Money Market Subaccount drop below the selected monthly transfer
amount, Merrill Lynch Life will notify the contract owner that an additional
premium payment will be necessary in that subaccount if he or she wants to
continue in the Dollar Cost Averaging feature.
The first Dollar Cost Averaging transfer will be effected on the first
monthiversary date after Merrill Lynch Life receives the contract owner's
election at its Service Center. Subsequent Dollar Cost Averaging transfers
will take effect as of the end of the valuation period on each of the
Contract's monthiversary dates.
There is no charge imposed on Dollar Cost Averaging transfers. These transfers
are in addition to the annual transfers permitted under the Contract, as
described above.
Dollar Cost Averaging is an investment strategy and does not guarantee an
investment gain, nor will it protect against an investment loss when markets
have declined.
MERRILL LYNCH RETIREMENT PLUS ADVISOR SM
Subject to certain eligibility requirements, a contract owner may elect to
participate in the Merrill Lynch Retirement Plus Advisor SM ("RPA") program.
Through RPA, premiums and Account A values are allocated and transferred
periodically among the subaccounts of Account A, in accordance with an
investment program developed by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") that is consistent with the contract owner's
investment profile. MLPF&S is registered as an investment adviser under the
Investment Advisers Act of 1940.
Prior to participating in this program, a contract owner must complete an RPA
profiling questionnaire and client agreement for each contract under which
Account A values will be allocated pursuant to the RPA program.
30
If premiums and Account A values under a contract are being invested pursuant
to the RPA program, then Dollar Cost Averaging is not available for the
contract. In addition, the contract owner's participation in the RPA program
may be terminated in the discretion of MLPF&S if a contract owner requests a
transfer while the RPA program is in effect; such contract owner-initiated
transfers may be inconsistent with investment strategies being implemented
through the program.
RPA program transfers of Account A values are not subject to any transfer
charge. Fees associated with participation in the RPA program, which are
imposed by MLPF&S are paid by the participating contract owner directly
through the contract owner's Merrill Lynch brokerage account, and are not
deducted from the contract value or imposed on the Accounts.
A contract owner wishing to participate in the RPA program should consult with
his or her Financial Consultant for additional information regarding the
availability of the program and specific eligibility requirements.
Participation in the program does not guarantee that a contract owner will
attain his or her investment goals. In addition, the program does not
guarantee investment gains, or protect against investment losses.
WITHDRAWALS AND SURRENDERS
Withdrawals may be made from the Contract up to six times per contract year
prior to the annuity date. The first withdrawal from Account A in any contract
year will be effected as if gain in account value and premium not subject to a
contingent deferred sales charge is withdrawn first, followed by premium on a
"first-in, first-out" basis. A contingent deferred sales charge will not be
applied to the first withdrawal in any contract year out of Account A to the
extent that the withdrawal consists of gain and/or any premium not subject to
such a charge. Where permitted by state regulation, a contingent deferred
sales charge will not be applied to that portion of the first withdrawal from
Account A in any contract year that does not exceed the greater of (a) or (b)
where (a) is 10% of total premiums paid into Account A that are subject to a
contingent deferred sales charge determined as of the date the request is
received, less any prior amount withdrawn or transferred from Account A to
Account B in the contract year, and (b) is the gain in Account A plus premiums
allocated to Account A as of the date the request is received that are not
subject to a contingent deferred sales charge.
Additionally, where permitted by state regulation, the amount withdrawn may be
paid on a monthly, quarterly, semi-annual or annual basis, if the contract
owner so elects. Withdrawals are subject to tax and prior to age 59 1/2 may
also be subject to a 10% federal penalty tax. (See PENALTY TAXES on page 36.)
All subsequent withdrawals from Account A in the same contract year will be
effected as if premium is withdrawn on a "first-in, first-out" basis before
any gain in account value is withdrawn. Therefore, premium accumulated the
longest will be withdrawn first. These withdrawals are subject to a contingent
deferred sales charge. (See CONTINGENT DEFERRED SALES CHARGE on page 24.)
There are no contingent deferred sales charges imposed on any withdrawals from
Account B. In addition, no contingent deferred sales charge will be imposed on
withdrawals from Account A on a Contract purchased by an employee of Merrill
Lynch Life or its affiliates or purchased by the employee's spouse or
dependents, where permitted by state regulation.
In addition, the contract owner may request monthly, quarterly, semiannual, or
annual automatic withdrawals from Account B. This optional automatic
withdrawal program can be activated or canceled by the contract owner once
each contract year. Once canceled, the program can not be activated again
until the next contract year. Withdrawal amounts may be increased or decreased
at any time, once Merrill Lynch Life receives a proper request at its Service
Center. There are no contingent deferred sales charges imposed on automatic
withdrawals from Account B. These withdrawals are in addition to the annual
withdrawals permitted under the Contract, as described above. Automatic
withdrawals may be included in the contract owner's gross income in
31
the year in which the withdrawal occurs. (See DISTRIBUTIONS on page 35.)
Withdrawals may be taxable and subject to a 10% tax penalty. (See PENALTY
TAXES on page 36.)
If the contract owner has elected both the automatic withdrawal program and a
withdrawal from Account A on a monthly, quarterly, semi-annual or annual
basis, both forms of withdrawal must be paid out on the same date(s).
The minimum amount that may be withdrawn is $300. At least $2,000 must remain
in the Contract after a withdrawal is made. Merrill Lynch Life reserves the
right to change these minimums. Withdrawals will be effected as of the end of
the valuation period on the date the request is received at Merrill Lynch
Life's Service Center. Unless otherwise directed by the contract owner,
withdrawals will be taken from subaccounts in the same proportion as the
owner's contract value bears to the subaccounts of the Accounts from which the
withdrawal is made. A withdrawal may be effected by telephone, once a proper
authorization form is submitted to Merrill Lynch Life's Service Center, if the
amount withdrawn is to be paid into a Merrill Lynch, Pierce, Fenner & Smith
Incorporated brokerage account. Otherwise, a withdrawal request must be
submitted by the contract owner in writing to Merrill Lynch Life's Service
Center. Telephone withdrawal requests received after 4:00 p.m. (ET) will be
deemed to have been received the following business day.
The Contract may be surrendered at any time prior to the annuity date. To
surrender the Contract through a full withdrawal, the Contract must be
delivered to Merrill Lynch Life's Service Center. The surrender will be
effected as of the end of the valuation period on the date the Contract is
received at Merrill Lynch Life's Service Center. The amount payable on
surrender is the contract value as of the end of the valuation period when the
surrender is effected, less any applicable contingent deferred sales charge,
less the contract maintenance charge if the contract value is less than
$50,000 and that valuation period is not a contract anniversary, less any
applicable charge for premium taxes. (See CHARGES AND DEDUCTIONS on page 23.)
Withdrawals will decrease the contract value. Withdrawals from either Account
A or Account B are subject to tax and prior to age 59 1/2 may also be subject
to a 10% federal penalty tax. (See FEDERAL INCOME TAXES on page 34.)
PAYMENTS TO CONTRACT OWNERS
Merrill Lynch Life will generally pay the amount of any withdrawal or
surrender, any annuity payment or death benefit, minus any applicable charges,
premium taxes or tax withholding, within seven days of receipt of a proper
request at its Service Center. However, Merrill Lynch Life may delay the
payment of any withdrawal, surrender, or death benefit, or the processing of
any annuity payment or transfer request if (a) the New York Stock Exchange is
closed, other than for a customary weekend or holiday; (b) trading on the New
York Stock Exchange is restricted by the Securities and Exchange Commission;
(c) the Securities and Exchange Commission declares that an emergency exists
such that it is not reasonably practical to dispose of securities held in the
Accounts or to determine the value of their assets; (d) the Securities and
Exchange Commission by order so permits for the protection of security
holders; or (e) payment is derived from a check used to make a premium payment
which has not cleared through the banking system.
ANNUITY DATE
The contract owner selects an annuity date when the Contract is applied for.
The annuity date may be changed by telephone or by written notice submitted to
Merrill Lynch Life's Service Center, up to 30 days prior to that date.
Generally, the annuity date for nonqualified Contracts may not be later than
the annuitant's 85th birthday. For IRA Contracts, the annuity date may not be
later than when the owner/annuitant reaches the age of 70 1/2 unless the
contract owner selects a later annuity date. If no annuity date is chosen, the
annuity date will automatically be the date on which the annuitant reaches age
85 or 70 1/2, as outlined above.
The first annuity payment will be made on the annuity date, and payments will
continue thereafter according to the schedule of the annuity option selected.
Contract owners may select from a variety of fixed annuity payment options, as
outlined below in ANNUITY OPTIONS on page 33.
32
ANNUITY OPTIONS
The Contract provides a choice of fixed annuity payment options. If an annuity
option is not chosen by the contract owner, Merrill Lynch Life will
automatically effect the Life Annuity with Payments Guaranteed for 10 Years
annuity option when the contract owner reaches age 85 (age 70 1/2 for an IRA
Contract). The annuity option may be changed up to 30 days prior to the
annuity date. Merrill Lynch Life reserves the right to limit annuity options
available to IRA contract owners to comply with provisions of the Internal
Revenue Code or regulations thereunder. On the annuity date, the entire
contract value, after a deduction for the cost of any applicable premium
taxes, will be transferred to Merrill Lynch Life's general account, from which
the annuity payments will be made. The amount of each payment is
predetermined.
The dollar amount of annuity payments is determined by the contract value on
the annuity date, applied to Merrill Lynch Life's then current annuity
purchase rates. These rates will be furnished on request. The rates will never
be less favorable than those shown in the Contract.
If the age and/or sex of the annuitant was misstated to Merrill Lynch Life,
resulting in an incorrect calculation of annuity payments on a Contract,
future annuity payments on that Contract will be adjusted to reflect the
correct age and/or sex. Any amount Merrill Lynch Life overpaid as the result
of a misstatement will be deducted from future payments with 6% annual
interest charges. Any amount Merrill Lynch Life underpaid as the result of a
misstatement will be paid in full with the next payment made with 6% annual
interest credited.
If the contract value on the annuity date, after the deduction for the cost of
any applicable premium taxes, is less than $5,000 (or a different minimum
amount, if required by state law), Merrill Lynch Life may pay the annuity
benefits in a lump sum, rather than as periodic payments. If any annuity
payment would be less than $50 (or a different minimum amount, if required by
state law), the frequency of payments may be changed so that all payments will
be at least $50 (or the minimum amount required by state law). Otherwise, the
contract owner has the following annuity payment options. Merrill Lynch Life
reserves the right to permit additional annuity payment options.
. PAYMENTS OF A FIXED AMOUNT--Equal payments in an amount chosen by the
contract owner will be guaranteed until the sum of all annuity payments
equals the contract value transferred to Merrill Lynch Life's general
account on the annuity date, adjusted for interest credited as shown in the
Contract. The amount chosen must provide for payments for at least five
years. Payments are guaranteed irrespective of the annuitant's life. If the
annuitant dies before the end of the guarantee period, the contract owner
may elect to receive the present value of the remaining guaranteed payments
in a lump sum. If the contract owner dies while guaranteed amounts remain
unpaid, his or her beneficiary may elect to receive the present value of
the remaining guaranteed payments in a lump sum.
. PAYMENTS FOR A FIXED PERIOD--Payments will be made for five years or a
longer period if selected by the contract owner. Payments are guaranteed
irrespective of the annuitant's life. If the annuitant dies before the end
of the guarantee period, the contract owner may elect to receive the
present value of the remaining guaranteed payments in a lump sum. If the
contract owner dies while guaranteed amounts remain unpaid, his or her
beneficiary may elect to receive the present value of the remaining
guaranteed payments in a lump sum.
. *LIFE ANNUITY--Payments will be made for the life of the annuitant.
Payments will cease with the last payment due before the annuitant's death.
. LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS--Payments will be
made for the life of the annuitant. In addition, even if the annuitant dies
before the guarantee period ends, payments will be guaranteed for either 10
or 20 years as selected by the contract owner. If the annuitant dies before
the end of the guarantee period, the contract owner may elect to receive
the present value of the remaining guaranteed payments in a lump sum. If
the contract owner dies while guaranteed amounts remain unpaid, his or her
beneficiary may elect to receive the present value of the remaining
guaranteed payments in a lump sum.
. LIFE ANNUITY WITH GUARANTEED RETURN OF CONTRACT VALUE--Payments will be
made for the life of the annuitant. In addition, even if the annuitant dies
beforehand, payments will be
33
guaranteed until the sum of all annuity payments equals the contract value
transferred to Merrill Lynch Life's general account on the annuity date,
adjusted for interest credited as shown in the Contract.
. *JOINT AND SURVIVOR LIFE ANNUITY--Payments will be made for the lives of
the annuitant and a designated second person. Payments will continue as
long as either one is living.
. INDIVIDUAL RETIREMENT ACCOUNT ANNUITY--This annuity option is available
only to IRA contract owners. Payments will be made annually based on either
(a) the life expectancy of the owner/ annuitant; (b) the joint life
expectancy of the owner/annuitant and his or her spouse; or (c) the life
expectancy of the surviving spouse if the owner/annuitant dies before the
annuity date. Each annual payment will be equal to the remaining contract
value transferred to Merrill Lynch Life's general account, divided by the
then current life expectancy chosen, as defined by Internal Revenue Service
regulations. Payments will be made on each anniversary of the annuity date.
If the measuring life or lives dies before the remaining value has been
distributed, that value will be paid to the contract owner in a lump sum.
* These options are life annuities. Therefore, it is possible for the payee to
receive only one annuity payment if the person (or persons) on whose life
(lives) payment is based dies after only one payment or to receive only two
annuity payments if that person (those persons) dies after only two
payments, etc.
UNISEX
Generally, the Contract provides for sex-distinct annuity purchase rates for
life annuities. However, in those states that have adopted regulations
prohibiting sex-distinct rates, blended unisex annuity purchase rates for life
annuities will be applied, whether the annuitant is male or female. Unisex
annuity purchase rates will provide the same annuity payments for male or
female annuitants that are the same age on their annuity dates.
Employers and employee organizations considering purchasing the Contract
should consult with their legal adviser to determine whether purchasing the
Contract based on sex-distinct annuity purchase rates is consistent with Title
VII of the Civil Rights Act of 1964 or other applicable law. Merrill Lynch
Life may offer such contract owners Contracts based on unisex annuity purchase
rates.
FEDERAL INCOME TAXES
INTRODUCTION
The Contracts are designed for use in connection with retirement plans that
are not qualified plans under the provisions of the Internal Revenue Code and
also Individual Retirement Annuities (IRAs). The ultimate effect of federal
income taxes on contract value, on annuity payments, and on the economic
benefit to the contract owner, depends on the type of retirement plan for
which the Contract is purchased, on whether the investments of the Accounts
meet Internal Revenue Service diversification standards (discussed below) and
on the tax status of the individual concerned. The following discussion is
general in nature and is not intended as tax advice. This discussion is not
intended to address the tax consequences resulting from all situations in
which a person may by entitled to or may receive a distribution under the
Contract. Contract owners should consult a competent tax adviser before
initiating any transaction. This discussion is based on the Company's
understanding of current federal income tax laws as currently interpreted by
the Internal Revenue Service and generally does not discuss or consider any
applicable state or other tax laws. No representation is made as to the
likelihood of continuation of current federal income tax laws or of the
current interpretations by the Internal Revenue Service. MERRILL LYNCH LIFE
DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY CONTRACT OR ANY
TRANSACTION INVOLVING THE CONTRACTS.
MERRILL LYNCH LIFE'S TAX STATUS
Merrill Lynch Life is taxed as a life insurance company under the Internal
Revenue Code. The Accounts are not a separate entity and for tax purposes
their operations are part of the
34
Company's. Therefore, the Company will be liable for any taxes attributable to
the Accounts. Under existing federal income tax law the investment income of
the Accounts is includable in the Company's gross income. Merrill Lynch Life
currently incurs no income taxes on this income. Merrill Lynch Life reserves
the right, however, to deduct from the Accounts any such taxes which are
imposed on the investment earnings or taxes measured by or attributable to the
receipt of premium.
TAXATION OF ANNUITIES
In General
Section 72 of the Internal Revenue Code governs taxation of annuities in
general. With respect to contracts held by natural persons, Merrill Lynch Life
believes that the contract owner is not taxed on increases in the value of the
Contract until distribution occurs, either in the form of a withdrawal or as
annuity payments under the annuity option elected. The taxable portion of a
distribution (in the form of a single sum payment or an annuity) is taxable as
ordinary income. Additionally, certain transfers of a Contract for less than
full consideration, such as a gift, will trigger tax on the excess of the net
contract value over the contract owner's investment in the Contract.
Required Distributions
In order to be treated as an annuity contract for federal income tax purposes,
section 72(s) of the Code requires any nonqualified Contract to provide that
(a) if any contract owner dies on or after the annuity commencement date but
prior to the time the entire interest in the Contract has been distributed,
the remaining portion of such interest will be distributed at least as rapidly
as under the method of distribution being used as of the date of that contract
owner's death; and (b) if any contract owner dies prior to the annuity
commencement date, the entire interest in the Contract will be distributed
within five years after the date of the contract owner's death. These
requirements will be considered satisfied as to any portion of the contract
owner's interest which is payable to or for the benefit of a "designated
beneficiary" and which is distributed over the life of such "designated
beneficiary" or over a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin within one year of that
owner's death. The contract owner's "designated beneficiary" (referred to
herein as the "Owner's Beneficiary") is the person designated by such contract
owner as a beneficiary and to whom ownership of the Contract passes by reason
of death and must be a natural person. However, if the contract owner's
"designated beneficiary" is the surviving spouse of the contract owner, the
Contract may be continued with the surviving spouse as the new owner. Solely
for purposes of applying the provisions of Section 72(s) of the Code, when
nonqualified Contracts are held by other than a natural person, the death of,
or change of, the annuitant is treated as the death of the contract owner.
The nonqualified Contracts contain provisions which are intended to comply
with the requirements of section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. The Company intends to
review such provisions and modify them if necessary to assure that they comply
with the requirements of Code section 72(s) when clarified by regulation or
otherwise. Other rules may apply to IRAs.
Non-natural Owners
Nonqualified contracts held by other than a natural person generally are not
treated as annuities, and the contract owner generally must include in income
any increase in the excess of the contract value over the contract owner's
investment in the Contract. This is not applicable to trusts or other entities
acting as an agent for a natural person, and there are certain other
exceptions to this rule. Prospective contract owners who are not natural
persons should consult a competent tax adviser.
Distributions
The taxable portion of annuity payments is generally determined by a formula
that establishes the ratio that the cost basis of the contract bears to the
expected return under the contract. After
35
such time as the sum of the nontaxable portion of annuity payments received
equals the sum of premium payments (adjusted for any withdrawals or
outstanding loans), all subsequent annuity payments are fully taxable as
ordinary income. With respect to nonqualified Contracts, partial withdrawals
of contract value are treated as taxable income to the extent that the
contract value just before the withdrawal exceeds the investment in the
Contract. The assignment or pledge (or agreement to assign or pledge) of any
portion of the value of the Contract shall be treated as a withdrawal subject
to this rule. Full withdrawals are treated as taxable income under section
72(e) of the Internal Revenue Code to the extent that the net amount received
exceeds the investment in the Contract. (For the tax treatment of any premium
paid prior to August 14, 1982, under another annuity contract, which contract
has been exchanged for this Contract, consult your tax adviser.) Amounts may
be distributed from a Contract because of the death of the owner. Generally,
such amounts are includable in the income of the recipient as follows: (1) if
distributed in a lump sum, the amount is taxed in the same manner as a full
withdrawal; or (2) if distributed under a payment option, the amounts are
taxed in the same manner as annuity payments. For both withdrawals and annuity
payments under IRAs, there may be no cost basis in the contract within the
meaning of Section 72 of the Internal Revenue Code, and the total amount
received may be taxable as ordinary income.
Multiple Annuity Contracts
All nonqualified annuity contracts entered into after October 21, 1988 that
are issued by Merrill Lynch Life (or its affiliates) to the same owner during
any calendar year are treated as one annuity contract for purposes of
determining the amount includable in gross income under Section 72(e) of the
Internal Revenue Code. In addition, the Treasury Department has specific
authority to issue regulations that prevent the avoidance of Section 72(e)
through the serial purchase of annuity contracts or otherwise. Congress has
also indicated that the Treasury Department may have authority to treat the
combination purchase of an immediate annuity contract and a separate deferred
annuity contract as a single annuity contract under its general authority to
prescribe rules as may be necessary to enforce the income tax laws.
Penalty Taxes
A penalty tax may be imposed equal to 10% of the taxable income portion of a
withdrawal. The penalty tax applies to both nonqualified Contracts and IRAs,
with different exceptions for each. The exceptions applicable to both
nonqualified Contracts and IRAs include (a) distributions made at or after the
contract owner attains age 59 1/2, (b) distributions made on or after the
contract owner's death, (c) distributions attributable to the contract owner's
disability, and (d) substantially equal periodic payments for the contract
owner's life or life expectancy (or joint life or joint life expectancy of the
contract owner and a second designated person). In certain circumstances,
other exceptions may apply. Other tax penalties may apply to certain
distributions, loans and other transactions under IRAs.
INTERNAL REVENUE SERVICE DIVERSIFICATION STANDARDS
The Internal Revenue Service has published regulations prescribing
diversification standards to be met by nonqualified variable annuity contracts
as a condition to being taxed as annuities under Section 72 of the Internal
Revenue Code. The standards provide that investments of a subaccount of the
Accounts are adequately diversified if no more than (a) 55% of the value of
its assets is represented by any one investment, (b) 70% is represented by any
two investments, (c) 80% is represented by any three investments, and (d) 90%
is represented by any four investments. Each Fund is obligated to comply with
the diversification standards imposed by the Internal Revenue Service.
The Treasury Department has announced that the diversification regulations do
not provide guidance concerning the extent to which contract owners may direct
their investments to particular subaccounts of a separate account. Such
guidance will be included in regulations or Revenue Rulings under Section
817(d) of the Internal Revenue Code relating to the definition of a variable
contract. It is unknown what standards will be adopted in such regulations.
Merrill Lynch Life, however, believes that according to current law the
Contract will be treated as an
36
annuity for federal income tax purposes and that the Company, not the contract
owner, will be treated as the owner of the contract investments.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the Internal Revenue Service in
rulings in which it determined that the owners were not owners of separate
account assets. For example, the owner of the Contract has additional
flexibility in allocating premium payments and account values. These
differences could result in the owner being treated as the owner of the assets
of the Accounts. Merrill Lynch Life reserves the right to modify the Contract
as necessary to prevent the contract owner from being considered the owner of
the assets of the Accounts for federal tax purposes. Any such changes will
apply uniformly to affected contract owners and will be made with such notice
to affected contract owners as is feasible under the circumstances.
IRA CONTRACTS
Section 408 of the Internal Revenue Code permits eligible individuals to
contribute to an individual retirement program known as an Individual
Retirement Annuity ("IRA"). IRAs are subject to limits on the amount that may
be contributed, the contributions that may be deducted from taxable income,
the persons who may be eligible, and on the time when distributions may
commence and the duration of those distributions. Also, distributions from
certain other types of qualified plans may be "rolled over" on a tax-deferred
basis into an IRA. The ultimate effect of federal income taxes on the amounts
contributed to and held under a Contract, on annuity payments, and on the
economic benefit to the contract owner, the annuitant, or the beneficiary
depends on the tax and employment status of the individual concerned and on
Merrill Lynch Life's tax status. In addition, certain requirements must be
satisfied in purchasing an IRA with proceeds from a tax qualified retirement
plan and receiving distributions from an IRA in order to continue receiving
favorable tax treatment. Sales of the Contract for use with IRAs may be
subject to special disclosure requirements of the Internal Revenue Service.
Purchasers of the Contract for use with IRAs will be provided with
supplemental information required by the Internal Revenue Service or other
appropriate agency. Such purchasers will have the right to revoke the Contract
within seven days of the earlier of the establishment of the IRA or the
purchase of the Contract. Purchasers should seek competent tax advice as to
the suitability of the Contract for use with or as an IRA. The Internal
Revenue Service has not reviewed the Contract for qualification as an IRA, and
has not addressed in a ruling of general applicability whether a death benefit
provision such as the provision in the Contract comports with IRA
qualification requirements.
TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF A CONTRACT
A transfer of ownership of the Contract, the designation of an annuitant who
is not also the owner, or the exchange of the Contract (or this Contract along
with one or more other annuity contracts) for one or more new annuity
contracts may result in certain tax consequences to the contract owner that
are not discussed herein. A contract owner contemplating any such transfer,
assignment, or exchange should contact a competent tax adviser with respect to
the potential tax effects of such a transaction.
WITHHOLDING
Unless the contract owner elects to the contrary, the taxable portion of any
amounts received under the Contract will be subject to withholding to meet
federal and state income tax obligations. The rate of withholding on annuity
payments will generally be determined on the basis of the withholding
certificate filed by the contract owner with Merrill Lynch Life. If no such
certificate is filed, the contract owner will be treated, for purposes of
determining the withholding rate, as a married person with three exemptions.
The rate of withholding on all other payments made under the Contract, such as
amounts received upon withdrawals, will generally be 10%. Thus, if the
contract owner fails to elect that there be no withholding, Merrill Lynch Life
will withhold from every withdrawal or annuity payment the appropriate
percentage of the amount of the payment that is taxable. Merrill Lynch Life
will provide the contract owner with forms and instructions concerning the
right to elect that no
37
amount be withheld from payments. Generally, there will be no withholding for
taxes until payments are actually received under the Contract.
