-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, CO6oMKnQatnxWG+UfZjP2dLWAi8jaGxb+KnmXLGLI9MjNYzRdQI+qGvq3qAwlHSF 8ciTEGZpukrjceUae9rwCQ== 0000950123-94-002001.txt : 19941208 0000950123-94-002001.hdr.sgml : 19941208 ACCESSION NUMBER: 0000950123-94-002001 CONFORMED SUBMISSION TYPE: POS AMI PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19941207 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL LYNCH LIFE INSURANCE COMPANY CENTRAL INDEX KEY: 0000845091 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 911325756 STATE OF INCORPORATION: AR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AMI SEC ACT: 1933 Act SEC FILE NUMBER: 033-60290 FILM NUMBER: 94563670 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL ROAD CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092821429 POS AMI 1 P.E. AMEND. NO. 3 TO FORM S-1, ML LIFE INSURANCE 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 7, 1994 REGISTRATION NO. 33-60290 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 POST-EFFECTIVE AMENDMENT NO. 3 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ MERRILL LYNCH LIFE INSURANCE COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ARKANSAS (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 6312 (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER 91-1325756 (I.R.S. EMPLOYER IDENTIFICATION NO.) 800 SCUDDERS MILL ROAD PLAINSBORO, NEW JERSEY 08536 (609) 282-1429 (ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE) ------------------------ BARRY G. SKOLNICK, ESQ. SENIOR VICE PRESIDENT AND GENERAL COUNSEL MERRILL LYNCH LIFE INSURANCE COMPANY 800 SCUDDERS MILL ROAD PLAINSBORO, NEW JERSEY 08536 (609) 282-1429 (NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE OF AGENT FOR SERVICE) ------------------------ COPY TO: STEPHEN E. ROTH, ESQ. SUTHERLAND, ASBILL & BRENNAN 1275 PENNSYLVANIA AVENUE, N.W. WASHINGTON, D.C. 20004 If any of the securities that have been registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box /X/. Pursuant to Rule 429 under the Securities Act of 1933, the prospectus contained herein also relates to Registration Statement Nos. 33-26322, 33-46827 and 33-52254. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 MERRILL LYNCH LIFE INSURANCE COMPANY ------------------------ CROSS REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501(b)
FORM S-1 ITEM NO. AND CAPTION LOCATION ------------------------------------------- ------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus..... Outside Front Cover Page 2. Inside Front and Outside Back Cover of Prospectus................................. Capsule Summary of the Contract; Table of Contents 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges............... Outside Front Cover Page; Capsule Summary of the Contract; Definitions 4. Use of Proceeds............................ Investments Supporting the Contracts 5. Determination of Offering Price............ Not Applicable 6. Dilution................................... Not Applicable 7. Selling Security Holders................... Not Applicable 8. Plan of Distribution....................... Distribution of the Contracts 9. Description of Securities to be Registered................................. Capsule Summary of the Contract; Description of the Contract 10. Interest of Named Experts and Counsel...... Legal Matters 11. Information with Respect to the Registrant................................. Merrill Lynch Life Insurance Company; Federal Income Taxes; More Information About Merrill Lynch Life Insurance Company; Directors and Executive Officers; Legal Proceedings 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities................................ Part II, Item 14
3 PROSPECTUS DECEMBER , 1994 MERRILL LYNCH ASSET I (SM) GROUP MODIFIED GUARANTEED 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 group contract described in this Prospectus (the "Contract") is issued by Merrill Lynch Life Insurance Company ("Merrill Lynch Life") and is designed to provide annuity payments in connection with retirement plans that may or may not qualify for special federal income tax treatment under the Internal Revenue Code. The Contract permits participants to make one or more single premium payments to be accumulated at a guaranteed rate or rates of interest depending upon the Guarantee Period or Periods selected by the participant. A certificate of participation (the "Certificate") will be issued for each single premium. Guarantee Periods currently range from one to ten years. At the end of any Guarantee Period the accumulated value may be reinvested for one or more new Guarantee Periods at the current interest rates then offered by Merrill Lynch Life. A WITHDRAWAL MADE PRIOR TO THE END OF A GUARANTEE PERIOD WILL BE SUBJECT TO A MARKET VALUE ADJUSTMENT, WHICH COULD HAVE THE EFFECT OF EITHER INCREASING OR DECREASING THE PARTICIPANTS' ACCOUNT VALUES. Eligible members of a group, including account holders of Merrill Lynch, Pierce, Fenner & Smith Incorporated, may become participants under the Contract. ------------------------ 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. ------------------------ 4 TABLE OF CONTENTS
PAGE ---- DEFINITIONS............................................................................ 3 CAPSULE SUMMARY OF THE CONTRACT........................................................ 5 MERRILL LYNCH LIFE INSURANCE COMPANY................................................... 7 DESCRIPTION OF THE CONTRACT............................................................ 7 A. GENERAL....................................................................... 7 B. PREMIUMS...................................................................... 7 C. SELECTING THE GUARANTEE PERIOD................................................ 8 D. SUBACCOUNT AND ACCOUNT VALUES................................................. 8 E. SUBACCOUNT TRANSFERS.......................................................... 8 F. FIXING GUARANTEED INTEREST RATES.............................................. 9 G. WITHDRAWALS................................................................... 9 H. MARKET VALUE ADJUSTMENT....................................................... 10 I. WITHDRAWAL CHARGE............................................................. 11 J. PAYMENT ON DEATH.............................................................. 12 K. ANNUITY PROVISIONS............................................................ 13 L. OTHER PROVISIONS.............................................................. 15 DISTRIBUTION OF THE CONTRACTS.......................................................... 16 FEDERAL TAX CONSIDERATIONS............................................................. 16 PREMIUM TAXES.......................................................................... 21 EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 PROVISIONS............................. 21 MORE INFORMATION ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY............................ 21 A. HISTORY AND BUSINESS.......................................................... 21 B. SELECTED FINANCIAL DATA....................................................... 26 C. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................................... 26 D. REINSURANCE................................................................... 32 E. CONTRACT OWNER ACCOUNT BALANCES............................................... 32 F. INVESTMENTS................................................................... 32 G. COMPETITION................................................................... 33 H. CERTAIN AGREEMENTS............................................................ 33 I. EMPLOYEES..................................................................... 33 J. PROPERTIES.................................................................... 33 K. STATE REGULATION.............................................................. 34 DIRECTORS AND EXECUTIVE OFFICERS....................................................... 35 EXECUTIVE COMPENSATION................................................................. 36 LEGAL PROCEEDINGS...................................................................... 38 LEGAL MATTERS.......................................................................... 38 EXPERTS................................................................................ 38 REGISTRATION STATEMENT................................................................. 38 FINANCIAL STATEMENTS OF MERRILL LYNCH LIFE INSURANCE COMPANY........................... 39 APPENDIX............................................................................... A-1
------------------------ No person has been authorized to give any information or to make any representation other than that contained in this Prospectus in connection with the offer contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized. This Prospectus does not constitute an offer of, or solicitation of an offer to acquire, any Contracts or Certificates thereunder offered by this Prospectus in any jurisdiction to anyone to whom it is unlawful to make such an offer or solicitation in such jurisdiction. 2 5 DEFINITIONS account value: The sum of all subaccount values. annuitant: The person on whose continuation of life annuity payments may depend. annuitant's beneficiary: The person to whom payment is to be made upon the death of the annuitant. annuity: A series of predetermined periodic payments. annuity date: The date shown in the Certificate on which payment of an annuity under the Contract will commence. beneficiary: The person to whom payment is to be made on the death of the participant or annuitant. There may be both a participant's beneficiary and an annuitant's beneficiary if the participant is not an annuitant. Certificate: An individual certificate of participation issued by Merrill Lynch Life to each participant as evidence of his or her rights and benefits under the Contract. certificate anniversary: Each anniversary of the certificate date. certificate date: The date on which a Certificate is issued under the Contract. certificate year: The year starting on the certificate date or a certificate anniversary and ending on the day immediately prior to the next certificate anniversary. co-annuitant: If two persons are named as annuitants in the Certificate, each is a co-annuitant. In that case, "annuitant" means the co-annuitants, and death of the annuitant refers to the death of the last co-annuitant. Contract: The Contract described in and offered by this Prospectus. Guarantee Period: The period of years for which a rate of interest is guaranteed to be credited to a subaccount. Market Value Adjustment: A positive or negative adjustment made to subaccount value. It is applied on withdrawal of all or part of the subaccount value prior to the end of the Guarantee Period. If the annuity date is prior to the end of a Guarantee Period, the Market Value Adjustment is also generally applied at the annuity date. In addition, a Market Value Adjustment is applied in the event of payment on the death of the participant or annuitant prior to the annuity date unless the combined Market Value Adjustments of all affected subaccounts would reduce the participant's account value. (See "Market Value Adjustment" on page 10.) Maximum Guarantee Period Option: An option to have subaccount values automatically transferred to a subaccount with a Guarantee Period equal to the longest Guarantee Period then offered by Merrill Lynch Life which (i) does not exceed the length of the participant's longest Guarantee Period immediately prior to transfer and (ii) ends on or prior to the annuity date. If the participant's annuity date is less than one year from the date of transfer, the subaccount value will be transferred to a subaccount with a one year Guarantee Period. net account value: The sum of all net subaccount values. net subaccount value: The subaccount value after adjustment for any Market Value Adjustment and withdrawal charge applied in connection with a full withdrawal, annuitization or the payment of death benefits on the death of the participant or annuitant prior to the annuity date. nonqualified certificate: A Certificate issued in connection with a nonqualified plan. nonqualified plan: A retirement plan other than a qualified plan. participant: The individual participating under the Contract to whom a Certificate has been issued. participant's beneficiary: The person to whom payment is to be made upon the death of the participant. qualified certificate: A Certificate issued in connection with a qualified plan. 3 6 qualified plan: A retirement plan that receives favorable tax treatment under Section 401, 403, 404, 408, 457 or any similar provision of the Internal Revenue Code. subaccount: An account maintained for a participant corresponding to a specified interest rate and Guarantee Period selected by the participant. subaccount value: An amount equal to that part of a single premium allocated by a participant to a subaccount, or any reinvestment in a subaccount, plus credited interest, as adjusted for any prior withdrawals, Market Value Adjustments and withdrawal charges. withdrawal charge: A charge deducted from subaccount value upon a withdrawal made prior to the end of a Guarantee Period. 4 7 CAPSULE SUMMARY OF THE CONTRACT THE CONTRACT This Prospectus describes a group modified guaranteed annuity contract (the "Contract") issued by Merrill Lynch Life. The Contract may be purchased by any employer, entity or other organized group acceptable to Merrill Lynch Life. The Contract is a group allocated contract, which means that specific accounts are maintained for each individual within the group ("participant"). A Certificate is issued to each participant summarizing his or her rights and benefits under the Contract. Values and benefits provided under the Contract, including annuity payments, are funded by the general assets of Merrill Lynch Life. The Contract may be issued pursuant to nonqualified retirement plans or plans qualifying for special tax treatment as "H.R. 10" plans, Individual Retirement Annuities or Accounts, corporate pension and profit-sharing plans, Tax-Sheltered Annuities or Section 457 deferred compensation ("Section 457") plans. APPLICATION AND PREMIUMS The applicant must complete and return a Contract application to Merrill Lynch Life's Service Center. Merrill Lynch Life reserves the right to reject any application. One Certificate will be issued for each single premium payment made under the Contract. The minimum single premium is $5,000. THE SUBACCOUNTS One or more subaccounts are maintained for each participant. The minimum which may be allocated to a subaccount is $5,000. A subaccount is established for each specified interest rate and Guarantee Period selected by the participant. A Guarantee Period is the period of years for which a rate of interest is guaranteed. Currently, the participant may select Guarantee Periods of from one to ten years. Merrill Lynch Life may, at its discretion, offer additional Guarantee Periods. At the end of a Guarantee Period, subaccount value for that Guarantee Period will be transferred to one or more subaccounts designated by the participant. If Merrill Lynch Life does not receive notice from the participant designating the subaccounts to which the subaccount value is to be transferred, the subaccount value will be transferred automatically to a subaccount with a one year Guarantee Period unless the Maximum Guarantee Period Option is chosen. If the Maximum Guarantee Period Option has been chosen, the subaccount value will be transferred to a new subaccount with a Guarantee Period equal to the longest Guarantee Period then offered by Merrill Lynch Life which (i) does not exceed the length of the participant's longest Guarantee Period immediately prior to transfer and (ii) ends on or prior to the annuity date. CHARGES Merrill Lynch Life makes no deductions from each single premium. Except for the Market Value Adjustment described below, the only charge made is a withdrawal charge in the event all or part of a net subaccount value is withdrawn. However, no withdrawal charge is made for a withdrawal at the end of a Guarantee Period if Merrill Lynch Life receives written notice of the withdrawal prior to the end of the Guarantee Period. The withdrawal charge is equal to six months of interest on the amount withdrawn based on the guaranteed interest rate of the subaccount from which the withdrawal is made. No withdrawal charge is imposed in the event of payment upon the death of the annuitant or participant or, currently, upon annuitization. Premium taxes, if any, will be deducted from the net account value at the annuity date. MARKET VALUE ADJUSTMENT A Market Value Adjustment is applied to any withdrawal from a subaccount prior to the end of its Guarantee Period. It will also be applied to any subaccount if the annuity date is prior to the end of the Guarantee Period for that subaccount. For Certificates issued in certain states, a Market Value Adjustment will not be applied at the annuity date if (i) combined Market Value Adjustments of all affected subaccounts would reduce the participant's account value and (ii) annuity payments will be made for at least ten years or a life contingency 5 8 or life expectancy annuity option has been chosen. In addition, a Market Value Adjustment will be applied in the event of payment upon the death of the participant or annuitant prior to the annuity date unless the combined effect of the Market Value Adjustments of all affected subaccounts would reduce the account value. The amount of the Market Value Adjustment is determined in accordance with the formula set forth on page 11 and may be positive or negative. ANNUITY PAYMENTS Annuity payments will start on the annuity date. The participant selects the annuity date and an annuity payment option. Each participant may select a different annuity date or annuity payment option later. On the annuity date the net account value, less any applicable premium taxes, is multiplied by Merrill Lynch Life's then current annuity purchase rates to determine the amount of each annuity payment. Currently, withdrawal charges do not apply upon annuitization. The net account value is the sum of all net subaccount values. In determining the net account value, a Market Value Adjustment may be applied. If the net account value on the annuity date is less than $5,000, Merrill Lynch Life may pay the net account value in a lump sum in lieu of annuity payments. For tax consequences of a lump sum payment, see "Federal Tax Considerations-- Partial Withdrawals and Surrenders" on page 18. If any annuity payment would be less than $50, Merrill Lynch Life may change the frequency of payments to intervals that will result in payments of at least $50. PAYMENT ON DEATH If either the participant or the annuitant (if other than the participant) dies prior to the annuity date, Merrill Lynch Life will pay to the participant's beneficiary or annuitant's beneficiary, as applicable, the greater of the account value or the net account value on the date of payment. In determining the net account value, no withdrawal charge will be applied. If the participant dies after the annuity date, any amounts remaining unpaid will be paid to the participant's beneficiary pursuant to the same method of distribution in force at the date of death. If the annuitant dies after the annuity date, the annuitant's beneficiary may choose either to have any guaranteed amounts remaining unpaid continue to be paid for the amount or period guaranteed or to receive the present value of the remaining guaranteed payments in a lump sum. WITHDRAWALS The participant may withdraw all or part of the net account value prior to the earlier of the annuity date or the death of the annuitant. For partial withdrawals, the withdrawal must be at least $500, the remaining subaccount value of each subaccount, after adjustment for any Market Value Adjustment and withdrawal charge, must be at least $1,000, and the remaining account value must be at least $5,000. Withdrawals from qualified plans may be restricted. (See "Qualified Plans" on page 19.) Withdrawals may have federal income tax consequences, including a 10% penalty tax on the amount withdrawn. (See "Federal Tax Considerations-- Penalty Tax on Certain Withdrawals" on page 18.) REPORTS TO PARTICIPANTS At least once each year prior to the annuity date, participants will be sent a report outlining their account value, subaccount values, Guarantee Periods, withdrawal charges and Market Value Adjustments, if any, applied during the year. The report will not include financial statements. FREE LOOK RIGHT When the participant receives the Certificate, it should be reviewed carefully to make sure it is what the participant intended to purchase. Generally, within ten days after the participant receives the Certificate, he or she may return it for a refund. Some states allow a longer period of time to return the Certificate. The Certificate must be delivered to Merrill Lynch Life's Service Center or to the Financial Consultant who sold it 6 9 for a refund to be made. Merrill Lynch Life will then refund to the participant all premiums paid into the Certificate. The Certificate will then be deemed void from the beginning. 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. ("Merrill Lynch"), a corporation whose common stock is traded on the New York Stock Exchange. Merrill Lynch Life's home office is in Little Rock, Arkansas. The Service Center's address and phone number are P.O. Box 44222, Jacksonville, Florida 32231-4222, (800) 535-5549. All communications concerning the Contract and Certificate should be addressed to Merrill Lynch Life's Service Center. DESCRIPTION OF THE CONTRACT A. GENERAL The Contract is a group allocated contract pursuant to which specific accounts are maintained for each participant. The Contract may be issued to any employer, entity or other organized group acceptable to Merrill Lynch Life. The Contract may be issued in connection with either qualified or nonqualified plans. Qualified plans include "H.R. 10" plans, Individual Retirement Annuities or Accounts, corporate pension and profit-sharing plans, Tax-Sheltered Annuities and Section 457 deferred compensation plans. An eligible member of a group to which a Contract has been issued may become a participant by completing an application and forwarding payment of a single premium to Merrill Lynch Life's Service Center. The application is subject to Merrill Lynch Life's acceptance. The rights and benefits of a participant are summarized in the Certificate. Provisions of the Contract are controlling. All such rights and benefits may be exercised without the consent of the contract owner. However, provisions of any plan in connection with which the Contract has been issued may restrict a person's eligibility to participate under the Contract, the minimum or maximum amount of the single premium, and the participant's ability to exercise the rights and/or receive the benefits provided under the Contract. Merrill Lynch Life reserves the right to terminate a Contract as to eligible members of the group not accepted as participants at the time of termination. Contracts have been issued to Asset Group Trust (Sussex Trust Company, Georgetown, Delaware, Trustee) as Contract holder for a group comprised of account holders of Merrill Lynch, Pierce, Fenner & Smith Incorporated. Contracts covering the same group have also been issued directly to Merrill Lynch, Pierce, Fenner & Smith Incorporated. Participation under this group is not permissible in some states. B. PREMIUMS One Certificate will be issued for each single premium paid under the Contract. Only one Certificate will be issued to any one person on a given day. The single premium must be at least $5,000. If the amount of any single premium is more than $500,000, Merrill Lynch Life reserves the right to limit the amount of the premium. The premium will be allocated to one or more subaccounts as selected by the participant. The minimum allocation to a subaccount is $5,000. Merrill Lynch Life will confirm its receipt of the payment and the subaccounts established for the payment. The Certificate does not permit the payment of additional premiums. An application for a separate Certificate must accompany each single premium. 7 10 C. SELECTING THE GUARANTEE PERIOD The participant may select one or more Guarantee Periods for each single premium or portion thereof. Merrill Lynch Life has discretion to determine the number of Guarantee Periods it will offer. Currently it offers Guarantee Periods ranging from one to ten years. Currently, the participant may select any of the ten Guarantee Periods. Merrill Lynch Life will establish a subaccount corresponding to each specified interest rate and Guarantee Period selected. Once a Guarantee Period has been selected, it cannot be changed. Amounts cannot be transferred from one subaccount to another prior to the end of the Guarantee Period. The participant may, however, withdraw amounts from a subaccount, subject to the restrictions described below and a Market Value Adjustment and withdrawal charge. (See "Market Value Adjustment" on page 10 and "Withdrawal Charge" on page 11.) Withdrawals may have federal income tax consequences, including a 10% penalty on amounts withdrawn. (See "Federal Tax Considerations--In General" on page 17.) D. SUBACCOUNT AND ACCOUNT VALUES A participant's account value is the sum of all of his or her subaccount values. Each subaccount value is equal to the amount the participant allocated to the subaccount (either as part of the single premium or as part of the reinvestment of subaccount value at the end of a Guarantee Period), plus the interest credited thereto at the guaranteed rate, as adjusted for any prior withdrawals, Market Value Adjustments or withdrawal charges. Merrill Lynch Life offers a guaranteed interest rate for each subaccount. The participant is credited with the guaranteed interest rate in effect on the date Merrill Lynch Life receives his or her premium or reinvestment. The guaranteed interest rate will be credited to the subaccount daily (except on a February 29th) to yield the quoted guaranteed interest rate. Interest will be compounded annually on each certificate anniversary. E. SUBACCOUNT TRANSFERS At the end of a subaccount's Guarantee Period, the participant may transfer amounts in that subaccount to one or more new subaccounts with new Guarantee Periods of any length then offered by Merrill Lynch Life. Interest rates for the subaccounts to which transfers are made are guaranteed to be the same as the initial guaranteed interest rates being offered at the time of transfer on new Certificates. Merrill Lynch Life will notify the participant of his or her right to transfer amounts to new subaccounts at least 30 days prior to the end of the Guarantee Period. Prior to the end of the current Guarantee Period, the participant may advise Merrill Lynch Life of the new subaccounts to which the subaccount value is to be transferred. The minimum amount that can be transferred to any one subaccount is the lesser of (i) $5,000 or (ii) the total subaccount value at the time of transfer. No withdrawal charge or Market Value Adjustment is applied in connection with such transfers. If timely instructions are not received, Merrill Lynch Life will transfer the subaccount value to a new subaccount with a one-year Guarantee Period, unless the Maximum Guarantee Period Option has been chosen by the participant. Subject to contractual and federal tax restrictions, the participant may change his or her annuity date so that the Guarantee Period of the new subaccount will end on or prior to the annuity date. (See "Annuity Provisions--Change of Annuity Date or Annuity Option" on page 13.) The Maximum Guarantee Period Option may be selected at any time prior to the end of a Guarantee Period. If it has been chosen, at the end of a subaccount's Guarantee Period the subaccount value will be transferred to a new subaccount with a Guarantee Period equal to the longest Guarantee Period then offered by Merrill Lynch Life which (i) does not exceed the length of the participant's longest Guarantee Period immediately prior to transfer and (ii) ends on or prior to the participant's annuity date. Under this option, if the subaccount value cannot be transferred to the longest Guarantee Period in which the participant's account value is invested immediately prior to transfer because such Guaranteed Period would end after the participant's annuity date, the subaccount value will be transferred to a subaccount with the next longest Guarantee Period then offered by Merrill Lynch Life that ends on or prior to the participant's annuity date. For example, assume that the Maximum Guarantee Period Option is chosen, that a transfer occurs on March 1, 1995, that the participant's annuity date is on August 1, 2000, and that the longest Guarantee Period in which the participant's account value is invested is five years. If Merrill Lynch Life is then offering a five year Guarantee 8 11 Period, the subaccount value will be transferred to a subaccount with a five year Guarantee Period since the Guarantee Period will end prior to August 1, 2000. If, however, the longest Guarantee Period in which the participant's account value is invested is six years or more, the subaccount value will be transferred to a subaccount with a five year Guarantee Period (or, if Merrill Lynch Life is not then offering a five year Guarantee Period, the longest Guarantee Period of less than five years then offered by Merrill Lynch Life) since a subaccount with a Guarantee Period of six years would end after August 1, 2000. If the participant's annuity date is less than one year from the date of transfer, Merrill Lynch Life will transfer the subaccount value to a subaccount with a one year Guarantee Period. F. FIXING GUARANTEED INTEREST RATES Merrill Lynch Life has no specific formula for establishing the guaranteed interest rates for the different Guarantee Periods. The determination made will be influenced by, but not necessarily correspond to, interest rates available on fixed income investments which Merrill Lynch Life may acquire with the amounts it receives as premiums under the Contracts. These amounts will be invested primarily in investment-grade fixed income securities including: securities issued by the United States Government or its agencies or instrumentalities, which issues may or may not be guaranteed by the United States Government; debt securities that have an investment grade, at the time of purchase, within the four highest grades assigned by Moody's Investor Services, Inc. (Aaa, Aa, A or Baa), Standard & Poor's Corporation (AAA, AA, A or BBB) or any other nationally recognized rating service; mortgage-backed securities collateralized by real estate mortgage loans, or securities collateralized by other assets, that are insured or guaranteed by the Federal Home Loan Mortgage Association, the Federal National Mortgage Association or the Government National Mortgage Association, or that have an investment grade at the time of purchase within the four highest grades described above; other debt instruments; commercial paper; and cash or cash equivalents. Participants will have no direct or indirect interest in these investments. Merrill Lynch Life will also consider other factors in determining the guaranteed rates, including regulatory and tax requirements, sales commissions and administrative expenses borne by Merrill Lynch Life, general economic trends and competitive factors. MERRILL LYNCH LIFE'S MANAGEMENT WILL MAKE THE FINAL DETERMINATION OF THE GUARANTEED RATES IT DECLARES. MERRILL LYNCH LIFE CANNOT PREDICT OR GUARANTEE THE LEVEL OF FUTURE INTEREST RATES. G. WITHDRAWALS Subject to certain conditions, a participant may withdraw all or part of his or her net account value or net subaccount value prior to the earlier of the annuity date or the death of the participant or annuitant upon written notice received at Merrill Lynch Life's Service Center before the annuity date. Withdrawals may have federal income tax consequences, including a 10% penalty tax. (See "Federal Tax Considerations--In General" on page 17.) For full withdrawal, the withdrawal notice must be accompanied by the Certificate. Under qualified plans, withdrawals may be permitted only in circumstances specified in the plan, the consent of the participant's spouse may be required, and under Tax-Sheltered Annuities and certain Section 401 plans, withdrawals attributable to contributions made pursuant to a salary reduction agreement may be made only after the participant reaches age 59 1/2 and in other limited circumstances. (See "Qualified Plans" on page 19.) Partial withdrawals must be at least $500, and the net subaccount value remaining after the withdrawal must be at least $1,000, unless the entire subaccount value is withdrawn. The remaining account value must be at least $5,000. Otherwise, the partial withdrawal will not be permitted. The participant must specify the subaccounts from which the withdrawal is to be made. If two or more subaccounts from which the withdrawal is to be made have the same Guarantee Period, the participant must first withdraw from the subaccount with the shortest period of time remaining in its Guarantee Period until that subaccount has been depleted. The amount of the withdrawal will be paid to the participant, and any Market Value Adjustment will be made to, and any withdrawal charge will be deducted from, the subaccounts from which the withdrawal is made. Immediately after a partial withdrawal, the subaccount value will equal the subaccount value prior to the withdrawal, plus or minus any applicable Market Value Adjustment, minus any applicable withdrawal charge, and minus the amount withdrawn. In the case of a request to withdraw the entire amount from a subaccount, the participant receives the net subaccount value (which reflects any adjustments to the subaccount value for 9 12 the withdrawal charge and Market Value Adjustment applied in connection with such withdrawal). Upon such full withdrawal, the subaccount value is reduced by the amount withdrawn as well as any applicable withdrawal charge, and the Market Value Adjustment is applied, thereby reducing the subaccount value to zero. (See "Market Value Adjustment" on page 10 and "Withdrawal Charge" on page 11.) The tables which appear in the Appendix illustrate the effect of a full withdrawal from a subaccount on the subaccount value. H. MARKET VALUE ADJUSTMENT The Contract provides for the imposition of a Market Value Adjustment, determined by application of the formula described below, in three circumstances. First, whenever the participant makes a withdrawal from a subaccount, other than one made at, and for which Merrill Lynch Life has received written notice prior to, the end of such subaccount's Guarantee Period, a Market Value Adjustment will be made. Second, a Market Value Adjustment will be applied at the annuity date to any subaccount if the annuity date is prior to the end of the Guarantee Period for that subaccount. For Certificates issued in certain states, a Market Value Adjustment will not be applied at the annuity date if (i) combined Market Value Adjustments of all affected subaccounts would reduce the participant's account value and (ii) annuity payments will be made for at least ten years or a life contingency or life expectancy annuity option has been chosen. Participants should refer to their Certificates to determine when a Market Value Adjustment will be applied. Third, a Market Value Adjustment is applied in the event of payment upon the death of the participant or the annuitant prior to the annuity date unless the combined Market Value Adjustments of all affected subaccounts would reduce the participant's account value. Because of the market value adjustment provision of the Contract, the participant bears the investment risk that the guaranteed interest rates offered by Merrill Lynch Life at the time the participant makes a withdrawal from a subaccount or starts receiving annuity payments may be higher than the guaranteed interest rate of the subaccount to which the Market Value Adjustment is applied, with the result that the participant's subaccount value may be substantially reduced. The Market Value Adjustment will depend on the remaining time in the Guarantee Period of the subaccount from which the withdrawal is made or to which the adjustment is being applied and on the relationship between the guaranteed interest rate of the subaccount from which the withdrawal or payment, as applicable, is made to the guaranteed interest rates offered on new Certificates at the time the Market Value Adjustment is applied. The Appendix contains tables which illustrate the application of the Market Value Adjustment in the context of full withdrawals from a hypothetical subaccount. The Market Value Adjustment may result in either an increase or decrease in subaccount value, depending on the relationship of (1) the current guaranteed interest rate for a period equal to the time remaining in the subaccount, which rate is interpolated from the rates currently offered by Merrill Lynch Life for subaccounts with Guarantee Periods closest to such period, to (2) the guaranteed interest rate for the subaccount. If the current guaranteed interest rate of (1) above is lower than the guaranteed rate of (2), application of the Market Value Adjustment will result in an increase in subaccount value; if (1) is higher than (2), application of the Market Value Adjustment will result in a decrease in subaccount value. If the adjustment is positive, the additional amount will be credited to the subaccount. If negative, the amount of the adjustment will be deducted from the subaccount value and will be retained by Merrill Lynch Life for its own benefit. The amount of the Market Value Adjustment is based on the relationship of the guaranteed interest rates offered on new Certificates issued at the time the Market Value Adjustment is applied to the guaranteed interest rate credited to the subaccount from which the withdrawal or payment, as applicable, is made. If the remaining period of time in the Guarantee Period is a whole number of years, Merrill Lynch Life uses the guaranteed interest rate currently offered by it for a Guarantee Period equal to the number of remaining years. If the remaining period of time in the Guarantee Period is not a whole number of years, the interest rate is derived from the guaranteed interest rates currently offered for the Guarantee Periods nearest the remaining period of time. This derivation is by straight line interpolation, except where the remaining period of time is less than one year, in which case Merrill Lynch Life uses the current guaranteed rate for a Guarantee Period of one year. For example, if the remaining period is 5.75 years, the interpolated guaranteed interest rate will be 10 13 equal to the sum of one-fourth of the five year rate and three-fourths of the six year rate. If the five year rate were 4.6% and the six year rate were 4.8%, the interpolated rate would be 4.75%, 4.6% times .25 plus 4.8% times .75. The amount of the market value adjustment is determined from the following formula: 1 + B n/365 A X [ 1- ( -------- ) ] 1 + C
where "A" is (i) the amount withdrawn from the subaccount, in the case of a partial withdrawal, or (ii) the net subaccount value, in the case of (a) a full withdrawal from a subaccount, (b) a payment made due to the death of the participant or annuitant prior to the annuity date, or (c) annuitization, "B" is the current guaranteed interest rate that Merrill Lynch Life is offering for a subaccount with a Guarantee Period of a duration of years equal to "n"/365 or that is interpolated for "n"/365 based on the guaranteed interest rates offered for subaccounts nearest "n"/365 (if n/365 is less than 1, we will assume B is equal to the rate for a one-year Guarantee Period), "C" is the guaranteed interest rate for the subaccount, and "n" is the remaining number of days in the Guaranteed Period of the subaccount from which the withdrawal is made or to which the adjustment is applied. For example, assume that a withdrawal of $20,000 is made from a subaccount with 2,099 days (5.75 years) remaining in the Guarantee Period and a guaranteed interest rate of 4.5%. Assume also that the guaranteed interest rates currently offered for Guarantee Periods of 5 and 6 years are 4.6% and 4.8%, respectively. "B" is equal to 4.75%, the sum of 4.8% times .75 and 4.6% times .25. To calculate the Market Value Adjustment Merrill Lynch Life divides the sum of 1 and "B", 1.0475, by the sum of 1 and the guaranteed interest rate for the affected subaccount, 1.045. The resulting figure, 1.0023923, is then taken to the "n"/365 power, or 5.75 (2,099/365), which is 1.0138341. 1.0138341 is subtracted from 1 and the resulting figure, -.0138341, is multiplied by the amount of the withdrawal, $20,000, to give -$276.69. Since this figure is a negative number, it is subtracted from the remaining subaccount value together with any applicable withdrawal charge. If "B" had been 4.25%, instead of 4.75%, the Market Value Adjustment would have been +$273.56, which would have been added to the remaining subaccount value. The greater the difference in interest rates, the greater the effect of the Market Value Adjustment. If in the above example "B" had been 7%, 8%, and 9%, the Market Value Adjustment would have been -$2,912.27, -$4,171.18 and - -$5,486.70, respectively. The Market Value Adjustment is also affected by the remaining period in the Guarantee Period of the subaccount from which the withdrawal is made, which is "n" in the formula. Thus, if in the first example above "n"/365 were 2.5 or 1.5, the Market Value Adjustment would be -$119.83 or - -$71.81, respectively. Tables showing the impact of the Market Value Adjustment and withdrawal charge on hypothetical full withdrawals are set forth in the Appendix. I. WITHDRAWAL CHARGE A withdrawal charge is imposed if the participant makes a withdrawal from a subaccount other than at the end of a subaccount's Guarantee Period. No withdrawal charge is imposed if a withdrawal is made at the end of a Guarantee Period where prior written notice was received at Merrill Lynch Life's Service Center. The charge is equal to six months of simple interest computed on the amount withdrawn based on the guaranteed interest rate of the subaccount from which the withdrawal is made. Thus, if the guaranteed interest rate is 5% per year, the withdrawal charge will be 2.5%. The amount of the charge remains the same whether or not six months' interest has been credited to the subaccount. For a full withdrawal, the amount withdrawn is the net account value. For a partial withdrawal, the withdrawal charge will be deducted from the remaining value of the subaccounts from which the withdrawal was made. For a full withdrawal, the withdrawal charge is reflected in the net account value distributed to the participant. Currently withdrawal charges do not apply upon annuitization. However, Merrill Lynch Life reserves the right to apply the withdrawal charge on annuitization to any subaccount if the annuity date is prior to the end of the Guarantee Period for that subaccount. Withdrawal charges also do not apply to annuity payments or to any payment made due to the death of the annuitant or participant. 11 14 The application of the withdrawal charge may be illustrated by the following example. Assume a partial withdrawal of $7,000 made from two subaccounts, one with a Guarantee Period of five years and a guaranteed interest rate of 4.5%, the other with a Guarantee Period of three years and a guaranteed interest rate of 3.65%, and each having a subaccount value of $5,000. Assume further that the participant directs that the partial withdrawal should be taken from the subaccount having the five year Guarantee Period to the maximum extent possible and the remainder taken from the subaccount having the three year Guarantee Period. Assume also that the Market Value Adjustment applied to the five year Guarantee Period operates to reduce its value by 22.75% and that the adjustment applied to the three year Guarantee Period operates to reduce its value by 17%. The maximum withdrawal that can be taken from the subaccount with the five year Guarantee Period is $4,000, since the Market Value Adjustment applied to the $4,000 withdrawal reduces the subaccount value by $910 (22.75% of $4,000) and the withdrawal charge of $90 (4.5% divided by 2, times $4,000) exhausts the remaining subaccount value. The remaining portion of the requested withdrawal, $3,000 is deducted from the subaccount with the three year Guarantee Period. Also deducted from that subaccount are the Market Value Adjustment applicable to the $3,000 withdrawal, $510 (17% of $3,000), and the withdrawal charge, $54.75 (3.65% divided by 2 times $3,000), resulting in a remaining subaccount value of $1,435.25. J. PAYMENT ON DEATH Death Prior to the Annuity Date. Subject to the rights of a participant's surviving spouse in certain circumstances (described below), if the participant or the annuitant (under a Contract where the participant is not an annuitant) dies prior to the annuity date, Merrill Lynch Life will pay to the participant's beneficiary or the annuitant's beneficiary, as applicable, the greater of the account value or the net account value on the date of payment (the "death benefit"). In determining the net account value, no withdrawal charge will be applied. Payment will be made upon receipt by Merrill Lynch Life of proof of the death of the participant or annuitant, as applicable (e.g., certified copy of death certificate), and, subject to the special rules applicable to any participant's death (discussed below), will be made in a lump sum unless an annuity option is chosen. In the event of a participant's death, the death benefit generally must be distributed within five years of the death of the participant. The participant's beneficiary may, however, elect to receive the death benefit pursuant to a payment option under which payments commence within one year of the participant's death and which does not extend beyond the life expectancy of the beneficiary. In addition, if the surviving spouse of a deceased participant is the participant's beneficiary, the spouse may choose to become the participant and to continue the Certificate in force on the same terms as before the participant's death, in which event no death benefit is paid upon the death of the deceased participant, and the spouse thereafter shall be the participant and the annuitant. If the Certificate names more than one participant, the death of the participant will be deemed to occur when the first participant dies. If the participant is not the annuitant, the participant may irrevocably elect, prior to the annuitant's death and prior to the annuity date, to continue the Certificate in force in the event of the annuitant's death prior to the annuity date on the same terms as before the annuitant's death. If the participant makes this election, no death benefit is paid upon the death of the annuitant, and the person designated by the participant at the time of the election shall become the annuitant upon the death of the original annuitant prior to the annuity date. This option is available only if the participant is a natural person or the Certificate is issued in connection with a plan entitled to special tax treatment under Sections 401 or 408 of the Internal Revenue Code. If a beneficiary does not survive the participant or annuitant, as applicable, the estate or heirs of the beneficiary have no rights under the Contract. If no beneficiary survives the participant or annuitant, payment will be made to the participant, if living, and if the participant is not living, to the participant's estate. If the participant is not an individual, the primary annuitant as determined in accordance with Section 72(s) of the Internal Revenue Code (i.e., the individual the events in the life of whom are of primary importance in affecting the timing or amount of distributions under the Contract) will be treated as the participant for purposes of these distribution requirements, and any change in the primary annuitant will be treated as the death of the participant. Death After the Annuity Date. If the participant dies after the annuity date, any amounts remaining unpaid will be paid at least as rapidly as under the same method of distribution in force at the date of death. If the 12 15 annuitant dies after the annuity date, the annuitant's beneficiary may choose either to have any guaranteed amounts remaining unpaid continue to be paid for the amount or period guaranteed or to receive the present value of the remaining guaranteed payments in a lump sum. (See "Annuity Provisions" below.) The present value will be determined using the interest rate on which annuity payments were determined, and will be less than the sum of the remaining guaranteed payments. If the annuitant's beneficiary dies while guaranteed amounts remain unpaid, the present value of the remaining payments will be paid in a lump sum to the beneficiary's estate. K. ANNUITY PROVISIONS General. Annuity payments will be paid to the participant and will commence on the annuity date. The participant may or may not be the annuitant. The participant designates the annuitant in the Certificate application and may later change the annuitant upon written notice to Merrill Lynch Life. The participant may also designate a co-annuitant, in which case the death of the annuitant is deemed to occur when both co-annuitants are deceased. The amount of monthly annuity payments, other than payments made pursuant to the qualified plan option, will be determined by applying the net account value at the annuity date, less any premium taxes, to the annuity option chosen using Merrill Lynch Life's then current annuity rates. Currently, withdrawal charges do not apply upon annuitization. Current annuity rates are guaranteed to be no less favorable than the minimum guaranteed annuity rates shown in the annuity tables contained in the Contract. Premium taxes imposed by states and local jurisdictions currently range from 0% to 5% depending on the tax treatment of the Contract. In determining the net account value, a Market Value Adjustment will be applied to any subaccount if the annuity date is prior to the end of the Guarantee Period for that subaccount. For Certificates issued in certain states, a Market Value Adjustment will not be applied at the annuity date if (i) combined Market Value Adjustments of all affected subaccounts would reduce the participant's account value and (ii) annuity payments will be made for at least ten years or a life contingency or life expectancy annuity option has been chosen. Selection of Annuity Date and Annuity Options. The participant may select the annuity date and an annuity option in the Certificate application. If the participant does not select an annuity date, the annuity date will be the first day of the next month after the annuitant's 75th birthday and the annuity option will be a life annuity with a 10 year guarantee. The annuity date must be the first day of a calendar month. It may not be later than the first day of the next month after the annuitant's 85th birthday. (For qualified Certificates, the annuity date generally may not be later than April 1 of the calendar year after the calendar year in which the annuitant attains age 70 1/2.) Change of Annuity Date or Annuity Option. The participant may change the annuity date or the annuity option on written notice received at Merrill Lynch Life's Service Center at least 30 days prior to the current annuity date. Changes of the annuity date are subject to federal tax restrictions. (See "Federal Tax Considerations" on page 16.) Annuity Options. The participant may select any one of the following annuity options or any other option satisfactory to the participant and Merrill Lynch Life. For qualified Certificates, certain restrictions may apply. PAYMENTS OF A FIXED AMOUNT: Equal payments in the amount chosen will be made until the net account value applied under this option is exhausted. The period over which payments are made must be at least five years. PAYMENTS FOR A FIXED PERIOD: Payments will be made for the period chosen. The period must be at least five years. *LIFE ANNUITY: Payments will be made for the life of the annuitant. Payments will cease with the last payment due prior to the annuitant's death. LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS: Payments will be made for the guaranteed period chosen (10 or 20 years) and as long thereafter as the annuitant lives. 13 16 LIFE ANNUITY WITH GUARANTEED RETURN OF NET ACCOUNT VALUE: Payments will be made until the sum of the annuity payments equals the net account value applied under this option, and as long thereafter as the annuitant lives. *JOINT AND SURVIVOR LIFE ANNUITY: Payments will be made during the lifetimes of the annuitant and a designated second person. Payments will continue as long as either is living. QUALIFIED PLAN OPTION: This option is available only under qualified Certificates. It is not available under Section 457 plans. Payments may be based on (a) the life expectancy of the annuitant, (b) the joint life expectancy of the annuitant and his or her spouse, or (c) the life expectancy of the surviving spouse if the annuitant dies before the annuity date. Payments will be made annually. Each payment will be equal to the net account value on the first day of the calendar year divided by applicable current life expectancy based on Internal Revenue Service regulations. Each subsequent payment will be made on the anniversary of the annuity date. Interest will be credited at Merrill Lynch Life's then current rate for this option. The rate will not be less than that shown in the Contract. On death of the measuring life or lives, any unpaid net account value will be paid to the beneficiary in a lump sum. *THESE OPTIONS ARE LIFE ANNUITIES UNDER WHICH IT IS POSSIBLE FOR THE PARTICIPANT TO RECEIVE ONLY ONE ANNUITY PAYMENT IF THE ANNUITANT (OR THE ANNUITANT AND A DESIGNATED SECOND PERSON) DIES AFTER THE FIRST PAYMENT, OR TO RECEIVE ONLY TWO ANNUITY PAYMENTS IF THE ANNUITANT (OR THE ANNUITANT AND A DESIGNATED SECOND PERSON) DIES AFTER THE SECOND PAYMENT, AND SO ON. Minimum Annuity Payments. Annuity payments will be made monthly unless the participant chooses less frequent payments or the qualified plan option, provided that if any payment would be less than $50, Merrill Lynch Life may change the frequency so payments are at least $50 each. If the net account value to be applied at the annuity date is less than $5,000 ($3,500 for certain qualified Certificates), Merrill Lynch Life may elect to pay that amount in a lump sum. (For tax consequences of a lump sum payment, see "Federal Tax Considerations" on page 16.) Annuity Rates. Annuity rates will be no less favorable than those shown in the annuity tables contained in the Contract. Those tables show the minimum guaranteed amount of each monthly payment for each $1,000 applied according to the age and sex of the annuitant at the annuity date. The tables are based on the 1983 Table "a" projected forward to 1995 for Individual Annuity Valuation with current mortality adjustments. When required by law, Merrill Lynch Life will use annuity tables that do not differentiate on the basis of sex. The Contract contains a formula for adjusting the age of the annuitant based on the annuity date for purposes of determining minimum monthly annuity payments. If the annuity date is prior to the year 2000, there is no age adjustment. If the annuity date is between the years 2000 and 2009, the annuitant's age is reduced by one year. For each decade thereafter, the annuitant's age is reduced one additional year. The maximum age adjustment is four years. An age adjustment results in a reduction in the minimum monthly annuity payments that would otherwise be made. Therefore, if the rates Merrill Lynch Life is using are the minimum rates shown in the annuity tables contained in the Contract, it may be advantageous for the participant to designate an annuity date that immediately precedes the date on which an age adjustment would occur under the Contract. For example, the annuity payment rates in the annuity tables for an annuitant with an annuity date in the year 2010 are the same as those for an annuity date twelve months earlier, even though the annuitant is one year older, because the new decade results in the annuitant's age being reduced by an additional year. Current annuity rates, unlike the guaranteed rates, do not involve any age adjustment. Proof of Age, Sex and Survival. Merrill Lynch Life may require satisfactory proof of the age, sex or survival of any person on whose continued life any payment under the Certificate depends. 14 17 Misstatement of Age or Sex. If the age or sex of an annuitant is misstated, annuity payments will be adjusted to reflect the correct age and sex. Any amount overpaid as the result of such misstatement will be deducted from the next payments due. Any amount underpaid will be paid in full with the next payment due. L. OTHER PROVISIONS Beneficiary. The beneficiary is the person or persons named in the Certificate application to whom payment is to be made upon the death of the participant or annuitant. If the participant is not the annuitant, the participant may name one beneficiary to receive payment on death of the participant and a different beneficiary to receive payment on death of the annuitant. If the participant is the annuitant, the participant's beneficiary and the annuitant's beneficiary must be the same. Unless a beneficiary has been irrevocably designated, the participant's beneficiary may be changed while the participant is alive, and the annuitant's beneficiary may be changed while the annuitant is alive. The change of a beneficiary who was named by the participant irrevocably may only be made with the consent of the beneficiary. The estate or heirs of a beneficiary who dies prior to the participant or annuitant have no rights under the Contract. If no beneficiary survives the participant or annuitant, payment will be made to the participant, if living, or to the participant's estate if the participant has died. Certain restrictions may apply in the case of qualified Certificates. Assignment. Upon notice to Merrill Lynch Life, the participant may make a collateral assignment of his or her rights under the Contract by transferring the participant's Certificate to a creditor as a security for a debt. If the Contract is issued pursuant to a qualified Plan, the participant's rights under the Contract may not be assigned, pledged or transferred, unless permitted by law. A collateral assignment does not change ownership of the Certificate. The rights of a collateral assignee have priority over the rights of a beneficiary. A collateral assignment may have federal income tax consequences. (See "Federal Tax Considerations--Transfers, Assignments, or Exchanges of a Certificate" on page 19.) Notices and Elections. All notices, changes and choices the participant makes under the Contract must be in writing, signed by the proper party and received at Merrill Lynch Life's Service Center to be effective. The selection of subaccounts in which the subaccount value at the end of a Guarantee Period is to be invested or from which partial withdrawals are to be made may be made by telephone. In addition, choices regarding the Maximum Guarantee Period Option, pursuant to which Merrill Lynch Life transfers subaccount values in the absence of instructions from a participant, may be made by telephone. Merrill Lynch Life will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. These procedures may include, but are not limited to, possible recording of telephone calls and obtaining appropriate identification before effecting any telephone transactions. Merrill Lynch Life will not be liable for following telephone instructions that it reasonably believes to be genuine. Notices, changes and choices relating to beneficiaries will take effect as of the date signed unless Merrill Lynch Life has already acted in reliance on the prior status. Amendment of Contract and Certificates. Merrill Lynch Life may amend the Contract and the Certificates at any time as may be necessary to conform to any applicable law, regulation or ruling issued by a government agency. Deferral of Payments. All sums payable by Merrill Lynch Life are payable at its Service Center. Merrill Lynch Life may require return of a Certificate prior to making payment. Merrill Lynch Life may defer payments of partial or full withdrawals for up to six months. Free Look Right. When the participant receives the Contract, it should be reviewed carefully to make sure it is what the participant intended to purchase. Generally, within ten days after the participant receives the Certificate, he or she may return it for a refund. Some states allow a longer period of time to return the Certificate. The Certificate 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 participant all premiums paid into the Certificate. The Certificate will then be deemed void from the beginning. If a participant exercises his or her free look right, that participant may not submit another application with the same annuitant for ninety days. 15 18 Guarantee of Contracts and Certificates. The federal government or its instrumentalities does not guarantee the Contracts or Certificates. Merrill Lynch Life backs the guarantees associated with the Contracts and Certificates. DISTRIBUTION OF THE CONTRACTS Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") is the principal underwriter of the Contract. It was organized in 1958 under the laws of the state of Delaware and is registered as a broker-dealer under the Securities Exchange Act of 1934. It is a member of the National Association of Securities Dealers, Inc. ("NASD"). MLPF&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 MLPF&S who are also licensed through various Merrill Lynch Life Agencies ("MLLA") as insurance agents for Merrill Lynch Life. Merrill Lynch Life has entered into a distribution agreement with MLPF&S and companion sales agreements with MLLA through which agreements the Contracts are sold and the Financial Consultants are compensated by MLLA and/or MLPF&S. The maximum commission paid to the Financial Consultant is 3.2% of each premium. In addition, the maximum compensation paid to the Financial Consultant for each reinvestment is 2.8% of account value reinvested. Commissions may be paid in the form of non-cash compensation. The maximum commission Merrill Lynch Life will pay to the applicable insurance agency to be used to pay commissions to Financial Consultants is 7% of each premium. In addition, the maximum compensation Merrill Lynch Life will pay to the applicable insurance agency to be used to pay compensation to Financial Consultants for reinvestment is 4.8% of account value reinvested. MLPF&S may arrange for sales of the Contract by other broker-dealers who are registered under the Securities Exchange Act of 1934 and are members of the NASD. FEDERAL TAX CONSIDERATIONS INTRODUCTION The following discussion is general and is not intended as tax advice. This discussion is not intended to address the tax consequences resulting from all of the situations in which a person may be entitled to or may receive a distribution under the Contract. Any person concerned about these tax implications should consult a competent tax adviser before initiating any transaction. This discussion is based upon Merrill Lynch Life's understanding of the present federal income tax laws as they are currently interpreted by the Internal Revenue Service. No representation is made as to the likelihood of the continuation of the present federal income tax laws or of the current interpretation by the Internal Revenue Service. Moreover, no attempt has been made to consider any applicable state or other tax laws. MERRILL LYNCH LIFE DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY CONTRACT OR CERTIFICATE ISSUED THEREUNDER OR ANY TRANSACTION INVOLVING THE CONTRACTS OR CERTIFICATES. The Contract may be purchased on a non-qualified tax basis ("non-qualified Contract") or purchased and used in connection with plans qualifying for favorable tax treatment ("qualified Contract"). The qualified Contracts were designed for use by individuals whose premium payment is comprised solely of proceeds from and/or contributions under retirement plans which are intended to qualify as plans entitled to special income tax treatment under Section 401(a), 403, 404, 408, or 457 of the Internal Revenue Code. The ultimate effect of federal income taxes on the amounts held under a Contract, on annuity payments, and on the economic benefit to the participant, the annuitant, or the beneficiary depends on the type of retirement plan, 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 a qualified Contract with proceeds from a tax qualified plan and receiving distributions from a qualified Contract in order to continue receiving favorable tax treatment. 