POSSIBLE CHANGES IN TAXATION
In past years, legislation has been proposed that would have adversely
modified the federal taxation of certain annuities. For example, one such
proposal would have changed the tax treatment of non-qualified annuities that
did not have "substantial life contingencies" by taxing income as it is
credited to the annuity. Although, as of the date of this prospectus, Congress
is not actively considering any legislation regarding the taxation of
annuities, there is always the possibility that the tax treatment of annuities
could change by legislation or other means (such as IRS regulations, revenue
rulings, judicial decisions, etc.). Moreover, it is also possible that any
change could be retroactive (that is, effective prior to the date of the
change).
OTHER TAX CONSEQUENCES
Merrill Lynch Life does not make any guarantee regarding the tax status of the
Contract or any transaction regarding the Contract. As noted above, the
foregoing discussion of the income tax consequences under the Contract is not
exhaustive and special rules are provided with respect to other tax situations
not discussed in the Prospectus. Further, the income tax consequences
discussed herein reflect the Company's understanding of current law and the
law may change. Federal estate and state and local estate, inheritance, and
other tax consequences of ownership or receipt of distributions under the
Contract depend on the individual circumstances of each contract owner or
recipient of the distribution. A competent tax adviser should be consulted for
further information.
OTHER INFORMATION
VOTING RIGHTS
Merrill Lynch Life is the legal owner of all Fund shares held in the Accounts.
As the owner, it has the right to vote on any matter put to vote at the Funds'
shareholder meetings. However, Merrill Lynch Life will vote all Fund shares
attributable to Contracts according to instructions received from contract
owners. Shares attributable to Contracts for which no voting instructions are
received will be voted in the same proportion as shares in the respective
subaccounts for which instructions are received. Shares not attributable to
Contracts will also be voted in the same proportion as shares in the
respective subaccounts for which instructions are received. If any federal
securities laws or regulations, or their present interpretation, change to
permit Merrill Lynch Life to vote Fund shares in its own right, it may elect
to do so.
Contract owners have voting rights prior to their annuity date. They may give
voting instructions concerning (1) the election of the Funds' Board of
Directors; (2) ratification of the Funds' independent accountant; (3) approval
of the investment advisory agreement for a Fund corresponding to the contract
owner's selected subaccounts; (4) any change in the fundamental investment
policy of a Fund corresponding to the contract owner's selected subaccounts;
and (5) any other matter requiring a vote of the Funds' shareholders. The
number of shares for which a contract owner may give voting instructions prior
to the annuity date is determined by dividing the contract owner's interest in
a subaccount by the net asset value per share of the corresponding Fund. The
number of shares for which contract owners may give voting instructions will
be determined as of a record date chosen by Merrill Lynch Life. The record
date will be no earlier than 90 days prior to the shareholder meeting.
After the annuity date, contract owners no longer have voting rights, since
their contract value has then been moved out of the Funds.
Contract owners will receive periodic reports relating to the Funds in which
they have an interest including proxy material and voting instruction forms.
REPORTS TO CONTRACT OWNERS
At least once each contract year prior to the annuity date, contract owners
will be sent a statement that provides information pertinent to their own
Contract. The statement will outline
38
all Contract transactions during the year, the Contract's current number of
accumulation units, the value of each accumulation unit, and the total
contract value.
Contract owners will also be sent an annual and a semiannual report containing
financial statements and a list of portfolio securities of the Funds, as
required by the Investment Company Act of 1940.
SELLING THE CONTRACT
Merrill Lynch, Pierce, Fenner & Smith Incorporated 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"). Merrill Lynch, Pierce, Fenner & Smith Incorporated's
principal business address is World Financial Center, 250 Vesey Street, New
York, New York 10281.
Contracts are sold by registered representatives (Financial Consultants) of
Merrill Lynch, Pierce, Fenner & Smith Incorporated who are also licensed
through various Merrill Lynch Life Agencies as insurance agents for Merrill
Lynch Life. Merrill Lynch Life has entered into a distribution agreement with
Merrill Lynch, Pierce, Fenner & Smith Incorporated and companion sales
agreements with the Merrill Lynch Life Agencies through which agreements the
Contracts are sold and the Financial Consultants are compensated by Merrill
Lynch Life Agencies and/or Merrill Lynch, Pierce, Fenner & Smith Incorporated.
The maximum commission paid to the Financial Consultant is 2.0% of each
premium allocated to Separate Account A. In addition, on the annuity date, the
Financial Consultant will receive compensation of no more than 1.4% of
contract value not subject to a contingent deferred sales charge. Additional
annual compensation of no more than 0.50% of contract value may also be paid
to the Financial Consultant. Commission may be paid in the form of non-cash
compensation, in accordance with NASD rules. No commission or annuity date
compensation will be paid on Contracts purchased by employees of Merrill Lynch
Life or its affiliates or Contracts purchased by the employees' spouses or
dependents.
The maximum commission Merrill Lynch Life will pay to the applicable insurance
agency to be used to pay commissions to Financial Consultants is 5.0% of each
premium allocated to Separate Account A.
Merrill Lynch, Pierce, Fenner & Smith Incorporated 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
Merrill Lynch, Pierce, Fenner & Smith Incorporated registered representatives.
STATE REGULATION
Merrill Lynch Life is subject to the laws of the State of Arkansas and to the
regulations of the Arkansas Insurance Department. It is also subject to the
insurance laws and regulations of all jurisdictions in which it is licensed to
do business.
An annual statement in the prescribed form is filed with the insurance
departments of jurisdictions where Merrill Lynch Life does business disclosing
the Company's operations for the preceding year and its financial condition as
of the end of that year. Insurance department regulation includes periodic
examination to verify Contract liabilities and reserves and to determine
solvency and compliance with all insurance laws and regulations. Merrill Lynch
Life's books and accounts are subject to insurance department review at all
times. A full examination of Merrill Lynch Life's operations is conducted
periodically by the Arkansas Insurance Department and under the auspices of
the National Association of Insurance Commissioners.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Accounts are a party or to which
the assets of the Accounts are subject. Merrill Lynch Life and Merrill Lynch,
Pierce, Fenner & Smith Incorporated are engaged in various kinds of routine
litigation that, in the Company's judgment, is not material to its total
assets. No litigation relates to the Accounts.
39
EXPERTS
The financial statements of Merrill Lynch Life as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996 and
of the Accounts as of December 31, 1996 and for the periods presented in the
Statement of Additional Information have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing therein, and
are 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
10281-1420.
LEGAL MATTERS
The organization of the Company, its authority to issue the Contract, and the
validity of the form of the Contract have been passed upon by Barry G.
Skolnick, Merrill Lynch Life's Senior Vice President and General Counsel.
Sutherland, Asbill & Brennan, L.L.P. 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.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The contents of the Statement of Additional Information for the Contract
include the following:
OTHER INFORMATION
Principal Underwriter
Financial Statements
Administrative Services Arrangements
CALCULATION OF YIELDS AND TOTAL RETURNS
FINANCIAL STATEMENTS OF MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE
ACCOUNT A
FINANCIAL STATEMENTS OF MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE
ACCOUNT B
FINANCIAL STATEMENTS OF MERRILL LYNCH LIFE INSURANCE COMPANY
40
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
AND
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT B
FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT
ALSO KNOWN AS
MODIFIED SINGLE PREMIUM INDIVIDUAL DEFERRED
VARIABLE ANNUITY CONTRACT
ISSUED BY
MERRILL LYNCH LIFE INSURANCE COMPANY
HOME OFFICE: LITTLE ROCK, ARKANSAS 72201
SERVICE CENTER: P.O. BOX 44222,
JACKSONVILLE, FLORIDA 32231-4222
4804 DEER LAKE DRIVE EAST,
JACKSONVILLE, FLORIDA 32246
PHONE: (800) 535-5549
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
This individual deferred variable annuity contract (the "Contract") is
designed to provide comprehensive and flexible ways to invest and to create a
source of income protection for later in life through the payment of annuity
benefits. An annuity is intended to be a long term investment. Contract owners
should consider their need for deferred income before purchasing the Contract.
The Contract is issued by Merrill Lynch Life Insurance Company ("Merrill Lynch
Life") both on a nonqualified basis, and as an Individual Retirement Annuity
("IRA") that is given qualified tax status.
This Statement of Additional Information is not a Prospectus and should be
read together with the Contract's Prospectus dated May 1, 1997, which is
available on request and without charge by writing to or calling Merrill Lynch
Life at the Service Center address or phone number set forth above.
TABLE OF CONTENTS
PAGE
----
OTHER INFORMATION........................................................ 3
Principal Underwriter.................................................... 3
Financial Statements..................................................... 3
Administrative Services Arrangements..................................... 3
CALCULATION OF YIELDS AND TOTAL RETURNS.................................. 3
FINANCIAL STATEMENTS OF MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE
ACCOUNT A............................................................... S-1
FINANCIAL STATEMENTS OF MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE
ACCOUNT B............................................................... S-
FINANCIAL STATEMENTS OF MERRILL LYNCH LIFE INSURANCE COMPANY............. G-1
2
OTHER INFORMATION
PRINCIPAL UNDERWRITER
Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of Merrill
Lynch Life, performs all sales and distribution functions regarding the
Contracts and may be deemed the principal underwriter of Merrill Lynch Life
Variable Annuity Separate Account A and Merrill Lynch Life Variable Annuity
Separate Account B (the "Accounts") under the Investment Company Act of 1940.
The offering is continuous. For the years ended December 31, 1996, 1995, and
1994, Merrill Lynch, Pierce, Fenner & Smith Incorporated received $26.1
million, $24.2 million and $59.1 million respectively, in commissions in
connection with the sale of the Contracts.
FINANCIAL STATEMENTS
The financial statements of Merrill Lynch Life included in this Statement of
Additional Information should be distinguished from the financial statements
of the Accounts and should be considered only as bearing upon the ability of
Merrill Lynch Life to meet any obligations it may have under the Contract.
ADMINISTRATIVE SERVICES ARRANGEMENTS
Merrill Lynch Life has entered into a Service Agreement with its parent,
Merrill Lynch Insurance Group, Inc. ("MLIG") pursuant to which Merrill Lynch
Life can arrange for MLIG to provide directly or through affiliates certain
services. Pursuant to this agreement, Merrill Lynch Life has arranged for MLIG
to provide administrative services for the Accounts and the Contracts, and
MLIG, in turn, has arranged for a subsidiary, Merrill Lynch Insurance Group
Services, Inc. ("MLIG Services"), to provide these services. Compensation for
these services, which will be paid by Merrill Lynch Life, will be based on the
charges and expenses incurred by MLIG Services, and will reflect MLIG
Services' actual costs. For the years ended December 31, 1996, 1995 and 1994,
Merrill Lynch Life paid administrative services fees of $44.5 million, $43.0
million, and $44.2 million respectively.
CALCULATION OF YIELDS AND TOTAL RETURNS
MONEY MARKET YIELDS
From time to time, Merrill Lynch Life may quote in advertisements and sales
literature the current annualized yield for the Domestic Money Market
Subaccount of Account A and the Reserve Assets Subaccount of Account B for a
7-day period in a manner that does not take into consideration any realized or
unrealized gains or losses on shares of the underlying Funds or on their
respective portfolio securities. The current annualized yield is computed by:
(a) determining the net change (exclusive of realized gains and losses on the
sales of securities and unrealized appreciation and depreciation) at the end
of the 7-day period in the value of a hypothetical account under a Contract
having a balance of 1 unit at the beginning of the period, (b) dividing such
net change in account value by the value of the account at the beginning of
the period to determine the base period return; and (c) annualizing this
quotient on a 365-day basis. The net change in account value reflects: (1) net
income from the Fund attributable to the hypothetical account; and (2) charges
and deductions imposed under the Contract which are attributable to the
hypothetical account. The charges and deductions include the per unit charges
for the hypothetical account for: (1) the mortality and expense risk charge;
(2) the administration charge in the case of the Domestic Money Market
Subaccount; and (3) the annual contract maintenance charge. For purposes of
calculating current yields for a Contract, an average per unit contract
maintenance charge is used, as described below. Current yield will be
calculated according to the following formula:
Current Yield = ((NCF - ES/UV) X (365/7)
Where:
NCF= the net change in the value of the Fund (exclusive of realized gains
and losses on the sale of securities and unrealized appreciation and
depreciation) for the 7-day period attributable to a hypothetical
account having a balance of 1 unit.
ES= per unit expenses for the hypothetical account for the 7-day period.
UV= the unit value on the first day of the 7-day period.
3
Merrill Lynch Life also may quote the effective yield of the Domestic Money
Market Subaccount or the Reserve Assets Subaccount for the same 7-day period,
determined on a compounded basis. The effective yield is calculated by
compounding the unannualized base period return according to the following
formula:
Effective Yield = (1 + ((NCF - ES)/UV))365/7 - 1
Where:
NCF = the net change in the value of the Fund (exclusive of realized gains
and losses on the sale of securities and unrealized appreciation and
depreciation) for the 7-day period attributable to a hypothetical
account having a balance of 1 unit.
ES = per unit expenses of the hypothetical account for the 7-day period.
UV = the unit value for the first day of the 7-day period.
The effective yield for the Domestic Money Market subaccount for the 7-day
period ended December 31, 1996 was 3.76%. The effective yield for the Reserve
Assets subaccount for the 7-day period ended December 31, 1996 was 4.45%.
Because of the charges and deductions imposed under the Contract, the yield
for the Domestic Money Market Subaccount and the Reserve Assets Subaccount
will be lower than the yield for the corresponding underlying Fund.
The yields on amounts held in the Domestic Money Market Subaccount or the
Reserve Assets Subaccount normally will fluctuate on a daily basis. Therefore,
the disclosed yield for any given past period is not an indication or
representation of future yields or rates of return. The actual yield for those
subaccounts is affected by changes in interest rates on money market
securities, average portfolio maturity of the underlying Fund, the types and
qualities of portfolio securities held by the Fund and the Fund's operating
expenses. Yields on amounts held in the Domestic Money Market Subaccount and
Reserve Assets Subaccount may also be presented for periods other than a 7-day
period.
OTHER SUBACCOUNT YIELDS
From time to time, Merrill Lynch Life may quote in sales literature or
advertisements the current annualized yield of one or more of the Account A
subaccounts (other than the Domestic Money Market Subaccount) for a contract
for 30-day or one-month periods. The annualized yield of a subaccount refers
to income generated by the subaccount over a specified 30-day or one-month
period. Because the yield is annualized, the yield generated by the subaccount
during the 30-day or one-month period is assumed to be generated each period
over a 12-month period. The yield is computed by: (1) dividing the net
investment income of the Fund attributable to the subaccount units less
subaccount expenses for the period; by (2) the maximum offering price per unit
on the last day of the period times the daily average number of units
outstanding for the period; then (3) compounding that yield for a 6-month
period; and then (4) multiplying that result by 2. Expenses attributable to
the subaccount include the mortality and expense risk charge, the
administration charge and the annual contract maintenance charge. For purposes
of calculating the 30-day or one-month yield, an average contract maintenance
charge per dollar of contract value in the subaccount is used to determine the
amount of the charge attributable to the subaccount for the 30-day or one-
month period; as described below. The 30-day or one-month yield is calculated
according to the following formula:
Yield = 2 X ((((NI - ES)/(U X UV)) + 1)6 - 1)
Where:
NI = net investment income of the Fund for the 30-day or one-month period
attributable to the subaccount's units.
ES = expenses of the subaccount for the 30-day or one-month period.
U = the average number of units outstanding.
UV = the unit value at the close of the last day in the 30-day or one-
month period.
4
Currently, Merrill Lynch Life may quote yields on bond subaccounts within
Account A. The yield for those subaccounts for the 30-day period ended
December 31, 1996 was:
NAME OF SUBACCOUNT YIELD
------------------ -----
Prime Bond 4.77%
High Current Income 7.83%
Global Bond Focus (formerly, World
Income Focus) 4.86%
Government Bond (formerly,
Intermediate Government Bond) 4.40%
Because of the charges and deductions imposed under the contracts, the yield
for an Account A subaccount will be lower than the yield for the corresponding
Fund.
The yield on the amounts held in the Account A subaccounts normally will
fluctuate over time. Therefore, the disclosed yield for any given past period
is not an indication or representation of future yields or rates of return. A
subaccount's actual yield is affected by the types and quality of portfolio
securities held by the corresponding Fund, and its operating expenses.
Yield calculations do not take into account the declining contingent deferred
sales charge under the Contract of amounts surrendered or withdrawn under the
Contract deemed to consist of premiums paid within the preceding seven years.
A contingent deferred sales charge will not be imposed on the first withdrawal
in any Contract year to the extent that it is deemed to consist of gain on
premiums paid during the preceding seven contract years and/or premiums not
subject to such a charge.
TOTAL RETURNS
From time to time, Merrill Lynch Life also may quote in sales literature or
advertisements, total returns, including average annual total returns for one
or more of the subaccounts for various periods of time. Average annual total
returns will be provided for a subaccount for 1, 5 and 10 years, or for a
shorter period, if applicable. For the year ended December 31, 1996, returns
were:
1 5 10 SINCE
NAME OF SUBACCOUNT YEAR YEAR YEAR INCEPTION
------------------ ----- ---- ---- ---------
Prime Bond -5.56% N/A N/A 5.61%
High Current Income 2.60% N/A N/A 8.82%
Quality Equity 8.77% N/A N/A 9.63%
Equity Growth -0.20% N/A N/A 8.43%
Natural Resources Focus* 3.70% N/A N/A 6.68%
American Balanced* 1.10% N/A N/A 7.33%
Global Strategy Focus 4.33% N/A N/A 7.14%
Basic Value Focus 11.05% N/A N/A 13.81%
Global Bond Focus (formerly, World Income Focus) -0.52% N/A N/A 4.71%
Global Utility Focus* 3.50% N/A N/A 6.93%
International Equity Focus -2.12% N/A N/A 3.94%
Government Bond (formerly, Intermediate
Government Bond) -5.00% N/A N/A 3.90%
Developing Capital Markets Focus 1.27% N/A N/A --1.89%
Index 500 Fund N/A N/A N/A --5.24%
AIM V.I. Capital Appreciation N/A N/A N/A --6.15%
AIM V.I. Value N/A N/A N/A --3.98%
Alliance Premier Growth N/A N/A N/A --6.38%
MFS Emerging Growth N/A N/A N/A --7.93%
MFS Research N/A N/A N/A --5.65%
Total returns assume the Contract was surrendered at the end of the period
shown, and are not indicative of performance if the Contract was continued for
a longer period.
- --------
* Closed to allocations of premiums or contract value following the close of
business on December 6, 1996.
5
Average annual total returns for other periods of time may also be disclosed
from time to time. For example, average annual total returns may be provided
based on the assumption that a subaccount had been in existence and had
invested in the corresponding underlying Fund for the same period as the
corresponding Fund had been in operation. The Funds commenced operations as
indicated below:
COMMENCED
FUND OPERATIONS
---- ----------
Domestic Money Market February 21, 1992
Prime Bond April 29, 1982
High Current Income April 29, 1982
Quality Equity April 29, 1982
Equity Growth April 29, 1982
Natural Resources Focus* June 1, 1988
American Balanced* June 1, 1988
Global Strategy Focus February 21, 1992
Basic Value Focus July 1, 1993
Global Bond Focus (formerly, World
Income Focus) July 1, 1993
Global Utility Focus* July 1, 1993
International Equity Focus July 1, 1993
Government Bond (formerly,
Intermediate Government Bond) May 16, 1994
Developing Capital Markets Focus May 16, 1994
Reserve Assets November 23, 1981
Index 500 Fund December 18, 1996
AIM V.I. Capital Appreciation May 5, 1993
AIM V.I. Value May 5, 1993
Alliance Premier Growth March 12, 1992
MFS Emerging Growth Series July 24, 1995
MFS Research Series July 26, 1995
Average annual total returns represent the average annual compounded rates of
return that would equate an initial investment of $1,000 under a contract to
the redemption value or that investment as of the last day of each of the
periods. The ending date for each period for which total return quotations are
provided will generally be as of the most recent calendar quarter-end.
Average annual total returns are calculated using subaccount unit values
calculated on each valuation day based on the performance of the corresponding
underlying Fund, the deductions for the mortality and expense risk charge, the
administration charge (in the case of Account A subaccounts), and the contract
maintenance charge, and assume a surrender of the Contract at the end of the
period for the return quotation. Total returns therefore reflect a deduction
of the contingent deferred sales charge for any period of less than seven
years. For purposes of calculating total return, an average per dollar
contract maintenance charge attributable to the hypothetical account for the
period is used, as described below. The total return is then calculated
according to the following formula:
TR = ((ERV/P)1/N) - 1
Where:
TR = the average annual total return net of subaccount recurring charges
(such as the mortality and expense risk charge, administration
charge, if applicable, and contract maintenance charge).
ERV = the ending redeemable value (net of any applicable contingent
deferred sales charge) at the end of the period of the hypothetical
account with an initial payment of $1,000.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
- --------
* The subaccount corresponding to this Fund was closed to allocations of
premiums or contract value following the close of business on December 6,
1996.
6
From time to time, Merrill Lynch Life also may quote in sales literature or
advertisements, total returns that do not reflect the contingent deferred
sales charge. These are calculated in exactly the same way as average annual
total returns described above, except that the ending redeemable value of the
hypothetical account for the period is replaced with an ending value for the
period that does not take into account any contingent deferred sales charge on
surrender of the Contract. In addition, such nonstandard returns may also be
quoted for other periods.
For the year ended December 31, 1996, returns not reflecting any contingent
deferred sales charge were:
1 5 10 SINCE
NAME OF SUBACCOUNT YEAR YEAR YEAR INCEPTION
------------------ ----- ---- ---- ---------
Prime Bond 0.80% N/A N/A 6.10%
High Current Income 9.57% N/A N/A 9.26%
Quality Equity 15.77% N/A N/A 10.06%
Equity Growth 6.56% N/A N/A 8.88%
Natural Resources Focus* 10.70% N/A N/A 7.16%
American Balanced* 7.95% N/A N/A 7.79%
Global Strategy Focus 11.33% N/A N/A 7.61%
Basic Value Focus 18.05% N/A N/A 14.62%
Global Bond Focus (formerly, World Income Focus) 6.21% N/A N/A 5.71%
Global Utility Focus* 10.50% N/A N/A 7.88%
International Equity Focus 4.49% N/A N/A 4.96%
Government Bond (formerly, Intermediate
Government Bond) 1.40% N/A N/A 5.66%
Developing Capital Markets Focus 8.14% N/A N/A -0.15%
Index 500 Fund N/A N/A N/A 1.14%
AIM V.I. Capital Appreciation N/A N/A N/A 0.16%
AIM V.I. Value N/A N/A N/A 2.49%
Alliance Premier Growth N/A N/A N/A -0.08%
MFS Emerging Growth N/A N/A N/A -1.75%
MFS Research N/A N/A N/A 0.70%
From time to time, Merrill Lynch Life also may quote in sales literature or
advertisements total returns or other performance information for a
hypothetical Contract assuming the initial premium is allocated to more than
one subaccount or assuming monthly transfers from the Domestic Money Market
Subaccount to one or more designated subaccounts under a dollar cost averaging
program. These returns will reflect the performance of the affected
subaccount(s) for the amount and duration of the allocation to each subaccount
for the hypothetical Contract. They also will reflect the deduction of charges
described above except for the contingent deferred sales charge. For example,
total return information for a Contract with a dollar cost averaging program
for a 12-month period will assume commencement of the program at the beginning
of the most recent 12-month period for which average annual total return
information is available. This information will assume an initial lump-sum
investment in the Domestic Money Market Subaccount at the beginning of that
period and monthly transfers of a portion of the contract value from that
subaccount to designated subaccount(s) during the 12-month period. The total
return for the Contract for this 12-month period therefore will reflect the
return on the portion of the contract value that remains invested in the
Domestic Money Market Subaccount for the period it is assumed to be so
invested, as affected by monthly transfers, and the return on amounts
transferred to the designated subaccounts for the period during which those
amounts are assumed to be invested in those subaccounts. The return for an
amount invested in a subaccount will be based on the performance of that
subaccount for the duration of the investment, and will reflect the charges
described above other than the contingent deferred sales charge. Performance
information for a dollar cost-averaging program also may show the returns for
various periods for a designated subaccount assuming monthly transfers to the
subaccount, and may compare those returns to returns assuming an initial lump-
sum investment in that subaccount. This information also may be compared to
various indices, such as the Merrill Lynch 91-day Treasury Bills index or the
U.S. Treasury Bills index and may be illustrated by graphs, charts, or
otherwise.
7
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying statement of net assets of
Merrill Lynch Life Variable Annuity Separate Account A (the
"Account") as of December 31, 1996 and the related
statements of operations and changes in net assets for each
of the two years in the period then ended. These financial
statements are the responsibility of the management of
Merrill Lynch Life Insurance Company. Our responsibility is
to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation
of mutual fund securities owned at December 31, 1996. 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, 1996 and the results of its operations and
the changes in its net assets for the above periods in
conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an
opinion on the basic financial statements taken as a whole.
The supplemental schedules included herein are presented for
the purpose of additional analysis and are not a required
part of the basic financial statements. These schedules are
the responsibility of the Company's management. Such
schedules have been subjected to the auditing procedures
applied in our audits of the basic financial statements and,
in our opinion, are fairly stated in all material respects
when considered in relation to the basic financial
statements taken as a whole.
January 21, 1997
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1996
================================================================================
Market
Cost Shares Value
======================= ======================= =======================
ASSETS:
Investments in Merrill Lynch Variable Series Funds, Inc. (Note 1):
Domestic Money Market Fund $ 254,164,465 254,164,465 $ 254,164,465
Prime Bond Fund 477,753,926 39,390,465 469,140,433
High Current Income Fund 381,263,013 33,447,036 380,961,735
Quality Equity Fund 583,996,787 20,933,524 687,247,607
Equity Growth Fund 336,188,253 15,242,163 399,649,513
American Balanced Fund 162,229,076 11,712,633 187,519,252
Natural Resources Focus Fund 35,925,503 3,186,045 41,800,912
Global Strategy Focus Fund 700,177,406 56,085,851 777,910,741
Global Utility Focus Fund 111,602,179 10,773,231 131,325,692
International Equity Focus Fund 300,251,501 27,071,847 314,845,575
Global Bond Focus Fund 88,497,728 8,986,919 87,712,330
Basic Value Focus Fund 365,579,446 30,826,359 454,380,535
Government Bond Fund 82,009,428 7,997,406 83,173,020
Developing Capital Markets Focus Fund 77,242,565 7,916,381 79,559,689
Index 500 Fund 10,331,894 1,032,908 10,503,117
----------------------- -----------------------
$ 3,967,213,170 4,359,894,616
----------------------- -----------------------
Investments in Alliance Variable Products Series Fund, Inc. (Note 1):
Premier Growth Portfolio 146,041 9,279 145,684
----------------------- -----------------------
146,041 145,684
----------------------- -----------------------
Investments in MFS Variable Insurance Trust (Note 1):
MFS Emerging Growth Series 241,064 17,775 235,339
MFS Research Series 256,255 19,274 253,065
----------------------- -----------------------
497,319 488,404
----------------------- -----------------------
Investments in AIM Variable Insurance Funds, Inc. (Note 1):
AIM V.I. Value Fund 301,946 17,515 306,168
AIM V.I. Capital Appreciation Fund 534,393 27,412 532,618
----------------------- -----------------------
836,339 838,786
----------------------- -----------------------
TOTAL ASSETS 3,968,692,869 4,361,367,490
======================= -----------------------
LIABILITIES:
Due to Merrill Lynch Life Insurance Company 1,772,902
-----------------------
NET ASSETS $ 4,359,594,588
=======================
See Notes to Financial Statements
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
================================================================================
1996 1995
======================= =======================
Investment Income:
Reinvested Dividends $ 305,335,555 $ 151,411,178
Mortality and Expense Charges (Note 3) (54,400,771) (44,166,041)
----------------------- -----------------------
Net Investment Income 250,934,784 107,245,137
----------------------- -----------------------
Realized and Unrealized Gains:
Net Realized Gains 20,682,599 6,592,597
Net Unrealized Gains 101,585,937 372,724,044
----------------------- -----------------------
Net Realized and Unrealized Gains 122,268,536 379,316,641
----------------------- -----------------------
Increase in Net Assets
Resulting from Operations 373,203,320 486,561,778
----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 507,916,019 490,341,573
Transfer of Contract Owner Withdrawals (207,895,518) (162,688,288)
Transfers Out - Net (25,471,251) (17,547,961)
Transfer of Contract Maintenance Charges (Note 3) (1,481,625) (1,449,696)
Transfers from (to) General Account - Net 827,514 (6,559,424)
----------------------- -----------------------
Increase in Net Assets
Resulting from Principal Transactions 273,895,139 302,096,204
----------------------- -----------------------
Increase in Net Assets 647,098,459 788,657,982
Net Assets Beginning Balance 3,712,496,129 2,923,838,147
----------------------- -----------------------
Net Assets Ending Balance $ 4,359,594,588 $ 3,712,496,129
======================= =======================
See Notes to Financial Statements
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Merrill Lynch Life Variable Annuity Separate Account A
("Separate Account A"), a separate account of Merrill
Lynch Life Insurance Company ("Merrill Lynch Life"), was
established to support the operations with respect to
certain variable annuity contracts ("Contracts").
Separate Account A is governed by Arkansas State
Insurance Law. Merrill Lynch Life is an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. Separate
Account A is registered as a unit investment trust under
the Investment Company Act of 1940 and consists of twenty
investment divisions as follows:
- Merrill Lynch Variable Series Funds, Inc.: Fifteen of
the investment divisions each invest in the securities of a
single mutual fund portfolio of the Merrill Lynch Variable
Series Funds, Inc. (See Note 5.) Three of the investment
divisions; Natural Resources Focus Fund, American Balanced
Fund and Global Utility Focus Fund were closed to
allocations of premiums and contract value following the
close of business on December 6, 1996.
- Alliance Variable Products Series Fund, Inc.: One
investment division invests in the securities of a single
mutual fund portfolio of the Alliance Variable Products
Series Fund, Inc..
- 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.
- AIM Variable Insurance Funds, Inc.: Two of the
investment divisions each invest in the securities of a
single mutual fund portfolio of the AIM Variable Insurance
Funds, Inc.
The assets of Separate Account A are registered in the
name of Merrill Lynch Life. The portion of Separate
Account A's assets applicable to the Contracts are not
chargeable with liabilities arising out of any other
business Merrill Lynch Life may conduct.
The change in net assets accumulated in Separate Account
A provides the basis for the periodic determination of
the amount of increased or decreased benefits under the
Contracts.
The net assets may not be less than the amount required
under Arkansas State Insurance Law to provide for death
benefits (without regard to the minimum death benefit
guarantee) and other Contract benefits.
The financial statements included herein have been
prepared in accordance with generally accepted accounting
principles for variable annuity separate accounts
registered as unit investment trusts. The preparation of
financial statements in conformity with generally
accepted accounting principles requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
2. The following is a summary of significant accounting
policies of Separate Account A:
Investments in the divisions are included in the
statement of net assets at the net asset value of the
shares held.
Dividend income is recognized on the ex-dividend date.
All dividends are automatically reinvested.
Realized gains and losses on the sales of investments are
computed on the first in first out method.
The operations of Separate Account A are included in the
Federal income tax return of Merrill Lynch Life. Under
the provisions of the Contracts, Merrill Lynch Life has
the right to charge Separate Account A for any Federal
income tax attributable to Separate Account A. No charge
is currently being made against Separate Account A for
such tax since, under current tax law, Merrill Lynch Life
pays no tax on investment income and capital gains
reflected in variable annuity contract reserves. However,
Merrill Lynch Life retains the right to charge for any
Federal income tax incurred which is attributable to
Separate Account A if the law is changed. Charges for
state and local taxes, if any, attributable to Separate
Account A may also be made.
3. Merrill Lynch Life assumes mortality and expense risks
related to Contracts investing in Separate Account A and
deducts daily charges at a rate of 1.25% (on an annual
basis) of the net assets of Separate Account A to cover
these risks.
An administration charge of .10% annually is deducted
daily from the net asset value of Separate Account A.
This charge is made to reimburse Merrill Lynch Life for
costs associated with the establishment and
administration of Separate Account A.
Merrill Lynch Life deducts a contract maintenance charge
of $40 for each Contract on each Contract's anniversary
that occurs on or prior to the annuity date. It is also
deducted when the Contract is surrendered if it is
surrendered on any date other than a contract anniversary
date. The contract maintenance charge is borne by
Contract owners by redeeming accumulation units with a
value equal to the charge. This charge is waived on all
Contracts with a Contract value equal to or greater than
$50,000 on the date the charge would otherwise be
deducted, and in certain circumstances where multiple
contracts are owned.
Contract owners may make up to six transfers among the
Separate Account A divisions per contract year without
charge. Additional transfers may be permitted at a charge
of $25 per transfer.
4. The net assets attributable to Merrill Lynch Life in
Separate Account A represent an investment in certain
investment divisions to facilitate the establishment of
those investment divisions. Merrill Lynch Life's
investment is not subject to charges for mortality and
expense risks. Excess amounts retained in Separate
Account A may be transferred by Merrill Lynch Life to the
general account.
5. Effective following the close of business on December 6,
1996, (i) 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; (ii) the
Flexible Strategy Fund was merged with and into the
Global Strategy Focus Fund; and (iii) the Intermediate
Government Bond Fund was renamed the Government Bond
Fund, and the Fund's investment objective was modified.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
Total
Separate Total Total
Account Contracts Investment
======================= ======================= =======================
Investment Income:
Reinvested Dividends $ 305,335,555 $ 304,928,917 $ 406,638
Mortality and Expense Charges (54,400,771) (54,400,771) 0
----------------------- ----------------------- -----------------------
Net Investment Income 250,934,784 250,528,146 406,638
----------------------- ----------------------- -----------------------
Realized and Unrealized Gains:
Net Realized Gains 20,682,599 20,576,844 105,755
Net Unrealized Gains 101,585,937 101,253,144 332,793
----------------------- ----------------------- -----------------------
Net Realized and Unrealized Gains 122,268,536 121,829,988 438,548
----------------------- ----------------------- -----------------------
Increase in Net Assets
Resulting from Operations 373,203,320 372,358,134 845,186
----------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 507,916,019 507,916,019 0
Transfer of Contract Owner Withdrawals (207,895,518) (207,895,518) 0
Transfers Out - Net (25,471,251) (25,471,251) 0
Transfer of Contract Maintenance Charges (1,481,625) (1,481,625) 0
Transfers From General Account - Net 827,514 0 827,514
----------------------- ----------------------- -----------------------
Increase in Net Assets
Resulting from Principal Transactions 273,895,139 273,067,625 827,514
----------------------- ----------------------- -----------------------
Increase in Net Assets 647,098,459 645,425,759 1,672,700
Net Assets Beginning Balance 3,712,496,129 3,704,000,339 8,495,790
----------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 4,359,594,588 $ 4,349,426,098 $ 10,168,490
======================= ======================= =======================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
================================================================================
Total
Separate Total Total
Account Contracts Investment
======================= ======================= =======================
Investment Income:
Reinvested Dividends $ 151,411,178 $ 151,033,972 $ 377,206
Mortality and Expense Charges (44,166,041) (44,166,041) 0
----------------------- ----------------------- -----------------------
Net Investment Income 107,245,137 106,867,931 377,206
----------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 6,592,597 6,962,041 (369,444)
Net Unrealized Gains 372,724,044 372,339,052 384,992
----------------------- ----------------------- -----------------------
Net Realized and Unrealized Gains 379,316,641 379,301,093 15,548
----------------------- ----------------------- -----------------------
Increase in Net Assets
Resulting from Operations 486,561,778 486,169,024 392,754
----------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 490,341,573 490,341,573 0
Transfer of Contract Owner Withdrawals (162,688,288) (162,688,288) 0
Transfers Out - Net (17,547,961) (17,547,961) 0
Transfer of Contract Maintenance Charges (1,449,696) (1,449,696) 0
Transfers to General Account - Net (6,559,424) 0 (6,559,424)
----------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 302,096,204 308,655,628 (6,559,424)
----------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets 788,657,982 794,824,652 (6,166,670)
Net Assets Beginning Balance 2,923,838,147 2,909,175,687 14,662,460
----------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 3,712,496,129 $ 3,704,000,339 $ 8,495,790
======================= ======================= =======================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
Divisions Investing In
===================================================================================
Domestic
Total Money Prime
Separate Market Bond
Account Fund Fund
=========================== =========================== ===========================
Investment Income (Loss):
Reinvested Dividends $ 304,928,917 $ 12,769,857 $ 28,083,697
Mortality and Expense Charges (54,400,771) (3,463,704) (5,804,156)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 250,528,146 9,306,153 22,279,541
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 20,576,844 0 197,812
Net Unrealized Gains (Losses) 101,253,144 0 (17,404,424)
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 121,829,988 0 (17,206,612)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 372,358,134 9,306,153 5,072,929
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 507,916,019 431,768,672 4,701,553
Transfer of Contract Owner Withdrawals (207,895,518) (23,361,863) (24,893,231)
Transfers In (Out) - Net (25,471,251) (447,973,179) 64,861,016
Transfer of Contract Maintenance Charges (1,481,625) (60,674) (142,790)
Transfer of Merged Funds (Note 5) 0 0 0
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 273,067,625 (39,627,044) 44,526,548
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 645,425,759 (30,320,891) 49,599,477
Net Assets Beginning Balance 3,704,000,339 284,378,353 419,350,194
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 4,349,426,098 $ 254,057,462 $ 468,949,671
=========================== =========================== ===========================
Units Outstanding at December 31, 1996 22,091,953.2 34,996,244.1
=========================== ===========================
Accumulation Unit Value at December 31, 1996 $ 11.50 $ 13.40
=========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
Divisions Investing In
===================================================================================
High
Current Quality Equity
Income Equity Growth
Fund Fund Fund
=========================== =========================== ===========================
Investment Income (Loss):
Reinvested Dividends $ 33,137,129 $ 84,157,165 $ 40,488,061
Mortality and Expense Charges (4,816,499) (8,254,005) (4,842,675)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 28,320,630 75,903,160 35,645,386
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (431,269) 2,287,500 2,353,856
Net Unrealized Gains (Losses) 5,310,002 15,233,629 (15,848,534)
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 4,878,733 17,521,129 (13,494,678)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 33,199,363 93,424,289 22,150,708
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 8,705,380 11,097,642 9,887,726
Transfer of Contract Owner Withdrawals (19,067,263) (28,796,257) (15,308,291)
Transfers In (Out) - Net 33,144,580 62,791,585 81,391,997
Transfer of Contract Maintenance Charges (126,439) (234,486) (130,664)
Transfer of Merged Funds (Note 5) 0 0 0
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 22,656,258 44,858,484 75,840,768
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 55,855,621 138,282,773 97,991,476
Net Assets Beginning Balance 324,951,278 548,685,141 301,495,569
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 380,806,899 $ 686,967,914 $ 399,487,045
=========================== =========================== ===========================
Units Outstanding at December 31, 1996 24,631,752.8 42,908,676.7 26,282,042.4
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1996 $ 15.46 $ 16.01 $ 15.20
=========================== =========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
Divisions Investing In
===================================================================================
Natural
Flexible American Resources
Strategy Balanced Focus
Fund Fund Fund
=========================== =========================== ===========================
Investment Income (Loss):
Reinvested Dividends $ 44,477,092 $ 7,239,257 $ 1,337,540
Mortality and Expense Charges (3,292,483) (2,575,354) (567,041)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 41,184,609 4,663,903 770,499
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 2,525,056 3,436,706 788,059
Net Unrealized Gains (Losses) (13,916,660) 6,783,279 3,040,336
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) (11,391,604) 10,219,985 3,828,395
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 29,793,005 14,883,888 4,598,894
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 3,517,990 2,796,890 1,025,133
Transfer of Contract Owner Withdrawals (12,485,629) (10,664,004) (2,332,333)
Transfers In (Out) - Net (13,999,757) (6,521,763) (888,528)
Transfer of Contract Maintenance Charges (106,757) (76,755) (13,837)
Transfer of Merged Funds (Note 5) (263,621,085) 0 0
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (286,695,238) (14,465,632) (2,209,565)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets (256,902,233) 418,256 2,389,329
Net Assets Beginning Balance 256,902,233 187,024,696 39,394,602
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 0 $ 187,442,952 $ 41,783,931
=========================== =========================== ===========================
Units Outstanding at December 31, 1996 0.0 12,953,901.3 2,971,830.1
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1996 $ 0.00 $ 14.47 $ 14.06
=========================== =========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
Divisions Investing In
===================================================================================
Global Global International
Strategy Utility Equity
Focus Focus Focus
Fund Fund Fund
=========================== =========================== ===========================
Investment Income (Loss):
Reinvested Dividends $ 11,889,024 $ 6,283,801 $ 3,404,013
Mortality and Expense Charges (7,207,973) (1,849,080) (3,910,354)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 4,681,051 4,434,721 (506,341)
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 6,709,117 2,552,957 524,063
Net Unrealized Gains (Losses) 46,086,216 7,317,385 13,362,729
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 52,795,333 9,870,342 13,886,792
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 57,476,384 14,305,063 13,380,451
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 9,160,911 2,466,876 6,673,370
Transfer of Contract Owner Withdrawals (25,295,028) (7,622,746) (13,085,931)
Transfers In (Out) - Net (32,338,973) (16,909,768) 62,137,992
Transfer of Contract Maintenance Charges (233,094) (53,892) (114,701)
Transfer of Merged Funds (Note 5) 263,621,085 0 0
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 214,914,901 (22,119,530) 55,610,730
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 272,391,285 (7,814,467) 68,991,181
Net Assets Beginning Balance 505,203,452 139,086,815 245,726,554
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 777,594,737 $ 131,272,348 $ 314,717,735
=========================== =========================== ===========================
Units Outstanding at December 31, 1996 54,187,786.6 10,020,789.9 26,446,868.5
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1996 $ 14.35 $ 13.10 $ 11.90
=========================== =========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
Divisions Investing In
===================================================================================
Global Basic
Bond Value International
Focus Focus Bond
Fund Fund Fund
=========================== =========================== ===========================
Investment Income (Loss):
Reinvested Dividends $ 6,323,251 $ 19,630,641 $ 1,074,729
Mortality and Expense Charges (1,084,593) (4,888,588) (178,095)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 5,238,658 14,742,053 896,634
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (828,024) 351,122 23,818
Net Unrealized Gains (Losses) 657,507 47,906,465 (504,487)
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) (170,517) 48,257,587 (480,669)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 5,068,141 62,999,640 415,965
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 1,221,287 9,988,568 1,052,700
Transfer of Contract Owner Withdrawals (4,443,757) (14,687,789) (600,784)
Transfers In (Out) - Net (3,466,879) 117,643,971 (937,300)
Transfer of Contract Maintenance Charges (25,783) (121,626) (4,065)
Transfer of Merged Funds (Note 5) 13,511,225 0 (13,511,225)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 6,796,093 112,823,124 (14,000,674)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 11,864,234 175,822,764 (13,584,709)
Net Assets Beginning Balance 75,812,450 278,372,565 13,584,709
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 87,676,684 $ 454,195,329 $ 0
=========================== =========================== ===========================
Units Outstanding at December 31, 1996 7,186,613.4 28,054,066.0 0.0
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1996 $ 12.20 $ 16.19 $ 0.00
=========================== =========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
Divisions Investing In
===================================================================================
Developing
Government Capital Markets Index
Bond Focus 500
Fund Fund Fund
=========================== =========================== ===========================
Investment Income (Loss):
Reinvested Dividends $ 3,488,502 $ 1,139,526 $ 0
Mortality and Expense Charges (768,612) (896,744) (158)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 2,719,890 242,782 (158)
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 71,965 14,106 0
Net Unrealized Gains (Losses) (1,017,190) 4,250,983 2,732
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) (945,225) 4,265,089 2,732
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 1,774,665 4,507,871 2,574
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 1,093,829 2,705,741 0
Transfer of Contract Owner Withdrawals (2,101,440) (3,146,906) 0
Transfers In (Out) - Net 43,351,696 30,485,503 331,916
Transfer of Contract Maintenance Charges (12,404) (23,658) 0
Transfer of Merged Funds (Note 5) 0 0 0
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 42,331,681 30,020,680 331,916
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 44,106,346 34,528,551 334,490
Net Assets Beginning Balance 39,032,834 44,998,894 0
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 83,139,180 $ 79,527,445 $ 334,490
=========================== =========================== ===========================
Units Outstanding at December 31, 1996 7,173,354.6 7,960,705.2 33,052.4
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1996 $ 11.59 $ 9.99 $ 10.12
=========================== =========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
Divisions Investing In
===================================================================================
MFS
Premier Emerging MFS
Growth Growth Research
Portfolio Series Series
=========================== =========================== ===========================
Investment Income (Loss):
Reinvested Dividends $ 0 $ 1,984 $ 3,648
Mortality and Expense Charges (69) (105) (112)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) (69) 1,879 3,536
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 0 0 0
Net Unrealized Gains (Losses) (357) (5,725) (3,190)
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) (357) (5,725) (3,190)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations (426) (3,846) 346
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 6,876 25,125 9,875
Transfer of Contract Owner Withdrawals 0 0 0
Transfers In (Out) - Net 139,175 213,964 242,741
Transfer of Contract Maintenance Charges 0 0 0
Transfer of Merged Funds (Note 5) 0 0 0
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 146,051 239,089 252,616
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 145,625 235,243 252,962
Net Assets Beginning Balance 0 0 0
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 145,625 $ 235,243 $ 252,962
=========================== =========================== ===========================
Units Outstanding at December 31, 1996 14,562.5 23,931.1 25,095.4
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1996 $ 10.00 $ 9.83 $ 10.08
=========================== =========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
Divisions Investing In
=======================================================
AIM V.I.