16 19 Therefore, purchasers of qualified Contracts or Certificates issued thereunder should seek competent legal and tax advice regarding the suitability of a Contract for their situation, the applicable requirements, and the tax treatment of the rights and benefits of a Contract. The following discussion assumes that qualified Contracts are purchased with proceeds from and/or contributions under retirement plans that qualify for the intended special federal income tax treatment. TAXATION OF MERRILL LYNCH LIFE Merrill Lynch Life is taxed as a life insurance company under Part I of Subchapter L of the Internal Revenue Code. The assets underlying the Contracts will be owned by Merrill Lynch Life. The income earned on such assets will be income to Merrill Lynch Life. TAX STATUS OF THE CONTRACT Merrill Lynch Life believes that the Contract will be treated as an annuity contract and that Merrill Lynch Life will be treated as owning the assets supporting the Contract for federal income tax purposes. Merrill Lynch Life, however, reserves the right to modify the Contract as necessary to prevent the contract owner or participant from being considered the owner of the assets supporting the Contract for federal tax purposes. Furthermore, in order to be treated as an annuity contract for federal income tax purposes, Section 72(s) of the Internal Revenue Code requires any non-qualified Contract to provide that (a) if any participant dies on or after the annuity commencement date but prior to the time the entire interest in the Certificate 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 participant's death; and (b) if any participant dies prior to the annuity commencement date, the entire interest in the Certificate will be distributed within five years after the date of the participant's death. These requirements will be considered satisfied as to any portion of the participant'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 participant's death. The participant's "designated beneficiary" (referred to herein as the "participant's beneficiary") is the person designated by such participant as a beneficiary and to whom the participant's interest in the Certificate passes by reason of death and must be a natural person. However, if the participant's "designated beneficiary" is the surviving spouse of the participant, the Certificate may be continued with the surviving spouse as the new participant. Solely for purposes of applying the provisions of Section 72(s) of the Code, when non-qualified Contracts are held by other than a natural person, the death of the annuitant is treated as the death of the participant. The non-qualified Contracts contain provisions which are intended to comply with the requirements of Section 72(s) of the Internal Revenue Code, although no regulations interpreting these requirements have yet been issued. Merrill Lynch Life intends to review such provisions and modify them if necessary to assure that they comply with the requirements of Internal Revenue Code Section 72(s) when clarified by regulation or otherwise. Other rules may apply to qualified Contracts. THE FOLLOWING DISCUSSION ASSUMES THAT THE CONTRACTS WILL QUALIFY AS ANNUITY CONTRACTS FOR FEDERAL INCOME TAX PURPOSES. FEDERAL TAX CONSIDERATIONS a. In General Section 72 of the Internal Revenue Code governs taxation of annuities in general. Merrill Lynch Life believes that a participant who is a natural person generally is not taxed on increases in the value of a Contract until distribution occurs by withdrawing all or part of the account value (e.g., partial withdrawals and surrenders) or as annuity payments under the annuity option elected. For this purpose, the assignment, pledge, or agreement to assign or pledge any portion of the account value (and in the case of a qualified Contract, any portion of an 17 20 interest in the qualified plan) generally will be treated as a distribution. The taxable portion of a distribution (in the form of a single sum payment or an annuity) is taxable as ordinary income. A participant in any annuity contract who is not a natural person generally must include in income any increase in the excess of the Contract's account value over the "investment in the contract" (discussed below) during the taxable year. There are some exceptions to this rule and a prospective participant that is not a natural person may wish to discuss these with a competent tax adviser. The following discussion generally applies to Contracts whose participants are natural persons. b. Partial Withdrawals and Surrenders In the case of a partial withdrawal or surrender under a qualified Contract or Certificate issued thereunder, under Section 72(e) of the Internal Revenue Code a ratable portion of the amount received is taxable, generally based on the ratio of the "investment in the contract" to the participant's total accrued benefit or balance under the retirement plan. The "investment in the contract" generally equals the portion, if any, of any premium payments paid by or on behalf of any individual under a Contract which was not excluded from the individual's gross income. For Contracts issued in connection with qualified plans, a participant's "investment in the contract" can be zero. Special tax rules may be available for certain distributions under qualified Contracts. In the case of a partial withdrawal under a non-qualified Contract before the annuity date, under Internal Revenue Code Section 72(e) amounts received are generally first treated as taxable income to the extent that the account value immediately before the partial withdrawal (increased by the net excess, if any, of the sum of all Market Value Adjustments that increase any subaccount value over the sum of all Market Value Adjustments that decrease any subaccount value which result from the partial withdrawal) exceeds the "investment in the contract" at that time. Any additional amount withdrawn is not taxable. It is important to note that the Contract is an integrated annuity contract and that therefore in determining the extent to which a withdrawal from one subaccount is taxable, the account value and "investment in the contract" for the entire Contract, not just the subaccount from which the withdrawal is made, will be taken into account. In the case of a surrender under a non-qualified Contract, under Section 72(e) amounts received are generally treated as taxable income to the extent the net amount received exceeds the "investment in the contract" at that time. c. Annuity Payments Although tax consequences may vary depending on the annuity option elected under the Contract, under Internal Revenue Code Section 72(b), generally gross income does not include that part of any amount received as an annuity under an annuity contract that bears the same ratio to such amount as the investment in the contract bears to the expected return at the annuity date. In this respect (prior to recovery of the investment in the contract), there is generally no tax on the amount of each payment which represents the same ratio that the "investment in the contract" bears to the total expected value of the annuity payments for the term of the payments; however, the remainder of each income payment is taxable. In all cases, after the "investment in the contract" is recovered, the full amount of any additional annuity payments is taxable. d. Penalty Tax on Certain Withdrawals In the case of a distribution under a non-qualified Contract, there may be imposed a federal penalty tax equal to 10% of the amount treated as taxable income. In general, however, there is no penalty tax on distributions: (1) made on or after the date on which the participant attains age 59 1/2; (2) made as a result of death or disability of the participant; (3) received in substantially equal periodic payments over the life or life expectancy of the participant (or joint life or life expectancy of the participant and a designated beneficiary). In certain circumstances, other exceptions may apply. Other tax penalties may apply to certain distributions under a qualified Contract. 18 21 e. Taxation of Death Benefit Proceeds Amounts may be distributed from a Contract because of the death of the participant, the annuitant, or the coannuitant. Generally, such amounts are includable in the income of the recipient as follows: (1) if distributed in a lump sum, they are taxed in the same manner as a full surrender of the Contract, as described above, or (2) if distributed under an annuity option, they are taxed in the same manner as annuity payments, as described above. f. Transfers, Assignments, or Exchanges of a Certificate A transfer of ownership of a Certificate, the designation of an annuitant, payee or other beneficiary who is not also the participant, or the exchange of a Certificate may result in certain tax consequences to the participant that are not discussed herein. A participant contemplating any such transfer, assignment, or exchange of a Certificate should contact a competent tax adviser with respect to the potential tax effects of such a transaction. g. Multiple Contracts or Certificates All non-qualified annuity Contracts or Certificates issued thereunder 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. h. Withholding Pension and annuity distributions generally are subject to withholding for the recipient's federal income tax liability at rates that vary according to the type of distribution and the recipient's tax status. Recipients, however, generally are provided the opportunity to elect not to have tax withheld from distributions. As of January 1, 1993, Merrill Lynch Life is generally required to withhold on distributions under qualified Contracts. i. Other Tax Consequences As noted above, the foregoing discussion of the federal income tax consequences under the Contract or Certificate issued thereunder is not exhaustive and special rules are provided with respect to other tax situations not discussed in this Prospectus. Further, the federal income tax consequences discussed herein reflect Merrill Lynch Life's understanding of current law and the law, or its interpretation by the Internal Revenue Service, may change. Federal estate and state and local income, estate, inheritance, and other tax consequences of ownership or receipt of distributions under a Contract depend on the individual circumstances of each participant or recipient of the distribution. A competent tax adviser should be consulted for further information. QUALIFIED PLANS The Contract is designed for use with several types of qualified plans. These retirement plans may permit the purchase of the Certificates to accumulate retirement savings under the plans. Adverse tax or other legal consequences to the plan, to the participant or to both may result if the Certificate is assigned or transferred to any individual as a means to provide benefit payments, unless the plan complies with all legal requirements applicable to such benefits prior to transfer of the Certificate. The tax rules applicable to participants in qualified plans, including restrictions on contributions and benefits, taxation of distributions, and any tax penalties, vary according to the type of plan and the terms and conditions of the plan itself. Various tax penalties may apply to contributions in excess of specified limits, aggregate distributions in excess of $150,000 19 22 annually, distributions that do not satisfy specified requirements, and certain other transactions with respect to qualified plans. Therefore, no attempt is made to provide more than general information about the use of the Contracts with the various types of qualified plans. Participants, annuitants, and beneficiaries are cautioned that the rights of any person to any benefits under qualified plans may be subject to the terms and conditions of the plans themselves, regardless of the terms and conditions of the Contract. Some retirement plans are subject to distribution and other requirements that are not incorporated into Merrill Lynch Life's administration procedures. Owners, participants, and beneficiaries are responsible for determining that contributions, distributions and other transactions with respect to the Certificates comply with applicable law. Following are brief descriptions of the various types of qualified plans in connection with which Merrill Lynch Life will issue a Contract. When issued in connection with a qualified plan, a Contract will be amended as necessary to conform to the requirements of the Internal Revenue Code. H.R. 10 Plans The Self-Employed Individuals' Tax Retirement Act of 1962, as amended, commonly referred to as "H.R. 10," permits self-employed individuals to establish qualified plans for themselves and their employees. In order to establish such a plan, a plan document, often in prototype form preapproved by the Internal Revenue Service, is adopted and implemented by or for the self-employed person. Purchasers of Contracts for use with H.R. 10 Plans should seek competent advice regarding the suitability of the proposed plan documents and of the Contract to their specific needs. Individual Retirement Annuities and Individual Retirement Accounts Section 408 of the Internal Revenue Code permits eligible individuals to contribute to an individual retirement program known as an Individual Retirement Annuity or Individual Retirement Account (each hereinafter referred to as "IRA"). Also, distributions from certain other types of qualified plans may be "rolled over" on a tax-deferred basis into an IRA. Sales of the Certificates for use with or as IRAs may be subject to special disclosure requirements of the Internal Revenue Service. Purchasers of the Contract for use with or as 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 their purchase within 7 days of the earlier of the establishment of the IRA or their purchase. Purchasers should seek competent advice as to the suitability of the Contract and Certificate for use with or as IRAs. Corporate Pension and Profit Sharing Plans Section 401(a) of the Internal Revenue Code permits corporate employers to establish various types of retirement plans for employees. Such retirement plans may permit the purchase of the Contracts in order to provide benefits under the plans. Corporate employers intending to use the Contracts in connection with such plans should seek competent advice. Tax-Sheltered Annuities Section 403(b) of the Internal Revenue Code permits public school employees and employees of certain types of religious, charitable, educational and scientific organizations specified in Section 501(c)(3) of the Internal Revenue Code to purchase annuity contracts and, subject to certain limitations, exclude the amount of premiums from gross income for tax purposes. These annuity contracts are commonly referred to as "Tax-Sheltered Annuities." Premiums excluded from gross income will be subject to FICA taxes. Purchasers using the Contracts or Certificates as Tax-Sheltered Annuities should seek competent advice as to eligibility, limitations on permissible amounts of premiums and tax consequences on distribution. Withdrawals under Tax-Sheltered Annuities which are attributable to contributions made pursuant to salary reduction agreements are prohibited unless made after the participant attains age 59 1/2, upon the participant's separation of service, upon the participant's death or disability, or for an amount not greater than the total of such contributions in the case of hardship. 20 23 Section 457 Deferred Compensation ("Section 457") Plans Under Section 457 of the Internal Revenue Code, employees and independent contractors who perform services for tax-exempt employers may participate in a Section 457 plan of their employer allowing them to defer part of their salary or other compensation. The amount deferred and any income on such amount will not be taxable until paid or otherwise made available to the employee. The maximum amount that can be deferred under a Section 457 plan in any tax year is ordinarily one-third of the employee's includable compensation, up to $7,500. Includable compensation means earnings for services rendered to the employer which is includable in the employee's gross income, but excluding any contributions under the Section 457 plan or a Tax-Sheltered Annuity. During the last three years before an individual attains normal retirement age additional "catch-up" deferrals are permitted. The deferred amounts will be used by the employer to purchase Certificates under the Contracts. Certificates will be issued to the employer, and all account values will be subject to the claims of the employer's creditors. The employee has no rights or vested interest in the Contract or Certificate and is only entitled to payment in accordance with the Section 457 plan provisions. Present federal income tax law does not allow tax-free transfers or rollovers for amounts accumulated in a Section 457 plan except for transfers to other Section 457 plans in certain limited cases. PREMIUM TAXES Various states, municipalities and jurisdictions 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. Merrill Lynch Life will pay these taxes when due, and a charge for any premium taxes imposed by a state, local government or jurisdiction 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%. Premium tax rates are subject to change by law, administrative interpretations, or court decisions. Premium tax amounts will depend on, among other things, the participant's state or jurisdiction of residence, Merrill Lynch Life's status within that state or jurisdiction, and the premium tax laws of that state or jurisdiction. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 PROVISIONS The Employee Retirement Income Security Act of 1974, as amended ("ERISA"), imposes fiduciary, prohibited transaction and other requirements with respect to employee benefit plans to which it applies. In certain circumstances these requirements may be applicable to the management of an insurance company account. Merrill Lynch Life believes that the account established for the Contracts is a guaranteed contract separate account within the meaning of Prohibited Transaction Class Exemption 81-82 and that assets attributed to the account will not be treated as "plan assets" under regulations promulgated by the Department of Labor. Prior to purchasing a Contract or Certificate, however, the fiduciary responsible for investments of a plan subject to ERISA should become fully informed regarding the relevant terms of the Contract, including the market value adjustment and withdrawal charge, and should take account of the anticipated liquidity needs of the plan in determining whether to purchase the Contract or Certificate. MORE INFORMATION ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY A. HISTORY AND BUSINESS Merrill Lynch Life was incorporated under the laws of the State of Washington on January 27, 1986 by Family Life Insurance Company ("Family Life") which at the time was an indirect wholly owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill Lynch"). Merrill Lynch Life is engaged in the sale of life insurance and annuity products. During 1986 and 1987 its insurance activities were limited as Merrill Lynch Life sought 21 24 to obtain licenses from various jurisdictions to conduct life insurance and annuity business. Merrill Lynch Life commenced the public sale of insurance products in 1988. The products introduced during 1988 consisted of single premium and flexible premium annuity contracts. Effective December 28, 1990, Merrill Lynch Life entered into an indemnity reinsurance agreement with Family Life (the "Family Life agreement"), whereby Merrill Lynch Life agreed to indemnify Family Life for all of its liabilities under life insurance and annuity contracts issued by it and distributed by Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"). As a result of the Family Life agreement, Merrill Lynch Life received from Family Life $2,361,197,000, representing the value of the statutory reserve liabilities attributable to such contracts, excluding variable annuity contracts, less a ceding commission payable to Family Life. In March of 1991, Family Life and Merrill Lynch Life entered into an assumption reinsurance agreement. Under the terms of the assumption reinsurance agreement, as state regulatory approvals are obtained, these contracts become direct contract owner obligations of Merrill Lynch Life. At various dates during 1991, Merrill Lynch Life and two affiliates, Tandem Insurance Group, Inc. ("Tandem") and Royal Tandem Life Insurance Company (now named ML Life Insurance Company of New York), assumption reinsured substantially all of the contracts under the Family Life agreement. Merrill Lynch Life transferred to the two affiliates assets approximately equal to the statutory reserve liabilities attributable to the contracts assumption reinsured by them. Contracts not assumed remain subject to the Family Life agreement, and Merrill Lynch Life is responsible for the servicing of these contracts. Those contracts assumed by Tandem subsequently became contracts of Merrill Lynch Life as a result of the merger of Tandem with and into Merrill Lynch Life, as described below. On June 12, 1991, Family Life was sold to Financial Industries Corporation, and contemporaneously Merrill Lynch Life became a direct wholly owned subsidiary of Merrill Lynch Insurance Group, Inc. ("MLIG"), an indirect wholly owned subsidiary of Merrill Lynch. On August 30, 1991, Merrill Lynch Life redomesticated from the State of Washington to the State of Arkansas and is subject to primary regulation by the Arkansas Insurance Department. On October 1, 1991, Tandem Insurance Group, Inc. ("Tandem"), an affiliate of Merrill Lynch Life, was merged with and into Merrill Lynch Life. Tandem, which at the time of its organization in 1952 was named Cornbelt Insurance Company, had various names and was under various ownership until 1986. Tandem became a wholly owned subsidiary of Tandem Financial Group, Inc. ("TFG"), a joint venture between Merrill Lynch and The Equitable Life Assurance Society of the United States ("the Equitable"), on July 31, 1986, and in October 1989, Merrill Lynch purchased the remaining interest in TFG from the Equitable and became its sole shareholder. At that time, TFG and Tandem became indirect wholly owned subsidiaries of Merrill Lynch. On September 6, 1990, TFG changed its name to Merrill Lynch Insurance Group, Inc. On December 31, 1990, pursuant to an indemnity reinsurance and assumption agreement entered into on November 14, 1990 by Tandem and Royal Tandem Life Insurance Company, Tandem and Royal Tandem Life Insurance Company reinsured on a 100% indemnity basis all variable life insurance policies ("reinsured policies") issued by Monarch Life Insurance Company ("Monarch Life") and sold through an affiliate of MLPF&S. As a result, Tandem became obligated to reimburse Monarch Life for its net amount at risk with regard to the reinsured policies. In connection with the indemnity reinsurance agreement, assets of approximately $553 million supporting general account reserves were transferred from Monarch Life to Tandem. On various dates during 1991, Tandem and Royal Tandem Life Insurance Company assumed the reinsured policies, wherever permitted by appropriate regulatory authorities, replacing Monarch Life. In connection with the assumption, separate account assets and reserves associated with the reinsured policies of approximately $2,625 million were transferred to Tandem. The aggregate face amount of the reinsured policies assumed by Tandem was approximately $6,200 million. Information pertaining to contract owner deposits, contract owner account balances, and capital contributions can be found in Merrill Lynch Life's financial statements which are contained herein. Merrill Lynch Life is currently licensed in 49 states, the District of Columbia, the Virgin Islands, and Guam. During 1993, life insurance and annuity sales were made in all states Merrill Lynch Life was licensed in, with 22 25 the largest concentration in Florida, 16%, California, 13%, and Texas, 13%, as measured by total contract owner deposits. Merrill Lynch Life's insurance products are sold primarily by licensed agents affiliated with Merrill Lynch Life Agency, Inc. and other life insurance agencies affiliated with MLPF&S. Insurance sales will be made by career life insurance agents whose sole responsibility is the sale and servicing of insurance and by Financial Consultants of MLPF&S who are also licensed as insurance agents. At September 30, 1994, approximately 11,148 agents affiliated with Merrill Lynch Life Agencies were authorized to act for Merrill Lynch Life. RECENT DEVELOPMENTS The following information on Recent Developments should be read in conjunction with the accompanying unaudited financial statements and notes thereto, in addition to the 1993 Financial Statements and Notes to Financial Statements and the Management's Discussion and Analysis of Financial Condition and Results of Operations contained herein. The condensed financial statements for the nine months ended September 30, 1994 contained in this prospectus are unaudited; however, in the opinion of management of Merrill Lynch Life, all adjustments (consisting only of normal recurring accruals) necessary for a fair statement of the results of operations have been included. Results for the nine months ended September 30, 1994 and 1993 are not necessarily indicative of annual results. Income Statement Information
NINE MONTHS ENDED --------------------------- SEPTEMBER SEPTEMBER 30, 30, 1994 1993 ----------- ----------- (IN THOUSANDS) Net Investment Income............................................. $ 333,167 $ 434,415 Earnings Before Federal Income Tax................................ $ 51,436 $ 46,443 Net Earnings...................................................... $ 40,434 $ 30,707
Balance Sheet Information
SEPTEMBER DECEMBER 30, 31, 1994 1993 ----------- ----------- (IN THOUSANDS) Total Assets...................................................... $11,854,301 $12,249,577 Stockholder's Equity.............................................. $ 690,493 $ 687,055
Business Overview Merrill Lynch Life's earnings are principally derived from two sources; the net investment income from investment of fixed rate life insurance and annuity contract owner deposits less interest credited to contract owners, commonly known as spread, and fees charged to variable life insurance and variable annuity contract owners. The costs associated with acquiring contract owner deposits are amortized over the period in which Merrill Lynch Life anticipates holding those funds. In addition, Merrill Lynch Life incurs expenses associated with the maintenance of inforce contracts. Life insurance and annuity deposits received in the first nine months of 1994 increased $307.8 million to $771.8 million, when compared to the same period in 1993. The increase was primarily attributable to sales of Merrill Lynch Life's variable annuity product. During 1994, approximately $1.892 billion of fixed deferred annuity liabilities will reach the expiration of their interest rate guarantee period. This represents approximately 28% of Merrill Lynch Life's policy liabilities and accruals as of December 31, 1993. During the first nine months of 1994, approximately $1.599 billion of these fixed deferred annuity liabilities reached the expiration of their interest rate guarantee period. At the expiration of an interest rate guarantee period, the contract owner has an option to either surrender the contract without incurring a surrender charge, or to "renew" with an adjustment of the interest crediting rate 23 26 to the prevailing rate at the time of renewal. Merrill Lynch Life has offered those contract owners electing to surrender the opportunity to exchange their contract for either a variable annuity or market value adjusted annuity contract. The following table summarizes the contract owners' selections for the first nine months of 1994 and for the year ended December 31, 1993:
1994 1993 --------------- --------------- AMOUNT % AMOUNT % ------ ---- ------ ---- (DOLLARS IN MILLIONS) Renewed with an adjustment to the applicable interest crediting rate.......................................... $ 262 17% $ 273 22% Exchanged into either the variable annuity product or the market value adjusted annuity product offered by Merrill Lynch Life.............................................. 735 45% 453 36% Surrendered............................................... 602 38% 543 42% ------ ---- ------ ---- Total..................................................... $1,599 100% $1,269 100% ====== ===== ====== =====
The rates of renewal, exchange and surrender experienced are consistent with management's expectations. For 1995 and 1996, fixed deferred annuity liabilities which will reach the expiration of their interest rate guarantee period will decline significantly from the 1993 and 1994 levels to $453.3 million and $192.6 million, respectively. To fund all business activities, Merrill Lynch Life maintains a high quality and liquid investment portfolio. As of September 30, 1994, Merrill Lynch Life's invested assets and cash equivalents less policy loans on insurance contracts consist of approximately 75% liquid or readily marketable securities. As of September 30, 1994, approximately $391.0 million (9.3%) of Merrill Lynch Life's fixed maturity securities were considered non-investment grade. Merrill Lynch Life defines non-investment grade as unsecured corporate debt obligations which do not have a rating equivalent to Standard and Poor's BBB or higher (or similar rating agency), and are not guaranteed by an agency of the federal government. Non-investment grade securities are speculative and are subject to significantly greater risks related to the creditworthiness of the issuers and the liquidity of the market for such securities. Merrill Lynch Life carefully selects, and closely monitors, such investments. Results of Operations For the nine month periods ended September 30, 1994 and 1993, Merrill Lynch Life reported net earnings of $40.4 million and $30.7 million, respectively. Net investment income and interest credited to policyholders' account balances for the nine months ended September 30, 1994 as compared to the same period in 1993 have declined by approximately $121.2 million and $113.7 million, respectively, resulting in a $7.5 million reduction in interest spread. The reductions in net investment income, interest credited to policyholders' account balances and interest spread are primarily attributable to the reduction in fixed rate contracts inforce. Merrill Lynch Life experienced net realized investment losses of $10.6 million during the current nine month period as compared to net realized investment gains of $32.0 million for the same period during 1993. During the first nine months of 1994 there was significant volatility in both the equity and debt markets with ending values generally being lower at September 30, 1994 than they were at December 31, 1993. Reflecting the general declines in value, Merrill Lynch Life's trading portfolios experienced $11.6 million of realized and unrealized losses during the current period as compared to $6.0 million of realized and unrealized gains during the same period in 1993. As well, dispositions in the available for sale portfolios resulted in substantially reduced net realized investment gains during the current nine month period as compared to the same period during 1993. Policy charge revenue increased approximately $15.6 million during the current nine month period as compared to the same period in 1993. This increase is primarily attributable to the 80% increase in policyholders' account balances, as compared to December 31, 1993, of the variable annuity product. 24 27 The market value adjustment expense is attributable to Merrill Lynch Life's market value adjusted annuity product. This contract provision results in a market value adjustment to the cash surrender value of those contracts which are surrendered before the expiration of their interest rate guarantee period. Due to the current lower level of interest rates as compared to the average guaranteed interest rate of the inforce contracts, this market value adjustment generally has resulted in an expense to Merrill Lynch Life. Merrill Lynch Life's market value adjusted annuity has experienced a decrease in surrenders during the first nine months of 1994 as compared to the same period during 1993. The decrease in surrender activity and the recent rise in interest rates has resulted in the $12.8 million decrease in the market value adjustment expense. Policy benefits decreased approximately $1.7 million from $14.1 million for the first nine months of 1993 to $12.4 million for the current nine month period. This decrease is primarily attributable to a reduction in mortality claims during the current nine month period as compared to the same period during 1993. Reinsurance premium ceded increased approximately $1.0 million from $9.4 million during the first nine months of 1993 to $10.4 million for the current period. This increase is primarily attributable to the increase in average attained age of Merrill Lynch Life's life insurance policyholders. As the average age of the policyholders increases the cost to Merrill Lynch Life of reinsurance increases. Amortization of deferred policy acquisition costs declined $17.7 million during the current period as compared to the same period during 1993. Merrill Lynch Life adjusts the amortization of deferred policy acquisition costs based on realized investment gains recognized on normal dispositions in Merrill Lynch Life's investment portfolios. The decline in realized investment gains during the current nine month period as compared to the same period during 1993 contributed to the reduction in amortization of deferred acquisition costs. Additionally, contributing to the decrease in amortization is a decline in fixed annuity contracts inforce partially offset by the increase in the variable annuity contracts inforce. Insurance expenses and taxes decreased $8.5 million during the current nine month period as compared to the same period in 1993. Approximately $2.7 million of the decrease was attributable to a period to period reduction in the amount of allowances established for future assessments related to the rehabilitation of insolvent and/or impaired life insurance companies. The remaining reduction in expenses is attributable to operational efficiencies and the completion during 1993 of certain policy administration system enhancements. Merrill Lynch Life's effective federal income tax rate decreased from 34% during the first nine months of 1993 to 21% for the same period during 1994 principally as a result of recording a prior year tax adjustment during the current period. 25 28 B. SELECTED FINANCIAL DATA The following selected financial data for Merrill Lynch Life should be read in conjunction with the financial statements and notes thereto included in this Prospectus. For additional information see "Recent Developments" on page 23.