AIM V.I. Capital
Value Appreciation
Fund Fund
=========================== ===========================
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0
Mortality and Expense Charges (132) (239)
--------------------------- ---------------------------
Net Investment Income (Loss) (132) (239)
--------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 0 0
Net Unrealized Gains (Losses) 4,224 (1,776)
--------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 4,224 (1,776)
--------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 4,092 (2,015)
--------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 3,000 6,875
Transfer of Contract Owner Withdrawals 0 (2,266)
Transfers In (Out) - Net 298,953 529,807
Transfer of Contract Maintenance Charges 0 0
Transfer of Merged Funds (Note 5) 0 0
--------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 301,953 534,416
--------------------------- ---------------------------
Increase (Decrease) in Net Assets 306,045 532,401
Net Assets Beginning Balance 0 0
--------------------------- ---------------------------
Net Assets Ending Balance $ 306,045 $ 532,401
=========================== ===========================
Units Outstanding at December 31, 1996 29,828.9 53,080.9
=========================== ===========================
Accumulation Unit Value at December 31, 1996 $ 10.26 $ 10.03
=========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
================================================================================
Divisions Investing In
===================================================================================
Domestic
Total Money Prime
Separate Market Bond
Account Fund Fund
=========================== =========================== ===========================
Investment Income (Loss):
Reinvested Dividends $ 151,033,972 $ 16,479,639 $ 25,951,696
Mortality and Expense Charges (44,166,041) (4,045,519) (5,028,679)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 106,867,931 12,434,120 20,923,017
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 6,962,041 0 (356,839)
Net Unrealized Gains 372,339,052 0 42,625,400
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 379,301,093 0 42,268,561
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 486,169,024 12,434,120 63,191,578
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 490,341,573 440,022,628 3,391,362
Transfer of Contract Owner Withdrawals (162,688,288) (23,965,595) (21,433,228)
Transfers In (Out) - Net (17,547,961) (488,611,227) 47,690,659
Transfer of Contract Maintenance Charges (1,449,696) (72,417) (150,384)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 308,655,628 (72,626,611) 29,498,409
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 794,824,652 (60,192,491) 92,689,987
Net Assets Beginning Balance 2,909,175,687 344,570,844 326,660,207
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 3,704,000,339 $ 284,378,353 $ 419,350,194
=========================== =========================== ===========================
Units Outstanding at December 31, 1995 25,642,773.0 31,553,814.4
=========================== ===========================
Accumulation Unit Value at December 31, 1995 $ 11.09 $ 13.29
=========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
================================================================================
Divisions Investing In
===================================================================================
High
Current Quality Equity
Income Equity Growth
Fund Fund Fund
=========================== =========================== ===========================
Investment Income (Loss):
Reinvested Dividends $ 27,789,439 $ 14,949,722 $ 780,583
Mortality and Expense Charges (3,819,508) (6,269,506) (2,953,448)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 23,969,931 8,680,216 (2,172,865)
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 10,043 433,698 1,469,424
Net Unrealized Gains 15,684,422 79,670,614 79,091,529
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 15,694,465 80,104,312 80,560,953
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 39,664,396 88,784,528 78,388,088
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 5,991,671 7,230,288 5,551,638
Transfer of Contract Owner Withdrawals (13,985,937) (19,106,957) (8,706,525)
Transfers In (Out) - Net 64,678,623 89,635,805 79,442,340
Transfer of Contract Maintenance Charges (120,245) (213,807) (96,797)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 56,564,112 77,545,329 76,190,656
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 96,228,508 166,329,857 154,578,744
Net Assets Beginning Balance 228,722,770 382,355,284 146,916,825
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 324,951,278 $ 548,685,141 $ 301,495,569
=========================== =========================== ===========================
Units Outstanding at December 31, 1995 23,078,926.0 39,846,415.5 21,157,583.8
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1995 $ 14.08 $ 13.77 $ 14.25
=========================== =========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
================================================================================
Divisions Investing In
===================================================================================
Natural
Flexible American Resources
Strategy Balanced Focus
Fund Fund Fund
=========================== =========================== ===========================
Investment Income (Loss):
Reinvested Dividends $ 10,213,259 $ 6,247,498 $ 758,567
Mortality and Expense Charges (3,192,065) (2,247,732) (526,327)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 7,021,194 3,999,766 232,240
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,099,393 1,158,637 225,946
Net Unrealized Gains 26,726,526 23,405,998 3,629,294
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 27,825,919 24,564,635 3,855,240
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 34,847,113 28,564,401 4,087,480
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 3,284,732 2,114,703 498,136
Transfer of Contract Owner Withdrawals (13,461,076) (8,311,104) (2,310,667)
Transfers In (Out) - Net 20,913,536 27,321,045 1,452,148
Transfer of Contract Maintenance Charges (118,347) (78,861) (15,002)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 10,618,845 21,045,783 (375,385)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 45,465,958 49,610,184 3,712,095
Net Assets Beginning Balance 211,436,275 137,414,512 35,682,507
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 256,902,233 $ 187,024,696 $ 39,394,602
=========================== =========================== ===========================
Units Outstanding at December 31, 1995 19,761,710.2 13,988,384.1 3,136,512.9
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1995 $ 13.00 $ 13.37 $ 12.56
=========================== =========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
================================================================================
Divisions Investing In
===================================================================================
Global Global International
Strategy Utility Equity
Focus Focus Focus
Fund Fund Fund
=========================== =========================== ===========================
Investment Income (Loss):
Reinvested Dividends $ 15,984,684 $ 4,836,146 $ 8,700,233
Mortality and Expense Charges (6,500,391) (1,698,835) (3,040,161)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 9,484,293 3,137,311 5,660,072
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 3,446,474 (242,770) (181,038)
Net Unrealized Gains 29,146,736 23,241,498 3,464,587
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 32,593,210 22,998,728 3,283,549
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 42,077,503 26,136,039 8,943,621
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 6,442,286 1,378,113 4,124,254
Transfer of Contract Owner Withdrawals (21,136,629) (6,681,763) (9,508,795)
Transfers In (Out) - Net (2,018,200) (225,794) 12,341,367
Transfer of Contract Maintenance Charges (261,778) (63,674) (118,463)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (16,974,321) (5,593,118) 6,838,363
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 25,103,182 20,542,921 15,781,984
Net Assets Beginning Balance 480,100,270 118,543,894 229,944,570
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 505,203,452 $ 139,086,815 $ 245,726,554
=========================== =========================== ===========================
Units Outstanding at December 31, 1995 39,315,443.7 11,837,175.7 21,726,485.8
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1995 $ 12.85 $ 11.75 $ 11.31
=========================== =========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
================================================================================
Divisions Investing In
===================================================================================
Global Basic
Bond Value International
Focus Focus Bond
Fund Fund Fund
=========================== =========================== ===========================
Investment Income (Loss):
Reinvested Dividends $ 6,351,494 $ 9,704,167 $ 482,813
Mortality and Expense Charges (968,000) (2,947,756) (100,068)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 5,383,494 6,756,411 382,745
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (650,159) 635,977 53,353
Net Unrealized Gains 5,380,957 37,451,975 508,932
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 4,730,798 38,087,952 562,285
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 10,114,292 44,844,363 945,030
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 677,850 5,962,005 210,741
Transfer of Contract Owner Withdrawals (3,774,369) (7,991,043) (274,296)
Transfers In (Out) - Net (654,289) 83,235,916 8,090,958
Transfer of Contract Maintenance Charges (28,205) (86,932) (2,684)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (3,779,013) 81,119,946 8,024,719
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 6,335,279 125,964,309 8,969,749
Net Assets Beginning Balance 69,477,171 152,408,256 4,614,960
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 75,812,450 $ 278,372,565 $ 13,584,709
=========================== =========================== ===========================
Units Outstanding at December 31, 1995 6,621,174.7 20,468,571.0 1,191,641.1
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1995 $ 11.45 $ 13.60 $ 11.40
=========================== =========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
================================================================================
Divisions Investing In
=======================================================
Developing
Government Capital Markets
Bond Focus
Fund Fund
=========================== ===========================
Investment Income (Loss):
Reinvested Dividends $ 1,570,645 $ 233,387
Mortality and Expense Charges (365,071) (462,975)
--------------------------- ---------------------------
Net Investment Income (Loss) 1,205,574 (229,588)
--------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 28,106 (168,204)
Net Unrealized Gains 2,215,814 94,770
--------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 2,243,920 (73,434)
--------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 3,449,494 (303,022)
--------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 1,534,590 1,926,576
Transfer of Contract Owner Withdrawals (793,709) (1,246,595)
Transfers In (Out) - Net 19,880,371 19,278,781
Transfer of Contract Maintenance Charges (6,974) (15,126)
--------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 20,614,278 19,943,636
--------------------------- ---------------------------
Increase (Decrease) in Net Assets 24,063,772 19,640,614
Net Assets Beginning Balance 14,969,062 25,358,280
--------------------------- ---------------------------
Net Assets Ending Balance $ 39,032,834 $ 44,998,894
=========================== ===========================
Units Outstanding at December 31, 1995 3,417,936.4 4,912,543.0
=========================== ===========================
Accumulation Unit Value at December 31, 1995 $ 11.42 $ 9.16
=========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
INVESTMENT OF MERRILL LYNCH LIFE INSURANCE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
Divisions Investing In
===================================================================================
Global
Bond International
Total Focus Bond
Investment Fund Fund
=========================== =========================== ===========================
Investment Income:
Reinvested Dividends $ 406,638 $ 0 $ 285,799
--------------------------- --------------------------- ---------------------------
Net Investment Income 406,638 0 285,799
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains 105,755 2,155 60,210
Net Unrealized Gains (Losses) 332,793 0 (181,045)
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 438,548 2,155 (120,835)
--------------------------- --------------------------- ---------------------------
Increase in Net Assets
Resulting from Operations 845,186 2,155 164,964
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfers (to) from General Account - Net 827,514 (2,155) (3,847,581)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 827,514 (2,155) (3,847,581)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 1,672,700 0 (3,682,617)
Net Assets Beginning Balance 8,495,790 0 3,682,617
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 10,168,490 $ 0 $ 0
=========================== =========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
INVESTMENT OF MERRILL LYNCH LIFE INSURANCE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
Divisions Investing In
=======================================================
Developing
Capital Index
Markets 500
Focus Fund Fund
=========================== ===========================
Investment Income:
Reinvested Dividends $ 120,839 $ 0
--------------------------- ---------------------------
Net Investment Income 120,839 0
--------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains 43,390 0
Net Unrealized Gains (Losses) 345,348 168,490
--------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 388,738 168,490
--------------------------- ---------------------------
Increase in Net Assets
Resulting from Operations 509,577 168,490
--------------------------- ---------------------------
Changes from Principal Transactions:
Transfers (to) from General Account - Net (5,322,750) 10,000,000
--------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (5,322,750) 10,000,000
--------------------------- ---------------------------
Increase (Decrease) in Net Assets (4,813,173) 10,168,490
Net Assets Beginning Balance 4,813,173 0
--------------------------- ---------------------------
Net Assets Ending Balance $ 0 $ 10,168,490
=========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
INVESTMENT OF MERRILL LYNCH LIFE INSURANCE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 1995
================================================================================
Divisions Investing In
===================================================================================
International Government
Total Bond Bond
Investment Fund Fund
=========================== =========================== ===========================
Investment Income:
Reinvested Dividends $ 377,206 $ 282,700 $ 25,624
--------------------------- --------------------------- ---------------------------
Net Investment Income 377,206 282,700 25,624
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (369,444) 48,952 (8,035)
Net Unrealized Gains 384,992 332,329 6,011
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 15,548 381,281 (2,024)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 392,754 663,981 23,600
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfers to General Account - Net (6,559,424) (2,000,000) (2,059,424)
--------------------------- --------------------------- ---------------------------
Decrease in Net Assets
Resulting from Principal Transactions (6,559,424) (2,000,000) (2,059,424)
--------------------------- --------------------------- ---------------------------
Decrease in Net Assets (6,166,670) (1,336,019) (2,035,824)
Net Assets Beginning Balance 14,662,460 5,018,636 2,035,824
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 8,495,790 $ 3,682,617 $ 0
=========================== =========================== ===========================
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
INVESTMENT OF MERRILL LYNCH LIFE INSURANCE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 1995
================================================================================
Divisions Investing In
===========================
Developing
Capital
Markets
Focus Fund
===========================
Investment Income:
Reinvested Dividends $ 68,882
---------------------------
Net Investment Income 68,882
---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (410,361)
Net Unrealized Gains 46,652
---------------------------
Net Realized and Unrealized Gains (Losses) (363,709)
---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations (294,827)
---------------------------
Changes from Principal Transactions:
Transfers to General Account - Net (2,500,000)
---------------------------
Decrease in Net Assets
Resulting from Principal Transactions (2,500,000)
---------------------------
Decrease in Net Assets (2,794,827)
Net Assets Beginning Balance 7,608,000
---------------------------
Net Assets Ending Balance $ 4,813,173
===========================
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying statement of net assets of
Merrill Lynch Life Variable Annuity Separate Account B (the
"Account") as of December 31, 1996 and the related
statements of operations and changes in net assets for each
of the two years in the period then ended. These financial
statements are the responsibility of the management of
Merrill Lynch Life Insurance Company. Our responsibility is
to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included
confirmation of mutual fund securities owned at December 31,
1996. 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, 1996 and the results of its operations and
the changes in its net assets for the above periods in
conformity with generally accepted accounting principles.
January 21, 1997
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT B
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1996
================================================================================
Market
Cost Shares Value
======================= ======================= =======================
ASSETS:
Investments in Merrill Lynch Variable Series Funds, Inc. (Note 1):
Reserve Assets Fund $ 10,499,662 10,499,662 $ 10,499,662
----------------------- -----------------------
TOTAL ASSETS $ 10,499,662 10,499,662
======================= -----------------------
LIABILITIES:
Due to Merrill Lynch Life Insurance Company 2,080
-----------------------
TOTAL LIABILITIES 2,080
-----------------------
NET ASSETS $ 10,497,582
=======================
See Notes to Financial Statements
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT B
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
================================================================================
1996 1995
======================= =======================
Investment Income:
Reinvested Dividends $ 530,920 $ 671,440
Mortality and Expense Charges (Note 3) (69,404) (79,556)
----------------------- -----------------------
Net Investment Income 461,516 591,884
----------------------- -----------------------
Increase in Net Assets
Resulting from Operations 461,516 591,884
----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 1,559,526 3,128,696
Transfer of Contract Owner Withdrawals (28,394,316) (23,838,784)
Transfers In - Net 25,559,441 17,599,914
Transfer of Contract Maintenance Charges (Note 3) (3,394) (4,265)
----------------------- -----------------------
Decrease in Net Assets
Resulting from Principal Transactions (1,278,743) (3,114,439)
----------------------- -----------------------
Decrease in Net Assets (817,227) (2,522,555)
Net Assets Beginning Balance 11,314,809 13,837,364
----------------------- -----------------------
Net Assets Ending Balance $ 10,497,582 $ 11,314,809
======================= =======================
Division Investing In
===============================================
Reserve Reserve
Assets Assets
Fund Fund
1996 1995
======================= =======================
Units Outstanding at December 31, 890,380.2 1,002,197.4
======================= =======================
Accumulation Unit Value at December 31, $ 11.79 $ 11.29
======================= =======================
See Notes to Financial Statements
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT B
MERRILL LYNCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Merrill Lynch Life Variable Annuity Separate Account B
("Separate Account B"), a separate account of Merrill
Lynch Life Insurance Company ("Merrill Lynch Life"), was
established to support the operations with respect to
certain variable annuity contracts ("Contracts").
Separate Account B is governed by Arkansas State
Insurance Law. Merrill Lynch Life is an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. Separate
Account B is registered as a unit investment trust under
the Investment Company Act of 1940 and consists of one
investment division. The investment division invests in
the securities of the Reserve Assets Fund portfolio of
the Merrill Lynch Variable Series Funds, Inc.
The assets of Separate Account B are registered in the
name of Merrill Lynch Life. Separate Account B's assets
are not chargeable with liabilities arising out of any
other business Merrill Lynch Life may conduct.
The change in net assets accumulated in Separate Account
B provides the basis for the periodic determination of
the amount of increased or decreased benefits under the
Contracts.
The net assets may not be less than the amount required
under Arkansas State Insurance Law to provide for death
benefits (without regard to the minimum death benefit
guarantee) and other Contract benefits.
The financial statements included herein have been
prepared in accordance with generally accepted accounting
principles for variable annuity separate accounts
registered as unit investment trusts. The preparation of
financial statements in conformity with generally
accepted accounting principles requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
2. The following is a summary of significant accounting
policies of Separate Account B:
Investments in the divisions are included in the
statement of net assets at the net asset value of the
shares held.
Dividend income is recognized on the ex-dividend date.
All dividends are automatically reinvested.
The operations of Separate Account B are included in the
Federal income tax return of Merrill Lynch Life. Under
the provisions of the Contracts, Merrill Lynch Life has
the right to charge Separate Account B for any Federal
income tax attributable to Separate Account B. No charge
is currently being made against Separate Account B for
such tax since, under current tax law, Merrill Lynch Life
pays no tax on investment income and capital gains
reflected in variable annuity contract reserves. However,
Merrill Lynch Life retains the right to charge for any
Federal income tax incurred which is attributable to
Separate Account B if the law is changed. Charges for
state and local taxes, if any, attributable to Separate
Account B may also be made.
3. Merrill Lynch Life assumes mortality and expense risks
related to Contracts investing in Separate Account B and
deducts a daily charge at a rate of .65% (on an annual
basis) of the net assets of
Separate Account B to cover these risks.
Merrill Lynch Life deducts a contract maintenance charge
of $40 for each Contract on each Contract's anniversary
that occurs on or prior to the annuity date. It is also
deducted when the Contract is surrendered if it is
surrendered on any date other than a contract anniversary
date. The contract maintenance charge is borne by
Contract owners by redeeming accumulation units with a
value equal to the charge. This charge is waived on all
Contracts with a Contract value equal to or greater than
$50,000 on the date the charge would otherwise be
deducted, and in certain circumstances where multiple
contracts are owned.
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying balance sheets of Merrill Lynch
Life Insurance Company (the "Company"), a wholly-owned subsidiary
of Merrill Lynch Insurance Group, Inc., as of December 31, 1996
and 1995, and the related statements of earnings, stockholder's
equity, and cash flows for each of the three years in the period
ended December 31, 1996. 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, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted
accounting principles.
February 24, 1997
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(Dollars in Thousands)
1996 1995
-------------- --------------
Assets
- ------
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1996 - $3,232,643; 1995 - $3,648,983) $ 3,301,588 $ 3,807,870
Equity securities, at estimated fair value
(cost: 1996 - $32,988; 1995 - $19,683) 35,977 21,433
Mortgage loans 70,503 121,248
Real estate held-for-sale 28,851 5,874
Policy loans on insurance contracts 1,092,071 1,039,267
-------------- --------------
Total Investments 4,528,990 4,995,692
-------------- --------------
CASH AND CASH EQUIVALENTS 94,991 48,924
ACCRUED INVESTMENT INCOME 86,186 91,942
DEFERRED POLICY ACQUISITION COSTS 366,461 372,418
FEDERAL INCOME TAXES - DEFERRED - 2,222
REINSURANCE RECEIVABLES 2,642 1,552
OTHER ASSETS 42,861 54,900
SEPARATE ACCOUNTS ASSETS 7,615,362 6,834,353
-------------- --------------
TOTAL ASSETS $ 12,737,493 $ 12,402,003
============== ==============
See notes to financial statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(continued)(Dollars in Thousands)
1996 1995
-------------- --------------
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 4,480,048 $ 4,851,718
Claims and claims settlement expenses 39,666 29,812
-------------- --------------
Total policy liabilities and accruals 4,519,714 4,881,530
OTHER POLICYHOLDER FUNDS 19,420 13,607
LIABILITY FOR GUARANTY FUND ASSESSMENTS 18,773 21,144
FEDERAL INCOME TAXES - DEFERRED 6,714 -
FEDERAL INCOME TAXES - CURRENT 20,968 7,033
AFFILIATED PAYABLES - NET 6,164 2,429
OTHER LIABILITIES 50,726 53,566
SEPARATE ACCOUNTS LIABILITIES 7,605,194 6,825,857
-------------- --------------
Total Liabilities 12,247,673 11,805,166
-------------- --------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 402,937 501,455
Retained earnings 79,387 76,482
Net unrealized investment gain on investment securities 5,496 16,900
-------------- --------------
Total Stockholder's Equity 489,820 596,837
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 12,737,493 $ 12,402,003
============== ==============
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in Thousands)
1996 1995 1994
----------- ----------- -----------
REVENUES:
Investment revenue:
Net investment income $ 336,661 $ 376,166 $ 433,536
Net realized investment gains (losses) 8,862 4,525 (14,543)
Policy charge revenue 158,829 141,722 126,284
----------- ----------- -----------
Total Revenues 504,352 522,413 545,277
----------- ----------- -----------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 235,255 261,760 313,585
Market value adjustment expense 6,071 5,805 6,307
Policy benefits (net of reinsurance recoveries: 1996 - $8,317;
1995 - $6,482; 1994 - $6,338) 21,052 19,374 16,858
Reinsurance premium ceded 15,582 13,896 13,909
Amortization of deferred policy acquisition costs 62,036 58,669 69,662
Insurance expenses and taxes 47,077 44,124 35,073
----------- ----------- -----------
Total Benefits and Expenses 387,073 403,628 455,394
----------- ----------- -----------
Earnings Before Federal Income Tax Provision 117,279 118,785 89,883
----------- ----------- -----------
FEDERAL INCOME TAX PROVISION:
Current 22,814 38,335 22,503
Deferred 15,078 3,968 1,375
----------- ----------- -----------
Total Federal Income Tax Provision 37,892 42,303 23,878
----------- ----------- -----------
NET EARNINGS $ 79,387 $ 76,482 $ 66,005
=========== =========== ===========
See notes to financial statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in Thousands)
Net
Additional unrealized Total
Common paid-in Retained investment stockholder's
stock capital earnings gain (loss) equity
------------ ------------ ------------ ------------ -------------
BALANCE, JANUARY 1, 1994 $ 2,000 $ 637,590 $ 47,860 $ (395) $ 687,055
Dividend to Parent (102,140) (47,860) (150,000)
Net earnings 66,005 66,005
Net unrealized investment loss (43,489) (43,489)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1994 2,000 535,450 66,005 (43,884) 559,571
Dividend to Parent (33,995) (66,005) (100,000)
Net earnings 76,482 76,482
Net unrealized investment gain 60,784 60,784
------------ ------------ ------------- ------------ ------------
BALANCE, DECEMBER 31, 1995 2,000 501,455 76,482 16,900 596,837
Dividend to Parent (98,518) (76,482) (175,000)
Net earnings 79,387 79,387
Net unrealized investment loss (11,404) (11,404)
------------ ------------ ------------- ------------ ------------
BALANCE, DECEMBER 31, 1996 $ 2,000 $ 402,937 $ 79,387 $ 5,496 $ 489,820
============ ============ ============= ============ ============
See notes to financial statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in Thousands)
1996 1995 1994
----------- ----------- -----------
OPERATING ACTIVITIES:
Net earnings $ 79,387 $ 76,482 $ 66,005
Adjustments to reconcile net earnings to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 62,036 58,669 69,662
Capitalization of policy acquisition costs (43,668) (54,014) (108,829)
Amortization, (accretion) and depreciation of investments (4,836) (6,763) (4,516)
Net realized investment (gains) losses (8,862) (4,525) 14,543
Interest credited to policyholders' account balances 235,255 261,760 313,585
Provision for deferred Federal income tax 15,078 3,968 1,375
Changes in operating assets and liabilities:
Accrued investment income 5,756 3,191 25,204
Affiliated payables - net 3,735 5,542 (2,324)
Claims and claims settlement expenses 9,854 3,635 5,882
Federal income taxes - current 13,935 4,759 (7,848)
Other policyholder funds 5,813 (7,614) (7,547)
Liability for guaranty fund assessments (2,371) (3,630) (3,309)
Policy loans on insurance contracts (52,804) (54,054) (60,634)
Trading investment securities - - 11,352
Other, net 8,106 (9,296) (39,206)
Net cash and cash equivalents provided ----------- ----------- ----------
by operating activities 326,414 278,110 273,395
----------- ----------- ----------
(Continued)
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Continued) (Dollars In Thousands)
1996 1995 1994
------------- ------------- -------------
INVESTING ACTIVITIES:
Sales of available-for-sale securities $ 834,120 $ 633,824 $ 864,095
Maturities of available-for-sale securities 536,449 570,923 1,323,705
Purchases of available-for-sale securities (954,368) (832,519) (678,974)
Mortgage loans principal payments received 22,789 30,767 32,341
Purchases of mortgage loans - (3,608) -
Sales of real estate held-for-sale 5,407 9,710 25,346
Improvements to real estate held-for-sale - improvements acquired - (683) (1,060)
Recapture of investment in Separate Accounts 8,829 6,559 -
Investment in Separate Accounts (10,063) (377) (15,212)
------------- ------------- -------------
Net cash and cash equivalents provided by investing activities 443,163 414,596 1,550,241
------------- ------------- -------------
FINANCING ACTIVITIES:
Dividends paid to parent (175,000) (100,000) (150,000)
Policyholders' account balances:
Deposits 542,062 567,430 966,861
Withdrawals (net of transfers to/from Separate Accounts) (1,090,572) (1,250,299) (2,623,628)
------------- ------------ ------------
Net cash and cash equivalents used by financing activities (723,510) (782,869) (1,806,767)
------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 46,067 (90,163) 16,869
CASH AND CASH EQUIVALENTS
Beginning of year 48,924 139,087 122,218
------------- ------------ ------------
End of year $ 94,991 $ 48,924 $ 139,087
============= ============ ============
Supplementary Disclosure of Cash Flow Information:
Cash paid to affiliates for:
Federal income taxes $ 8,880 $ 33,576 $ 30,351
Intercompany interest 988 1,310 679
See notes to financial statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting: Merrill Lynch Life Insurance Company (the
"Company") is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"). The Company is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch & Co.").
The Company sells non-participating life insurance and annuity
products which comprise one business segment. The primary
products that the Company currently markets are immediate
annuities, market value adjusted annuities, variable life
insurance and variable annuities. The Company is currently
licensed to sell insurance in forty-nine states, the District
of Columbia, the U.S. Virgin Islands and Guam. The Company
markets its products solely through the retail network of
Merrill Lynch, Pierce, Fenner & Smith, Incorporated ("MLPF&S"),
a wholly-owned subsidiary of Merrill Lynch & Co.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles and
prevailing industry practices, both of which require management
to make estimates that affect the reported amounts and
disclosure of contingencies in the financial statements. Actual
results could differ from those estimates.
Revenue Recognition: Revenues for the Company's interest-
sensitive life, interest-sensitive annuity, variable life and
variable annuity products consist of policy charges for the
cost of insurance, deferred sales charges, policy
administration charges and/or withdrawal charges assessed
against policyholders' account balances during the period.
Policyholders' Account Balances: Liabilities for the Company's
universal life type contracts, including its life insurance and
annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency
reserves for certain products. Interest-crediting rates for the
Company's fixed-rate products are as follows:
Interest-sensitive life products 4.00% - 5.75%
Interest-sensitive deferred annuities 3.20% - 8.77%
Immediate annuities 3.00% - 10.00%
These rates may be changed at the option of the Company,
subject to minimum guarantees, after initial guaranteed rates
expire.
Liabilities for unpaid claims equal the death benefit for those
claims which have been reported to the Company and an estimate
based upon prior experience for those claims which are
unreported.
Reinsurance: In the normal course of business, the Company
seeks to limit its exposure to loss on any single insured life
and to recover a portion of benefits paid by ceding reinsurance
to other insurance enterprises or reinsurers under indemnity
reinsurance agreements, primarily excess coverage and
coinsurance agreements. The maximum amount of mortality risk
retained by the Company is approximately $500 on a single life.
Indemnity reinsurance agreements do not relieve the Company
from its obligations to policyholders. Failure of reinsurers to
honor their obligations could result in losses to the Company.
The Company regularly evaluates the financial condition of its
reinsurers so as to minimize its exposure to significant losses
from reinsurer insolvencies. The Company holds collateral under
reinsurance agreements in the form of letters of credit and
funds withheld totaling $576 that can be drawn upon for
delinquent reinsurance recoverables.
As of December 31, 1996, the Company had life insurance in-
force that was ceded to other life insurance companies of
$2,511,780.
Deferred Policy Acquisition Costs: Policy acquisition costs for
life and annuity contracts are deferred and amortized based on
the estimated future gross profits for each group of contracts.
These future gross profit estimates are subject to periodic
evaluation by the Company, with necessary revisions applied
against amortization to date. It is reasonably possible that
estimates of future gross profits could be reduced in the
future, resulting in a material reduction in the carrying
amount of deferred policy acquisition costs.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance, that are primarily
related to and vary with the production of new business.
Certain costs and expenses reported in the statements of
earnings are net of amounts deferred. Policy acquisition costs
can also arise from the acquisition or reinsurance of existing
in-force policies from other insurers. These costs include
ceding commissions and professional fees related to the
reinsurance assumed. The deferred costs are amortized in
proportion to the estimated future gross profits over the
anticipated life of the acquired insurance contracts utilizing
an interest methodology.
The Company has entered into an assumption reinsurance
agreement with an unaffiliated insurer. The acquisition costs
relating to this agreement are being amortized over a twenty-
year period using an effective interest rate of 9.01%. This
reinsurance agreement provides for payment of contingent ceding
commissions based upon the persistency and mortality experience
of the insurance contracts assumed. Any payments made for the
contingent ceding commissions will be capitalized and amortized
using an identical methodology as that used for the initial
acquisition costs. The following is a reconciliation of the
acquisition costs related to the reinsurance agreement for the
years ended December 31:
1996 1995 1994
----------- ----------- -----------
Beginning balance $ 124,833 $ 133,388 $ 139,647
Capitalized amounts 5,077 13,708 12,517
Interest accrued 10,669 11,620 12,582
Amortization (28,330) (33,883) (31,358)
----------- ----------- -----------
Ending balance $ 112,249 $ 124,833 $ 133,388
=========== =========== ===========
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.
1997 $12,547
1998 8,958
1999 8,474
2000 8,142
2001 7,811
Investments: The Company's investments in fixed maturity and
equity securities are classified as available-for-sale
securities, which are carried at estimated fair value with
unrealized gains and losses included in stockholder's equity.
If a decline in value of a security is determined by management
to be other-than-temporary, the carrying value is adjusted to
the estimated fair value at the date of this determination and
recorded in theas net realized investment gains (losses).
During 1994, the Company classified certain of its investments
as trading securities, which were carried at estimated fair
value with unrealized gains and losses included in the
statements of earnings. All securities that were classified as
trading securities on November 1, 1994 were transferred to the
available-for-sale classification at their respective estimated
fair values on that date. The difference between the market
value at November 1, 1994 and par value is being amortized into
income based on the Company's premium amortization and discount
accretion policies.
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accreted to
the maturity date, and interest income is accrued daily. For
equity securities, dividends are recognized on the ex-dividend
date. Realized gains and losses on the sale or maturity of the
investments are determined on the basis of identified cost.
Fixed maturity securities may contain securities which are
considered non-investment grade. The Company defines non-
investment grade fixed maturity securities as unsecured
corporate debt obligations that do not have a rating equivalent
to Standard and Poor's (or similar rating agency) BBB or higher
and are not guaranteed by an agency of the Federal government.
The Company has outstanding certain interest rate swap
contracts that are carried at estimated fair value and recorded
as a component of fixed maturity securities. Interest income
and realized and unrealized gains and losses are recorded on
the same basis as fixed maturity securities available-for-sale.
Mortgage loans are stated at unpaid principal balances, net of
valuation allowances. Such valuation allowances are based on
the decline in value expected to be realized on mortgage loans
that may not be collectible in full. In establishing valuation
allowances, management considers, among other things, the
estimated fair value of the underlying collateral.
The Company recognizes income from mortgage loans based on the
cash payment interest rate of the loan, which may be different
from the accrual interest rate of the loan for certain
outstanding mortgage loans. The Company will recognize a
realized gain at the date of the satisfaction of the loan at
contractual terms for loans where there is a difference between
the cash payment interest rate and the accrual interest rate.
For all loans the Company stops accruing income when an
interest payment default either occurs or is probable.
Impairments of mortgage loans are established as valuation
allowances and recorded to net realized investment gains or
losses.
The Company has previously made commercial mortgage loans
collateralized by real estate. The return on and the ultimate
recovery of these loans are generally dependent on the
successful operation, sale or refinancing of the real estate.
The Company monitors the effects of current and expected real
estate market conditions and other factors when assessing the
collectibility of mortgage loans. When, in management's
judgment, these assets are impaired, appropriate losses are
recorded. Such estimates necessarily include assumptions, which
may include anticipated improvements in selected market
conditions for real estate, which may or may not occur. The
more significant assumptions management considers involve
estimates of the following: lease absorption and sales rate;
real estate values and rates of return; operating expenses;
required capital improvements; inflation; and sufficiency of
any collateral independent of the real estate. Management
believes that the carrying value approximates the fair value of
these investments.
Real estate held-for-sale, is stated at cost less valuation
allowances and estimated selling costs.
Policy loans on insurance contracts are stated at unpaid
principal balances.
Income Taxes: The results of operations of the Company are
included in the consolidated Federal income tax return of
Merrill Lynch & Co. The Company has entered into a tax-sharing
agreement with Merrill Lynch & Co. whereby the Company will
calculate its current tax provision based on its operations.
Under the agreement, the Company periodically remits to Merrill
Lynch & Co. its current Federal tax liability.
The Company uses the asset and liability method in providing
income taxes on all transactions that have been recognized in
the financial statements. The asset and liability method
requires that deferred taxes be adjusted to reflect the tax
rates at which future taxable amounts will be settled or
realized. The effects of tax rate changes on future deferred
tax liabilities and deferred tax assets, as well as other
changes in income tax laws, are recognized in net earnings in
the period such changes are enacted. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Insurance companies are generally subject to taxes on premiums
and in substantially all states are exempt from state income
taxes.
Separate Accounts: Separate Accounts are established in
conformity with Arkansas State Insurance law, the Company's
domiciliary state, and are generally not chargeable with
liabilities that arise from any other business of the Company.
Separate Accounts assets may be subject to general claims of
the Company only to the extent the value of such assets exceeds
Separate Accounts liabilities.
Assets and liabilities of Separate Accounts, representing net
deposits and accumulated net investment earnings less fees,
held primarily for the benefit of policyholders, are shown as
separate captions in the balance sheets.
Statements of Cash Flows: For the purpose of reporting cash
flows, cash and cash equivalents include cash on hand and on
deposit and short-term investments with original maturities of
three months or less.
Reclassifications: To facilitate comparisons with the current
year, certain amounts in the prior years have been
reclassified.
NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are carried at fair value or amounts that
approximate the fair value. The carrying value of financial
instruments as of December 31 were:
1996 1995
-------------- --------------
Assets:
Fixed maturity securities:
Securities (1) $ 3,301,858 $ 3,807,310
Interest rate swaps (2) (270) 560
-------------- --------------
Total fixed maturity securities 3,301,588 3,807,870
-------------- --------------
Equity securities (1) 35,977 21,433
Mortgage loans (3) 70,503 121,248
Policy loans on insurance contracts (4) 1,092,071 1,039,267
Cash and cash equivalents (5) 94,991 48,924
Separate Accounts assets (6) 7,615,362 6,834,353
-------------- ---------------
Total financial instruments recorded as assets $ 12,210,492 $ 11,873,095
============== ===============
(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, 1996 and 1995, securities
without a readily ascertainable market value, having an
amortized cost of $338,515, and $425,469, had an estimated
fair value of $348,066, and $448,785, respectively.
(2) Estimated fair values for the Company's interest rate
swaps are based on a discounted cash flow model.
(3) The estimated fair value of mortgage loans approximates
the carrying value. See Note 1 for a discussion of the
Company's valuation process.
(4) 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.
(5) The estimated fair value of cash and cash equivalents
approximates the carrying value.
(6) 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 securities and equity securities as of December
31 were:
1996
------------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- --------------
Fixed maturity securities:
Corporate debt securities $ 2,652,225 $ 67,590 $ 11,765 $ 2,708,050
Mortgage-backed securities 503,997 12,447 1,948 514,496
U.S. Government and agencies 54,386 2,303 158 56,531
Foreign governments 18,111 182 140 18,153
Municipals 3,924 434 - 4,358
-------------- -------------- -------------- --------------
Total fixed maturity securities $ 3,232,643 $ 82,956 $ 14,011 $ 3,301,588
============== ============== ============== ==============
Equity securities:
Non-redeemable preferred stocks $ 30,554 $ 2,983 $ 85 $ 33,452
Common stocks 2,434 91 - 2,525
--------------- -------------- -------------- --------------
Total equity securities $ 32,988 $ 3,074 $ 85 $ 35,977
=============== ============== ============== ==============
1995
------------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- --------------
Fixed maturity securities:
Corporate debt securities $ 2,917,628 $ 138,159 $ 7,526 $ 3,048,261
Mortgage-backed securities 625,866 22,098 717 647,247
U.S. Government and agencies 95,002 6,061 - 101,063
Foreign governments 6,210 280 - 6,490
Municipals 4,277 532 - 4,809
-------------- -------------- -------------- --------------
Total fixed maturity securities $ 3,648,983 $ 167,130 $ 8,243 $ 3,807,870
============== ============== ============== ==============
Equity securities:
Non-redeemable preferred stocks $ 16,937 $ 1,428 $ 113 $ 18,252
Common stocks 2,746 498 63 3,181
-------------- -------------- -------------- --------------
Total equity securities $ 19,683 $ 1,926 $ 176 $ 21,433
============== ============== ============== ==============
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1996 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
------------- -------------
Fixed maturity securities:
Due in one year or less $ 270,571 $ 271,303
Due after one year through five years 1,486,819 1,521,334
Due after five years through ten years 763,475 781,372
Due after ten years 207,781 213,083
------------- -------------
2,728,646 2,787,092
Mortgage-backed securities 503,997 514,496
------------- -------------
Total fixed maturity securities $ 3,232,643 $ 3,301,588
============= =============
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1996 by rating agency equivalent
were:
Estimated
Amortized Fair
Cost Value
------------- -------------
AAA $ 716,749 $ 730,513
AA 181,962 185,000
A 910,355 932,417
BBB 1,245,457 1,272,901
Non-investment grade 178,120 180,757
------------- -------------
Total fixed maturity securities $ 3,232,643 $ 3,301,588
============= =============
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
connection with investments classified as available-for-sale.
The Company adjusts those assets and liabilities as if the
unrealized investment gains or losses from securities
classified as available-for-sale had actually been realized,
with corresponding credits or charges reported directly to
stockholder's equity. The following reconciles the net
unrealized investment gain on investment securities classified
as available-for-sale as of December 31:
1996 1995
------------- -------------
Assets:
Fixed maturity securities $ 68,945 $ 158,887
Equity securities 2,989 1,750
Deferred policy acquisition costs (4,630) (17,041)
Federal income taxes - deferred (2,959) (9,100)
Separate Accounts assets 168 (164)
------------- -------------
64,513 134,332
------------- -------------
Liabilities:
Policyholders' account balances 59,017 117,432
------------- -------------
Stockholder's equity:
Net unrealized investment gain on investment securities $ 5,496 $ 16,900
============= =============
The Company has entered into interest rate swap contracts for
the purpose of minimizing exposure to fluctuations in interest
rates related to specific investment securities held.
The notional amount of such swaps outstanding at December 31,
1996 and 1995 was approximately $9,000 and $30,000,
respectively. The swaps were transacted with investment
grade counterparties. As of December 31, 1996, the Company's
interest rate swap contract was in a $270 unrealized loss
position. There were no outstanding interest rate swaps in a
loss position at December 31, 1995. During 1994, net realized
investment gains of $470 were recorded in connection with
interest rate swap activity. During 1996 and 1995, there
were no realized investment gains or losses recorded.
Proceeds and gross realized investment gains and losses from
the sale of available-for-sale securities for the years ended
December 31 were:
1996 1995 1994
------------ ----------- -----------
Proceeds $ 834,120 $ 633,824 $ 864,095
Gross realized investment gains 19,078 14,196 11,091
Gross realized investment losses 10,749 10,813 11,026
During 1994, $7,285 of unrealized holding losses from
investment trading securities were recorded in net realized
investment gains (losses).
The Company owned investment securities with a carrying
value of $27,726 and $28,166 that were deposited with
insurance regulatory authorities at December 31, 1996 and
1995, respectively.
At December 31, 1996 and 1995, the Company had invested
$10,168 and $8,496 in Separate Accounts, including unrealized
gains (losses) of $168 and $(164), respectively. The
investments in Separate Accounts are for the purpose of
providing original funding of certain mutual fund portfolios
available as investment options to variable life and annuity
policyholders.
The Company's investment in mortgage loans are principally
collateralized by commercial real estate. The largest
concentrations of commercial real estate mortgage loans at
December 31, 1996, as measured by the outstanding principal
balance, are for properties located in Illinois ($27,877 or
32%), Rhode Island ($19,291 or 22%) and California ($11,953 or
14%).
The carrying value and established valuation allowances of
impaired mortgage loans on real estate as of December 31, 1996
and 1995 are:
1996 1995
----------- -----------
Carrying value $ 44,239 $ 88,068
Valuation allowance 17,652 35,881
Additional information on impaired loans for the years ended
December 31 follows:
1996 1995 1994
----------- ----------- ------------
Average investment in impaired loans $ 61,891 $ 123,949 $ 112,043
Interest income recognized (cash-basis) 4,848 5,482 6,542
For the years ended December 31, 1996, 1995 and 1994, $28,555,
$1,300 and $4,652, respectively, of real estate held-for-sale
was acquired in satisfaction of debt.
Net investment income arose from the following sources for the
years ended December 31:
1996 1995 1994
----------- ----------- ------------
Fixed maturity securities $ 266,916 $ 305,648 $ 368,023
Equity securities 1,876 1,329 2,408
Mortgage loans 9,764 12,250 15,014
Real estate held-for-sale 563 153 406
Policy loans on insurance contracts 56,512 53,576 50,232
Cash and cash equivalents 6,710 8,463 5,936
Other 899 1,753 (447)
----------- ----------- ------------
Gross investment income 343,240 383,172 441,572
Less investment expenses (6,579) (7,006) (8,036)
----------- ----------- ------------
Net investment income $ 336,661 $ 376,166 $ 433,536
=========== =========== ============
Net realized investment gains (losses), including changes in
valuation allowances for the years ended December 31:
1996 1995 1994
----------- ----------- ------------
Fixed maturity securities $ 4,690 $ 1,908 $ (13,314)
Equity securities 3,639 1,475 910
Investment in Separate Accounts 106 (369) -
Mortgage loans 599 334 (4,967)
Real estate held-for-sale (171) 1,177 2,828
Cash and cash equivalents (1) - -
----------- ----------- -----------
Net realized investment gains (losses) $ 8,862 $ 4,525 $ (14,543)
=========== =========== ===========
The following is a reconciliation of the change in valuation
allowances that have been recorded to reflect other-than-
temporary declines in estimated fair value of mortgage loans
and real estate held-for-sale for the years ended December 31:
Balance at Additions Balance at
Beginning Charged to Write - End
of Year Operations Downs of Year
------------ ------------ ----------- -----------
Mortgage loans:
1996 $ 35,881 $ - $ 18,229 $ 17,652
1995 40,070 - 4,189 35,881
1994 45,924 4,966 10,820 40,070
Real estate held-for-sale:
1996 2,200 - - 2,200
1995 5,766 - 3,566 2,200
1994 7,628 - 1,862 5,766
The Company held investments at December 31, 1996 of $1,182
which have been non-income producing for the preceding twelve
months.
During 1994, the Company committed to participate in a limited
partnership that invests in leveraged transactions. As of
December 31, 1996, $2,027 has been advanced towards the
Company's $10,000 commitment to the limited partnership.
NOTE 4. FEDERAL INCOME TAXES
The following is a reconciliation of the provision for income
taxes based on earnings before income taxes, computed using the
Federal statutory tax rate, with the provision for income taxes
for the years ended December 31:
1996 1995 1994
----------- ----------- -----------
Provision for income taxes computed at Federal statutory rate $ 41,048 $ 41,575 $ 31,459
Increase (decrease) in income taxes resulting from:
Release of policyholders' surplus - 1,991 -
Tax deductible interest - (718) -
Dividend received deduction (3,135) (532) (7,363)
Other (21) (13) (218)
----------- ----------- -----------
Federal income tax provision $ 37,892 $ 42,303 $ 23,878
=========== =========== ===========
The Federal statutory rate for each of the three years in the
period ended December 31, 1996 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:
1996 1995 1994
----------- ----------- -----------
Deferred policy acquisition costs $ (5,770) $ (2,179) $ 6,416
Policyholders' account balances 15,004 66 5,322
Liability for guaranty fund assessments 760 249 (153)
Investment adjustments 5,122 5,563 3,276
Other (38) 269 (13,486)
------------ ----------- -----------
Deferred Federal income tax provision $ 15,078 $ 3,968 $ 1,375
============ =========== ===========
Deferred tax assets and liabilities as of December 31 are
determined as follows:
1996 1995
----------- -----------
Deferred tax assets:
Policyholders' account balances $ 79,083 $ 94,087
Investment adjustments 5,671 10,793
Liability for guaranty fund assessments 6,571 7,331
----------- -----------
Total deferred tax assets 91,325 112,211
=========== ===========
Deferred tax liabilities:
Deferred policy acquisition costs 91,092 96,862
Net unrealized investment gain on investment securities 2,959 9,100
Other 3,988 4,027
----------- -----------
Total deferred tax liabilities 98,039 109,989
----------- -----------
Net deferred tax asset (liability) $ (6,714) $ 2,222
=========== ===========
The Company anticipates that all deferred tax assets will be
realized; therefore no valuation allowance has been provided.
NOTE 5. RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain 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 $43,515, $41,729 and $43,497 for the years
ended December 31, 1996, 1995 and 1994, respectively. The
Company is allocated interest expense on its accounts payable
to MLIG which approximates the daily Federal funds rate. Total
intercompany interest paid was $988, $1,310 and $679 for 1996,
1995 and 1994, respectively.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM")
are parties to a service agreement whereby MLAM has agreed to
provide certain invested asset management services to the
Company. The Company pays a fee to MLAM for these services
through the MLIG service agreement. Charges attributable to
this agreement and allocated to the Company by MLIG were
$2,279, $2,635 and $2,732 for 1996, 1995 and 1994,
respectively.
MLAM and MLIG have entered into an agreement with respect to
administrative services for the Merrill Lynch Series Fund, Inc.
("Series Fund") and Merrill Lynch Variable Series Funds, Inc.
("Variable Series Funds"). The Company invests in the various
mutual fund portfolios of the Series Fund and the Variable
Series Funds in connection with the variable life and annuities
the Company has in-force. Under this agreement, MLAM pays
compensation to MLIG in an amount equal to a portion of the
annual gross investment advisory fees paid by the Series Fund
and the Variable Series Funds to MLAM. The Company received
from MLIG its allocable share of such compensation in the
amount of $16,514, $13,293 and $12,600 during 1996, 1995 and
1994, 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 $42,639, $43,984 and $84,231 for
1996, 1995 and 1994, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisition
costs and are being amortized in accordance with the policy
discussed in Note 1.
The Company has entered into interest rate swap contracts with
Merrill Lynch Capital Services, Inc. ("MLCS") with a guarantee
from Merrill Lynch & Co. As of December 31, 1996 and 1995, the
notional amount of such interest rate swap contracts
outstanding was $9,000 and $10,000, respectively. During 1994,
the Company and MLCS terminated certain interest rate swap
contracts resulting in the Company paying a net consideration
of $2,043. Net interest received from these interest rate swap
contracts was $(117), $256, and $782 for 1996, 1995 and 1994,
respectively.
NOTE 6. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
During 1996, 1995, and 1994 the Company paid dividends of
$175,000, $100,000, and $150,000, respectively, to MLIG. Of
these stockholder's dividends, $175,000, $73,757, and $112,779,
respectively, were extraordinary dividends as defined by
Arkansas Insurance Law and were paid pursuant to approval
granted by the Arkansas Insurance Commissioner.
At December 31, 1996 and 1995, approximately $24,970 and
$30,195, respectively, of stockholder's equity was available
for distribution to MLIG. Statutory capital and surplus at
December 31, 1996 and 1995, was $251,697 and $303,950,
respectively.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principles utilized in these financial
statements by charging policy acquisition costs to expense as
incurred, establishing future policy benefit reserves using
different actuarial assumptions, not providing for deferred
income taxes, and valuing securities on a different basis. The
Company's statutory net income for 1996, 1995 and 1994 was
$93,532, $121,451 and $42,382, respectively.
The National Association of Insurance Commissioners ("NAIC")
utilizes the Risk Based Capital ("RBC") adequacy monitoring
system. The RBC calculates the amount of adjusted capital which
a life insurance company should have based upon that company's
risk profile. As of December 31, 1996 and 1995, based on the
RBC formula, the Company's total adjusted capital level was
403% and 395%, respectively, of the minimum amount of capital
required to avoid regulatory action.
NOTE 7. COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers
who are licensed to transact business within a state become
members of the state's life insurance guaranty association.
These associations have been established for the protection of
policyholders from loss (within specified limits) as a result
of the insolvency of an insurer. At the time an insolvency
occurs, the guaranty association assesses the remaining members
of the association an amount sufficient to satisfy the
insolvent insurer's policyholder obligations (within specified
limits). During 1991, and to a lesser extent 1992, there were
certain highly publicized life insurance insolvencies. The
Company has utilized public information to estimate what future
assessments it will incur as a result of these insolvencies. At
December 31, 1996 and 1995, the Company has established an
estimated liability for future guaranty fund assessments of
$18,773 and $21,144, respectively. The Company regularly
monitors public information regarding insurer insolvencies and
will adjusts its estimated liability as appropriate.
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.
* * * * * *
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a)Financial Statements
(1)Financial Statements of Merrill Lynch Life Variable Annuity Separate
Account A as of December 31, 1996 and for the two years ended
December 31, 1996 and the Notes relating thereto appear in the
Statement of Additional Information (Part B of the Registration
Statement)
(2)Financial Statements of Merrill Lynch Life Variable Annuity Separate
Account B as of December 31, 1996 and for the two years ended
December 31, 1996 and the Notes relating thereto appear in the
Statement of Additional Information (Part B of the Registration
Statement)
(3)Financial Statements of Merrill Lynch Life Insurance Company for the
three years ended December 31, 1996 and the Notes relating thereto
appear in the Statement of Additional Information (Part B of the
Registration Statement)
(b)Exhibits
(1)Resolution of the Board of Directors of Merrill Lynch Life Insurance
Company establishing the Merrill Lynch Life Variable Annuity
Separate Account A and Merrill Lynch Life Variable Annuity Separate
Account B. Incorporated by Reference to Registrant's Post-Effective
Amendment No. 10 to Form N-4, Registration No.33-43773 Filed
December 10, 1996.
(2)Not Applicable
(3)Underwriting Agreement Between Merrill Lynch Life Insurance Company and
Merrill Lynch, Pierce, Fenner & Smith Incorporated. Incorporated by
Reference to Registrant's Post-Effective Amendment No. 10 to Form N-
4, Registration No.33-43773 Filed December 10, 1996.
(4)(a)Individual Variable Annuity Contract issued by Merrill Lynch Life
Insurance Company. Incorporated by Reference to Registrant's Post-
Effective Amendment No. 10 to Form N-4, Registration No. 33-43773
Filed December 10, 1996.
(b)Merrill Lynch Life Insurance Company Contingent Deferred Sales Charge
Waiver Endorsement. Incorporated by Reference to Registrant's Post-
Effective Amendment No. 10 to Form N-4, Registration No. 33-43773
Filed December 10, 1996.
(c)Individual Retirement Annuity Endorsement.
(d)Merrill Lynch Life Insurance Company Endorsement. Incorporated by
Reference to Registrant's Post-Effective Amendment No. 10 to Form N-
4, Registration No.33-43773 Filed December 10, 1996.
(e)Individual Variable Annuity Contract (revised) issued by Merrill Lynch
Life Insurance Company (ML-VA-002) (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 7 to Form N-4,
Registration No. 33-43773 Filed April 26, 1995).
(f)Merrill Lynch Life Insurance Company Endorsement (ML008) (Incorporated
by Reference to Registrant's Post-Effective Amendment No. 7 to Form
N-4, Registration No. 33-43773 Filed April 26, 1995).
(g)Merrill Lynch Life Insurance Company Individual Variable Annuity
Contract (ML-VA-001) (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 7 to Form N-4, Registration No. 33-
43773 Filed April 26, 1995).
(5)Not Applicable
(6)(a)Articles of Amendment, Restatement and Redomestication of the
Articles of Incorporation of Merrill Lynch Life Insurance Company.
Incorporated by Reference to Registrant's Post-Effective Amendment
No. 10 to Form N-4, Registration No.33-43773 Filed December 10,
1996.
(b)Amended and Restated By-laws of Merrill Lynch Life Insurance Company.
Incorporated by Reference to Registrant's Post-Effective Amendment
No. 10 to Form N-4, Registration No. 33-43773 Filed December 10,
1996.
(7)Not Applicable
(8)(a)Amended General Agency Agreement (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 5 to Form N-4,
Registration No. 33-43773 Filed April 28, 1994).
(b)Indemnity Agreement Between Merrill Lynch Life Insurance Company and
Merrill Lynch Life Agency, Inc. Incorporated by Reference to
Registrant's Post-Effective Amendment No. 10 to Form N-4,
Registration No. 33-43773 Filed December 10, 1996.
(c)Management Agreement Between Merrill Lynch Life Insurance Company and
Merrill Lynch Asset Management, Inc. Incorporated by Reference to
Registrant's Post-Effective Amendment No. 10 to Form N-4,
Registration No. 33-43773 Filed December 10, 1996.
C-1
(d) Agreement Between Merrill Lynch Life Insurance Company and Merrill Lynch
Variable Series Funds, Inc. Relating to Maintaining Constant Net
Asset Value for the Reserve Assets Fund. (Incorporated by Reference
to Registrant's Post-Effective Amendment No. 10 to Form N-4,
Registration No. 33-43773 Filed December 10, 1996).
(e) Agreement Between Merrill Lynch Life Insurance Company and Merrill Lynch
Variable Series Funds, Inc. Relating to Maintaining Constant Net
Asset Value for the Domestic Money Market Fund. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 10 to Form N-
4, Registration No. 33-43773 Filed December 10, 1996).
(f) Agreement Between Merrill Lynch Life Insurance Company and Merrill Lynch
Variable Series Funds, Inc. Relating to Valuation and Purchase
Procedures. (Incorporated by Reference to Registrant's Post-
Effective Amendment No. 10 to Form N-4, Registration No. 33-43773
Filed December 10, 1996).