SELECTED FINANCIAL DATA* FOR THE PERIODS ENDED DECEMBER 31, ------------------------------------------------------------------------- 1993 1992 1991 1990 1989 ----------- ----------- ----------- ---------- ---------- (IN THOUSANDS) Net Investment Income..... $ 586,461 $ 712,739 $ 787,603 $ 465,866 $ 352,651 Earnings Before Federal Income Tax.............. $ 72,775 $ 25,667 $ 14,068 $ 39,784 $ 39,155 Net Earnings.............. $ 47,860 $ 17,031 $ 11,608 $ 23,977 $ 25,589 Total Assets.............. $12,249,577 $11,783,961 $12,241,054 $8,806,682** $4,603,433 Stockholder's Equity...... $ 687,055 $ 762,474 $ 741,314 $ 648,452 $ 348,933
- --------------- * The financial information presented herein has been restated to reflect the merger of Tandem with and into Merrill Lynch Life. ** If business derived from the indemnity reinsurance agreement were excluded, total assets in 1990 would have been $6,310,069. C. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Financial Statements and Notes to Financial Statements included herein. For additional information see "Recent Developments" on page 23. Business Environment The current business environment remains challenging for the life insurance industry. Major modifications to state regulations based on model laws of the National Association of Insurance Commissioners ("NAIC"), and the process of NAIC state accreditation are being debated and implemented by the NAIC. Competition remains keen as innovative products are introduced to the marketplace. Interest rates have fallen over the previous three years reaching historically low levels during 1993. Additionally, during 1993, increases in both corporate and individual federal income tax rates were adopted. Both the increase in the marginal individual income tax rates and the current interest rate environment have resulted in individual investors seeking higher tax deferred returns than are currently available with traditional interest sensitive products. The insurance industry has responded with variable life insurance and variable annuity products that provide insurance features similar to those of traditional interest sensitive products, but with the opportunity to achieve comparatively higher returns through diversified investing in mutual fund portfolios. The current interest rate environment has spurred debt refinancings in both the institutional and individual sectors. Directly related to this refinancing activity has been an increased use of the call feature on corporate bonds and accelerated principal repayments of mortgage-backed securities. Holders of these securities have reinvested cash proceeds into the historically low yield curve. This effect, coupled with the increase in the corporate federal income tax rate, will contribute adversely to net earnings in the industry. Summary During 1991, Merrill Lynch Life changed its strategic marketing emphasis from sales of fixed interest rate life insurance and annuity products to sales of variable life insurance, variable annuity and market value adjusted annuity products. Beginning in 1991 and continuing into 1993, Merrill Lynch Life developed both variable life insurance and variable annuity products and proceeded to obtain regulatory approvals to market these 26 29 products. Merrill Lynch Life began sales of its variable annuity product during the second quarter of 1992 in those jurisdictions in which it had regulatory authority. Deposits received from the sales of this product were $1.348 billion and $169 million for 1993 and 1992, respectively. For 1993 and 1992, approximately $649 million and $80 million, respectively, of deposits were a result of internal transfers from Merrill Lynch Life's fixed rate annuity products. The remaining change in sales volume is reflective of the product being available in more jurisdictions in 1993 as compared to 1992, and the popularity of variable annuity products during 1993. During 1993 and 1992, Merrill Lynch Life had approximately $1.269 billion and $1.300 billion, respectively, of fixed deferred annuities which reached the expiration of their interest rate guarantee periods. At the expiration of an interest rate guarantee period, the contract owner has an option to either surrender the contract without incurring a surrender charge, or to "renew" with an adjustment of the interest crediting rate to the prevailing rate at the time of renewal. Merrill Lynch Life has offered those contract owners electing to surrender the opportunity to exchange their contract for either a variable annuity or market value adjusted annuity contract. The following table summarizes the contract owners' selections for 1993 and 1992:
1993 1992 ------------- ------------- AMOUNT % AMOUNT % ------ --- ------ --- (DOLLARS IN MILLIONS) Renewed with an adjustment to the applicable interest crediting rate.............................................. $ 273 22% $ 195 15% Exchanged into either the variable annuity product or the market value adjusted annuity product....................... 453 36% 325 25% Surrendered................................................... 543 42% 780 60% ------ --- ------ --- Total............................................... $1,269 100% $1,300 100% ====== === ====== ===
The rates of renewal, exchange and surrender experienced are consistent with management's projections. The increase in contracts exchanging into Merrill Lynch Life's available annuity products is primarily attributable to the variable annuity product being more widely available in 1993 than it was in 1992. The increase in renewals during 1993 as compared to 1992 is attributable to the minimum contractual rate available on the fixed deferred annuity products approximating or exceeding the crediting rates available on Merrill Lynch Life's market value adjusted annuity product. During 1994, Merrill Lynch Life has $1.892 billion of fixed deferred annuities which will reach the expiration of their interest rate guarantee periods (see "Liquidity and Capital Resources" on page 29). Merrill Lynch Life is anticipating increases in sales volume of its variable annuity and variable life insurance products. Partially offsetting these increases is an anticipated decrease in sales volume of Merrill Lynch Life's market value adjusted annuity. Merrill Lynch Life has been strategically migrating from underwriting interest sensitive, general account products to underwriting variable, separate account products. Such products address the need of the consumer to diversify insurance related invested assets through the use of mutual fund portfolios and unit investment trusts with the associated insulation of a separate account. Since the contract owner assumes most investment risks with variable products, the conventional risks of a general account such as interest rate risk, asset/liability matching and asset default risk are not borne by Merrill Lynch Life. Since Merrill Lynch Life does not bear those risks, capital needs should be significantly reduced. In this regard, Merrill Lynch Life has developed a comprehensive capital management plan which will continue to provide appropriate levels of capital for the risks which Merrill Lynch Life assumes, but will allow Merrill Lynch Life to reduce its absolute level of surplus. As a first step in implementing this plan, on December 20, 1993, Merrill Lynch Life paid a $45 million ordinary dividend and a $75 million extraordinary dividend to MLIG. Merrill Lynch Life received approval from the Arkansas Insurance Commissioner prior to the declaration and payment of the extraordinary dividend. Effective December 31, 1993, Merrill Lynch Life has adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). (See Note 1 of the Notes to Financial Statements.) SFAS No. 115 requires that certain invested assets be carried at estimated fair value with the difference between fair value and amortized cost being recorded in 27 30 stockholder's equity as a component of net unrealized gain (loss). The Securities and Exchange Commission has additionally announced that companies should adjust other assets and liabilities that would be adjusted had the unrealized holding gains or losses been realized with corresponding credits or charges reported directly to stockholder's equity. The effect of adopting SFAS No. 115 was a $228 million increase in the carrying value of fixed maturity securities offset by a $36 million decrease in deferred policy acquisition charges and a $193 million increase in policyholders' account balances. The impact of SFAS No. 115 on stockholder's equity was minimal. These adjustments will ultimately be recorded in the statement of earnings at the time of sale of the investments or withdrawal of the contract owners' liability. Additionally, normal amortization of deferred policy acquisition costs will be unaffected. During 1993, Merrill Lynch Life established an investment trading portfolio with an objective of maximizing total return subject to Merrill Lynch Life's quality guidelines. Investments in the portfolio consist primarily of marketable fixed maturity and equity securities. Merrill Lynch Life records these securities at estimated fair value with the change in the difference between estimated fair value and amortized cost being recorded in net realized investment gains (losses). At December 31, 1993, Merrill Lynch Life had $165 million invested in this portfolio. During 1993, the portfolio contributed $19 million to earnings. FINANCIAL CONDITION At December 31, 1993, Merrill Lynch Life's assets were $12.250 billion, or $466 million higher than the $11.784 billion at December 31, 1992. Approximately $192 million of the increase was a result of adoption of SFAS No. 115. The remainder of the increase was primarily attributable to sales of Merrill Lynch Life's variable annuity product partially offset by surrenders of Merrill Lynch Life's fixed rate annuity products. As Merrill Lynch Life strategically changes its marketing efforts from the sale of fixed rate products to the sale of variable products, Merrill Lynch Life's assets will be reallocated between the general account and its separate account. As of December 31, 1993 and 1992, Merrill Lynch Life's percentage of separate accounts assets to total assets was 38% and 27%, respectively. Merrill Lynch Life anticipates that the percentage of separate accounts assets to total assets will continue to increase. Merrill Lynch Life maintains a conservative investment portfolio. Merrill Lynch Life's investment in equity securities, mortgages and real estate are significantly below the industry average. Additionally, Merrill Lynch Life's investment in non-investment grade bonds approximates the industry average. The following schedule identifies Merrill Lynch Life's general account invested assets by type: Investment Grade Fixed Maturity Securities............................................ 78% Policy Loans.......................................................................... 13% Non-Investment Grade Fixed Maturity Securities........................................ 5% Mortgage Loans on Real Estate......................................................... 3% Equity Securities..................................................................... 1% Real Estate........................................................................... 0% --- 100% ===
Merrill Lynch Life's investment in collateralized mortgage obligations ("CMO") and mortgage-backed securities ("MBS") accounts for approximately 37% and 50% of Merrill Lynch Life's investment in fixed maturity securities as of December 31, 1993 and 1992, respectively. At December 31, 1993 and 1992, approximately 41% and 73%, respectively, of Merrill Lynch Life's CMO and MBS holdings were fully collateralized by the Government National Mortgage Association, the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. Merrill Lynch Life held at December 31, 1993 and 1992 approximately $174 million and $220 million, respectively, of principal only strips, interest only strips and residuals. CMOs and MBS securities are structured to allow the investor to determine, within certain limits, the amount of interest rate risk, prepayment risk and default risk which the investor is willing to accept. It is the level of risk that the investor is willing to accept that determines the degree to which the yields on CMOs and MBS securities will exceed the yields which can be obtained from similarly rated corporate securities. 28 31 The historical low interest rate environment has resulted in Merrill Lynch Life experiencing increases in both calls of corporate bonds and accelerated principal repayments of mortgage-backed securities during both 1993 and 1992. During 1993 approximately $2.077 billion or 64% of proceeds from disposal of bonds was attributable to calls and mortgage backed security repayments. The net cash inflows from the investment portfolios, including interest, calls, repayments and maturities, have been reinvested at lower yields than the investments from which the cash inflow was generated. During 1993 eight commercial mortgage loans with a carrying value of $30 million were foreclosed upon by Merrill Lynch Life. The carrying values approximate the fair values of the properties. This compares with one foreclosure during 1992 with a carrying value of $3 million. The increase in foreclosures was anticipated by Merrill Lynch Life and the carrying value of the mortgages foreclosed upon had previously been adjusted. Merrill Lynch Life anticipates further foreclosures in its commercial real estate portfolio. Substantially all Merrill Lynch Life's investments in mortgage loans have balloon payments due at the expiration of their loan term. It is anticipated that for those loans where the securitized property is performing well in its market, the mortgage will be fully satisfied at the maturity date as the borrower obtains alternative financing. For those loans where the securitized property is not performing well in its market, it is anticipated that the borrowers will be unable to obtain alternative financing. Merrill Lynch Life will determine on an individual loan basis the appropriate actions to maximize the return on its investment, including both restructurings and foreclosures. Merrill Lynch Life continues to carry reserves for future potential losses from mortgage loans. As of December 31, 1993, Merrill Lynch Life had 130,099 life insurance and annuity contracts in-force with interest rate guarantees. The estimated average rate of interest credited on behalf of contract owners was 6.45% during 1993. The liabilities related to insurance contracts with interest rate guarantees were supported by invested assets with an estimated effective yield of 8.25% during 1993. During 1991, and to a lesser extent 1992, there were certain highly publicized life insurance insolvencies. Merrill Lynch Life has utilized public information to estimate what future assessments it will incur as a result of these insolvencies. At December 31, 1993 and 1992, Merrill Lynch Life had accrued an estimated liability for future guaranty fund assessments of $28 million and $27 million, respectively. Merrill Lynch Life regularly monitors public information regarding insurer insolvencies and will adjust its estimated liability where appropriate. (See Note 9 of the Notes to the Financial Statements for more information concerning guaranty fund assessments.) Liquidity and Capital Resources Merrill Lynch Life's liquidity requirements include the payment of sales commissions and other underwriting expenses and the funding of its contractual obligations for the life insurance and annuity contracts it has in force. Merrill Lynch Life has developed and utilizes a cash flow projection system and regularly performs asset/liability duration matching in the management of its asset and liability portfolios. As previously noted, during 1994, Merrill Lynch Life will have $1.892 billion of fixed deferred annuities reaching the expiration of their interest rate guarantee periods. Merrill Lynch Life anticipates that approximately 80% of these liabilities will either externally surrender or exchange into Merrill Lynch Life's variable annuity or market value adjusted annuity products. In either circumstance, Merrill Lynch Life will require cash to fund the surrender benefit or the transfer of the liability to a separate account. During 1991, in anticipation of the liquidity needs required to fund the surrenders and exchanges experienced during 1993 and 1992 and anticipated for 1994, Merrill Lynch Life initiated a program whereby the duration of its investment portfolio was shortened and the quality of the investment portfolio improved. This program was substantially completed during 1991. Merrill Lynch Life anticipates funding the cash requirements of the projected policy surrenders and exchanges utilizing cash from operations, normal investment maturities and anticipated calls and repayments, consistent with 1992 and 1993. As of December 31, 1993 Merrill Lynch Life had $4.699 billion of cash, short-term investments and investment grade publicly-traded bonds which could be liquidated if funds were required. 29 32 In order to continue to market life insurance and annuity products, Merrill Lynch Life must meet or exceed the statutory capital and surplus requirements of the insurance departments of the states in which it conducts business. Statutory accounting practices differ from generally accepted accounting principles in two major respects: under statutory accounting practices, the acquisition costs of new business are charged to expense; and the required additions to statutory reserves for new business in some cases may initially exceed the statutory revenues attributable to such business. These practices result in a reduction of statutory income and surplus at the time of recording new business. The NAIC has developed and implemented, effective December 31, 1993, the Risk Based Capital ("RBC") adequacy monitoring system. The RBC calculates the amount of adjusted capital which a life insurance company should have based upon that company's risk profile. The NAIC has established four different levels of regulatory action with respect to the RBC adequacy monitoring system. Each of these levels may be triggered if an insurer's total adjusted capital is less than a corresponding level of RBC. (See Note 5 of the Notes to Financial Statements for a complete explanation of these levels.) As of December 31, 1993, based on the RBC formula, Merrill Lynch Life's total adjusted capital level was in excess of the minimum amount of capital required to avoid regulatory action. Merrill Lynch Life believes that it will be able to fund the capital and surplus requirements of projected new business from current statutory earnings and existing statutory capital and surplus. If sales of new business significantly exceeds projections, Merrill Lynch Life may have to look to its parent and other affiliated companies to provide the capital or borrowings necessary to support its current marketing efforts. Merrill Lynch Life's future marketing efforts could be hampered should its parent and/or affiliates be unwilling to commit additional funding. Results of Operations Merrill Lynch Life's gross earnings are principally derived from two sources: the net income from investment of fixed rate life insurance and annuity contract owner deposits less interest credited to contract owners, commonly known as spread; and the charges imposed on variable life insurance and variable annuity contracts. The costs associated with acquiring contract owner deposits are amortized over the period in which Merrill Lynch Life anticipates holding those funds. In addition, Merrill Lynch Life incurs expenses associated with the maintenance of in-force contracts. 1993 compared to 1992 Merrill Lynch Life recorded net earnings of $48 million and $17 million for 1993 and 1992, respectively. Net investment income and interest credited to policyholders' account balances for 1993 as compared to 1992 have declined by approximately $126 million and $92 million, respectively, resulting in a net decline in interest spread of $34 million. The decline in interest spread is attributable to the low interest rate environment and a declining block of fixed rate life insurance and annuity contracts, partially offset by adjustment of the guaranteed interest crediting rate to the prevailing rate on those contracts which have reached the end of their interest rate guarantee period. Merrill Lynch Life experienced net realized investment gains of $63 million during 1993 as compared to net realized investment losses of $(30) million for the same period during 1992. Approximately $28 million of the increase in net realized investment gains was attributable to sales of investments to fund surrenders of Merrill Lynch Life's market value adjusted annuity product. The investment trading portfolio contributed $8.0 million of investment gains during 1993. During 1993 and 1992 Merrill Lynch Life established $14 million and $41 million, respectively, of valuation allowances for invested assets. The remaining $30 million increase in realized investment gains is attributable to normal trading activity in Merrill Lynch Life's investment portfolios. Policy charge revenue increased approximately $14 million during 1993 as compared to 1992 primarily as a result of an increase in the number of variable annuity contracts in-force due to current sales volume. 30 33 The market value adjustment expense is attributable to Merrill Lynch Life's market value adjusted annuity product. This contract provision results in a market value adjustment to the cash surrender value of those contracts which are surrendered before the expiration of their interest rate guarantee period. Due to the decline in interest rates, this market value adjustment has resulted in an expense to Merrill Lynch Life. Merrill Lynch Life's market value adjusted annuity has experienced an increase in surrenders during 1993 as compared to 1992. Many of these contract owners have exchanged their contracts for variable annuity contracts sold by Merrill Lynch Life or its competitors. The increase in surrender activity has resulted in the $25 million increase in the market value adjustment expense. Offsetting this expense were net realized investment gains attributable to the sale of investments to fund the surrenders. Policy benefits increased approximately $5 million from $12 million for 1992 to $17 million for 1993. Merrill Lynch Life's variable annuity product includes a contract provision which guarantees a minimum death benefit. The Company accrues the expected cost of this benefit and records the expense in policy benefits. The increase in policy benefits during 1993 as compared to 1992 is attributable to this accrual and is reflective of the growth in variable annuity contracts in-force. Merrill Lynch Life adjusts the amortization of deferred policy acquisition costs based on realized investment gains recognized on normal trading activity in Merrill Lynch Life's investment portfolios. The $21 million increase in amortization of deferred policy acquisition costs is primarily attributable to the increase during 1993 in realized investment gains. Insurance expenses and taxes decreased $25 million during 1993 as compared to 1992. Approximately $16 million of the decrease was attributable to a period to period reduction in the amount of allowances established for future assessments related to the rehabilitation of insolvent and/or impaired life insurance companies. Also, beginning in 1991, Merrill Lynch Life began initiatives to review and modify its policy administration systems with the aim of establishing cost and operational efficiencies and improving customer service. One of the major projects associated with these initiatives was completed during the second quarter of 1993, resulting in a $3 million reduction in systems development expenses, as compared to 1992. The remaining reduction in expenses is a result of operational efficiencies. During 1993 the Federal corporate income tax rate was increased from 34% to 35%. The increased rate was utilized in revaluing the deferred tax asset and resulted in a $631,000 decrease in the deferred tax provision. 1992 compared to 1991 Merrill Lynch Life recorded net earnings of $17 million and $12 million for 1992 and 1991, respectively. Net investment income declined approximately $75 million during 1992 as compared to 1991. The decline in net investment income was attributable to multiple factors including the 1991 shortening of the investment portfolio duration, the reduction in total investments as a result of contract surrenders, and the current interest rate environment. Net realized investment losses increased $8 million from $22 million during 1991 to $30 million during 1992. During 1992, Merrill Lynch Life established a $41 million valuation allowance on the mortgage loans on real estate portfolio. This valuation allowance was partially offset by net gains on the sale of fixed maturity securities. Interest credited to contract owners' account balances declined $93 million during 1992 compared to 1991 as a result of contract surrenders and the resetting of interest rates on contract renewals. During 1992 and 1991, Merrill Lynch Life underwrote life insurance and annuity products of approximately $217 million and $437 million, respectively. The decrease was attributable to management's decision to significantly de-emphasize sales of fixed rate products. As discussed previously, the product development and regulatory approvals for the variable products were in progress during 1992 and substantially completed during 1992. The unavailability of the variable products during a portion of 1992 as well as not having the variable products approved by the regulatory authorities in all jurisdictions in which Merrill Lynch Life does business significantly impacted Merrill Lynch Life's marketing efforts for that period. 31 34 Segment Information Merrill Lynch Life's operations consist of one business segment, which is the sale of life insurance and annuity products. Merrill Lynch Life is not dependent upon any single customer, and no single customer accounted for more than 10% of its revenues during 1993. Inflation Merrill Lynch Life's operations have not been materially impacted by inflation and changing prices during the preceding three years. D. REINSURANCE Portions of life insurance risks are reinsured with other companies. Merrill Lynch Life has reinsurance agreements with a number of other insurance companies for individual life insurance. The maximum retention on any one life is $500,000. E. CONTRACT OWNER ACCOUNT BALANCES Merrill Lynch Life records on its books liabilities for life insurance and annuity products which are equal to the full accumulation value of such contracts plus a mortality provision for life insurance products, which will be sufficient to meet Merrill Lynch Life's contract obligations at their maturities or in the event of a participant's death. F. INVESTMENTS Merrill Lynch Life's assets must be invested in accordance with applicable state laws. These laws govern the nature and quality of investments that may be made by life insurance companies and the percentage of their assets that may be committed to any particular type of investment. In general, these laws permit investments, within specified limits and subject to certain qualifications, in federal, state, and municipal obligations, corporate bonds, preferred or common stocks, real estate mortgages, real estate and certain other investments. All of Merrill Lynch Life's assets, except for separate account assets supporting variable products, are available to meet its obligations under the Contracts. Merrill Lynch Life makes investments in accordance with investment guidelines that take into account investment quality, liquidity and diversification, and invests assets supporting Contract guarantees primarily in investment grade fixed income assets such as mortgage-backed securities, collateralized mortgage obligations and corporate debentures. At December 31, 1993 invested assets supporting Contract guarantees consisted of $5,597 million of fixed maturity securities available for sale, $144 million of fixed maturity securities held for trading, $925 million of policy loans, $191 million of mortgage loans on real estate, $25 million of equity securities available for sale, $21 million of equity securities held for trading and $30 million of real estate. At December 31, 1993, approximately 69% of Merrill Lynch Life's invested assets and cash equivalents supporting Contract guarantees consisted of liquid or readily marketable securities. At December 31, 1993, approximately $1,615 million was invested in fixed maturity securities rated BBB by Standard and Poor's (or similar rating agency). Fixed maturity securities rated BBB may have speculative characteristics and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of the issuer to make principal and interest payments than is the case with higher rated fixed maturity securities. At December 31, 1993, approximately $279 million (4.9%) of Merrill Lynch Life's fixed maturity securities was invested in securities considered non-investment grade. Merrill Lynch Life defines non-investment grade as unsecured corporate debt obligations which do not have a rating equivalent to Standard and Poor's (or 32 35 similar rating agency) BBB or higher and are not guaranteed by an agency of the federal government. Non-investment grade securities are speculative and are subject to significantly greater risks related to the creditworthiness of the issuers and the liquidity of the market for such securities. Merrill Lynch Life carefully selects, and closely monitors, such investments. G. COMPETITION Merrill Lynch Life is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance companies and other entities marketing insurance products. There are approximately 2,100 stock, mutual and other types of insurers in the life insurance business in the United States, a number of which are substantially larger than Merrill Lynch Life. H. CERTAIN AGREEMENTS Investment Management Agreement Merrill Lynch Life has entered into an investment management agreement with Merrill Lynch Asset Management, L.P. ("MLAM"), a subsidiary of Merrill Lynch, pursuant to which MLAM provides investment management and related accounting services with respect to Merrill Lynch Life's publicly traded investments. Merrill Lynch Life pays a fee to MLAM for these services. Merrill Lynch Life paid reimbursements of $2.0 million, $2.8 million, $3.7 million and $3.3 million during the nine months ended September 30, 1994 and the years ended December 31, 1993, 1992 and 1991, respectively, to MLAM for such services. Service Agreement Merrill Lynch Life and MLIG are parties to a service agreement pursuant to which MLIG has agreed to provide certain data processing, legal, actuarial, management, advertising and other services to Merrill Lynch Life. Expenses incurred by MLIG in relation to this service agreement are reimbursed by Merrill Lynch Life on an allocated cost basis. Charges billed to Merrill Lynch Life by MLIG pursuant to the agreement were $34.9 million, $55.8 million, $63.3 million and $78.3 million for the nine months ended September 30, 1994 and for the years ended December 31, 1993, 1992 and 1991, respectively. General Agency Agreement In addition, Merrill Lynch Life has entered into a general agency agreement with Merrill Lynch Life Agency, Inc. ("MLLA") pursuant to which registered representatives of MLPF&S who are also Merrill Lynch Life's licensed insurance agents solicit applications for contracts issued by Merrill Lynch Life. MLLA is paid commissions for the contracts sold by such agents. Commissions paid to MLLA by Merrill Lynch Life under the general agency agreement were $69.0 million, $67.1 million, $25.2 million and $27.9 million during the nine months ended September 30, 1994 and