(g) Amended Service Agreement Between Merrill Lynch Life Insurance Company
and Merrill Lynch Insurance Group, Inc. (Incorporated by Reference
to Registrant's Post-Effective Amendment No. 5 to Form N-4,
Registration No. 33-43773 Filed April 28, 1994).
(h) Reimbursement Agreement Between Merrill Lynch Asset Management, Inc. and
Merrill Lynch Life Agency. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 10 to Form N-4,
Registration No. 33-43773 Filed December 10, 1996).
(i) Form of Participation Agreement Between Merrill Lynch Variable Series
Funds, Inc., Merrill Lynch Life Insurance Company, Merrill Lynch
Life Insurance Company, and Family Life Insurance Company
(Incorporated by Reference to Registrant's Post-Effective Amendment
No. 5 to Form N-4, Registration No. 33-43773 Filed April 28, 1994).
(j) Form of Participation Agreement Between Merrill Lynch Variable Series
Funds, Inc. and Merrill Lynch Life Insurance Company. (Incorporated
by Reference to Registrant's Post-Effective Amendment No. 10 to Form
N-4, RegistrationNo. 33-43773 Filed December 10, 1996).
(k) Participation Agreement By And Among AIM Variable Insurance Funds, Inc.,
AIM Distributors, Inc., and Merrill Lynch Life Insurance Company.
(l) Form of Participation Agreement Among Merrill Lynch Life Insurance
Company, Alliance Capital Management L.P., and Alliance Fund
Distributors, Inc. (Incorporated by Reference to Registrant's Post-
Effective Amendment No. 10 to Form N-4, Registration No. 33-43773
Filed December 10, 1996).
(m) Form of Participation Agreement Among MFS Variable Insurance Trust,
Merrill Lynch Life Insurance Company, and Massachusetts Financial
Services Company. (Incorporated by Reference to Registrant's Post-
Effective Amendment No. 10 to Form N-4, Registration No. 33-43773
Filed December 10, 1996).
(9) Opinion of Barry G. Skolnick, Esq. and Consent to its use as to the
legality of the securities being registered. (Incorporated by
Reference to Registrant's Post-effective Amendment No. 10 to Form N-
4, Registration No. 33-43773 Filed December 10, 1996).
(10)(a) Written Consent of Sutherland, Asbill & Brennan, L.L.P.
(b) Written Consent of Deloitte & Touche LLP, independent auditors.
(c) Written Consent of Barry G. Skolnick, Esq.
(11) Not Applicable
(12) Not Applicable
(13) Schedule for Computation of Performance Quotations. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 10 to Form N-
4, Registration No. 33-43773 Filed December 10, 1996).
(14)(a) Power of Attorney from Joseph E. Crowne, Jr. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 4 to Form N-
4, Registration No. 33-43773 Filed March 2, 1994).
(b) Power of Attorney from David M. Dunford (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4,
Registration No. 33-43773 Filed March 2, 1994).
C-2
(c)Power of Attorney from John C.R. Hele (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4,
Registration No. 33-43773 Filed March 2, 1994).
(d)Power of Attorney from Allen N. Jones (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4,
Registration No. 33-43773 Filed March 2, 1994).
(e)Power of Attorney from Barry G. Skolnick (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4,
Registration No. 33-43773 Filed March 2, 1994).
(f)Power of Attorney from Anthony J. Vespa (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4,
Registration No. 33-43773 Filed March 2, 1994).
(g)Power of Attorney from Gail R. Farkas (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 8 to Form N-4,
Registration No. 33-43773 Filed April 25, 1996).
C-3
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR*
NAME PRINCIPAL BUSINESS ADDRESS POSITION WITH DEPOSITOR*
- -------------- -------------------------- ------------------------------------
Joseph E. 800 Scudders Mill Road Director, Senior Vice President,
Crowne, Jr. Plainsboro, NJ 08536 Chief Financial Officer, Chief
Actuary and Treasurer.
David M. Dun- 800 Scudders Mill Road Director, Senior Vice President and
ford Plainsboro, NJ 08536 Chief Investment Officer.
Gail R. Farkas 800 Scudders Mill Road Director and Senior Vice President.
Plainsboro, NJ 08536
Barry G. Skol- 800 Scudders Mill Road Director, Senior Vice President,
nick Plainsboro, NJ 08536 General Counsel and Secretary.
Anthony J. 800 Scudders Mill Road Director, Chairman of the Board,
Vespa Plainsboro, NJ 08536 Chief Executive Officer and
President.
Deborah J. Ad- 800 Scudders Mill Road Vice President and Actuary.
ler Plainsboro, NJ 08536
Robert J. 1414 Main Street Senior Vice President, Variable Life
Boucher Springfield, MA 01102 Administration.
Charles J. 800 Scudders Mill Road, Vice President.
Cavanaugh Plainsboro, NJ 08536
Michael P. 800 Scudders Mill Road Vice President and Senior Counsel.
Cogswell Plainsboro, NJ 08536
Edward W. 800 Scudders Mill Road Vice President and Senior Counsel.
Diffin, Jr. Plainsboro, NJ 08536
Eileen Dyson 4804 Deer Lake Drive East Vice President and Assistant
Jacksonville, FL 32246 Secretary.
Diana Joyner 1414 Main Street Vice President.
Springfield, MA 01102
Peter P. Massa 800 Scudders Mill Road Vice President.
Plainsboro, NJ 08536
Kelly A. O'Dea 800 Scudders Mill Road Vice President and Director of
Plainsboro, NJ 08536 Compliance.
Shelley K. 1414 Main Street Vice President and Assistant
Parker Springfield, MA 01102 Secretary.
Julia Raven 800 Scudders Mill Road Vice President.
Plainsboro, NJ 08536
Lori M. Salvo 800 Scudders Mill Road Vice President and Senior Counsel.
Plainsboro, NJ 08536
John A. Shea 800 Scudders Mill Road Vice President.
Plainsboro, NJ 08536
Frederick H. 800 Scudders Mill Road Vice President.
Steele Plainsboro, NJ 08536
Tracy A. 4804 Deer Lake Drive East Vice President and Assistant
Bartoy Jacksonville, FL 32246 Secretary.
Robert J. 1414 Main Street Vice President and Assistant
Viamari Springfield, MA 01102 Secretary.
Chester 425 West Capital Avenue, Vice President
Westergard Capital Towers, Suite 200
Little Rock, AR 72201
Denis G. 800 Scudders Mill Road Vice President.
Wuestman Plainsboro, NJ 08536
Matthew J. 800 Scudders Mill Road Vice President.
Rider Plainsboro, NJ 08536
Donald C. Ste- 800 Scudders Mill Road Vice President and Controller
vens, III Plainsboro, NJ 08536
Amy S. Winston 800 Scudders Mill Road Vice President and Senior
Plainsboro, NJ 08536 Compliance Officer.
- ---------------------
* Each director is elected to serve until the next annual shareholder meeting
or until his or her successor is elected and shall have qualified.
C-4
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
Merrill Lynch Life Insurance Company is an indirect wholly-owned subsidiary
of Merrill Lynch & Co., Inc.
A list of subsidiaries of Merrill Lynch & Co., Inc. appears below.
SUBSIDIARIES OF THE REGISTRANT
The following are subsidiaries of ML & Co. as of March 21, 1997 and the
states or jurisdictions in which they are organized. Except as otherwise
specified, in each case ML & Co. owns, directly or indirectly, at least 99% of
the voting securities of each subsidiary. The names of certain subsidiaries
have been omitted because, considered in the aggregate as a single subsidiary,
they would not constitute, as of the end of the year covered by this report, a
"significant subsidiary" as that term is defined in Rule 1.02(v) of Regulation
S-X, under the Securities Exchange Act of 1934.
STATE OF
NAME JURISDICTION OF ENTITY
- ---- ----------------------
Merrill Lynch & Co., Inc. .............................. Delaware
Merrill Lynch, Pierce, Fenner & Smith Incorporated(1)... Delaware
Broadcort Capital Corp. ................................ Delaware
Merrill Lynch & Co., Canada Ltd. ....................... Ontario
Merrill Lynch Canada Inc. .............................. Nova Scotia
Merrill Lynch Life Agency Inc.(2)....................... Washington
Merrill Lynch Professional Clearing Corp.(3)............ Delaware
Merrill Lynch Bank & Trust Co. ......................... New Jersey
Merrill Lynch Capital Services, Inc. ................... Delaware
Merrill Lynch Government Securities Inc. ............... Delaware
Merrill Lynch Money Markets Inc. ....................... Delaware
Merrill Lynch Group, Inc.(4)............................ Delaware
Merrill Lynch Capital Partners, Inc. ................... Delaware
Merrill Lynch Futures Inc. ............................. Delaware
Merrill Lynch Group Holdings Limited.................... Ireland
Merrill Lynch Capital Markets Bank Limited.............. Ireland
Merrill Lynch Insurance Group, Inc. .................... Delaware
Merrill Lynch Life Insurance Company.................... Arkansas
ML Life Insurance Company of New York................... New York
Merrill Lynch International Finance Corporation......... New York
Merrill Lynch International Bank Limited................ England
Merrill Lynch Bank (Suisse) S.A. ....................... Switzerland
Merrill Lynch Mortgage Capital Inc. .................... Delaware
Merrill Lynch National Financial........................ Utah
Merrill Lynch Trust Company(5).......................... New Jersey
Merrill Lynch Business Financial Services Inc. ......... Delaware
Merrill Lynch Credit Corporation........................ Delaware
Merrill Lynch Investment Partners Inc. ................. Delaware
MLDP Holdings, Inc.(6).................................. Delaware
Merrill Lynch Derivative Products AG.................... Switzerland
Merrill Lynch & Co., Inc.--ML IBK Positions Inc.(7)..... Delaware
Merrill Lynch Capital Corporation....................... Delaware
ML Leasing Equipment Corp.(8)........................... Delaware
Princeton Services, Inc.(9)............................. Delaware
Merrill Lynch International Incorporated................ Delaware
Merrill Lynch International (Australia) Limited......... New South Wales
Merrill Lynch International Bank........................ United States
Merrill Lynch International Holdings Inc. .............. Delaware
Merrill Lynch Bank (Austria) Aktiengesellschaft A.G. ... Austria
C-5
STATE OF
NAME JURISDICTION OF ENTITY
- ---- ----------------------
Merrill Lynch Bank and Trust Company (Cayman) Limited.. Cayman Islands,
British West Indies
Merrill Lynch International & Co.(10).................. Netherlands Antilles
Merrill Lynch Capital Markets A.G. .................... Switzerland
Merrill Lynch Europe PLC............................... England
Merrill Lynch International............................ England
Merrill Lynch Capital Markets PLC...................... England
Merrill Lynch, Pierce, Fenner & Smith (Brokers & Deal- England
ers) Limited..........................................
Merrill Lynch Trust Company (Jersey) Limited........... Jersey,
Channel Islands
Merrill Lynch Europe Ltd. ............................. Cayman Islands,
British West Indies
Merrill Lynch Holding GmbH............................. Germany
Merrill Lynch GmbH..................................... Germany
Merrill Lynch France................................... France
Merrill Lynch Capital Markets (France) S.A. ........... France
Merrill Lynch Far East Limited......................... Hong Kong
Merrill Lynch Japan Incorporated....................... Delaware
- --------
(1) MLPF&S also conducts business as "Merrill Lynch & Co."
(2) Similarly named affiliates and subsidiaries that engage in the sale of
life insurance and annuity products are incorporated in various other
jurisdictions.
(3) The preferred stock of the corporation is owned by an unaffiliated group
of investors.
(4) Similarly named affiliates and subsidiaries that provide trust and
custodial services are incorporated in various other jurisdictions.
(5) Merrill Lynch Group, Inc. owns 100% of this corporation's outstanding
common voting stock. 100% of the outstanding preferred voting stock is
held by outside parties. The board of directors consists of 12 members, 10
of whom are Merrill Lynch employees and 2 of whom represents outside
parties.
(6) This company has 7 subsidiaries holding or having a direct or indirect
interest in specific investments on its behalf.
(7) This corporation has more than 45 direct or indirect subsidiaries
operating in the United States and serving as either general partners or
associate general partners of limited partnerships.
(8) This corporation is the general partner of Merrill Lynch Asset Management,
LP and Fund Asset Management, LP (whose limited partner in both cases is
ML & Co.).
(9) This corporation is the general partner of Merrill Lynch Asset Management,
LP and Fund Asset Management, LP (whose limited partner in both cases is
ML & Co.).
(10) A partnership among subsidiaries of ML & Co.
ITEM 27. NUMBER OF CONTRACTS
The number of contracts in force as of March 21, 1997 was 71,069.
ITEM 28. INDEMNIFICATION
There is no indemnification of the principal underwriter, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, with respect to the Contract.
The indemnity agreement between Merrill Lynch Life Insurance Company
("Merrill Lynch Life") and its affiliate Merrill Lynch Life Agency, Inc.
("MLLA"), with respect to MLLA's general agency responsibilities on behalf of
Merrill Lynch Life and the Contract, provides:
Merrill Lynch Life will indemnify and hold harmless MLLA and all
persons associated with MLLA as such term is defined in Section
3(a)(21) of the Securities Exchange Act of 1934 against all claims,
losses, liabilities and expenses, to include reasonable attorneys'
fees, arising out of the sale by MLLA of insurance products under
C-6
the above-referenced Agreement, provided that Merrill Lynch Life shall
not be bound to indemnify or hold harmless MLLA or its associated
persons for claims, losses, liabilities and expenses arising directly
out of the willful misconduct or negligence of MLLA or its associated
persons.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registration pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Merrill Lynch, Pierce, Fenner & Smith Incorporated also acts as
principal underwriter for the following additional funds: CBA Money Fund; CMA
Government Securities Fund; CMA Money Fund; CMA Tax-Exempt Fund; The Corporate
Fund Accumulation Program, Inc.; CMA Treasury Fund; CMA Multi-State Municipal
Series Trust; Corporate Income Fund; Equity Income Fund; The Fund of Stripped
("Zero") U.S. Treasury Securities; The GNMA Investment Accumulation Program;
Government Securities Income Fund; International Bond Fund; The Merrill Lynch
Fund of Stripped ("Zero") U.S. Treasury Securities; Merrill Lynch Trust for
Government Securities; Municipal Income Fund; Municipal Investment Trust Fund;
and The Municipal Fund Accumulation Program, Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated also acts as principal
underwriter for the following additional accounts: Merrill Lynch Life Variable
Annuity Separate Account B; Merrill Lynch Life Variable Life Separate Account;
Merrill Lynch Life Variable Life Separate Account II; Merrill Lynch Life
Variable Annuity Separate Account; ML of New York Variable Life Separate
Account; ML of New York Variable Life Separate Account II; ML of New York
Variable Annuity Separate Account; ML of New York Variable Annuity Separate
Account A; and ML of New York Variable Annuity Separate Account B.
C-7
(b) The directors, president, treasurer and executive vice presidents of
Merrill Lynch, Pierce, Fenner & Smith Incorporated are as follows:
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES WITH UNDERWRITER
------------------------ --------------------------------------
Herbert M. Allison, Jr.* Director and Executive Vice President
Barry S. Friedberg* Executive Vice President
Edward L. Goldberg* Executive Vice President
Stephen L. Hammerman* Director and Chairman
Jerome P. Kenney* Executive Vice President
David H. Komansky* Director, President and Chief
Executive Officer
Theresa Lang* Senior Vice President and Treasurer
Daniel T. Napoli* Senior Vice President
Thomas H. Patrick* Executive Vice President
George A. Schieren General Counsel
Winthrop H. Smith, Jr.* Executive Vice President
John L. Steffens* Director and Executive Vice President
Daniel P. Tully* Director
Roger M. Vasey* Executive Vice President
- ---------------------
*World Financial Center, 250 Vesey Street, New York, NY 10281
(c) Not Applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and records required to be maintained by Section 31(a)
of the 1940 Act and the rules promulgated thereunder are maintained by the
depositor at the principal executive offices at 800 Scudders Mill Road,
Plainsboro, New Jersey 08536 and the Service Center at 4804 Deer Lake Drive
East, Jacksonville, Florida 32246.
ITEM 31. Not Applicable
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) Registrant undertakes to file a post-effective amendment to the
Registrant Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16
months old for so long as payments under the variable annuity contracts may be
accepted.
(b) Registrant undertakes to include either (1) as part of any application
to purchase a contract offered by the prospectus, a space that an applicant
can check to request a statement of additional information, or (2) a postcard
or similar written communications affixed to or included in the prospectus
that the applicant can remove to send for a statement of additional
information.
(c) Registrant undertakes to deliver any statement of additional information
and any financial statements required to be made available under this Form
promptly upon written or oral request.
(d) Merrill Lynch Life Insurance Company 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 Merrill Lynch Life Insurance Company.
C-8
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Merrill Lynch Life Variable Annuity Separate Account A,
certifies that this Post-Effective Amendment meets all the requirements for
effectiveness under paragraph (b) of Rule 485, and accordingly, has caused
this Amendment to be signed on its behalf, in the City of Plainsboro, State of
New Jersey, on the 16th day of April, 1997.
Merrill Lynch Life Variable Annuity
Separate Account A
(Registrant)
Attest: /s/ Edward W. Diffin, Jr. By: /s/ Barry G. Skolnick
------------------------------- ----------------------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President and Senior Counsel Senior Vice President of Merrill
Lynch Life Insurance Company
Merrill Lynch Life Insurance Company
(Depositor)
Attest: /s/ Edward W. Diffin, Jr. By: /s/ Barry G. Skolnick
------------------------------- ----------------------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President and Senior Counsel Senior Vice President
As required by the Securities Act of 1933, this Post-Effective Amendment No.
11 to the Registration Statement has been signed below by the following
persons in the capacities indicated on April 16, 1997.
SIGNATURE TITLE
--------- -----
* Chairman of the Board, President and
_____________________________________ Chief Executive Officer
Anthony J. Vespa
* Director, Senior Vice President, Chief
_____________________________________ Financial Officer, Chief Actuary and
Joseph E. Crowne, Jr. Treasurer
* Director, Senior Vice President, and
_____________________________________ Chief Investment Officer
David M. Dunford
* Director and Senior Vice President
_____________________________________
Gail R. Farkas
*By: /s/ Barry G. Skolnick In his own capacity as Director,
--------------------------------- Senior Vice President, General
Barry G. Skolnick Counsel, and Secretary and as
Attorney-In-Fact
C-9
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
------- ----------- ----
(8)(k) Participation Agreement By And Among AIM Variable Insurance
Funds, Inc., AIM Distributors, Inc., and Merrill Lynch Life
Insurance Company............................................... C-
(10)(a) Written Consent of Sutherland, Asbill & Brennan, L.L.P. ......... C-
(10)(b) Written Consent of Deloitte & Touche LLP, independent auditors... C-
(10)(c) Written Consent of Barry G. Skolnick, Esq. ...................... C-
C-10
EX-8.K
2
EXHIBIT (8)(K)
EXHIBIT (8)(k)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.
AND
MERRILL LYNCH LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS
TABLE OF CONTENTS
Description Page
Section 1. Available Funds............................................2
1.1 Availability............................................2
1.2 Additional Deletion or Modification of Funds............2
1.3 No Sales to the General Public..........................2
Section 2. Processing Transactions....................................3
2.1 Timely Pricing and Orders...............................3
2.2 Timely Payments.........................................4
2.3 Applicable Price..................................... 4
2.4 Dividends and Distributions.............................4
2.5 Book Entry..............................................5
Section 3. Costs and Expenses.........................................5
3.1 General.................................................5
3.2 Parties To Cooperate....................................5
Section 4. Legal Compliance...........................................5
4.1 Tax Laws................................................5
4.2 Insurance and Certain Other Laws........................8
4.3 Securities Laws.........................................8
4.4 Notice of Certain Proceedings and Other Circumstances...9
4.5 MLLIC To Provide Documents; Information About AVIF.....10
4.6 AVIF To Provide Documents; Information About MLLIC.....11
Section 5. Mixed and Shared Funding..................................13
5.1 General................................................13
5.2 Disinterested Directors................................13
5.3 Monitoring for Material Irreconcilable Conflicts.......13
5.4 Conflict Remedies......................................14
5.5 Notice to MLLIC........................................15
5.6 Information Requested by Board of Directors............15
5.7 Compliance with SEC Rules..............................16
5.8 Other Requirements.....................................16
Section 6. Termination...............................................16
6.1 Events of Termination..................................16
6.2 Notice Requirement for Termination.....................18
6.3 Funds To Remain Available..............................18
6.4 Survival of Warranties and Indemnifications............18
i
6.5 Continuance of Agreement for Certain Purposes..........18
Section 7. Parties To Cooperate Respecting Termination...............19
Section 8. Assignment................................................19
Section 9. Notices...................................................19
Section 10. Voting Procedures........................................20
Section 11. Foreign Tax Credits......................................20
Section 12. Indemnification..........................................21
12.1 Of AVIF and AIM by MLLIC...............................21
12.2 Of MLLIC by AVIF and AIM...............................23
12.3 Effect of Notice.......................................25
12.4 Successors.............................................25
Section 13. Applicable Law...........................................26
Section 14. Execution in Counterparts................................26
Section 15. Severability.............................................26
Section 16. Rights Cumulative........................................26
Section 17. Headings.................................................26
Section 18. Parties to Cooperate.....................................26
SCHEDULE A............................................................28
SCHEDULE B............................................................29
SCHEDULE C............................................................30
ii
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 18th day of December, 1996
----
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation ("AIM");
and Merrill Lynch Life Insurance Company, an Arkansas life insurance company
("MLLIC"), on behalf of itself and each of its segregated asset accounts listed
in Schedule A hereto, as the parties hereto may amend from time to time (each,
an "Account," and collectively, the "Accounts") (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"), shares
("Shares") of each of which are registered under the Securities Act of 1933, as
amended (the "1933 Act") and are currently sold to one or more separate accounts
of life insurance companies to fund benefits under variable annuity contracts
and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto
as the Parties hereto may amend from time to time (each a "Fund"; reference
herein to "AVIF" includes reference to each Fund, to the extent the context
requires) available for purchase by the Accounts; and
WHEREAS, AIM is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, AIM currently serves as the distributor for the Shares; and
WHEREAS, MIMIC will be the issuer of certain variable annuity contracts and
variable life insurance contracts ("Contracts") as set forth on Schedule A
hereto, as the Parties hereto may amend from time to time, which Contracts
(hereinafter collectively, the "Contracts"), if required by applicable law, will
be registered under the 1933 Act; and
WHEREAS, MLLIC will fund the Contracts through the Accounts, each of which
may be divided into two or more subaccounts ("Subaccounts"; reference herein to
an "Account" includes reference to each Subaccount thereof to the extent the
context requires); and
1
WHEREAS, MLLIC will serve as the depositor of the Accounts, each of which
is registered as a unit investment trust investment company under the 1940 Act
(or exempt therefrom), and the
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, MLLIC intends to purchase Shares in one or more of the Funds on
behalf of the Accounts to fund the Contracts;
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
Section 1. Available Funds
--------------------------
1.1 Availability.
------------
AVIF will make Shares of each Fund available to MLLIC for purchase and
redemption at net asset value and with no sales charges, subject to the terms
and conditions of this Agreement. The Board of Directors of AVIF may refuse to
sell Shares of any Fund to any person, or suspend or terminate the offering of
Shares of any Fund if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Directors
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, such action is deemed in the best interests of the
shareholders of such Fund.
1.2 Additional Deletion or Modification of Funds.
--------------------------------------------
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 No Sales to the General Public.
------------------------------
AVIF and AIM agree that Shares will be sold only to insurance companies
which have entered into participation agreements with AVIF and their separate
accounts, qualified pension and retirement plans and AIM or its affiliates.
MLLIC will not resell the Shares except to AVIF or its agents.
2
Section 2. Processing Transactions
----------------------------------
2.1 Timely Pricing and Orders.
-------------------------
(a) AVIF or its designated agent will sue its best efforts to provide MLLIC
with the closing net asset value per Share for each Fund by 5:30 p.m. Central
Time on each Business Day. As used herein, "Business Day" shall mean any day on
which (i) the New York Stock Exchange is open for regular trading, (ii) AVIF
calculates the Fund's net asset value pursuant to rules of the SEC, and (iii)
MLLIC is open for business.
(b) MLLIC will use the data provided by AVIF each Business Day pursuant to
paragraph (a) immediately above to calculate Account unit values and to process
transactions that receive that same Business Day's Account unit values. MLLIC
will perform such Account processing the same Business Day, and will place
corresponding orders to purchase or redeem Shares with AVIF via facsimile (with
receipt confirmed in person by telephone) by 9:00 a.m. Central Time the
following Business Day; provided, however, that AVIF shall provide additional
time to MLLIC in the event that AVIF is unable to meet the 5:30 p.m. time stated
in paragraph (a) immediately above. Such additional time shall be equal to the
additional time that AVIF takes to make the net asset values available to MLLIC.
(c) Each order to purchase or redeem Shares of each Fund will be netted;
provided, however, with respect to payment of the purchase price by MLLIC and of
redemption proceeds by AVIF, MLLIC and AVIF shall net purchase and redemption
orders and shall transmit one (1) net payment in accordance with Section 2.2,
below. Each order to purchase or redeem Shares of each Fund shall be
accompanied or followed by a statement (received no later than 10:00 a.m.
Central Time) specifying whether the order results from purchase payments,
transfers from another Subaccount, transfers to another Subaccount, surrenders,
partial withdrawals, routine withdrawals of charges, or requests for other
transactions under Policies (collectively, "Policy Transactions.") AVIF shall
confirm to MLLIC, in a form agreeable to both parties, as soon as practicable
(but AVIF shall use all reasonable efforts to provide same day notice) of the
number of shares and the net asset value per share of each Fund purchased or
sold each day by MLLIC.
(d) If AVIF provides materially incorrect Share net asset value information
(as determined under SEC guidelines), MLLIC shall be entitled to an adjustment
to the number of Shares purchased or redeemed to reflect the correct net asset
value per Share. Any material error in the calculation or reporting of net
asset value per Share, dividend or capital gain information shall be reported
promptly upon discovery to MIMIC. Materiality and reprocessing cost
reimbursement shall be determined in accordance with standards established by
the Parties as provided in Schedule B, attached hereto and incorporated herein.
3
2.2 Timely Payments.
---------------
MLLIC will wire payment for net purchases to a custodial account designated
by AVIF by 1:00 p.m. Central Time on the same day as the order for Shares is
placed, to the extent practicable. AVIF will wire payment in federal funds for
net redemptions to an account designated by MLLIC by 1:00 p.m. Central Time on
the same day as the Order is placed, to the extent practicable, but in any event
within five (5) calendar days after the date the order is placed in order to
enable MLLIC to pay redemption proceeds within the time specified in Section
22(e) of the 1940 Act or such shorter period of time as may be required by law.
2.3 Applicable Price.
----------------
(a) Share purchase payments and redemption orders that result from purchase
payments, premium payments, surrenders and other transactions under Contracts
(collectively, "Contract transactions") and that MLLIC receives prior to the
close of regular trading on the New York Stock Exchange on a Business Day will
be executed at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the orders. For purposes of this
Section 2.3(a), MLLIC shall be the designated agent of AVIF for receipt of
orders relating to Contract transactions on each Business Day and receipt by
such designated agent shall constitute receipt by AVIF; provided that AVIF
receives notice of such orders by 9:00 a.m. Central Time on the next following
Business Day or such later time as computed in accordance with Section 2.1(b)
hereof.
(b) All other Share purchases and redemptions by MLLIC will be effected at
the net asset values of the appropriate Funds next computed after receipt by
AVIF or its designated agent of the order therefor, and such orders will be
irrevocable.
2.4 Dividends and Distributions.
---------------------------
MLLIC hereby elects to reinvest all dividends and capital gains
distributions in additional Shares of the corresponding Fund at the ex-dividend
date net asset values until MLLIC otherwise notifies AVIF in writing, it being
agreed by the Parties that the ex-dividend date and the payment date with
respect to any dividend or distribution will be the same Business Day. MLLIC
reserves the right to revoke this election and to receive all such income
dividends and capital gain distributions in cash. AVIF will use reasonable
efforts to furnish, or cause to be furnished, notice by wire or telephone
(followed by written confirmation) on or prior to the payment date to MLLIC of
any income dividends or capital gain distributions payable on the Shares of any
Fund and will provide information with respect to the number of additional
Shares purchased as a result of any reinvestment of dividends.
4
2.5 Book Entry.
----------
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to MLLIC. Shares ordered from AVIF will be
recorded in an appropriate title for MLLIC, on behalf of its Account.
Section 3. Costs and Expenses
-----------------------------
3.1 General.
-------
Except as otherwise specifically provided in Schedule C, attached hereto
and made a part hereof, each Party will bear all expenses incident to its
performance under this Agreement.
3.2 Parties To Cooperate.
--------------------
Each Party agrees to cooperate with the others, as applicable, in arranging
to print, mail and/or deliver, in a timely manner, each Account's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "Account Prospectus"), each Fund's prospectus, statement of
additional information and any amendments or supplements thereto (collectively,
the "Fund Prospectus"), or other materials of the Accounts or AVIF.
Section 4. Legal Compliance
---------------------------
4.1 Tax Laws.
--------
(a) AVIF represents and warrants that each Fund is currently qualified and
will continue to qualify as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
AVIF will notify MLLIC immediately upon having a reasonable basis for believing
that a Fund has ceased to so qualify or that it might not so qualify in the
future.
(b) AVIF represents that it will comply and maintain each Fund's compliance
with the diversification requirements set forth in Section 817(h) of the Code
and Section 1.817-5(b) of the regulations under the Code. AVIF will notify
MLLIC immediately upon having a reasonable basis for believing that a Fund has
ceased to so comply or that a Fund might not so comply in the future. In the
event of a breach of this Section 4.1(b) by AVIF, it will take all steps to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Section 1.817-5 of the regulations under the Code.
(c) MLLIC agrees that if the Internal Revenue Service ("IRS") asserts in
writing in connection with any governmental audit or review of MLLIC or, to
MLLIC's knowledge, of any Policy owner, annuitant or participant under the
Policies (collectively, "Participants"), that any
5
Fund has failed to comply with the diversification requirements of Section
817(h) of the Code or MLLIC otherwise becomes aware of any facts that could give
rise to any claim against AVIF or its affiliates as a result of such a failure
or alleged failure:
(i) MLLIC shall promptly notify AVIF of such assertion or potential
claim;
(ii) MLLIC shall consult with AVIF as to how to minimize any
liability that may arise as a result of such failure or alleged
failure;
(iii) MLLIC shall use its best efforts to minimize any liability of
AVIF or its affiliates resulting from such failure, including,
without limitation, demonstrating, pursuant to Treasury
Regulations Section 1.817-5(a)(2), to the Commissioner of the
IRS that such failure was inadvertent;
(iv) MLLIC shall permit AVIF, its affiliates and their legal and
accounting advisors to participate in any conferences,
settlement discussions or other administrative or judicial
proceeding or contests (including judicial appeals thereof)
with the IRS, any Participant or any other claimant regarding
any claims that could give rise to liability to AVIF or its
affiliates as a result of such a failure or alleged failure;
provided, however, that MLLIC will retain control of the
conduct of such conferences discussions, proceedings, contests
or appeals;
(v) any written materials to be submitted by MLLIC to the IRS, any
Participant or any other claimant in connection with any of the
foregoing proceedings or contests (including, without
limitation, any such materials to be submitted to the IRS
pursuant to Treasury Regulations Section 1.817-5(a)(2)), (a)
shall be provided by MLLIC to AVIF (together with any
supporting information or analysis) at least ten (10) Business
Days or such shorter period to which the Parties hereto may
agree prior to the day on which such proposed materials are to
be submitted, and (b) shall not be submitted by MLLIC to any
such person without the express written consent of AVIF which
shall not be unreasonably withheld;
(vi) MLLIC shall provide AVIF or its affiliates and their accounting
and legal advisors with such cooperation as AVIF shall
reasonably request (including, without limitation, by
permitting AVIF and its accounting and legal advisors to review
the relevant books and records of MLLIC) in order to facilitate
review by AVIF or its advisors of any written submissions
provided to it pursuant to it pursuant to the preceding clause
or its assessment of the validity or amount of any claim
against its arising from such a failure or alleged failure;
6
(vii) MLLIC shall not with respect to any claim of the IRS or any
Participant that would give rise to a claim against AVIF or its
affiliates (a) compromise or settle any claim, (b) accept any
adjustment on audit, or (c) forego any allowable administrative
or judicial appeals, without the express written consent of
AVIF or its affiliate which shall not be unreasonably withheld,
provided that MLLIC shall not be required, after exhausting all
administrative penalties, to appeal any adverse judicial
decision unless AVIF or its affiliates shall have provided an
opinion of independent counsel to the effect that a reasonable
basis exists for taking such appeal; and provided further that
the costs of any such appeal shall be borne equally by the
Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a result of
such failure or alleged failure if MLLIC fails to comply with
any of the foregoing clauses (i) through (vii), and such
failure could be shown to have materially contributed to the
liability.
Should AVIF or any of its affiliates refuse to give its written consent to
any compromise or settlement of any claim or liability hereunder, MLLIC may, in
its discretion, authorize AVIF or its affiliates to act in the name of MLLIC in,
and to control the conduct of, such conferences, discussions, proceedings,
contests or appeals and all administrative or judicial appeals thereof, and in
that event AVIF or its affiliates shall bear the fees and expenses associated
with the conduct of the proceedings that it is so authorized to control;
provided, that in no event shall MLLIC have any liability resulting from AVIFs
refusal to accept the proposed settlement or compromise with respect to any
failure caused by AVIF. As used in this Agreement, the term "affiliates" shall
have the same meaning as "affiliated person" as defined in Section 2(a)(3) of
the 1940 Act.
(d) Subject to Sections 4.1(a) and 4.1(b) hereof, MLLIC represents and
warrants that the Contracts currently are and will be treated as annuity
contracts or life insurance contracts under applicable provisions of the Code
and that it will maintain such treatment; MLLIC will notify AVIF immediately
upon having a reasonable basis for believing that any of the Contracts have
ceased to be so treated or that they might not be so treated in the future.
(e) MLLIC represents and warrants that each Account is a "segregated asset
account" and that, subject to Sections 4.1(a) and 4.1(b) hereof, interests in
each Account are offered exclusively through the purchase of or transfer into a
"variable contract," within the meaning of such terms under Section 817 of the
Code and the regulations thereunder. MLLIC will continue to meet such
definitional requirements, and it will notify AVIF immediately upon having a
reasonable basis for believing that such requirements have ceased to be met or
that they might not be met in the future.
7
4.2 INSURANCE AND CERTAIN OTHER LAWS.
--------------------------------
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by MLLIC, including, the furnishing of information not otherwise available to
MLLIC which is required by state insurance law to enable MLLIC to obtain the
authority needed to issue the Contracts in any applicable state.
(b) MLLIC represents and warrants that (i) it is an insurance company duly
organized, validly existing and in good standing under the laws of the State of
Arkansas and has full corporate power, authored and legal right to execute,
deliver and perform its duties and comply with its obligations under this
Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under Section 23-81-402 of the Arkansas
Insurance Law and the regulations thereunder, and (iii) the Contracts comply in
all material respects with all other applicable federal and state laws and
regulations.
(c) AVIF represents and warrants that it is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Maryland
and has full power, authority, and legal right to execute, deliver, and perform
its duties and comply with its obligations under this Agreement.
(d) AIM represents and warrants that it is a Delaware corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
---------------
(a) MLLIC represents and warrants that (i) interests in each Account
pursuant to the Contracts will be registered under the 1933 Act to the extent
required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and
Arkansas law, (iii) each Account is and will remain registered under the 1940
Act, to the extent required by the 1940 Act, (iv) each Account does and will
comply in all material respects with the requirements of the 1940 Act and the
rules thereunder, to the extent required, (v) each Account's 1933 Act
registration statement relating to the Contracts, together with any amendments
thereto, will at all times comply in all material respects with the requirements
of the 1933 Act and the rules thereunder, (vi) MLLIC will amend the registration
statement for its Contracts under the 1933 Act and for its Accounts under the
1940 Act from time to time as required in order to effect the continuous
offering of its Contracts or as may otherwise be required by applicable law, and
(vii) each Account Prospectus will at all times comply in all material respects
with the requirements of the 1933 Act and the rules thereunder.
8
(b) AVIF and AIM represent and warrant that (i) Shares sold pursuant to
this Agreement will be registered under the 1933 Act to the extent required by
the 1933 Act and duly authorized for issuance and sold in compliance with all
applicable federal and state laws including, without limitation, the 1933 Act,
the 1934 Act, the 1940 Act and Maryland law, (ii) AVIF is and will remain
registered under the 1940 Act to the extent required by the 1940 Act, (iii) AVIF
will amend the registration statement for its Shares under the 1933 Act and
itself under the 1940 Act from time to time as required in order to effect the
continuous offering of its Shares, or as may be required by applicable law, (iv)
AVIF does and will comply in all material respects with the requirements of the
1940 Act and the rules thereunder, (v) AVIFs 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules thereunder, and (vi)
AVIFs Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for sale in
accordance with the laws of any state or other jurisdiction if and to the extent
reasonably deemed advisable by AVIF.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
-----------------------------------------------------
(a) AVIF and/or AIM will immediately notify MLLIC of (i) the issuance by
any court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIFs registration statement under the 1933 Act or
AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of Shares
of AVIF, (iii) the initiation of any proceedings for that purpose or for any
other purpose relating to the registration or offering of AVIFs Shales, or (iv)
any other action or circumstances that may prevent the lawful offer or sale of
Shares of any Fund in any state or jurisdiction, including, without limitation,
any circumstances in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law, or (b) such law precludes the use of such Shares as an underlying
investment medium of the Contracts issued or to be issued by MLLIC. AVIF and
AIM will make every reasonable effort to prevent the issuance, with respect to
any Fund, of any such stop order, cease and desist order or similar order and,
if any such order is issued, to obtain the lifting thereof at the earliest
possible time.
(b) MLLIC will immediately notify AVIF of (i) the issuance by any court or
regulatory body of any stop order, cease and desist order, or other similar
order with respect to each Account's registration statement under the 1933 Act
relating to the Contracts or each Account Prospectus, (ii) any request by the
SEC for any amendment to such registration statement or Account Prospectus that
may affect the offering of Shares of AVIF, (iii) the initiation of any
proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state jurisdiction, including, without limitation,
any circumstances in which said interests are not registered and, in
9
all material respects, issued and sold in accordance with applicable state and
federal law. MLLIC will make every reasonable effort to prevent the issuance of
any such stop order, cease and desist order, or similar order and, if any such
order is issued, to obtain the lifting thereof at the earliest possible time.
4.5 MLLIC TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
--------------------------------------------------
(a) MLLIC will provide to AVIF or its designated agent at least one (1)
complete copy of all SEC registration statements, Account Pi, reports, any
preliminary and final voting instruction solicitation material, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to each Account or the Contracts, contemporaneously with the
filing of such document with the SEC or over regulatory authorities.
(b) MLLIC will provide to AVIF or its designated agent at least one (1)
complete copy of each piece of sales literature or other promotional material in
which AVIF or any of its affiliates is named, at least ten (10) Business Days
prior to its use or such shorter period as the Parties hereto may, from time to
time, agree upon. No such material shall be used if AVIF or its designated agent
objects to such use within ten (10) Business Days after receipt of such material
or such shorter period as the Parties hereto may, from time to time, agree upon.
AVIF hereby designates AIM as the entity MLLIC to print and distribute such
materials within the time required by law to be furnished to Participants to
receive such sales literature, until such time as AVIF appoints another
designated agent by giving notice to MLLIC in the manner required by Section 9
hereof.
(c) Neither MLLIC nor any of its affiliates, will give any information or
make any representations or statements on behalf of or concerning AVIF, AIM or
their respective affiliates in connection with the sale of the Contracts other
than (i) the information or representations contained in the registration
statement, including the AVIF Prospectus contained therein, relating to Shares,
as such registration statement and AVIF Prospectus may be amended or
supplemented from time to time; or (ii) in reports or proxy materials for AVIF;
or (iii) in published reports for AVIF that are in the public domain and
approved by AVIF for distribution; or (iv) in sales literature or other
promotional material approved by AVIF, except with the express written
permission of AVIF. Toe parties hereto agree that this Section 4.5 is not
intended to designate nor otherwise imply that MLLIC is an underwriter or
distributor of Shares of AVIF.
(d) MLLIC shall adopt and implement procedures reasonably designed to
ensure that information concerning AVIF, AIM and their respective affiliates
that is intended for use only by brokers or agents selling the Contracts (i.e.,
information that is not intended for distribution to Participants) ("broker only
materials") is so used, and none of AVIF, AIM or any of their respective
affiliates shall be liable for any losses, damages or expenses relating to the
improper use of such broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements and
sales literature as
10
defined in applicable rules of the NASD, the 1933 Act or the 1940 Act, and
educational or training materials or other communications distributed or made
generally available to some or all agents or employees.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT MLLIC.
--------------------------------------------------
(a) AVIF will provide to MLLIC at least one (1) complete copy of all SEC
registration statements, AVIF Prospectuses, reports, any preliminary and final
proxy material, applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to AVIF or the Shares of a Fund,
contemporaneously with the filing of such document with the SEC or other
regulatory authorizes. AVIF shall provide MLLIC with as much notice as is
reasonably practicable of any proxy solicitation for a Fund and of any material
change in the Fund's Prospectus or registration statement, particularly any
change resulting in a change to the prospectus or registration statement
relating to the Contracts. Where such material changes are for consideration by
the Board of AVIF, such notice requirement of AVIF may be satisfied by providing
MLLIC with a copy of an agenda of the relevant Board of Directors meeting of
AVIF.
(b) AVIF will provide to MLLIC camera ready copies of all AVIF
prospectuses and printed copies, in an amount specified by MLLIC, of AVIF
statements of additional information, proxy materials, periodic reports to
shareholders and other materials required by law to be sent to Participants who
have allocated any Contract value to a Fund, all in accordance with the
allocations specified in Schedule C. AVIF will provide such copies to MLLIC in a
timely manner so as to enable
(c) AVIF or AIM will provide to MLLIC or its designated agent at least one
( 1 ) complete copy of each piece of sales literature or other promotional
material in which MLLIC, or any of Its affiliates is named, or that refers to
the Contracts, at least ten (10) Business Days prior to its use or such shorter
period as the Parties hereto may, from time to time, agree upon. No such
material shall be used if MLLIC or its designated agent objects to such use
within ten (10) Business Days after receipt of such material or such shorter
period as the Parties hereto may, from time to time, agree upon. MIMIC shall
receive all such sales literature until such time as it appoints a designated
agent by giving notice to AVIF in the manner required by Section 9 hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning MLLIC or its
affiliates, each Account, or the Contracts other than (i) the information or
representations contained in the registration statements including each Account
Prospectus contained therein, redating to the Contracts, as such registration
statement and Account Prospectus may be amended or supplemented from time to
time; or (ii) in published reports for the Account or the Contracts that are in
the public domain and approved by MIMIC for distr button; or (iii) in sales
literature or other promotional material approved by MLLIC or its affiliates,
except with the express written permission of MLLIC.
11
(e) AIM shall adopt and implement procedures reasonably designed to ensure
that information concerning MLLIC, and its respective affiliates that is
intended for use only by brokers or agents selling the Contracts (i.e.,
information that is not intended for distribution to Participants) ("broker only
materials-) is so used, and neither MLLIC, nor any of its respective affiliates
shall be liable for any losses, damages or expenses relating to the improper use
of such broker only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements and
sales literature as defined in applicable rules of the NASD, the 1933 Act or the
1940 Act, and educational or training materials or other communications
distributed or made generally available to some or all agents or employees.
(g) Except as otherwise expressly provided in this Agreement, neither
AVID, its investment adviser, its principal underwriter, or any affiliate
thereof shall use any trademark, trade name, service mark or Logo of MLLIC or
any of is affiliates, or any variation of any such trademark, trade name,
service mark or logo, without MLLIC's prior written consent, the granting of
which shall be at MLLIC's sob option. Except as otherwise expressly provided in
this Agreement, neither MLLIC nor any affiliate thereof shall use any trademark,
trade name, service mark or logo of AVIF, AIM or any of their respective
affiliates, or any variation of any such trademark, trade name, service mark or
logo, without the prior written consent of AVIF or AIM, the granting of which
shall be at the sole option of AVID, AIM or such affiliate.
(h) AVIF and AIM agree to provide to MLLIC, as soon as available under
AIM's then applicable guidelines for release, the following information with
respect to each Fund, each as of the last Business Day of such calendar month:
the Fund's ten ( 10) largest portfolio holdings (based on percentage of the
Fund's net assets); the five (5) industry sectors in which the Fund's
investments are most heavily weighted; the relative proportion of the Fund's net
assets invested in equity, bond, and cash instruments, respectively; the broad
geographic regions as applicable, in which the Fund's investments are most
heavily weighted; and year-to-date SEC standard total return performance data In
addition, AVIF and AIM agree to provide to MLLIC, as soon as available under
AIM's then applicable guidelines for release, the following information with
respect to each Fund, each as of the last Business Day of such quarter: a market
commentary from the portfolio manager of such Fund; a complete list of the
Fund's portfolio holdings; and access to the portfolio manager of such Fund at
such portfolio manager's primary office for up to thirty (30) minutes per
calendar quarter for purposes of preparing audio and video tapes relating to the
Fund's management and performance (subject to the provisions of this Agreement).
Also, AVIF and AIM agree to provide to MLLIC, within fifteen (15) Business Days
after a request is submitted to AVIF or AIM by MLLIC, the following information
with respect to each Fund, each as of the date or dates specified in such
request: net asset value; net asset value per Share; and other Share information
as may be reasonably requested. AVIF and AIM acknowledge that such information
maybe furnished to MLLIC's internal or independent auditors, and to the
insurance departments of the various jurisdictions in which MLLIC does business.
12
SECTION 5. MIXED AND SHARED FUNDING
------------------------------------
5.1 GENERAL.
-------
The SEC has granted an order ("Order-) to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with MLLIC, and
trustees of qualified pension and retirement plans (collectively, "Mixed and
Shared Funding"). The Parties recognize that the SEC has imposed terms and
conditions for such orders that are substantially identical to many of the
provisions of this Section 5. Sections 5.2 through 5.8 below shall apply
pursuant to the Order granted to AVIF. AVIF hereby notifies MLLIC that it may be
appropriate to include in the prospectus pursuant to which a Contract is offered
disclosure regarding the potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
-----------------------
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the Disinterested Directors-) are not interested
persons of AVIF within the meaning of Section 2(a)(l9) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona tide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
------------------------------------------------
AVIF agrees that its Board of Directors will monitor for the existence of
any material irreconcilable conflict between the interests of the Participants
in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). MIMIC agrees to inform the Board of Directors of AVIF of the existence
of or any potential for any such material irreconcilable conflict of which it is
aware. The concept of a "material irreconcilable conflict. is not defined by the
1940 Act or the rules thereunder, but the Parties recognize that such a conflict
may arise for a variety of reasons, including, without limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities
laws or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax or securities
regulatory authorities;
13
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity contract
and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
MLLIC will assist the Board of Directors in carrying out its
responsibilities by providing the Board of Directors with all information
reasonably necessary for the Board of Directors to consider any issue raised,
including information as to a decision by MLLIC to disregard voting instructions
of Participants. MLLIC's responsibilities in connection with the foregoing shall
be carried out with a view only to the interests of Participants.
5.4 CONFLICT REMEDIES.
-----------------
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, MLLIC will if it is a Participating
Insurance Company for which a material irreconcilable conflict is relevant, at
its own expense and to the extent reasonably practicable (as determined by a
majority of the Disinterested Directors), take whatever steps are necessary to
remedy or eliminate the material irreconcilable conflict, which steps may
include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the Accounts
from AVIF or any Fund and reinvesting such assets in a different
investment medium, including another Fund of AVIF, or submitting
the question whether such segregation should be implemented to a
vote of all affected Participants and, as appropriate,
segregating the assets of any particular group (e.g., annuity
Participants, life insurance Participants or all Participants)
that votes in favor of such segregation, or offering to the
affected Participants the option of making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "management company" in Section 4(3) of the 1940 Act
or a new separate account that is operated as a management
company.
(b) If the material irreconcilable conflict arises because of MLLICs
decision to disregard Participant voting instructions and that decision
represents a minority position or
14
would preclude a majority vote, MLLIC may be requited, at AVIFs election, to
withdraw each Account's investment in AVIF or any Fund. No charge or penalty
will be imposed as a result of such withdrawal. Any such withdrawal must take
place within six (6) months after AVIF gives notice to MLLIC that this provision
is being implemented, and until such withdrawal AVIF; shall continue to accept
and implement orders by MLLIC for the purchase and redemption of Shares of AVIF.
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to MLLIC conflicts with the
majority of other state regulators, then MLLIC will withdraw each Account's
inurement in AVIF within six (6) months after AVIFs Board of Directors Informs
MLLIC that it has determined that such decision has created a material
irreconcilable conflict, and until such withdrawal AVIF shall continue to accept
and implement orders by MLLIC for the purchase and redemption of Shares of AVIF.
No charge or penalty will be imposed as a result of such withdrawal.
(d) MLLIC agrees that any remedial action taken by it in resolving any
material irreconcilable conflict will be carried out at its expense and with a
view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts.
MLLIC will not be required by the terms hereof to establish a new funding medium
for any Contracts if an offer to do so has been declined by vote of a majority
of Participants materially adversely affected by the material irreconcilable
conflict.
5.5 NOTICE TO MLLIC.
---------------
AVIF will promptly make known in writing to MLLIC the Board of Directors'
determination of the existence of a material irreconcilable conflict, a
description of the facts that give rise to such conflict and the implications of
such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
-------------------------------------------
MLLIC and AVIF (or its investment adviser) will at least annually submit to
the Board of Directors of AVIF such reports, materials or data as the Board of
Directors may reasonably request so that the Board of Directors may fully carry
out the obligations imposed upon it by the provisions hereof or any exemptive
order granted by the SEC to permit Mixed and Shared Funding, and said reports,
materials and data will be submitted at any reasonable time deemed appropriate
by the Board of Directors. All reports received by the Board of Directors of
potential or existing conflicts, and all Board of Directors actions with regard
to determining the existence of a conflict, notifying Participating Insurance
Companies and Participating Plans of a conflict, and determining whether any
proposed action adequately remedies a conflict, will be properly
15
recorded in the minutes of the Board of Directors or other appropriate records,
and such minutes or other records will be made available to the SEC upon
request.