the years ended December 31, 1993, 1992 and 1991, respectively. (See "Distribution of the Contracts" on page 16.) I. EMPLOYEES Merrill Lynch Life, as a result of its Management Services Agreement with MLIG, has no direct employees. Instead, various management services are provided by MLIG, as described above under "Service Agreement". The cost of these services is allocated to Merrill Lynch Life. Certain officers of Merrill Lynch Life are also officers of ML Life Insurance Company of New York and their salaries are allocated between the two companies. (See "Directors and Executive Officers" on page 35.) J. PROPERTIES Merrill Lynch Life's home office is located in Little Rock, Arkansas. In addition, personnel performing services for Merrill Lynch Life pursuant to its Management Services Agreement operate in MLIG office space. Merrill Lynch Insurance Group Services, Inc. ("MLIGS"), an affiliate of MLIG, owns office space in 33 36 Jacksonville, Florida. MLIGS also subleases certain office space in Springfield, Massachusetts from Monarch Life Insurance Company. MLIG occupies certain office space in Plainsboro, New Jersey through Merrill Lynch. An allocable share of the cost of each of these premises is paid by Merrill Lynch Life through the service agreement with MLIG. K. STATE REGULATION Merrill Lynch Life is subject to the laws of the State of Arkansas governing insurance companies and to the regulations of the Arkansas Insurance Department (the "Insurance Department"). A detailed financial statement in the prescribed form (the "Annual Statement") is filed with the Insurance Department each year covering Merrill Lynch Life's operations for the preceding year and its financial condition as of the end of that year. Regulation by the Insurance Department includes periodic examination to determine contract liabilities and reserves so that the Insurance Department may certify that these items are correct. Merrill Lynch Life's books and accounts are subject to review by the Insurance Department at all times. A full examination of Merrill Lynch Life's operations is conducted periodically by the Insurance Department and under the auspices of the National Association of Insurance Commissioners. In addition, Merrill Lynch Life is subject to regulation under the insurance laws of all jurisdictions in which it operates. The laws of the various jurisdictions establish supervisory agencies with broad administrative powers with respect to various matters, including licensing to transact business, overseeing trade practices, licensing agents, approving contract forms, establishing reserve requirements, fixing maximum interest rates on life insurance contract loans and minimum rates for accumulation of surrender values, prescribing the form and content of required financial statements and regulating the type and amounts of investments permitted. Merrill Lynch Life is required to file the Annual Statement with supervisory agencies in each of the jurisdictions in which it does business, and its operations and accounts are subject to examination by these agencies at regular intervals. The National Association of Insurance Commissioners ("NAIC") has adopted several regulatory initiatives designed to improve the surveillance and financial analysis regarding the solvency of insurance companies in general. These initiatives include the development and implementation of a risk-based capital formula for determining adequate levels of capital and surplus. Insurance companies are required to calculate their risk-based capital in accordance with this formula and to include the results in their Annual Statement. It is anticipated that these standards will have no significant effect upon Merrill Lynch Life. For additional information about the risk-based capital adequacy monitoring system and Merrill Lynch Life, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" on page 29. In addition, many states regulate affiliated groups of insurers, such as Merrill Lynch Life, and its affiliates, under insurance holding company legislation. Under such laws, inter-company transfers of assets and dividend payments from insurance subsidiaries may be subject to prior notice or approval, depending on the size of the transfers and payments in relation to the financial positions of the companies involved. Under insurance guaranty fund laws in most states, insurers doing business therein can be assessed (up to prescribed limits) for contract owner losses incurred by other insurance companies which have become insolvent. Most of these laws provide that an assessment may be excused or deferred if it would threaten an insurer's own financial strength. For information regarding Merrill Lynch Life's estimated liability for future guaranty fund assessments, see Note 9 of Notes to Financial Statements. Although the federal government generally does not directly regulate the business of insurance, federal initiatives often have an impact on the business in a variety of ways. Certain insurance products of Merrill Lynch Life are subject to various federal securities laws and regulations. In addition, current and proposed federal measures which may significantly affect the insurance business include regulation of insurance company solvency, employee benefit regulation, removal of barriers preventing banks from engaging in the insurance business, tax law changes affecting the taxation of insurance companies and the tax treatment of insurance products and its impact on the relative desirability of various personal investment vehicles. 34 37 DIRECTORS AND EXECUTIVE OFFICERS Merrill Lynch Life's directors and executive officers and their positions with the Company are as follows:
NAME (AGE) POSITION(S) WITH THE COMPANY - --------------------------------------------- --------------------------------------------- Anthony J. Vespa (52)........................ Chairman of the Board, President, and Chief Executive Officer Joseph E. Crowne (47)........................ Director, Senior Vice President, Chief Financial Officer, Chief Actuary, and Treasurer Barry G. Skolnick (42)....................... Director, Senior Vice President, General Counsel, and Secretary David M. Dunford (45)........................ Director, Senior Vice President, and Chief Investment Officer John C. R. Hele (35)......................... Director and Senior Vice President Allen N. Jones (51).......................... Director Robert J. Boucher (48)....................... Senior Vice President, Variable Life Administration
Each director is elected to serve until the next annual meeting of shareholders or until his or her successor is elected and shall have qualified. Some directors have held various executive positions with insurance company subsidiaries of the Company's indirect parent, Merrill Lynch & Co., Inc. The principal positions of the Company's directors and executive officers for the past five years are listed below: Mr. Vespa joined Merrill Lynch Life in January 1994. Since February 1994, he has held the position of Senior Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated. From February 1991 to February 1994, he held the position of District Director and First Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated. From September 1988 to February 1991, he held the position of Senior Resident Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated. Mr. Crowne joined Merrill Lynch Life in June 1991. From January 1989 to May 1991, he was a Principal with Coopers & Lybrand. Mr. Skolnick joined Merrill Lynch Life in November 1990. He joined Merrill Lynch, Pierce, Fenner & Smith Incorporated in July 1984. Since May 1992, he has held the position of Assistant General Counsel of Merrill Lynch & Co., Inc. and First Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated. Prior to May 1992, he held the position of Senior Counsel of Merrill Lynch & Co., Inc. Mr. Dunford joined Merrill Lynch Life in July 1990. He joined Merrill Lynch, Pierce, Fenner & Smith Incorporated in September 1989. Prior to September 1989, he held the position of President of Travelers Investment Management Co. Mr. Hele joined Merrill Lynch Life in December 1990. He joined Merrill Lynch, Pierce, Fenner & Smith Incorporated in August 1988. Mr. Jones joined Merrill Lynch Life in June 1992. Since May 1992, he has held the position of Senior Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated. From June 1992 to February 1994, he held the position of Chairman of the Board, President, and Chief Executive Officer of Merrill Lynch Life . From January 1992 to June 1992, he held the position of First Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated. From January 1991 to January 1992, he held the position of District Director of Merrill Lynch, Pierce, Fenner & Smith Incorporated. Prior to January 1991, he held the position of Senior Regional Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated. Mr. Boucher joined Merrill Lynch Life in May 1992. Prior to May 1992, he held the position of Vice President of Monarch Financial Services, Inc. (formerly Monarch Resources, Inc.). No shares of Merrill Lynch Life are owned by any of its directors or executive officers, as it is a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc. The directors and executive officers of Merrill Lynch Life, 35 38 both individually and as a group, own less than one percent of the outstanding shares of common stock of Merrill Lynch & Co., Inc. EXECUTIVE COMPENSATION Certain executive officers and directors of Merrill Lynch Life are also executive officers and directors of ML Life Insurance Company of New York ("ML of New York"), and the salaries of all such individuals are allocated between Merrill Lynch Life and ML of New York. COMPENSATION TABLES AND OTHER INFORMATION The following tables set forth information with respect to the former Chief Executive Officer and the four most highly compensated executive officers of Merrill Lynch Life as to whom the total annual salary and bonus for the fiscal year ended December 31, 1993 paid by Merrill Lynch Life exceeded $100,000. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ----------------------------------- AWARDS(1) PAYOUTS ----------------------- --------- RESTRICTED LONG-TERM ANNUAL COMPENSATION STOCK SECURITIES INCENTIVE -------------------------- AWARDS UNDERLYING PLAN ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (2)(3)(4) OPTIONS PAYOUTS COMPENSATION - ---------------------------------- ---- -------- -------- ---------- ---------- --------- ------------ Allen N. Jones 1993 $ 68,700 $288,900 $ 44,138 4,077 $ 0 9,733(6) Chairman of the Board, President 1992 0 400,273 120,915 7,224 0 0 and Chief Executive Officer (June 1992 through February 1994) Joseph E. Crowne 1993 109,800 219,600 32,940 1,017 0 5,766(6) Senior Vice President, Chief 1992 134,195 200,601 39,619 794 0 1,621 Actuary and Chief Financial 1991 68,000 91,000 36,697 855 0 0 Officer (Since June 1991) David M. Dunford 1993 159,950 173,660 41,130 1,270 0 5,143(6) Senior Vice President, Chief 1992 160,650 131,779 39,471 791 0 2,636 Investment Officer 1991 166,000 118,000 38,328 893 0 0 Robert J. Boucher 1993 107,000 192,600 38,520 1,190 0 6,583(6) Senior Vice President, Variable 1992 69,404 119,930 39,520 792 0 2,139 Life Administration (Since May 1992) Barry G. Skolnick 1993 84,150 153,000 51,638 1,591 0(5) 5,701(6) Senior Vice President, General 1992 81,167 88,269 49,604 986 12,018 2,491 Counsel 1991 92,000 95,000 37,104 865 0 0
- --------------- (1) Awards were made in January or February of the succeeding fiscal year for performance in the year indicated. (2) Amounts shown are for awards granted in February 1994 for performance in 1993, in February 1993 for performance in 1992, and in February 1992 for performance in 1991. Awards shown include equal numbers of Restricted Shares and Restricted Units. All awards have been valued for this table using closing prices of Common Stock of Merrill Lynch & Co. on the Consolidated Transaction Reporting System on the dates of grant of such awards; the closing price on February 1, 1994, the date of the grant for performance in 1993, was $43.875. Such shares and units generally have four year vesting periods, but can vest earlier upon the achievement of specific cumulative, after-tax return on equity ("Cumulative ROE") goals. Specifically, shares and units granted in February 1994 may vest at the end of the 1995 or 1996 fiscal year upon the achievement of a Cumulative ROE of 60%; shares and units granted in February 1993 may vest at the end of the 1994 or the 1995 fiscal year upon the achievement of a Cumulative ROE of 45%. Shares and units granted in 1992 vested at the end of the 1993 fiscal year based on the achievement of a Cumulative ROE of 40%. (3) Dividends are paid on unvested Restricted Shares and dividend equivalents are paid on unvested Restricted Units. Such dividends and dividend equivalents are equal in amount to the dividends paid on shares of Merrill Lynch & Co. Common Stock. 36 39 (4) The number and value of Restricted Shares and Restricted Units held by executive officers named in the table as of December 31, 1993 are as follows: Mr. Jones (1,806 shares and 1,806 units--$151,704); Mr. Crowne (592 shares and 592 units--$49,728); Mr. Dunford (590 shares and 590 units--$49,560); Mr. Boucher (590 shares and 590 units--$49,560); and Mr. Skolnick (741 shares and 741 units-- $62,244). These amounts do not include Restricted Shares and Restricted Units awarded in 1994 for performance in 1993. (5) Amount shown consists of cash payments, under Merrill Lynch & Co.'s now-expired ROE Incentive Compensation Plan, made in 1992 based on the return on equity achieved by Merrill Lynch & Co. in 1991. (6) Amounts shown for 1993 consist of the following: (i) contributions made in 1993 by Merrill Lynch Life to accounts of employees under the 401(k) Savings and Investment Plan--Mr. Jones ($687), Mr. Dunford ($1,371), Mr. Boucher ($1,284) and Mr. Skolnick ($1,148); (ii) allocations made in 1993 to accounts of employees under the defined contribution retirement program (including allocations and cash payments made because of limitations imposed by the Internal Revenue Code)--Mr. Jones ($9,046), Mr. Crowne ($3,021), Mr. Dunford ($3,772), Mr. Boucher ($5,299) and Mr. Skolnick ($4,554); and (iii) contributions made in 1993 to account of employee under the Employee Stock Purchase Plan--Mr. Crowne ($2,745). OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF % OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED TO EXERCISE GRANT DATE FISCAL OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT NAME YEAR(1) GRANTED FISCAL YEAR ($ PER SHARE) DATE(2) VALUE(3) - ------------------------------- ------- ---------- ------------ ------------- ---------- ---------- Allen N. Jones................. 1993 4,077 .09% $40.625 1/26/2004 $ 48,068 Joseph E. Crowne............... 1993 1,017 .02% $40.625 1/26/2004 11,990 David M. Dunford............... 1993 1,270 .03% $40.625 1/26/2004 14,973 Robert J. Boucher.............. 1993 1,190 .03% $40.625 1/26/2004 14,030 Barry G. Skolnick.............. 1993 1,591 .03% $40.625 1/26/2004 18,758
- --------------- (1) Reflects awards made in January 1994 for performance in 1993. Does not include awards made in January 1993 for performance in 1992; these awards were reflected in Merrill Lynch Life's Prospectus for the Contracts dated May 1, 1993. (2) All options are exercisable as follows: 25% after one year, 50% after two years, 75% after three years, and 100% after four years. (3) Valued using a modified Black-Scholes option pricing model. The exercise price of each option ($40.625) is equal to the average of the high and low prices on the Consolidated Transaction Reporting System of a share of Merrill Lynch & Co. Common Stock on January 26, 1994, the date of grant. The assumptions used for the variables in the model were: 27% volatility (which is the volatility of the Common Stock for the 36 months preceding grant); a 6.03% risk-free rate of return (which is the yield as of January 26, 1994 (the date of grant) on a U.S. Strip Treasury zero-coupon bond expiring in February 2004); a 2% dividend yield (which was the dividend yield on the date of grant); and a 10-year option term (which is the term of the option when granted). A discount of 25% was applied to the option value yielded by the model to reflect the non-transferability of employee options. The actual gain executives will realize on the options will depend on the future price of the Common Stock and cannot be accurately forecast by application of an option pricing model. 37 40 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END(1) ACQUIRED ON VALUE --------------------------- --------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------ ----------- -------- ----------- ------------- ----------- ------------- Allen N. Jones................ 0 $ 0 0 0 0 $ 0 Joseph E. Crowne.............. 0 0 428 2,870 5,283 28,826 David M. Dunford.............. 2,423 91,091 447 7,767 5,888 181,224 Robert J. Boucher............. 0 0 72 1,800 888 15,634 Barry G. Skolnick............. 580 15,927 433 4,429 5,345 68,478
- --------------- (1) This valuation represents the difference between $42.00, the closing price of Merrill Lynch & Co. Common Stock on December 31, 1993 on the Consolidated Transaction Reporting System, and the exercise price of these options. Directors of Merrill Lynch Life receive no compensation in addition to their compensation as officers of Merrill Lynch Life. LEGAL PROCEEDINGS There is no material pending litigation to which Merrill Lynch Life is a party or of which any of its property is the subject, and there are no legal proceedings contemplated by any governmental authorities against Merrill Lynch Life of which it has any knowledge. LEGAL MATTERS The organization of Merrill Lynch Life, its authority to issue the Contracts, and the validity of the form of the Contracts have been passed upon by Barry G. Skolnick, Merrill Lynch Life's Senior Vice President and General Counsel. Sutherland, Asbill & Brennan of Washington, D.C. has provided advice on certain matters relating to federal securities laws. EXPERTS The financial statements of Merrill Lynch Life as of December 31, 1993 and 1992 and for each of the three years in the period ended December 31, 1993 included in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. Other financial statements included in the Prospectus are unaudited. Deloitte & Touche LLP's principal business address is Two World Financial Center, New York, New York 10281-1433. REGISTRATION STATEMENT Registration statements have been filed with the Securities and Exchange Commission under the Securities Act of 1933 that relate to the Contract. 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. 38 41 MERRILL LYNCH LIFE INSURANCE COMPANY (a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.) - ------------------------------------------------------------------------------- BALANCE SHEETS (Dollars in Thousands) (Unaudited) ===============================================================================
ASSETS September 30, December 31, - ------ 1994 1993 -------------- -------------- INVESTMENTS: Fixed maturity securities available for sale, at estimated fair value (amortized cost: 1994 - $4,121,412; 1993 - $5,369,236) $ 4,042,858 $ 5,597,359 Fixed maturity securities held for trading, at estimated fair value (amortized cost: 1994 - $146,735; 1993 - $140,635) 141,649 144,035 Equity securities available for sale, at estimated fair value (cost: 1994 - $8,965; 1993 - $24,424) 10,605 24,970 Equity securities held for trading, at estimated fair value (cost: 1994 - $11,336; 1993 - $19,694) 11,568 20,585 Mortgage loans on real estate 153,663 191,214 Real estate available for sale 24,557 29,761 Policy loans on insurance contracts 969,130 924,579 ------------- ------------- Total Investments 5,354,030 6,932,503 CASH AND CASH EQUIVALENTS 96,797 122,218 ACCRUED INVESTMENT INCOME 101,782 120,337 DEFERRED POLICY ACQUISITION COSTS 434,623 318,903 FEDERAL INCOME TAXES - DEFERRED 46,026 16,878 REINSURANCE RECEIVABLES 1,960 1,190 RECEIVABLES FROM AFFILIATES - NET 3,605 789 OTHER ASSETS 31,818 21,481 SEPARATE ACCOUNTS ASSETS 5,783,660 4,715,278 ------------- ------------- TOTAL ASSETS $ 11,854,301 $ 12,249,577 ============= ============= See notes to financial statements. (Continued)
MERRILL LYNCH LIFE INSURANCE COMPANY (a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.) - ------------------------------------------------------------------------------- BALANCE SHEETS (Concluded) (Dollars in Thousands) (Unaudited) ===============================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY September 30, December 31, - ------------------------------------ 1994 1993 -------------- -------------- LIABILITIES: POLICY LIABILITIES AND ACCRUALS: Policyholders' account balances $ 5,272,934 $ 6,691,811 Claims and claims settlement expenses 25,711 20,295 ------------- ------------- Total policy liabilities and accruals 5,298,645 6,712,106 OTHER POLICYHOLDER FUNDS 13,413 28,768 LIABILITY FOR GUARANTY FUND ASSESSMENTS 25,113 28,083 OTHER LIABILITIES 49,302 68,165 FEDERAL INCOME TAXES - CURRENT 9,213 10,122 SEPARATE ACCOUNTS LIABILITIES 5,768,122 4,715,278 ------------- ------------- Total Liabilities 11,163,808 11,562,522 ------------- ------------- STOCKHOLDER'S EQUITY: Common stock, $10 par value - 200,000 shares authorized, issued and outstanding 2,000 2,000 Additional paid-in capital 637,590 637,590 Retained earnings 88,294 47,860 Net unrealized investment loss (37,391) (395) ------------- ------------- Total Stockholder's Equity 690,493 687,055 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 11,854,301 $ 12,249,577 ============= =============
See notes to financial statements. MERRILL LYNCH LIFE INSURANCE COMPANY (a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.) - ------------------------------------------------------------------------------ STATEMENTS OF EARNINGS (Dollars in Thousands) (Unaudited) ===============================================================================
Nine Months Ended September 30, --------------------------------------- 1994 1993 -------------- -------------- REVENUES: Investment revenue: Net investment income $ 333,167 $ 454,415 Net realized investment gains (losses) (10,587) 32,028 Policy charge revenue 83,211 67,653 ------------- ------------- Total Revenues 405,791 554,096 ------------- ------------- BENEFITS AND EXPENSES: Interest credited to policyholders' account balances 243,735 357,398 Market value adjustment expense 6,143 18,946 Policy benefits (net of reinsurance recoveries: 1994 - $4,647; 1993 - $5,282) 12,353 14,126 Reinsurance premium ceded 10,444 9,362 Amortization of deferred policy acquisition costs 53,624 71,288 Insurance expenses and taxes 28,056 36,533 ------------- ------------- Total Benefits and Expenses 354,355 507,653 ------------- ------------- Earnings Before Federal Income Tax Provision 51,436 46,443 FEDERAL INCOME TAX PROVISION (BENEFIT): Current 20,229 12,834 Deferred (9,227) 2,902 ------------- ------------- Total Federal Income Tax Provision 11,002 15,736 ------------- ------------- NET EARNINGS $ 40,434 $ 30,707 ============= =============
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 (Dollars in Thousands) (Unaudited) ===============================================================================
Net Additional unrealized Total Common paid-in Retained investment stockholder's stock capital earnings gain (loss) equity --------- ---------- --------- ---------- --------- BALANCE, JANUARY 1, 1993 $ 2,000 $ 654,717 $ 102,873 $ 2,884 $ 762,474 Dividend to Parent 0 (17,127) (102,873) 0 (120,000) Net earnings 0 0 47,860 0 47,860 Net unrealized investment loss 0 0 0 (3,279) (3,279) --------- --------- --------- ---------- --------- BALANCE, DECEMBER 31, 1993 2,000 637,590 47,860 (395) 687,055 Net earnings 0 0 40,434 0 40,434 Net unrealized investment loss 0 0 0 (36,996) (36,996) --------- --------- --------- ---------- --------- BALANCE, SEPTEMBER 30, 1994 $ 2,000 $ 637,590 $ 88,294 $ (37,391) $ 690,493 ========= ========= ========= ========== =========
See notes to financial statements. MERRILL LYNCH LIFE INSURANCE COMPANY (a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.) - ------------------------------------------------------------------------------- STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) ===============================================================================
Nine Months Ended September 30, ------------------------------------- 1994 1993 ------------- ------------- OPERATING ACTIVITIES: Net earnings $ 40,434 $ 30,707 Adjustments to reconcile net earnings to net cash and cash equivalents provided (used) by operating activities: Amortization of deferred policy acquisition costs 53,624 71,288 Capitalization of policy acquisition costs (90,955) (56,268) Depreciation and amortization (2,985) 1,514 Net realized investment (gains) losses 10,587 (32,028) Interest credited to policyholders' account balances 243,735 357,398 Provision (benefit) for deferred Federal income tax (9,227) 2,902 Cash and cash equivalents provided (used) by changes in operating assets and liabilities: Accrued investment income 18,555 (8,075) Claims and claims settlement expenses 5,416 13,785 Federal income taxes - current (909) 12,835 Other policyholder funds (15,355) 35,618 Liability for guaranty fund assessments (2,970) (2,518) Receivable from affiliates - net (2,816) (8,599) Change in policy loans (44,551) (66,613) Change in investment trading securities 873 (126,578) Other, net (29,897) 33,846 Net cash and cash equivalents provided by operating ------------- ------------- activities 173,559 259,214 ------------- ------------- INVESTING ACTIVITIES: Fixed maturity securities sold 653,327 326,864 Fixed maturity securities matured 1,066,944 2,000,480 Fixed maturity securities purchased (467,420) (1,518,487) Equity securities available for sale sold 16,876 4,516 Equity securities available for sale purchased 0 (3,324) Mortgage loans on real estate principal payments received 31,872 20,543 Real estate encumbrances paid off 0 (956) Real estate available for sale - improvements acquired (1,323) 0 Real estate available for sale sold 8,616 0 Investment in Separate Accounts (15,076) (20,000) Recapture of investment in Separate Accounts 0 9,841 Net cash and cash equivalents provided by investing ------------- ------------- activities 1,293,816 819,477 ------------- ------------
See notes to financial statements (continued) MERRILL LYNCH LIFE INSURANCE COMPANY (a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.) - ------------------------------------------------------------------------------- STATEMENTS OF CASH FLOWS (Concluded) (Dollars in Thousands) (Unaudited) ===============================================================================
Nine Months Ended September 30, ------------------------------------- 1994 1993 ------------- ------------- FINANCING ACTIVITIES: Policyholders' account balances: Deposits 771,832 464,029 Withdrawals (includes transfers to Separate Accounts) (2,264,628) (1,650,924) ------------- ------------- Net cash and cash equivalents used by financing activities (1,492,796) (1,186,895) ------------- ------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (25,421) (108,204) CASH AND CASH EQUIVALENTS: Beginning of year 122,218 172,124 ------------- ------------- End of period $ 96,797 $ 63,920 ============= =============
See notes to financial statements MERRILL LYNCH LIFE INSURANCE COMPANY (a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.) - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1994 (Unaudited) =============================================================================== NOTE 1: BASIS OF PRESENTATION: 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 life insurance and annuity products, including variable life insurance and variable annuities. The condensed financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited financial statements presented herein include all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial position and the results of operations in accordance with generally accepted accounting principles for the periods presented. Results for the nine months ended September 30, 1994 and 1993 are not necessarily indicative of annual results. To facilitate comparison with the current periods, certain amounts in the prior periods have been reclassified. These unaudited financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's 1993 Annual Report on Form 10-K ("1993 Report"). The Company paid Federal income taxes of $21.1 million during the first nine months of 1994. The Company did not pay any Federal income taxes during the first nine months of 1993. The Company paid interest on affiliated borrowings of $0.6 million and $0.3 million for the nine months ended September 30, 1994 and 1993, respectively. NOTE 2. STATUTORY ACCOUNTING PRACTICES: The Company maintains its statutory accounting records in conformity with accounting practices prescribed or permitted by the Insurance Department of the State of Arkansas and the National Association of Insurance Commissioners. Statutory capital and surplus at September 30, 1994 and December 31, 1993, was $395.7 million and $374.2 million, respectively. For the nine months ended September 30, 1994 and 1993, statutory net income was $15.2 million and $35.7 million, respectively. NOTE 3. COMMITMENTS: The Company had previously entered into interest rate swap contracts for the purpose of minimizing exposure to fluctuations in interest rates of specific assets held. Termination of these commitments as of September 30, 1994 would not have a material effect on the financial condition of the Company. 39 42 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, 1993 and 1992, and the related statements of earnings, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 1993. 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 provides 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, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, in 1993 the Company changed its method of accounting for certain investments in debt and equity securities to conform with Statement of Financial Accounting Standards No. 115. /s/Deloitte & Touche February 28, 1994 MERRILL LYNCH LIFE INSURANCE COMPANY (A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.) - ------------------------------------------------------------------ BALANCE SHEETS AS OF DECEMBER 31, 1993 AND 1992 (Dollars in Thousands) ==============================================================================
ASSETS 1993 1992 - ------ ---- ---- INVESTMENTS: Fixed maturity securities available for sale, at estimated fair value (amortized cost: 1993 - $5,369,236; 1992 - $334,638) $ 5,597,359 $ 335,916 Fixed maturity securities held for trading, at estimated fair value (amortized cost: 1993 - $140,635) 144,035 0 Fixed maturity securities to be held to maturity, at amortized cost (estimated fair value: 1992 - $6,713,831) 0 6,449,981 Equity securities available for sale, at estimated fair value (cost: 1993 - $24,424; 1992 - $31,598) 24,970 33,186 Equity securities held for trading, at estimated fair value (cost 1993 - $19,694) 20,585 0 Mortgage loans on real estate 191,214 264,966 Real estate available for sale (accumulated depreciation: 1993 - $850; 1992 - $321) 29,761 12,847 Policy loans on insurance contracts 924,579 834,461 ------------- ------------- Total Investments 6,932,503 7,931,357 CASH AND CASH EQUIVALENTS 122,218 172,124 ACCRUED INVESTMENT INCOME 120,337 138,797 DEFERRED POLICY ACQUISITION COSTS 318,903 373,214 FEDERAL INCOME TAXES - DEFERRED 16,878 19,982 REINSURANCE RECEIVABLES 1,190 856 RECEIVABLES FROM AFFILIATES - NET 789 0 OTHER ASSETS 21,481 19,864 SEPARATE ACCOUNTS ASSETS 4,715,278 3,127,767 ------------- ------------- TOTAL ASSETS $ 12,249,577 $ 11,783,961 ============= =============
See notes to financial statements.
LIABILITIES AND STOCKHOLDER'S EQUITY 1993 1992 - ------------------------------------ ---- ---- LIABILITIES: POLICY LIABILITIES AND ACCRUALS: Policyholders' account balances $ 6,691,811 $ 7,804,447 Claims and claims settlement expenses 20,295 7,565 ------------- ------------- Total policy liabilities and accruals 6,712,106 7,812,012 OTHER POLICYHOLDER FUNDS 28,768 14,637 LIABILITY FOR GUARANTY FUND ASSESSMENTS 28,083 27,104 OTHER LIABILITIES 68,165 16,790 FEDERAL INCOME TAXES - CURRENT 10,122 30,010 PAYABLE TO AFFILIATES - NET 0 2,638 SEPARATE ACCOUNTS LIABILITIES 4,715,278 3,118,296 ------------- ------------- Total Liabilities 11,562,522 11,021,487 ------------- ------------- STOCKHOLDER'S EQUITY: Common stock, $10 par value - 200,000 shares authorized, issued and outstanding 2,000 2,000 Additional paid-in capital 637,590 654,717 Retained earnings 47,860 102,873 Net unrealized investment gain (loss) (395) 2,884 ------------- ------------- Total Stockholder's Equity 687,055 762,474 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 12,249,577 $ 11,783,961 ============= =============
MERRILL LYNCH LIFE INSURANCE COMPANY (A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.) - ------------------------------------------------------------------ STATEMENTS OF EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (Dollars in Thousands) ==============================================================================
1993 1992 1991 ---- ---- ---- REVENUES: Investment revenue: Net investment income $ 586,461 $ 712,739 $ 787,603 Net realized investment gains (losses) 63,052 (29,639) (21,957) Policy charge revenue 95,684 81,653 82,745 ----------- ----------- ----------- Total Revenues 745,197 764,753 848,391 ----------- ----------- ----------- BENEFITS AND EXPENSES: Interest credited to policyholders' account balances 454,671 546,979 638,984 Market value adjustment expense 30,816 6,229 1,198 Policy benefits (reinsurance recoveries: 1993 - $6,004; 1992 - $5,555; 1991 - $6,328) 17,030 12,066 9,537 Reinsurance premium ceded 12,665 12,457 12,765 Amortization of deferred policy acquisition costs 109,456 88,795 93,391 Insurance expenses and taxes 47,784 72,560 78,448 ----------- ----------- ----------- Total Benefits and Expenses 672,422 739,086 834,323 ----------- ----------- ----------- Earnings Before Federal Income Tax Provision 72,775 25,667 14,068 ----------- ----------- ----------- FEDERAL INCOME TAX PROVISION (BENEFIT): Current 20,112 28,549 42,919 Deferred 4,803 (19,913) (40,459) ----------- ----------- ----------- Total Federal Income Tax Provision 24,915 8,636 2,460 ----------- ----------- ----------- NET EARNINGS $ 47,860 $ 17,031 $ 11,608 =========== =========== ===========
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, 1993, 1992 AND 1991 (Dollars in Thousands) ==============================================================================
Net Additional unrealized Total Common paid-in Retained investment stockholder's stock capital earnings gain (loss) equity -------- ----------- ---------- ----------- ------------- BALANCE, JANUARY 1, 1991 $ 2,000 $ 572,321 $ 74,234 $ (103) $ 648,452 Capital contribution 82,396 82,396 Net earnings 11,608 11,608 Net unrealized investment loss (1,142) (1,142) BALANCE, DECEMBER 31, 1991 2,000 654,717 85,842 (1,245) 741,314 Net earnings 17,031 17,031 Net unrealized investment gain 4,129 4,129 -------- ----------- ---------- ----------- ------------- BALANCE, DECEMBER 31, 1992 2,000 654,717 102,873 2,884 762,474 Dividend to Parent (17,127) (102,873) (120,000) Net earnings 47,860 47,860 Net unrealized investment loss (1) (3,279) (3,279) -------- ----------- ---------- ----------- ------------- BALANCE, DECEMBER 31, 1993 $ 2,000 $ 637,590 $ 47,860 $ ( 395) $ 687,055 ======== =========== ========== =========== =============
(1) Asset gains less adjustment of policyholders' account balances and deferred policy acquisition costs (See Note 1). 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, 1993, 1992 AND 1991 (Dollars in Thousands) ==============================================================================
1993 1992 1991 ---- ---- ---- OPERATING ACTIVITIES Net earnings $ 47,860 $ 17,031 $ 11,608 Adjustments to reconcile net earnings to net cash and cash equivalents provided (used) by operating activities: Amortization of deferred policy acquisition costs 109,456 88,795 93,391 Capitalization of policy acquisition costs (91,189) (39,146) (149,440) Depreciation and amortization 1,142 (16,033) (25,417) Net realized investment (gains) losses (63,052) 29,639 21,957 Interest credited to policyholders' account balances 454,671 546,979 638,984 Provision for deferred Federal income tax 4,803 (19,913) (40,459) Cash and cash equivalents provided (used) by changes in operating assets and liabilities: Accrued investment income 18,460 6,018 (9,271) Policy liabilities and accruals 12,730 7,775 101,521 Federal income taxes - current (19,888) 14,955 44,782 Other policyholder funds 14,131 12,826 (25,035) Liability for guaranty fund assessments 979 16,439 10,665 Payable to Family Life Insurance Company 0 0 (28,224) Policy loans (90,118) (126,925) (88,362) Investment trading securities (145,972) 0 0 Other, net 49,425 (26,296) (30,343) ------------ ------------- ------------- Net cash and cash equivalents provided by operating activities 303,438 512,144 526,357 ------------ ------------- -------------
(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, 1993, 1992 AND 1991 (Concluded) (Dollars In Thousands) ==============================================================================
1993 1992 1991 ---- ---- ---- INVESTING ACTIVITIES: Fixed maturity securities sold 571,337 1,281,705 4,005,959 Fixed maturity securities matured 2,776,992 2,206,447 746,273 Fixed maturity securities purchased (1,866,857) (2,806,416) (5,142,471) Equity securities available for sale purchased (8,983) (17,843) (67,348) Equity securities available for sale sold 6,451 44,188 20,768 Mortgage loans on real estate principal payments received 35,561 8,548 5,977 Mortgage loans on real estate acquired (674) (853) (740) Real estate available for sale purchased 0 (340) (22,706) Real estate available for sale sold 7,408 178 25,000 Interest rate swaps sold 0 2,302 0 Recapture of investment in Separate Accounts 29,389 0 0 Investment in Separate Accounts (20,000) (3,841) 0 ------------ ------------- ------------- Net cash and cash equivalents provided (used) by investing activities 1,530,624 714,075 (429,288) ------------ ------------- ------------- FINANCING ACTIVITIES: Paid-in capital from parent 0 0 82,396 Dividend paid to parent (120,000) 0 0 Affiliated notes payable (3,427) (83,200) 18,794 Policyholders' account balances: Deposits 814,314 217,410 436,564 Withdrawals (net of transfers to Separate Accounts) (2,574,854) (1,338,034) (772,811) Net cash and cash equivalents used ------------ ------------- ------------- by financing activities (1,883,967) (1,203,824) (235,057) ------------ ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (49,906) 22,395 (137,988) CASH AND CASH EQUIVALENTS Beginning of year 172,124 149,729 287,717 ------------ ------------- ------------- End of year $ 122,218 $ 172,124 $ 149,729 ============ ============= =============
See notes to financial statements. MERRILL LYNCH LIFE INSURANCE COMPANY (a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 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 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 Merrill Lynch & Co. retail network. On June 12, 1991, the Company's former parent, Family Life Insurance Company ("Family Life"), was sold to a non-affiliated entity. Immediately prior to this sale, Family Life, through a dividend, transferred its 100% ownership interest in the Company to its parent MLIG. (See Note 8). On October 1, 1991, Tandem Insurance Group, Inc. ("Tandem"), a wholly-owned subsidiary of MLIG, was merged with and into the Company. This merger has been accounted for as a combination of entities under common control. The assets, liabilities, stockholder's equity, earnings and cash flows as presented in these financial statements are reported on a combined historical basis for all periods presented. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles for stock life insurance companies. Revenue Recognition: Revenues for the Company's interest sensitive life, interest sensitive annuity, variable life and variable annuity products consist of policy charges for the cost of insurance, deferred sales charges, policy administration charges and/or withdrawal charges assessed against policyholder 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 4.0% - 8.8% Interest sensitive deferred annuities 2.4% - 9.0% Immediate annuities 4.0% - 10.0% These rates may be changed at the option of the Company, subject to minimum guarantees, after initial guaranteed rates expire. Liabilities for unpaid claims equal the death benefit for those claims which have been reported to the Company and an estimate based upon prior experience for those claims which are unreported as of the valuation date. Reinsurance: Effective during 1992, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 113 "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" ("SFAS No. 113"), which requires that reinsurance receivables and prepaid reinsurance premium ceded be reported as assets. SFAS No. 113 eliminates the practice by insurance enterprises of reporting assets and liabilities relating to reinsured contracts net of the effects of reinsurance. The impact of adopting SFAS No. 113 was not material. 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. On life insurance contracts which the Company is currently marketing, the maximum amount of mortality risk retained by the Company is $500,000 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 $1,024,000 that can be drawn upon for delinquent reinsurance recoverables. As of December 31, 1993, the Company had life insurance in- force which was ceded to other life insurance companies of $2,005,191,000. Deferred Policy Acquisition Costs: Policy acquisition costs for life and annuity contracts are deferred and amortized based on the estimated future gross profits for each group of contracts. These future gross profit estimates are subject to periodic evaluation by the Company, with necessary revisions applied against amortization to date. Policy acquisition costs are principally commissions and a portion of certain other expenses relating to policy acquisition, underwriting and issuance, which are primarily related to and vary with the production of new business. Certain costs and expenses reported in the statements of earnings are net of amounts deferred. Policy acquisition costs can also arise from the acquisition or reinsurance of existing in-force policies from other insurers. These costs include ceding commissions and professional fees related to the reinsurance assumed. Included in deferred policy acquisition costs are those costs related to the acquisition by assumption reinsurance of insurance contracts from unaffiliated insurers. The deferred costs will be amortized in proportion to the future gross profits over the anticipated life of the acquired insurance contracts utilizing an interest methodology. In December 1990, the Company entered into an assumption reinsurance agreement with a non-affiliated insurer (See Note 6). The acquisition costs relating to this agreement are being amortized over a twenty-year period using an effective interest rate of 9.01%. This reinsurance agreement provides for payment of contingent ceding commissions based upon the persistency and mortality experience of the insurance contracts assumed. Any payments made for the contingent ceding commissions will be capitalized and amortized using an identical methodology as that used for the initial acquisition costs. The following is a reconciliation of the acquisition costs for the reinsurance transaction for the three years ended December 31,:
1993 1992 1991 ---- ---- ---- (In Thousands) Beginning balance $ 150,450 $ 160,235 $ 24,294 Capitalized amounts 6,987 6,060 156,641 Interest accrued 13,136 15,401 14,071 Amortization (30,926) (31,246) (34,771) ---------- ---------- ---------- Ending balance $ 139,647 $ 150,450 $ 160,235 ========== ========== ==========
The following table presents the expected amortization of these deferred acquisition costs over the next five years. The amortization may be adjusted based on periodic evaluation of the expected gross profits on the reinsured policies. 1994 $18,732,000 1995 17,840,000 1996 16,056,000 1997 12,488,000 1998 8,925,000 Investments: Effective December 31, 1993, the Company has adopted SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). In compliance with SFAS No. 115, the Company classified its investments in fixed maturity securities and equity securities in two categories, each separately identified: Available for sale securities include both fixed maturity and equity securities. These securities may be sold for the Company's general liquidity needs, asset/liability management strategy, credit dispositions and investment opportunities. These securities are carried at estimated fair value with unrealized gains and losses included in stockholder's equity (net of tax). If a decline in value of a security is determined by management to be other than temporary, the carrying value is adjusted to the estimated fair value at the date of this determination and recorded in the net realized investment gains (losses) caption of the statement of earnings. Trading securities represent securities that are managed with an investment objective to maximize total return subject to the Company's quality guidelines. Investments in this portfolio will consist primarily of marketable fixed maturity and equity investments. These securities are carried at estimated fair value with unrealized gains and losses included in the statement of earnings. The debt and equity securities classified as trading securities as of December 31, 1993 were acquired in 1993 and immediately classified as trading securities in compliance with SFAS No. 60 "Accounting and Reporting by Insurance Enterprises", prior to the adoption of SFAS No. 115. SFAS No. 115 allows fixed maturity securities to be carried at amortized cost if the Company has both the ability and positive intent to hold these securities to maturity. The Company has determined that it can not guarantee that it will not have the need or opportunity to sell any particular security in its investment holdings. As such, the Company did not utilize this classification as of December 31, 1993. In compliance with a recent Securities and Exchange Commissions ("SEC") staff announcement, the Company has recorded certain adjustments to deferred policy acquisition costs and policyholders' account balances in conjunction with its adoption of SFAS No. 115. The SEC requires that companies adjust those assets and liabilities that would have been adjusted had the unrealized investment gains or losses from securities classified as available for sale actually been realized with corresponding credits or charges reported directly to shareholder's equity. Accordingly, deferred policy acquisition costs have been decreased by $36,044,000 and policyholders' account balances have been increased by $193,233,000 as of December 31, 1993. As of December 31, 1992, the Company classified its investments in fixed maturity securities as either "to be held to maturity" or "available for sale." Fixed maturity securities to be held to maturity are stated in the balance sheets at amortized cost. Fixed maturity securities available for sale are stated at estimated fair value. The net unrealized gain and loss on these securities are reflected as a component of stockholder's equity. For fixed maturity securities, premiums are amortized to the earlier of the call or maturity date, discounts are accrued to the maturity date and interest income is accrued daily. Realized gains and losses on the sale or maturity of the investments are determined on the basis of identified cost. Fixed maturity securities may contain securities which are considered high yield. The Company defines high yield fixed maturity securities as unsecured corporate debt obligations which do not have a rating equivalent to Standard and Poor's (or similar rating agency) BBB or higher, and are not guaranteed by an agency of the federal government. Probable losses are recognized in the period that a decline in value is determined to be other than temporary. Mortgage loans on real estate are stated at unpaid principal balances net of valuation allowances. Such valuation allowances are based on the decline in value expected by management to be realized on in-substance foreclosures of mortgage loans and on mortgage loans which management believes may not be collectible in full. In establishing valuation allowances management considers, among other things, the estimated fair value of the underlying collateral. The Company has previously made mortgage loans collateralized by real estate and direct investments in real estate. The return on and the ultimate recovery of these loans and investments are generally dependent on the successful operation, sale or refinancing of the real estate. In many parts of the country, current real estate markets are characterized by above-normal vacancy rates, a lack of ready sources of credit for real estate financing, reduced or declining real estate values, and similar factors. The Company employs a system to monitor the effects of current and expected real estate market conditions and other factors when assessing the collectability of mortgage loans and the recoverability of the Company's real estate investments. 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. Resulting from the Company's management and valuation of its mortgage loans on real estate, management believes that the carrying value approximates the fair value of these investments. During 1993 the Financial Accounting Standards Board issued SFAS No. 114 "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"). SFAS No. 114 requires that for impaired loans, the impairment shall be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral. Impairments of mortgage loans on real estate are established as valuation allowances and recorded to net realized investment gains (losses). SFAS No. 114 must be adopted for fiscal years beginning after December 15, 1994. The Company has decided not to early adopt this statement. The Company estimates that the impact on both financial position and earnings from adopting SFAS No. 114 would be immaterial. Real estate available for sale, including real estate acquired in satisfaction of debt subsequent to its acquisition date, is stated at depreciated cost less valuation allowances and estimated selling costs. Depreciation is computed using the straight-line method over the estimated useful lives of the properties, which generally is 40 years. Policy loans on insurance contracts are stated at unpaid principal balances. The Company estimates the fair market value of policy loans as equal to the book value of the loans. Policy loans are fully collateralized by the account value of the associated insurance contracts, and the spread between the policy loan interest rate and the interest rate credited to the account value held as collateral is fixed. Fair Value of Financial Instruments: Beginning in 1992, the Company adopted SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", which requires companies to report the fair value of financial instruments, for certain assets and liabilities both on and off - balance sheet. Federal Income Taxes: The results of the 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. Effective the first quarter 1992, the Company adopted SFAS No. 109, "Accounting for Income Taxes" ("SFAS No. 109") which requires an asset and liability method in recording income taxes on all transactions that have been recognized in the financial statements. SFAS No. 109 provides that deferred taxes be adjusted to reflect tax rates at which future tax liabilities or assets are expected to be settled or realized. Previously, the Company accounted for income taxes in accordance with SFAS No. 96, "Accounting for Income Taxes." The effect of adopting SFAS No. 109 was not material. Separate Accounts: The Separate Accounts are established in conformity with Arkansas insurance law, the Company's domiciliary state, and under such law, if and to the extent provided under the applicable insurance contracts, assets held in the Separate Accounts equal to the reserves and other contract liabilities with respect to the Separate Accounts may not be chargeable with liabilities that arise from any other business of the Company. Separate Accounts assets may be subject to General Account claims only to the extent the value of such assets exceeds the Separate Accounts liabilities. Assets and liabilities of the Separate Accounts, representing net deposits and accumulated net investment earnings less fees, held for the benefit of policyholders, are shown as separate captions in the balance sheets. Assets held in the Separate Accounts are carried at quoted market values. The carrying value for Separate Accounts assets and liabilities approximates the estimated fair value of the underlying assets. Postretirement Benefits Other Than Pensions: During the fourth quarter 1992, the Company adopted SFAS No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions" ("SFAS No. 106"). SFAS No. 106 requires the accrual of postretirement benefits (such as health care benefits) during the years an employee provides service. Prior to 1992, the cost of these benefits were expensed on a modified pay-as-you-go basis when such cost was allocated from MLIG as a component of the Company's operating expenses. The effect of adopting SFAS No. 106 was not material. 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. The carrying amounts approximate the estimated fair value of cash and cash equivalents. Reclassifications: To facilitate comparisons with the current year, certain amounts in the prior years have been reclassified. NOTE 2. INVESTMENTS The amortized cost (original cost for equity securities) less valuation allowances and estimated fair value of investments in fixed maturity securities and equity securities as of December 31 are:
1993 ---- Amortized Cost less Gross Gross Estimated Valuation Unrealized Unrealized Fair Allowances Gains Losses Value ------------ ------------ ------------ ------------ (In Thousands) Fixed maturity securities available for sale: Corporate securities $ 3,181,667 $ 159,233 $ 18,440 $ 3,322,460 Mortgage-backed securities 2,015,328 79,645 3,998 2,090,975 U.S. Treasury securitiesand obligations of U.S. government corporations and agencies 159,329 10,887 126 170,090 Obligations of states and political subdivisions 12,912 922 0 13,834 ------------ ------------ ------------ ------------ Total fixed maturity securities available for sale $ 5,369,236 $ 250,687 $ 22,564 $ 5,597,359 ============ ============ ============ ============ Equity securities available for sale: Common stocks $ 4,481 $ 577 $ 657 $ 4,401 Non-redeemable preferred stocks 19,943 757 131 20,569 ------------ ------------ ------------ ------------ Total equity securities available for sale $ 24,424 $ 1,334 $ 788 $ 24,970 ============ ============ ============ ============
1992 ---- Amortized Cost less Gross Gross Estimated Valuation Unrealized Unrealized Fair Allowances Gains Losses Value ------------ ------------ ------------ ------------ (In Thousands) Fixed maturity securities to be held to maturity: Corporate securities $ 3,052,333 $ 134,016 $ 7,721 $ 3,178,628 Mortgage-backed securities 3,292,132 141,387 5,215 3,428,304 U.S. Treasury securities and obligations of U.S. government corporations and agencies 97,976 1,798 1,396 98,378 Obligations of states and political subdivisions 7,540 981 0 8,521 ------------ ------------ ------------ ------------ Total fixed maturity securities to be held to maturity $6,449,981 $ 278,182 $ 14,332 $ 6,713,831 ============ ============ ============ ============
1992 ---- Amortized Cost less Gross Gross Estimated Valuation Unrealized Unrealized Fair Allowances Gains Losses Value ------------ ------------ ------------ ------------ (In Thousands) Fixed maturity securities available for sale: Corporate securities $ 134,675 $ 6,648 $ 938 $ 140,385 Mortgage-backed securities 117,248 3,316 8,337 112,227 U.S. Treasury securities and obligations of U.S. government corporations and agencies 74,109 916 560 74,465 Obligations of states and political subdivisions 8,606 233 0 8,839 ------------ ------------ ------------ ------------ Total fixed maturity securities available for sale $ 334,638 $ 11,113 $ 9,835 $ 335,916 ============ ============ ============ ============ Equity securities available for sale: Common stocks $ 12,980 $ 762 $ 0 $ 13,742 Non-redeemable preferred stocks 18,618 826 0 19,444 ------------ ------------ ------------ ------------ Total equity securities available for sale $ 31,598 $ 1,588 $ 0 $ 33,186 ============ ============ ============ ============
For publicly traded securities, the estimated fair value is determined using quoted market prices. For securities without a readily ascertainable market value, the Company has determined an estimated fair value using a discounted cash flow approach, including provision for credit risk, based upon the assumption that such securities will be held to maturity. Such estimated fair values do not necessarily represent the values for which these securities could have been sold at the dates of the balance sheets. At December 31, 1993 and 1992, respectively, securities without a readily ascertainable market value, having an amortized cost less valuation allowances of approximately $773,965,000 and $992,340,000, had an estimated fair value of approximately $819,866,000 and $1,064,915,000, respectively. The amortized cost less valuation allowances and estimated fair value of fixed maturity securities available for sale at December 31, 1993 by contractual maturity are shown below:
Amortized Cost less Estimated Valuation Fair Allowances Value ------------ ------------ (In Thousands) Fixed maturity securities available for sale: Due in one year or less $ 293,809 $ 299,884 Due after one year through five years 1,162,162 1,207,307 Due after five years through ten years 1,499,057 1,585,524 Due after ten years 398,880 413,669 ------------ ------------ 3,353,908 3,506,384 Mortgage-backed securities 2,015,328 2,090,975 ------------ ------------ Total fixed maturity securities available for sale $ 5,369,236 $ 5,597,359 ============ ============
Fixed maturity securities not due at a single maturity date have been included in the preceding table in the year of final maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The Company's investment in mortgage loans on real estate consists principally of loans collateralized by commercial real estate. The largest concentrations of commercial real estate mortgage loans are for properties located in California ($53,795,000 or 24%), Illinois ($28,294,000 or 13%) and Pennsylvania ($27,558,000 or 12%). For the years ended December 31, 1993 and 1992, $29,555,000 and $3,126,000, respectively, of real estate was acquired in satisfaction of debt. Net investment income arose from the following sources for the years ended December 31,:
1993 1992 1991 ---- ---- ---- (In Thousands) Fixed maturity securities $ 511,655 $ 652,136 $ 715,102 Equity securities 4,143 4,813 2,852 Mortgage loans on real estate 20,342 25,954 32,827 Real estate available for sale 32 1,004 310 Policy loans on insurance contracts 46,129 40,843 34,366 Other 11,135 5,924 13,015 ------------ ------------ ------------ Gross investment income 593,436 730,674 798,472 Less expenses (6,975) (17,935) (10,869) ------------ ------------ ------------ Net investment income $ 586,461 $ 712,739 $ 787,603 ============ ============ ============
Net realized investment gains (losses), including changes in valuation allowances, determined by specific identification for the years ended December 31,:
1993 1992 1991 ---- ---- ---- (In Thousands) Fixed maturity securities available for sale $ 67,473 $ 15,907 $ (12,689) Fixed maturity securities held for trading 5,562 0 0 Equity securities available for sale 22 (3,051) (804) Equity securities held for trading 2,587 0 0 Mortgage loans on real estate (9,310) (42,997) (12,913) Real estate available for sale (4,733) (1,800) 3,224 Other 1,451 2,302 1,225 ------------ ------------ ------------ Net realized investment gains (losses) $ 63,052 $ (29,639) $ (21,957) ============ ============ ============
Valuation allowances have been established to reflect other than temporary declines in estimated fair value of the following classification of investments as of December 31,:
1993 1992 ---- ---- (In Thousands) Fixed maturity securities to be held to maturity $ 0 $ 19,711 Fixed maturity securities available for sale 850 0 Equity securities available for sale 0 210 Mortgage loans on real estate 45,924 55,610 Real estate available for sale 20,797 5,600 ------------ ------------ $ 67,571 $ 81,131 ============ ============
Proceeds, gains and losses from the sale or maturity of fixed maturity securities available for sale and held to maturity for the years ended December 31,:
1993 1992 1991 ---- ---- ---- (In Thousands) Proceeds $ 3,348,329 $ 3,488,152 $ 4,752,232 Realized investment gains 71,599 51,925 88,230 Realized investment losses 4,126 25,732 91,745
Approximately $4,291,000 of unrealized holding gains from investment trading securities were recorded in net realized investment gains during 1993. The Company held investments at December 31, 1993 of $22,672,000 which have been non-income producing for the preceding twelve months. The Company had investment securities of $28,702,000 and $19,030,000 held on deposit with insurance regulatory authorities at December 31, 1993 and 1992, respectively. At December 31, 1992, the Company retained $9,741,000 in the Separate Accounts, including unrealized gains of $1,504,000. The investments in the Separate Accounts were for the purpose of providing original funding of certain mutual funds available as investment options to variable life and annuity policyholders. No funds were retained in the Separate Accounts at December 31, 1993. The Company has restructured the terms of certain of its investments in fixed maturity securities and mortgage loans on real estate during 1993 and 1992. The following table provides the amortized cost less valuation allowances immediately prior to restructuring, gross interest income that would have been earned had the loans been current per their original terms ("Expected Income"), gross interest income recorded during the year ("Actual Income") and equity interests which were received in the restructuring:
1993 1992 ---- ---- (In Thousands) Fixed maturity securities: Amortized cost less valuation allowances $ 3,743 $ 13,148 Expected income 916 2,781 Actual income 103 1,011 Equity interest received 1,833 2,003 Mortgage loans on real estate: Amortized cost less valuation allowance $ 79,624 $ 0 Expected income 6,859 0 Actual income 5,076 0
NOTE 3. FEDERAL INCOME TAXES The Company's operating results (excluding Tandem prior to September 30, 1991) are consolidated with those of MLIG. MLIG and the Company are included in Merrill Lynch & Co.'s consolidated Federal income tax returns. It is the policy of Merrill Lynch & Co. to allocate the tax associated with such operating results to its respective subsidiaries on a separate company basis. The Company has the intent to pay accumulated Federal income tax to MLIG upon request. For the nine months ended September 30, 1991, Tandem filed a separate Federal income tax return. The following is a reconciliation of the provision for income taxes based on income before income taxes, computed using the Federal statutory tax rate, with the provision for income taxes for the three years ended December 31,:
1993 1992 1991 ---- ---- ---- (In Thousands) Provision for income taxes computed at Federal statutory rate $ 25,471 $ 8,726 $ 4,783 Increase (decrease) in income taxes resulting from: Federal tax rate increase (631) Recognition of prior year capital loss tax benefits (2,219) Other 75 (90) (104) ------------ ------------ ------------ Federal income tax provision $ 24,915 $ 8,636 $ 2,460 ============ ============ ============
The Federal statutory rate for 1993, 1992 and 1991 was 35%, 34% and 34%, respectively. The Company provides for deferred income taxes resulting from temporary differences which arise from recording certain transactions in different years for income tax reporting purposes than for financial reporting purposes. The sources of these differences and the tax effect of each were as follows:
1993 1992 1991 ---- ---- ---- (In Thousands) Deferred policy acquisition costs $ (9,030) $ (17,633) $ (32,834) Policyholders' account balances 6,433 21,301 (6,282) Estimated liability for guaranty fund assessments (1,066) (2,735) (3,626) Investment adjustments 7,941 (21,875) 2,437 Other 525 1,029 (154) ------------ ------------ ------------ Deferred Federal income tax provision (benefit) $ 4,803 $ (19,913) $ (40,459) ============ ============ ============
Deferred tax assets and liabilities as of December 31, are determined as follows:
1993 1992 ---- ---- (In Thousands) Deferred tax assets: Policyholders' account balances $ 99,475 $ 105,908 Investment adjustments 19,596 27,537 Estimated liability for guaranty fund assessments 7,427 6,361 ------------ ------------ Total deferred tax asset 126,498 139,806 ------------ ------------ Deferred tax liabilities: Deferred policy acquisition costs 92,625 101,655 Net unrealized investment gain (loss) (213) 1,486 Other 17,208 16,683 ------------ ------------ Total deferred tax liability 109,620 119,824 ------------ ------------ Net deferred tax asset $ 16,878 $ 19,982 ============ ============
The Company anticipates that all deferred tax assets will be realized, therefore no valuation allowance has been provided. Federal income taxes paid (recovered) totaled $40,000,000, $13,594,000 and $(1,560,000) in 1993, 1992 and 1991, respectively. NOTE 4. RELATED PARTY TRANSACTIONS The Company and MLIG are parties to a service agreement whereby MLIG has agreed to provide certain data processing, legal, actuarial, management, advertising and other services to the Company. Expenses incurred by MLIG in relation to this service agreement are reimbursed by the Company on an allocated cost basis. Charges billed to the Company by MLIG pursuant to the agreement were $55,843,000, $63,300,000 and $78,306,000 for the years ended December 31, 1993, 1992 and 1991, respectively. The Company and Merrill Lynch Asset Management, L.P. ("MLAM") are parties to a service agreement whereby MLAM has agreed to provide certain invested asset management to the Company. The Company pays a fee to MLAM for these services, through the MLIG service agreement. The Company has a general agency agreement with Merrill Lynch Life Agency Inc. ("MLLA") whereby registered representatives of Merrill Lynch, Pierce, Fenner and Smith, Inc. ("MLPF&S") who are the Company's licensed insurance agents, solicit applications for contracts to be issued by the Company. MLLA is paid commissions for the contracts sold by such agents. Commissions paid to MLLA were approximately $67,102,000, $25,158,000 and $27,974,000 for 1993, 1992 and 1991, respectively. Substantially all of these commissions were capitalized as deferred policy acquisition costs and are being amortized in accordance with the policy discussed in Note 1. In connection with the acquisition of a block of variable life insurance business from Monarch Life Insurance Company ("Monarch Life"), the Company borrowed funds from Merrill Lynch & Co. to partially finance the transaction. As of December 31, 1991, the outstanding balance of these loans was approximately $83,200,000. These loans were repaid during 1992. Interest was calculated on these loans at LIBOR plus 150 basis points. Intercompany interest paid on these loans during 1992 and 1991 was approximately $4,025,000 and $6,300,000, respectively. The Company and Merrill Lynch Trust Company ("ML Trust") were parties to an agreement whereby the Company retained ML Trust to hold certain invested assets upon the terms and conditions of the agreement. ML Trust was paid a fee based on its current fee schedule. This agreement was terminated during 1993. The Company has entered into certain other marketing and administrative service agreements with affiliates in connection with the variable life and annuity policies it sells. During 1993, 1992 and 1991, the Company allowed the recapture of certain policies previously indemnity reinsured by the Company from Family Life. Simultaneously with the recapture, the Company's affiliate, ML Life Insurance Company of New York ("ML Life"), assumption reinsured these policies. These transactions resulted in the transfer of approximately $11,900,000 $2,000,000 $19,200,000 of policy reserves during 1993, 1992 and 1991, respectively. The fair value of the Company's payables to affiliates is estimated at carrying value. These borrowings are payable on demand and bear a variable interest rate based on LIBOR. Total intercompany interest paid was $737,000, $5,409,000 and $8,567,000 for 1993, 1992 and 1991, respectively. NOTE 5. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS On December 20, 1993, the Company paid a $44,988,000 ordinary dividend and a $75,012,000 extraordinary dividend to MLIG. The Company received approval from the Arkansas Insurance Commissioner prior to the declaration and payment of the extraordinary dividend. At December 31, 1993 and 1992, approximately $37,221,000 and $44,988,000, respectively, of retained earnings was available for distribution to the Company's stockholder. Statutory capital and surplus at December 31, 1993 and 1992, was $374,209,000 and $451,888,000, respectively. During 1991, MLIG contributed capital to the Company of $82,396,000. The contribution was made to support the underwriting of additional insurance premiums and deposits. No contributions were received during 1993 and 1992. 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 taxes and valuing securities on a different basis. The Company's statutory net income for the years ended December 31, 1993, 1992 and 1991 was $45,604,000, $60,140,000 and $65,771,000, respectively. The National Association of Insurance Commissioners ("NAIC") has developed and implemented effective December 31, 1993, the Risk Based Capital ("RBC") adequacy monitoring system. The RBC calculates the amount of adjusted capital which a life insurance company should have based upon that company's risk profile. The NAIC has established four different levels of regulatory action with respect to the RBC adequacy monitoring system. Each of these levels may be triggered if an insurer's total adjusted capital is less than a corresponding level of RBC. These levels are as follows: For companies with capital levels which are below 100% of the basic RBC level (company action level) calculated for that company, the company must submit to the domiciliary insurance commissioner, and implement, an approved plan to increase adjusted capital to at least 100% of the basic RBC. For companies with capital levels which are below 75% of the basic RBC level calculated for that company, the company must submit to an examination by the domiciliary insurance department and as a result of the findings of the examination, corrective orders may be issued. For companies with capital levels which are below 50% of the basic RBC level (authorized control level) calculated for that company, the domiciliary insurance commissioner will have the authority to place the company into conservatorship or liquidation. For companies with capital levels which are below 35% of the basic RBC level calculated for that company, the domiciliary insurance commissioner will be required to place the company into conservatorship or liquidation. As of December 31, 1993, based on the RBC formula, the Company's total adjusted capital level was 279% of the basic RBC level. NOTE 6. REINSURANCE AGREEMENTS On December 28, 1990, the Company entered into an indemnity reinsurance agreement with Family Life, in which the Company 100% coinsured substantially all of Family Life's general account interest-sensitive life and annuity business, and modified coinsured all of the separate account variable annuity business. As of December 31, 1993, substantially all of this business has been assumption reinsured by the Company and an affiliate. On December 31, 1990, the Company and an affiliate entered into a 100% reinsurance agreement with respect to all variable life policies issued by Monarch Life and sold through the Merrill Lynch & Co. retail network. As a result of the indemnity provisions of the agreement, the Company became obligated to reimburse Monarch Life for its net amount at risk with regard to the reinsured policies. At the date of acquisition, assets of approximately $553,000,000 supporting general account reserves, on a statutory accounting basis, were transferred from Monarch Life to the Company. This agreement provides for contingent ceding commission payments to Monarch Life dependent upon the lapse rate during the five years ending in 1995 and mortality experience during the ten years ending in 2000. To date, the Company has paid approximately $225,900,000 to Monarch Life under the terms of the agreement. As of December 31, 1993, the Company has accrued $7,673,000 for such payments. On various dates during 1992 and 1991, the Company and an affiliate assumption reinsured substantially all such policies, wherever permitted by appropriate regulatory authorities. Upon assumption, the policy liabilities and the underlying assets of approximately $2,625,000,000 were transferred to the Merrill Lynch Life Variable Life Separate Account II. As a result of the assumptions, the Company became directly obligated to the policyholders, rather than to Monarch Life. Certain contract owners of the reinsured policies elected to remain with Monarch Life as permitted under certain state insurance laws. Assets and liabilities of those policies not assumption reinsured by the Company or its affiliate have remained with Monarch Life. The Company and its affiliate have indemnified Monarch Life against its net amount at risk on such policies. As of December 31, 1993, approximately 10 life insurance policies with $1,499,000 life insurance in force remain under the indemnity provisions of the reinsurance agreement. During 1992, the Company, and its affiliates, entered into an agreement with Monarch Life for the purchase, transfer or assignment of certain services and assets owned, licensed or leased by Monarch Life. Additionally, the Company along with its affiliates were allowed to actively solicit the employment of individuals employed by Monarch Life, who are required to service the Company's and its affiliates' variable life insurance policies and Monarch Life's variable life insurance policies. In consideration of this, the Company and its affiliate, ML Life, transferred title to Monarch Life certain telecommunications equipment owned by Merrill Lynch Insurance Group Services, Inc., an affiliate of the Company, with a net book value of $1,753,000. The Company agreed to service Monarch Life's variable life insurance policies for a period of five years at an annual rate of $100 per policy. Monarch Life has an option to terminate the service agreement upon proper notification. NOTE 7. INTEREST RATE SWAP CONTRACTS The Company enters into interest rate swap contracts for the purpose of minimizing exposure to fluctuations in interest rates of specific assets held. The notional amount of such swaps outstanding at December 31, 1993 and 1992 was approximately $155,082,000 and $197,024,000 respectively. The average unexpired term at December 31, 1993 and 1992 was 3.2 and 3.5 years, respectively. The current amount at risk, on a present value basis, of terminating or replacing at current market rates all outstanding matched swaps in a loss position at December 31, 1993 and 1992 was $0 and $0, respectively. During 1992 and 1991, a net investment gain of approximately $2,302,000 and $4,750,000, respectively, was recorded in connection with interest rate swap activity. The Company did not realize net investment gains (losses) from interest rate swap activity during 1993. During 1993, 1992 and 1991, the Company did not enter into unmatched interest rate swap arrangements and did not act as an intermediary or broker in interest rate swaps. Estimated fair values for the Company's interest rate swaps are based on broker quotes. At December 31, 1993 and 1992, the estimated fair value for these contracts was $4,317,000 and $10,551,000, respectively. NOTE 8. SALE OF FAMILY LIFE INSURANCE COMPANY On June 12, 1991, MLIG sold Family Life to a non-affiliated entity. Prior to closing, MLIG transferred to affiliates of Family Life, to the extent permitted by law, all assets and liabilities of Family Life that were not related to Family Life's mortgage protection life insurance business. Certain life insurance and annuity products sold through the retail network of Merrill Lynch & Co. and underwritten by Family Life have been or will be assumption reinsured by the Company or its affiliate in those jurisdictions in which the Company or its affiliate has the authority to do so. (See Note 6) NOTE 9. 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, 1993 and 1992, the Company had accrued an estimated liability for future guaranty fund assessments of $28,083,000 and $27,104,000, respectively. The Company regularly monitors public information regarding insurer insolvencies and will adjust its estimated liability where 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. * * * * * * 40 43 APPENDIX The tables below are designed to show the impact of the Market Value Adjustment and withdrawal charge on a single premium of $10,000. Table 1 assumes the premium is allocated to a subaccount with a 10 year Guarantee Period with a guaranteed rate of interest of 5.25%. Table 2 assumes the premium is allocated to a subaccount with a 5 year Guarantee Period with a guaranteed rate of 4.50%. The Market Value Adjustments are based on interpolated current interest rates (defined in the Contract as "B") of 3.25%, 5.25% and 7.25% in the 10 year guarantee table (see Table 1 below) and 2.50%, 4.50% and 6.50% in the 5 year guarantee table (see Table 2 below). The net subaccount values shown in the tables are the maximum amount available as cash withdrawals. Although the withdrawal charge is in each case a fixed percentage of the amount withdrawn, the amount of the charge for withdrawals made at the end of each year varies as a result of the Market Value Adjustment. Values shown in the tables have been rounded to the nearest dollar, and therefore the figures under the net subaccount value columns may not precisely equal amounts set forth in the subaccount value, plus the Market Value Adjustment, less the withdrawal charge columns. TABLE 1
--------------------------------------------------------------------------------------------------------- MARKET VALUE ADJUSTMENTS, WITHDRAWAL CHARGES AND NET SUBACCOUNT VALUE BASED ON INTERPOLATED CURRENT INTEREST RATES OF: --------------------------------------------------------------------------------------------------------- 3.25% 5.25% 7.25% - -------------------------------------------------------------------------------------------------------------------------------- MARKET MARKET END OF SUB- MARKET VALUE WITH- NET SUB- VALUE WITH- NET SUB- VALUE WITH- NET SUB- CERTIFICATE ACCOUNT ADJUST- DRAWAL ACCOUNT ADJUST- DRAWAL ACCOUNT ADJUST- DRAWAL ACCOUNT YEAR VALUE MENT CHARGE VALUE MENT CHARGE VALUE MENT CHARGE VALUE - -------------------------------------------------------------------------------------------------------------------------------- 1 10,525 1,924 318 12,130 -0- 269 10,256 (1,605) 228 8,692 2 11,078 1,783 329 12,532 -0- 283 10,794 (1,514) 245 9,318 3 11,659 1,627 340 12,946 -0- 298 11,361 (1,407) 262 9,990 4 12,271 1,454 351 13,374 -0- 314 11,957 (1,281) 281 10,710 5 12,915 1,264 363 13,817 -0- 330 12,585 (1,133) 301 11,481 6 13,594 1,054 375 14,273 -0- 348 13,246 (963) 323 12,308 7 14,307 825 387 14,745 -0- 366 13,941 (767) 346 13,194 8 15,058 573 400 15,232 -0- 385 14,673 (543) 371 14,144 9 15,849 299 413 15,735 -0- 405 15,444 (288) 398 15,163 10 16,681 -0- -0- 16,681 -0- -0- 16,681 -0- -0- 16,681 - --------------------------------------------------------------------------------------------------------------------------------
TABLE 2
--------------------------------------------------------------------------------------------------------- MARKET VALUE ADJUSTMENTS, WITHDRAWAL CHARGES AND NET SUBACCOUNT VALUE BASED ON INTERPOLATED CURRENT INTEREST RATES OF: --------------------------------------------------------------------------------------------------------- 2.50% 4.50% 6.50% - -------------------------------------------------------------------------------------------------------------------------------- MARKET MARKET END OF SUB- MARKET VALUE WITH- NET SUB- VALUE WITH- NET SUB- VALUE WITH- NET SUB- CERTIFICATE ACCOUNT ADJUST- DRAWAL ACCOUNT ADJUST- DRAWAL ACCOUNT ADJUST- DRAWAL ACCOUNT YEAR VALUE MENT CHARGE VALUE MENT CHARGE VALUE MENT CHARGE VALUE - -------------------------------------------------------------------------------------------------------------------------------- 1 10,450 820 248 11,022 -0- 230 10,220 (748) 214 9,489 2 10,920 637 254 11,303 -0- 240 10,680 (591) 227 10,102 3 11,412 439 261 11,590 -0- 251 11,161 (416) 242 10,754 4 11,925 227 267 11,885 -0- 262 11,663 (219) 258 11,448 5 12,462 -0- -0- 12,462 -0- -0- 12,462 -0- -0- 12,462 - --------------------------------------------------------------------------------------------------------------------------------
A-1 44 The formulas used in determining the amounts shown in the above tables are as follows: Subaccount Value ------------------------------------------------------------------ Guaranteed Interest Rate 1 + Current Interest Rate n/365 (1) Net Subaccount Value = ( ------------------------- ) + ( ----------------------------- ) 2 1 + Guaranteed Interest Rate
Where "n" is the number of days remaining in the Guaranteed Period of the subaccount, but not less than 365. Guaranteed Interest Rate (2) Withdrawal Charge = Net Subaccount Value X --------------------------- 2
1 + Current Interest Rate n/365 (3) Market Value Adjustment = Net Subaccount Value X [ 1 - ( ------------------------------ ) ] 1 + Guaranteed Interest Rate
(4) "n" is the number of days remaining in the Guarantee Period of the subaccount, but not less than 365. A-2 45 PART II INFORMATION NOT REQUIRED IN A PROSPECTUS 46 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Not applicable. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The following provisions regarding the Indemnification of Directors and Officers of the Registrant are applicable: AMENDED AND RESTATED BY-LAWS OF MERRILL LYNCH LIFE INSURANCE COMPANY, ARTICLE VI Sections 1, 2, 3 and 4--Indemnification of Directors, Officers, Employees and Incorporators Section 1. Actions Other Than by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer or employee of the Corporation, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. Actions by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer or employee of the Corporation, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the Court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other Court shall deem proper. Section 3. Right to Indemnification. To the extent that a director, officer or employee of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 4. Determination of Right to Indemnification. Any indemnification under Sections 1 and 2 of this Article (unless ordered by a Court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, or employee is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 and 2 of this Article. Such determination shall be made (i) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. II-1 47 BY-LAWS OF MERRILL LYNCH & CO., INC., Section 2--Indemnification by Corporation Any persons serving as an officer, director or trustee of a corporation, trust, or other enterprise, including the Registrant, at the request of Merrill Lynch are entitled to indemnification from Merrill Lynch, to the fullest extent authorized or permitted by law, for liabilities with respect to actions taken or omitted by such persons in any capacity in which such persons serve Merrill Lynch or such other corporation, trust, or other enterprise. Any action initiated by any such person for which indemnification is provided shall be approved by the Board of Directors of Merrill Lynch prior to such initiation. DIRECTORS' AND OFFICERS' INSURANCE Merrill Lynch has purchased from Corporate Officers' and Directors' Assurance Company directors' and officers' liability insurance policies which cover, in addition to the indemnification described above, liabilities for which indemnification is not provided under the By-Laws. The Company will pay an allocable portion of the insurance premium paid by Merrill Lynch with respect to such insurance policy. ARKANSAS BUSINESS CORPORATION LAW In addition, Section 4-26-814 of the Arkansas Business Corporation Law generally provides that a corporation has the power to indemnify a director or officer of the corporation, or a person serving at the request of the corporation as a director or officer of another corporation or other enterprise against any judgments, amounts paid in settlement, and reasonably incurred expenses in a civil or criminal action or proceeding if the director or officer acted in good faith in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation (or, in the case of a criminal action or proceeding, if he or she in addition had no reasonable cause to believe that his or her conduct was unlawful). SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with 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 15. RECENT SALES OF UNREGISTERED SECURITIES Not applicable. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits. 1 Underwriting Agreement Between Merrill Lynch Life Insurance Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed February 23, 1989.)