5.7 COMPLIANCE WITH SEC RULES.
-------------------------
If, at any time during which AVIF is serving as an investment medium for
variable life insurance contracts, 1940 Act Rules 6e-3(T) or, if applicable, 6e-
2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect
to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and
conditions thereof and that the terms of this Section 5 shall be deemed modified
if and only to the extent required in order also to comply with the terms and
conditions of such exemptive relief that is afforded by any of said rules that
are applicable.
5.8 OTHER REQUIREMENTS.
------------------
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
-----------------------
6.1 EVENTS OF TERMINATION.
---------------------
Subject to Section 6.4 below, this Agreement will terminate as to a Fund:
(a) at the option of any Party upon six (6) months advance written notice
to the other Parties; or
(b) at the option of AVIF upon institution of formal proceedings against
MLLIC or its affiliates by the NASD, the SEC, any state insurance regulator or
any other regulatory body regarding MLLIC's obligations under this Agreement or
related to the sale of the Contracts, the operation of each Account, or the
purchase of Shares, if, in each case, AVIF reasonably determines that such
proceedings, or the facts on which such proceedings would be based, have a
material likelihood of imposing material adverse consequences on the Fund with
respect to which the Agreement is to be terminated; or
(c) at the option of MLLIC upon institution of formal proceedings against
AVIF, AIM, or their respective affiliates by the NASD, the SEC, or any state
insurance regulator or any other regulatory body regarding AVIFs or AIM's
obligations under this Agreement or related to the operation or management of
AVIF or the purchase of AVIF Shares, if, in each case, MLLIC reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on MLLIC, the Accounts, or the Subaccount corresponding to the Fund with respect
to which the Agreement is to be terminated; or
16
(d) at the option of any Party in the event that (i) the Fund's Shares are
not registered and, in all material respects, issued and sold in accordance with
any applicable federal or state law, or (ii) such law precludes the use of such
Shares as an underlying investment medium of the Contracts issued or to be
issued by MLLIC; or
(e) upon termination of the corresponding Subaccount's investment in the
Fund pursuant to Section 5 hereof; or
(f) at the option of MLLIC if the Fund ceases to qualify as a RIC under
Subchapter M of the Code or under successor or similar provisions, or if MLLIC
reasonably believes that the Fund may fail to so qualify; or
(g) at the option of MLLIC if the Fund fails to comply with Section-8
17(h) of the Code or with successor or similar provisions, or if MLLIC
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by MLLIC cease to
qualify as annuity contracts or life insurance contracts under the Code (other
than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M
of the Code) or if interests in an Account under the Contracts are not
registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's failure to cure a material breach of any
provision of this Agreement within thirty (30) days after written notice
thereof; or
(j) at the option of MLLIC upon receipt of any necessary regulatory
approvals to substitute the shares of another investment company for Shares of
the corresponding Fund in accordance with the terms of the Contracts for which
those Fund Shares serve as underlying funding media. MLLIC will give written
notice to AVIF immediately upon filing an application for substitution to
substitute Shares of a Fund; or
(k) at the option of AVIF or AIM by written notice to MLLIC if either AVIF
or AIM shall conclude, in its sole judgment exercised in good faith, that MLLIC
or the principal underwriter for the Contracts has suffered a material adverse
change in its business, operations, financial condition, or prospects since the
date of this Agreement or is the subject of material adverse publicity; or
(1) at the option of MLLIC by written notice to AVIF or AIM, if MLLIC
shall conclude in its sole judgment exercised in good faith, that AVIF and/or
AIM has suffered a material adverse change in its business, operations,
financial condition, or prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(m) upon the assignment of this Agreement, unless made with the written
consent specified in Section 8 hereof.
17
6.2 NOTICE REQUIREMENT FOR TERMINATION.
----------------------------------
No termination of this Agreement win be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shad set forth the
basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shad be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1 (c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h), or 6.1(i) hereof such prior written
notice shad be given as soon as possible within twenty-four (24) hours after the
terminating Party learns of the event causing termination to be required; and
(d) in the event that any termination is based upon the provisions of
Sections 6.10, 6.1 (1) or 6. l(m) hereof, such prior written notice shad be
given as soon as possible, but, in any event, at least fifteen (15) days in
advance of the effective date of termination.
6.3 FUNDS TO REMAIN AVAILABLE.
-------------------------
Except (a) as necessary Participant-initiated transactions, (b) as required
by state insurance laws or regulations, (c) as required pursuant to Section 5 of
this Agreement, or (d) with respect to any Fund as to which this Agreement has
been terminated pursuant to Section 6.1(j) hereof, MLLIC shall not (i) redeem
AVIF Shares attributable to the Contracts (as opposed to AVIF Shares
attributable to MLLIC's assets held in each Account), or (ii) prevent
Participants from allocating payments to or transferring amounts form a Fund
that was otherwise available under the Contracts, until ninety (90) days after
MLLIC shall have notified AVIF of its intention to do so.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
-------------------------------------------
All warranties and indemnifications will survive the termination of this
Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
---------------------------------------------
If any Party terminates this Agreement with respect to any Fund pursuant to
Sections 6.1(a), 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h), 6.1(i), 6.1(j),
6.1(k), 6.1(l), or 6.1(m) hereof, this Agreement shall nevertheless continue in
effect as to any Shares of that Fund that are outstanding as of the date of such
termination (the "Initial Termination Date"). This continuation
18
shall extend to the later of the date as of which an Account owns no Shares of
the affected Fund or a date (the "Final Termination Date") six (6) months
following the Initial Termination Date, except that MLLIC may, by written notice
adjust said six (6) month period in the case of a termination made at its
option.
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
-------------------------------------------------------
The Parties hereto agree to cooperate and give reasonable assistance to one
another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund alter the Final Termination
Date with respect thereto. Such steps may include combining the affected Account
with another Account, substituting other mutual fund shares for those of the
affected Fund, or otherwise terminating participation by the Contracts in such
Fund.
SECTION 8. ASSIGNMENT
----------------------
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
SECTION 9. NOTICES
-------------------
Notices and contains required or permitted by Section 9 hereof will be
given by means mutually acceptable to the Parties concerned. Each other notice
or communication required or
permitted by this Agreement will be given to the following persons at the
following addresses and facsimile numbers, such other persons, addresses or
facsimile numbers as the Party receiving such notices or communications may
subsequently direct in writing:
Merrill Lynch Insurance Group, Inc.
Administrative Of rices
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Facsimile: (609) 282-1247
Attn.: Barry G. Skolnick, Esq
AIM Variable Insurance Funds, Inc.
11 Greenway Plazas Suite 1919
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn.: Nancy L. Martin, Esq.
19
A I M Distributors, Inc.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
Facsimile: (713)993-9185
Attn.: Mr. W. Gary Littlepage
SECTION 10. VOTING PROCEDURES
------------------------------
Subject to the cost allocation procedures set forth in Schedule C hereto,
pursuant to Section 3 hereof, MIMIC will distribute all proxy material furnished
by AVIF to Participants to whom passthrough voting privileges are required to be
extended and will solicit voting instructions from Participants. COLIC will vote
Shares in accordance with timely instructions received from Participants. MLLIC
will vote Shares that are (a) not attributable to Participants to whom
passthrough voting privileges are extended, or (b) attributable to Participants,
but for which no timely instructions have been received, in the same proportion
as Shares for which said instructions have been received from Participants, so
long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for Participants. Subject to applicable
law, neither MLLIC nor any of its affiliates will in any way recommend action in
connection with or oppose or interfere with the solicitation of proxies for the
Shares held for such Participants. MLLIC reserves the right to vote shares held
in any Account in its own right, to the extent permitted by law. MLLIC shall be
responsible for assuring that each of its Accounts holding Shares calculates
voting privileges in a manner consistent with that of other Participating
Insurance Companies or in the manner required by the Mixed and Shared Funding
Order obtained by AVIF. AVIF will notify MLLIC of any changes of interpretations
or amendments to the Mixed and Shared Funding Order it has obtained. AVIF will
comply with all provisions of the 1940 Act requiring voting by shareholders, and
in particular, AVIF either will provide for annual meetings (except insofar as
the SEC may interpret Section 16 of the 1940 Act not to require such meetings)
or will comply with Section 16(c) of the 1940 Act (although AVIF is not one of
the trusts described in Section 16(c) of that Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, AVIF will act in accordance
with the SEC's interpretation of the requirements of Section 16(a) with respect
to periodic elections of directors and with whatever rules the SEC may
promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
--------------------------------
AVIF agrees to consult in advance with MLLIC concerning any decision to
elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
20
SECTION 12. INDEMNIFICATION
----------------------------
12.1 OF AVIF AND AIM BY MLLIC.
------------------------
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c); below,
MLLIC agrees to indemnify and hold harmless AVIF, its affiliates (including
AIM), and each person, if any, who controls AIM or its affiliates within the
meaning of Section 15 of the 1933 Act, and each of their respective directors
and officers, (collectively, the "Indemnified Parties" for purposes of this
Section 12.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of MLLIC) or
actions in respect thereof (including, to the extent reasonable; legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions are related to the sale or acquisition of AVIF's
Shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any
Account's 1933 Act registration statement, any Account
Prospectus, the Contracts, or sales literature or advertising
for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided, that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information
furnished to MLLIC by or on behalf of AVIF or AIM for use in
any Account's 1933 Act registration statement, any Account
Prospectus, the Contracts, or sales literature or advertising
or otherwise for use in connection with the sale of Contracts
or Shares (or any amendment or supplement to any of the
foregoing); or
(ii) arise or as a result of any other statements or representations
(other than statements or representations contained in AVIFs
1933 Act registration statement, AVIF Prospectus, sales
literature or advertising of AVIF, or any amendment or
supplement to any of the foregoing, not supplied for use
therein by or on behalf of MLLIC or its affiliates and on which
such persons have reasonably relied) or the negligent, illegal
or fraudulent conduct of MLLIC or its affiliates or persons
under their control (including, without limitation, their
employees and "Associated Persons," as that term is defined in
Section (q) of Article I of the NASD's By-Laws), in connection
with the sale or distribution of the Contracts or Shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIFs 1933
Act registration
21
statement, AVIF Prospectus, sales literature or advertising of
AVIF, or any amendment or supplement to any of the foregoing,
or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or
omission was made in reliance upon and in conformity with
information furnished to AVIF or its affiliates by or on behalf
of MLLIC or its affiliates for use in AVIFs 1933 Act
registration statement, AVIF; Prospectus, sales literature or
advertising of AVIF, or any amendment or supplement to any of
the foregoing; or
(iv) arise as a result of any failure by MLLIC to perform the
obligations, provide the services and furnish the materials
required of them under the terms of this Agreement, or any
material breach of any representation and/or warranty made by
MLLIC in this Agreement or arise out of or result from any
other material breach of this Agreement by MLLIC; or
(v) arise as a result of figure by the Contracts issued by MLLIC to
qualifier as annuity contracts or life insurance contracts
under the Code, otherwise than by reason of any Fund's failure
to comply with Subchapter M or Section 817(h) of the Code.
(b) MLLIC shall not be liable under this Section 12.1 with respect to any
losses, claims, damages, liabilities or actions to which an Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its duties or by
reason of that Indemnified Party's reckless disregard of obligations or duties
(i) under this Agreement, or (ii) to AVIF.
(c) MLLIC shall not be liable under this Section 12.1 with respect to any
action against an Indemnified Party unless AVIF or AIM shall have notified
MLLIC in writing within a reasonable time after the summons or other first legal
process dying information of the nature of the action shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify MLLIC of
any such action shall not relieve MIMIC any liability which they may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this Section 12.1. Except as otherwise provided herein, in case any such
action is brought against an Indemnified Party, MLLIC shall be entitled to
participate, at its own expense, in the defense of such action and also shall be
entitled to assume the defense thereof, with counsel approved by the Indemnified
Party named in the action, which approval shall not be unreasonably withheld.
After notice from MIMIC to such Indemnified Party of MLLIC's election to assume
the defense thereof, the Indemnified Party will cooperate fully with MLLIC and
shall bear the fees and expenses of any additional counsel retained by it, and
MLLIC will not be liable to such Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
22
12.2 OF MLLIC BY AVIF AND AIM.
------------------------
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF and AIM agree to indemnify and hold harmless MLLIC, its
affiliates, and each person, if any, who controls MLLIC or its affiliates within
the meaning of Section 15 of the 1933 Act and each of their respective directors
and officers, (collectively, the "Indemnified Parties" for purposes of this
Section 12.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of AVIF and/or
AIM) or actions in respect thereof (including, to the extent reasonable, legal
and other expenses), to which the Indemnified Parties may become subject under
any statute, regulation, at common law, or otherwise; insofar as such losses,
claims, damages, liabilities or actions are related to the sale or acquisition
of AVIF's Shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIFs 1933
Act registration statement, AVIF Prospectus or sales literature
or advertising of AVIF (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading; provided, that this agreement
to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information
furnished to AVIF or its affiliates by or on behalf of MIMIC or
its affiliates for use in AVIFs 1933 Act registration statement,
AVIF Prospectus, or in sales literature or advertising or
otherwise for use in connection with the sale of Contracts or
Shares (or any amendment or supplement to any of the foregoing);
or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising for the
Contracts, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of AVIF
or AIM or their respective affiliates and on which such persons
have reasonably relied) or the negligent, illegal or fraudulent
conduct of AVIF or AIM or their respective affiliates or persons
under their control (including, without limitation, their
employees and "Associated Persons" as that term is defined in
Section (q) of Article I of the NASD By-Laws), in connection
with the sale or distribution of the Contracts or AVIF Shares;
or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Account's
1933 Act registration statement, any Account Prospectus, sales
literature or
23
advertising covering the Contracts, or any amendment or
supplement to any of the foregoing, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance
upon and in conformity with information furnished to MLLIC or
its affiliates by or on behalf of AVIF or AIM for use in any
Account's 1933 Act registration statement, any Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the materials
required of it under the terms of this Agreement, or any
material breach of any representation and/or warranty made by
AVIF in this Agreement or arise out of or result from any other
material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e)
hereof, AVIF and AIM agree to indemnify and bold harmless the Indemnified
Parties from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with the written consent of AVIF;)
or actions in respect thereof (including, to the extent reasonable, legal and
other expenses) to which the Indemnified Parties may become subject directly or
indirectly under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions directly or indirectly result
from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
asserting liability against MLLIC pursuant to the Contracts, the costs of any
nailing and closing agreement or other settlement with the IRS, and the cost of
any substitution by MLLIC of Shares of another investment company or portfolio
for those of any adversely affected Fund as a funding medium for each Account
that MLLIC reasonably deems necessary or appropriate as a result of the
noncompliance.
(c) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any losses, claims, damages, liabilities or actions to which an
Indemnified would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance by that Indemnified Party of its
duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement, or (ii) to MLLIC, each Account
or Participants.
(d) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any action against an Indemnified Party unless the Indemnified Party
shall have notified AVIF and/or AIM in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any
24
designated agent), but failure to notify AVIF or AIM of any such action shall
not relieve AVIF or AIM from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
Section 12.2. Except as otherwise provided herein, in case any such action is
brought against an Indemnified Party, AVIF and/or AIM will be entitled to
participate, at their own expense, in the defense of such action and also shall
be entitled to assume the defense thereof (which shad include, without
limitation, the conduct of any ruling request and closing agreement or other
settlement proceeding with the IRS), with counsel approved by the Indemnified
Party named in the action, which approval shad not be unreasonably withheld.
After notice from AVIF and/or AIM to such Indemnified Party of AVIFs and/or
AIM's election to assume the defense thereof, the Indemnified Party will
cooperate fully with AVIF and AIM and shad bear the fees and expenses of any
additional counsel retained by it, and neither AVIF nor AIM will be liable to
such Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof, other than reasonable costs of investigation.
(e) In no event shall either AVIF or AIM be liable under the
indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, MIMIC or any other Participating
Insurance Company or any Participant, with respect to any losses, claims,
damages, liabilities or expenses that arise out of or result from (i) a breach
of any representation, warranty, and/or covenant made by MLLIC hereunder or by
any Participating Insurance Company under an agreement containing substantially
similar representations, warranties and covenants; (ii) the failure by MLLIC or
any Participating Insurance Company to maintain its segregated asset account
(which invests in any Fund) as a legally and validly established segregated
asset account under applicable state law and as a duly registered unit
investment trust under the provisions of the 1940 Act (unless exempt therefrom);
or (iii) subject to compliance by AVIF with Sections 4. l(a) and 4. l(b) hereof,
the failure by MLLIC or any Participating Insurance Company to maintain its
variable annuity or life insurance contracts (with respect to which any Fund
serves as an underlying funding vehicle) as annuity contracts or life insurance
contracts under applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
----------------
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Sections 12. l(c) or 12.2(d) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
12.4 SUCCESSORS.
----------
A successor by law of any Party shall be entitled to the benefits of the
indemnification contained in this Section 12.
25
SECTION 13. APPLICABLE LAW
---------------------------
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
--------------------------------------
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
SECTION 15. SEVERABILITY
-------------------------
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
------------------------------
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
---------------------
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
SECTION 18. PARTIES TO COOPERATE
---------------------------------
Each party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including, without limitation, the SEC,
the NASD and state insurance regulators) and will permit each other and such
authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
26
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
--------------------------- --------------------------------
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary Title: President
A I M DISTRIBUTORS, Inc.
Attest: /s/ NANCY L. MARTIN By: /s/ W. GARY LITTLEPAGE
--------------------------- --------------------------------
Name: Nancy L. Martin Name: W. Gary Littlepage
----------------------------- ------------------------------
Title: Assistant Secretary Title: Senior Vice President
---------------------------- -----------------------------
MERRILL LYNCH LIFE INSURANCE
COMPANY, on behalf of itself and its
separate accounts
Attest: /s/ EDWARD W. DIFFIN, JR. By: /s/ BARRY G. SKOLNICK
--------------------------- --------------------------------
Name: Edward W. Diffin, Jr. Name: Barry G. Skolnick
----------------------------- ------------------------------
Vice President Senior Vice President
Title: and Senior Vice Counsel Title: and General Counsel
---------------------------- -----------------------------
27
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
- -----------------------------------
. AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
- -------------------------------------
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
- -----------------------------------------
MERRILL LYNCH FUNDS RETIREMENT PLUS VARIABLE ANNUITY
28
SCHEDULE B
AIM's Pricing Error Policies
DETERMINATION OF MATERIALITY
- ----------------------------
In the event that AIM discovers an error in the calculation of the Fund's net
asset value, the following policies will apply:
If the amount of the error is less than $.01 per share, it is considered
immaterial and no adjustments are made.
If the amount of the error is $.01 per share or more, then the following
thresholds are applied:
a. If the amount of the difference in the erroneous net asset value and
the correct net asset value is less than .5% of the correct net asset
value, AIM will reimburse the affected Fund to the extent of any loss
resulting from the error. No other adjustments shall be made.
b. If the amount of the difference in the erroneous net asset value and
the correct net asset value is .5% of the correct net asset value or
greater, then AIM will determine the impact of the error to the
affected Fund and shall reimburse such Fund (and/or MLLIC, as
appropriate, such as in the event that the error was not discovered
until after MIMIC processed transactions using the erroneous net asset
value) to the extent of any loss resulting from the error. To the
extent that an overstatement of net asset value per share is detected
quickly and MLLIC has not mailed redemption checks to Participants,
MIMIC and AIM agree to examine the extent of the error to determine
the feasibility of reprocessing such redemption transaction (for
purposes of reimbursing the Fund to the extent of any such
overpayment).
REPROCESSING COST REIMBURSEMENT
- -------------------------------
To the extent a reprocessing of Participant transactions is required pursuant to
paragraph (b), above, AIM shall reimburse MLLIC for MLLIC's reprocessing costs
in the amount of $3.00 per contract affected by $10 or more.
The Pricing Policies described herein may be modified by AVIF as approved by its
Board of Directors. AIM agrees to use is best efforts to notify MLLIC at least
five (5) days prior to any such meeting of the Board of Directors of AVIF to
consider such proposed changes.
29
SCHEDULE C
EXPENSE ALLOCATIONS
- --------------------------------------------------------------------------------
Description MLLIC AIM/AVIF
- --------------------------------------------------------------------------------
Registration
- ------------
Prepare and file Account registration Fund registration
registration statements/1/ statements statements
Payment of fees Account fees Fund fees
- --------------------------------------------------------------------------------
Prospectuses
- ------------
Typesetting Account Prospectuses Fund Prospectuses
Account Prospectuses, Fund Prospectuses
Printing and Fund Prospectuses distributed to existing
(but not for existing Participants/2/
Participants)
- --------------------------------------------------------------------------------
SAIs
- ----
Typesetting Account SAIs Fund SAIs
Printer Account SAIs Fund SAIs
- --------------------------------------------------------------------------------
Supplements (to
- ---------------
Prospectuses or SAIs
- --------------------
Typesetting and Printing Account Supplements, Fund Supplements to
and Fund Supplements existing Participants/2/
(but not for existing
Participants)
- --------------------------------------------------------------------------------
- ----------------------
/1/Includes all filings and costs necessary to keep registrations
current and effective; including, without limitation, filing Forms N-SAR and
Rule 24F-2 Notices as required by law.
/2/With respect to any AVIF material printed in combination with any
non-AVIF materials, total costs of typesetting and printing shall be prorated as
between AIM/AVIF on the one hand and MLLIC on the other based on (a) the ratio
of the number of page of the combined prospectus, report, or other document; and
(b) the ratio of the number of Participants who invest in all Funds of AVIF to
the total number of Participants.
30
- --------------------------------------------------------------------------------
Description MLLIC AIM/AVIF
- --------------------------------------------------------------------------------
Financial Reports
- -----------------
Typesetting Account Reports Fund Reports to
existing Participants/2/
Printing Account Reports, and
Fund Reports (not to
existing Participants)
- --------------------------------------------------------------------------------
Mailing and Distribution
- ------------------------
To Contract owners Account and Fund
Prospectuses, SAIs,
Supplements and Reports
To Offerees Account and Fund
Prospectuses, SAIs,
Supplements and Reports
- --------------------------------------------------------------------------------
Proxies
- -------
Typesetting, printing and Account and Fund Fund Proxies where the
mailing of proxy Proxies where the matters submitted are
solicitation materials matters submitted are solely Fund-related
and voting instruction solely Account-related
solicitation materials
and tabulation of proxies Account Proxies even
to Participants where the matters
submitted are solely
Fund-related
- --------------------------------------------------------------------------------
Other (Sales-Related)
- ---------------------
Contract owner Account-related items
communication and Fund-related items
Distribution Policies
Administration Account (Policies)
- --------------------------------------------------------------------------------
- ----------------------
/2/With respect to any AVIF material printed in combination with any
non-AVIF materials, total costs of typesetting and printing shall be prorated as
between AIM/AVIF on the one hand and MLLIC on the other based on (a) the ratio
of the number of page of the combined prospectus, report, or other document; and
(b) the ratio of the number of Participants who invest in all Funds of AVIF to
the total number of Participants.
31
EX-10.A
3
EXHIBIT (10)(A)
[SUTHERLAND, ASBILL & BRENNAN, L.L.P.]
EXHIBIT (10)(a)
April 16, 1997
Board of Directors
Merrill Lynch Life Insurance Company
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus filed as part of Post-Effective Amendment No. 11 to
Form N-4 (File No. 33-43773) for Merrill Lynch Life Variable Annuity Separate
Account A of Merrill Lynch Life Insurance Company. 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.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By: /s/ KIMBERLY J. SMITH
----------------------------------------
KIMBERLY J. SMITH
EX-10.B
4
EXHIBIT (10)(B)
EXHIBIT (10)(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 11 to
Registration Statement No. 33-43773 of Merrill Lynch Life Variable Annuity
Separate Account A on Form N-4 of our reports on (i) Merrill Lynch Life
Insurance Company dated February 24, 1997, and (ii) Merrill Lynch Life Variable
Annuity Separate Account A dated January 21, 1997, appearing in the Statement of
Additional Information, which is a part of such Registration Statement, and to
the reference to us under the heading "Experts" in the Prospectus, which is a
part of such Registration Statement.
/s/ Deloitte & Touche LLP
New York, New York
April 23, 1997
EX-10.C
5
EXHIBIT (10)(C)
EXHIBIT (10)(c)
[MERRILL LYNCH LIFE INSURANCE COMPANY]
CONSENT OF BARRY G. SKOLNICK, ESQ.
I hereby consent to the reference to my name under the caption "Legal Matters"
in the prospectus included in Post-Effective Amendment No. 11 to the
Registration Statement on Form N-4 for certain variable annuity insurance
contracts issued through Merrill Lynch Life Variable Annuity Separate Account A
and included in the prospectus included in Post-Effective Amendment No. 11 to
the Registration Statement on Form N-4 for certain variable annuity insurance
contracts issued through Merrill Lynch Life Variable Annuity Separate Account B
(the "Accounts") of Merrill Lynch Life Insurance Company (the "Company"), File
Numbers 33-43773 and 33-45379.
/s/ BARRY G. SKOLNICK
-------------------------
Barry G. Skolnick, Esq.
Senior Vice President and General Counsel
April 22, 1997
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