II-2 48 2(a) Merrill Lynch Life Insurance Company Board of Directors Resolution in Connection With the Merger Between Merrill Lynch Life Insurance Company and Tandem Insurance Group, Inc. (Incorporated by Reference to Registrant's Post-Effective Amendment No. 4 to Form S-1 Registration No. 33-26322, Filed September 5, 1991.) 2(b) Plan and Agreement of Merger Between Merrill Lynch Life Insurance Company and Tandem Insurance Group, Inc. (Incorporated by Reference to Registrant's Post-Effective Amendment No. 4 to Form S-1 Registration No. 33-26322, Filed September 5, 1991.) 3(a) Articles of Incorporation of Merrill Lynch Life Insurance Company (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-26322, Filed January 3, 1989.) 3(b) By-Laws of Merrill Lynch Life Insurance Company (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-26322, Filed January 3, 1989.) 3(c) Articles of Amendment, Restatement and Redomestication of the Articles of Incorporation of Merrill Lynch Life Insurance Company (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-46827, Filed March 30, 1992.) 3(d) Amended and Restated By-laws of Merrill Lynch Life Insurance Company (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-46827, Filed March 30, 1992.) 4(a)(1) Group Modified Guaranteed Annuity Contract, ML-AY-361 (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed February 23, 1989.) 4(a)(2) Group Modified Guaranteed Annuity Contract, ML-AY-361/94. 4(b)(1) Individual Certificate, ML-AY-362 (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed February 23, 1989.) 4(b)(2) Individual Certificate, ML-AY-362 KS (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed March 9, 1990.) 4(b)(3) Individual Certificate, ML-AY-378 (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed March 9, 1990.) 4(b)(4) Individual Certificate, ML-AY-362/94. 4(c)(1) Individual Tax-Sheltered Annuity Certificate, ML-AY-372 (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed February 23, 1989.) 4(c)(2) Individual Tax-Sheltered Annuity Certificate, ML-AY-372 KS (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed March 9, 1990.) 4(c)(3) Individual Tax-Sheltered Annuity Certificate, ML-AY-372/94. 4(d)(1) Qualified Retirement Plan Certificate, ML-AY-373 (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-26322, Filed January 3, 1989.) 4(d)(2) Qualified Retirement Plan Certificate, ML-AY-373 KS (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed March 9, 1990.) 4(d)(3) Qualified Retirement Plan Certificate, ML-AY-373/94. 4(e)(1) Individual Retirement Annuity Certificate, ML-AY-374 (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-26322, Filed January 3, 1989.) 4(e)(2) Individual Retirement Annuity Certificate, ML-AY-374 KS (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed March 9, 1990.)
II-3 49 4(e)(3) Individual Retirement Annuity Certificate, ML-AY-375 KS (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed March 9, 1990.) 4(e)(4) Individual Retirement Annuity Certificate, ML-AY-379 (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed March 9, 1990.) 4(e)(5) Individual Retirement Annuity Certificate, ML-AY-374/94. 4(f)(1) Individual Retirement Account Certificate, ML-AY-375 (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed February 23, 1989.) 4(f)(2) Individual Retirement Account Certificate, ML-AY-380 (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed March 9, 1990.) 4(f)(3) Individual Retirement Account Certificate, ML-AY-375/94. 4(g)(1) Section 457 Deferred Compensation Plan Certificate, ML-AY-376 (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-26322, Filed January 3, 1989.) 4(g)(2) Section 457 Deferred Compensation Plan Certificate, ML-AY-376 KS (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed March 9, 1990.) 4(g)(3) Section 457 Deferred Compensation Plan Certificate, ML-AY-376/94. 4(h)(1) Tax-Sheltered Annuity Endorsement, ML-AY-366 (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-26322, Filed January 3, 1989.) 4(h)(2) Tax-Sheltered Annuity Endorsement, ML-AY-366 190 (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed March 9, 1990.) 4(h)(3) Tax-Sheltered Annuity Endorsement, ML-AY-366 190 (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed March 9, 1990.) 4(i)(1) Qualified Retirement Plan Endorsement, ML-AY-364 (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-26322, Filed January 3, 1989.) 4(i)(2) Qualified Retirement Plan Endorsement, ML-AY-364 190. (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-26322, Filed March 9, 1990.) 4(j)(1) Individual Retirement Annuity Endorsement, ML-AY-368 (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-26322, Filed January 3, 1989.) 4(j)(2) Individual Retirement Annuity Endorsement, ML-AY-368 190 (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed March 9, 1990.) 4(j)(3) Individual Retirement Annuity Endorsement, ML009. (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-60290, Filed March 31, 1994.) 4(k)(1) Individual Retirement Account Endorsement, ML-AY-365 (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-26322, Filed January 3, 1989.) 4(k)(2) Individual Retirement Account Endorsement, ML-AY-365 190 (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed March 9, 1990.) 4(l)(1) Section 457 Deferred Compensation Plan Endorsement, ML-AY-367 (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-26322, Filed January 3, 1989.)
II-4 50 4(l)(2) Section 457 Deferred Compensation Plan Endorsement, ML-AY-367 190 (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed March 9, 1990.) 4(m)(1) Qualified Plan Endorsement, ML-AY-369 (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-26322, Filed January 3, 1989.) 4(m)(2) Qualified Plan Endorsement, ML-AY-448 (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed March 9, 1990.) 4(m)(3) Qualified Plan Endorsement, ML-AY-448/94. 4(n) Application for Group Modified Guaranteed Annuity Contract (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-26322, Filed January 3, 1989.) 4(o) Application for Individual Certificate Under Modified Guaranteed Annuity Contract (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-26322, Filed January 3, 1989.) 4(p) Form of Company name change endorsement (Incorporated by Reference to Registrant's Post-Effective Amendment No. 4 to Form S-1 Registration No. 33-26322, Filed September 5, 1991.) 5 Opinion of Barry G. Skolnick, Esq. and Consent to its use as to the legality of the securities being registered. 10(a) Management Services Agreement Between Merrill Lynch Life Insurance Company and Family Life Insurance Company (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-26322, Filed January 3, 1989.) 10(b) General Agency Agreement Between Merrill Lynch Life Insurance and Merrill Lynch Life Agency, Inc. (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-1 Registration No. 33-26322, Filed February 23, 1989.) 10(c) 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. 1 to Form S-1 Registration No. 33-60290, Filed March 31, 1994.) 10(d) Indemnity Reinsurance Agreement Between Merrill Lynch Life Insurance Company and Family Life Insurance Group (Incorporated by Reference to Registrant's Post-Effective Amendment No. 2 to Form S-1 Registration No. 33-26322, Filed March 13, 1991.) 10(e) Amendment No. 1 to Indemnity Reinsurance Agreement Between Merrill Lynch Life Insurance Company and Family Life Insurance Group (Incorporated by Reference to Registrant's Post-Effective Amendment No. 3 to Form S-1 Registration No. 33-26322, Filed April 24, 1991.) 10(f) Assumption Reinsurance Agreement Between Merrill Lynch Life Insurance Company, Tandem Insurance Group, Inc. and Royal Tandem Life Insurance Company and Family Life Insurance Company (Incorporated by Reference to Registrant's Post-Effective Amendment No. 4 to Form S-1 Registration No. 33-26322, Filed September 5, 1991.) 10(g) Amended General Agency Agreement Between Merrill Lynch Life Insurance Company and Merrill Lynch Life Agency Inc. (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-46827, Filed March 30, 1992.) 10(h) Indemnity Agreement Between Merrill Lynch Life Insurance Company and Merrill Lynch Life Agency Inc. (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-46827, Filed March 30, 1992.) 10(i) Management Agreement Between Merrill Lynch Life Insurance Company and Merrill Lynch Asset Management, Inc. (Incorporated by Reference to Registrant's Form S-1 Registration No. 33-46827, Filed March 30, 1992.) 23(a) Written Consent of Sutherland, Asbill & Brennan.
II-5 51 23(b) Written Consent of Deloitte & Touche, independent auditors. 24(a) Power of Attorney from Joseph E. Crowne. (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-60290, Filed March 31, 1994.) 24(b) Power of Attorney from David M. Dunford. (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-60290, Filed March 31, 1994.) 24(c) Power of Attorney from John C.R. Hele. (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-60290, Filed March 31, 1994.) 24(d) Power of Attorney from Allen N. Jones. (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-60290, Filed March 31, 1994.) 24(e) Power of Attorney from Barry G. Skolnick. (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-60290, Filed March 31, 1994.) 24(f) Power of Attorney from Anthony J. Vespa. (Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-60290, Filed March 31, 1994.) 26 Proxy Statement of Merrill Lynch & Co., Inc. dated April 22, 1991 (Incorporated by Reference to Registrant's Post-Effective Amendment No. 2 to Form S-1 Registration No. 33-26322, Filed April 24, 1991.)
(b) Financial Statement Schedules. None.
II-6 52 ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-7 53 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this amendment to its registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Plainsboro, State of New Jersey, on this 7th day of December, 1994. ATTEST: MERRILL LYNCH LIFE INSURANCE COMPANY (Registrant) /s/ SANDRA K. KELLY By: /s/ BARRY G. SKOLNICK - --------------------------------------------- -------------------------------------------- Sandra K. Kelly Barry G. Skolnick Assistant Vice President Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed below by the following persons in the capacities indicated on this 7th day of December, 1994.
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 Treasurer * Director, Senior Vice President, and Chief - --------------------------------------------- Investment Officer David M. Dunford * Director and Senior Vice President - --------------------------------------------- John C.R. Hele * Director - --------------------------------------------- Allen N. Jones *By: /s/ BARRY G. SKOLNICK In his own capacity as Director, Senior Vice ---------------------------------------- President, and General Counsel and as Barry G. Skolnick Attorney-in-Fact
II-8 54 EXHIBIT INDEX (a) Exhibits.
EXHIBIT DESCRIPTION PAGE - --------- -------------------------------------------------------------------------- ----- 4(a)(2) Group Modified Guaranteed Annuity Contract, ML-AY-361/94.................. II- 4(b)(4) Individual Certificate, ML-AY-362/94...................................... II- 4(c)(3) Individual Tax-Sheltered Annuity Certificate, ML-AY-372/94................ II- 4(d)(3) Qualified Retirement Plan Certificate, ML-AY-373/94....................... II- 4(e)(5) Individual Retirement Annuity Certificate, ML-AY-374/94................... II- 4(f)(3) Individual Retirement Account Certificate, ML-AY-375/94................... II- 4(g)(3) Section 457 Deferred Compensation Plan Certificate, ML-AY-376/94.......... II- 4(m)(3) Qualified Plan Endorsement, ML-AY-448/94.................................. II- 5 Opinion of Barry G. Skolnick, Esq. and Consent to its use as to the II- legality of the securities being registered............................... 23(a) Written Consent of Sutherland, Asbill & Brennan........................... II- 23(b) Written Consent of Deloitte & Touche, independent auditors................ II-
II-9 EX-4.A2 2 GROUP MODIFIED GUARANTEED ANNUITY CONTRACT 1 MERRILL LYNCH LIFE INSURANCE COMPANY Home Office: Little Rock Arkansas Administrative Office: P.O. Box 44223, Jacksonville, Florida, 32231-4223 1-800-535-5549 CONTRACT SCHEDULE Contract Holder Group Contract No. ------------------------------------ --------------------------------- Delivered In Effective Date --------------------------------------- ------------------------------------- (STATE) Class of Eligible Participants ---------------------------------------------------------------------------------
MERRILL LYNCH LIFE INSURANCE COMPANY agrees to pay annuity benefits as provided in this contract. Payments will be made to the Participant starting on the Annuity Date.
_____________________________________________________________________________________ TABLE OF CONTENTS Section Page - ------- ---- 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Participant Eligibility . . . . . . . . . . . . . . . . . . . . . . . 3 3. Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4. Contract Values . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5. Market Value Adjustment . . . . . . . . . . . . . . . . . . . . . . . 3 6. Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 7. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 4 8. Payment at Death of Participant or Annuitant . . . . . . . . . . . . . 5 9. Annuity Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 6 10. Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 11. Annuity Option Tables . . . . . . . . . . . . . . . . . . . . . . . . 8 _____________________________________________________________________________________
/s/ Barry G. Skolnick /s/ Anthony J. Vespa - --------------------- -------------------- President Secretary ------------------------------------------------ Registrar Group Modified Guaranteed Annuity Contract Account Value Is Subject to Market Value Adjustment Nonparticipating ML-AY-361/94 2 1. DEFINITIONS 1.1 ANNUITY: A series of predetermined periodic payments. See Section 9. 1.2 ANNUITANT: Annuity payments may depend upon the continuation of life of a person. That person is called an annuitant. The Annuitant is named in the Certificate. 1.3 ANNUITY DATE: The date shown in the Certificate on which payment of an annuity under this contract is to start. See Section 9.1. 1.4 PREMIUMS: The single premium paid for each Certificate issued under this contract. 1.5 SUB-ACCOUNT: Each single premium will be allocated to one or more Sub-Accounts as directed by the Participant. Each Sub-Account will correspond to a specified interest rate and Guarantee Period. See Section 3. 1.6 SUB-ACCOUNT VALUE: An amount equal to that part of a single premium allocated by a Participant to a Sub-Account, or any reinvestment in a Sub-Account, plus credited interest, as adjusted for any prior withdrawals, Market Value Adjustments and withdrawal charges. See Section 4.1. 1.7 NET SUB-ACCOUNT VALUE: The Sub-Account Value after adjustment for any current Market Value Adjustment and withdrawal charge. 1.8 ACCOUNT VALUE: The sum of all Sub-Account Values. See Section 4.2. 1.9 NET ACCOUNT VALUE: The sum of all Net Sub-Account Values. 1.10 WITHDRAWAL CHARGE: A charge deducted from any Sub-Account from which a withdrawal is made prior to the end of a Guarantee Period. See Section 6.2. 1.11 MARKET VALUE ADJUSTMENT: An adjustment made to Sub-Account Value. It is applied upon withdrawal of all or part of the Sub-Account Value prior to the end of the Guarantee Period. If the Annuity Date is prior to the end of a Guarantee Period, the Market Value Adjustment is also applied at the Annuity Date. See Section 5.1. The adjustment may be either a deduction from or an addition to Sub-Account Value. The formula for this adjustment is shown in Section 5.2. 1.12 GUARANTEE PERIOD: The period for which we guarantee to credit a specified interest rate for a Sub-Account. See Section 3.2. 1.13 MAXIMUM GUARANTEE PERIOD OPTION: An option to have Sub-Account Values automatically transferred to the Sub-Account for the longest Guarantee Period in which Sub-Account Values are currently invested or reinvested, provided such Guarantee Period matures prior to the Annuity Date. See Section 3.4. 1.14 PARTICIPANT: A person meeting the requirements of Section 2 to whom a Certificate has been issued under this contract. 1.15 CERTIFICATE: An individual certificate of participation issued by us as evidence of an annuity under this contract. See Section 7.12. 1.16 CERTIFICATE ANNIVERSARY: Each anniversary of the Certificate Date. 1.17 CERTIFICATE DATE: The date on which a Certificate is issued under this contract. 1.18 CERTIFICATE YEAR: The year starting on the Certificate Date or a Certificate Anniversary and ending with the day just prior to the next Certificate Anniversary. 1.19 CO-ANNUITANTS: If two persons are named as Co-Annuitants on the schedule page of a Certificate, then wherever used in this contract: "Annuitant" means the Co-Annuitants; death of the Participant or Annuitant refers to death of both Participants or Co-Annuitants (except under Section 8:1); and age of the Annuitant refers to age of the older Co-Annuitant. The Co-Annuitants are joint Participants, and each is the contingent participant of the other's interest in the Certificate. Only Options 1, 2, and 6 of Section 10 are available while both Co-Annuitants are alive, and Option 6 will apply if no annuity option is chosen. 1.20 OTHER DEFINITIONS: Beneficiary: See Section 7.1 ________ Page Two ________ 3 2. PARTICIPANT ELIGIBILITY 2.1 ELIGIBLE PARTICIPANTS: No person may be a Participant unless he or she is a member of the class described in the Contract Schedule. 2.2 PARTICIPATION: To participate under this contract, a Participant must pay a single premium and make a signed written application for an annuity under this contract. One Certificate will be issued for each single premium paid by each Participant. 2.3 TERMINATION: We reserve the right to terminate this contract as to new Participants. 3. SUB-ACCOUNTS 3.1 SUB-ACCOUNT: Each single premium will be allocated to one or more Sub-Accounts as chosen by the Participant. That part of the single premium allocated to a Sub-Account must be at least $5,000. 3.2 AVAILABLE GUARANTEE PERIODS: Guarantee Periods offered by us will be for terms of 1 year through 10 years. We may at our discretion offer additional Guarantee Periods. 3.3 TRANSFER OF SUB-ACCOUNT VALUE: Sub-Account Values may not be transferred to another Sub-Account, in full or in part, prior to the end of the Guarantee Period. At the end of a Guarantee Period, the Sub-Account Value may be transferred to another Sub-Account. The minimum amount that can be transferred to any one Sub-Account is the lesser of (a) $5,000, or (b) the total Sub-Account Value to be transferred. Upon notice to us prior to the end of the current Guarantee Period, the Sub-Account Value may be transferred at the end of the Guarantee Period to one or more Sub-Accounts as chosen by the Participant. See Section 7.3. We will notify the Participant of such right at least 30 days prior to the end of the Guarantee Period. If no notice is received from the Participant, the Sub-Account Value will be automatically transferred to the Sub-Account for the one year Guarantee Period, unless the Maximum Guarantee Period Option has been chosen. See Section 3.4. 3.4 MAXIMUM GUARANTEE PERIOD OPTION: This choice may be made by the Participant in the Certificate application or made or changed prior to the end of a Guarantee Period. See Section 7.3. Under this option, if no notice is received for transfer, all Sub-Account Values will be automatically transferred to the Sub-Account for the longest Guarantee Period in which that Participant's Sub-Account Values are then currently invested, provided such Guarantee Period matures prior to the Annuity Date. If this option has not been chosen, automatic transfer will occur as stated in Section 3.3. 4. CONTRACT VALUES 4.1 SUB-ACCOUNT VALUE: The current Sub-Account Value at any time prior to the Annuity Date is an amount equal to the investment or reinvestment in the Sub-Account plus credited interest, as adjusted for any prior withdrawals, Market Value Adjustments and withdrawal charges. 4.2 ACCOUNT VALUE: The current Account Value at any time prior to the Annuity Date is equal to the sum of all Sub-Account Values. 4.3 INTEREST RATES: Simple interest will be credited daily and compounded annually for each Certificate Year at the guaranteed interest rate for each Sub-Account in which the Account Value is invested. There are no guaranteed minimum interest rates for reinvestments of Sub-Account Values, except we guarantee that rates on reinvestment will be the same as the guaranteed interest rates offered for any new contracts on the same form as this contract. 5. MARKET VALUE ADJUSTMENT 5.1 MARKET VALUE ADJUSTMENT: The Market Value Adjustment may be either negative or positive. It will be deducted from or added to Sub-Account Value according to the formula shown in Section 5.2 in the following events: (a) Upon withdrawal of all or part of the Sub-Account Value prior to the end of the Guarantee Period for that Sub-Account, or (b) At the Annuity Date if the Annuity Date is prior to the end of the Guarantee Period for that Sub-Account. __________ Page Three __________ 4 5.2 FORMULA: The Market Value Adjustment is determined by the following formula: (1 + B) n/365 A x [1 - ------- ] (1 + C) Where: "n" = The remaining number of days in the Guarantee Period; "A" = The amount withdrawn from the Sub-Account; "B" = The current guaranteed interest rate that we are offering for a Guarantee Period of a duration of years represented by "n/365." When n/365 is not a whole number, we determine B by straight-line interpolation. If n/365 is less than 1, we will assume B is equal to the rate for a one-year Guarantee Period; and "C" = The guaranteed interest rate for the Sub-Account. 6. WITHDRAWALS 6.1 WITHDRAWALS: A Participant may withdraw all or part of the Net Account Value applied under this option upon notice to us received prior to the earlier of the Annuity Date or the death of the Participant or Annuitant. See Section 7.3. For full withdrawal, the Certificate must be surrendered at our administrative office. For partial withdrawals, the withdrawal must be at least $500. The Sub-Account Value of any remaining Sub-Accounts, after adjustment for any current Market Value Adjustment and withdrawal charge, must be at least $1,000. The remaining Account Value must be at least $5,000. The Participant MUST specify the Sub-Accounts from which the withdrawal is to be made. See Section 7.3. If a Sub-Account has the same Guarantee Period as any other Sub-Account, the Participant may specify only the Sub-Account with the shortest time remaining in the Guarantee Period. 6.2 WITHDRAWAL CHARGE: The amount of the withdrawal charge will equal 6 months of simple interest on the amount withdrawn. Such interest will be computed at the rate we are crediting the Sub-Account from which the withdrawal is made. The withdrawal charge will be deducted from the Sub-Account from which the withdrawal is made. Withdrawal charges do not apply to: (a) Death payments under Section 8, (b) Annuity payments under Section 9, or (c) Withdrawal at the end of the Guarantee Period for the Sub-Account if we receive written notice from the Participant of such withdrawal prior to the end of the Guarantee Period. 7. GENERAL PROVISIONS 7.1 BENEFICIARY: A beneficiary is the person who is to receive payment on death of the Participant or Annuitant under Section 8 or under Section 10 if guaranteed amounts remain unpaid. If the Participant is not the Annuitant, the Participant may name one beneficiary to receive payment on death of the Participant ("Participant's Beneficiary") and a different beneficiary to receive payment on death of the Annuitant ("Annuitant's Beneficiary"). If the Participant is the Annuitant, then the Participant's Beneficiary must be the same person as the Annuitant's Beneficiary. The Participant chooses the beneficiary in the Certificate application. The Participant's Beneficiary may be changed while the Participant is alive. The Annuitant's Beneficiary may be changed while the Annuitant is alive. A beneficiary may be named irrevocably, in which case a change can be made later only with the beneficiary's written consent. We will not require such beneficiary's consent for withdrawals. If a beneficiary does not survive the Participant or Annuitant, the estate or heirs of such beneficiary have no rights under this contract. If no beneficiary survives the Participant or Annuitant, payment will be made to the Participant, if living, otherwise to the Participant's estate. _________ Page Four _________ 5 7.2 COLLATERAL ASSIGNMENT: Upon notice to us the Participant may make a collateral assignment of his or her rights under this contract to a creditor as security for a debt. The rights of an assignee have priority over the rights of a beneficiary. 7.3 NOTICES, CHANGES AND CHOICES: To be effective, all notices, changes and choices the Participant makes under this contract must be in writing, signed and received by us at our administrative office, except that the following may be made by telephone: (a) Notices regarding transfers of Sub-Account Values under Section 3.3; (b) Choices regarding the Maximum Guarantee Period Option under Section 3.4; and (c) Specifications of Sub-Account deductions for withdrawals under Section 6.1. We are not responsible for their validity. When recorded by us, notices, changes and choices relating to beneficiaries will take effect as of the date signed unless we have already acted in reliance on the prior status. 7.4 MISSTATEMENT OF AGE OR SEX: If the age or sex of an Annuitant or a joint annuitant is misstated, annuity payments will be adjusted to reflect the correct age and sex. Any amount we have overpaid as the result of such misstatement will be deducted from the next payments due under this contract. Interest on the overpayment will be charged at the rate of 6% per year. Any amount we have underpaid will be paid in full with the next payment due under this contract. We will pay interest on the underpayment at the rate of 6% per year. 7.5 PROOF OF AGE, SEX OR SURVIVAL: We may require satisfactory proof of the age, sex or survival of any person on whose continued life any payment under this contract depends. 7.6 INCONTESTABILITY: We will not contest this contract or any Certificates issued under this contract. 7.7 THE CONTRACT: This contract, its attached application and any endorsements are the entire contract. It is issued in consideration of the application and payment of the first single premium. Only our President, a Vice President, Secretary or Assistant Secretary may change the contract. Any change must be in writing. 7.8 NONPARTICIPATING: This contract is nonparticipating. It does not share in our surplus. 7.9 PAYMENTS: All sums payable to or by us are payable at our administrative office. We may require return of a Certificate prior to making payment. We may defer payments of partial or full withdrawals for up to 6 months. 7.10 PROTECTION OF PROCEEDS: Payments under this contract may not be assigned by the payee prior to their due dates. To the extent allowed by law, payments are not subject to legal process for debts of a payee. 7.11 REPORTS: Prior to the Annuity Date we will furnish the Participant a report at least once each year. it will show the Participant's Account Value, Sub-Account Values and current interest rates. 7.12 CERTIFICATES: We will issue individual Certificates to each Participant. Each Certificate will summarize the provisions of the contract and show the annuity provided to the Participant. 7.13 RIGHT TO CANCEL CERTIFICATE: The Participant may cancel his or her Certificate within ten days after he or she receives it by returning or mailing it to us or our agent. We will refund his or her premium within ten days after the Certificate is received by us or our agent. The Certificate will be void from the beginning. 7.14 COMPLIANCE WITH STATE AND FEDERAL LAW: We reserve the right to change the provisions of this contract and the Certificates issued under this contract to conform to any applicable law, regulation or ruling issued by a government agency. 8. PAYMENT AT DEATH OF PARTICIPANT OR ANNUITANT 8.1 DEATH PRIOR TO ANNUITY DATE: On death of a Participant or Annuitant prior to the Annuity Date, we will pay to the Participant's Beneficiary or Annuitant's Beneficiary, as the case may be, an amount equal to the greater of the Account Value or the Net Account Value on the date of payment. Payment will be made in a lump sum unless Section 8.2 is chosen. 8.2 ANNUITY OPTION: If the beneficiary is the surviving spouse of the deceased Participant or Annuitant, he or she may choose to receive payments under any of the annuity options of this contract. For any other beneficiary, only those options are available that provide for full payment within 5 years of the date of such Participant's or Annuitant's death. _________ Page Five _________ 6 8.3 CERTIFICATE CONTINUATION OPTION ON PARTICIPANT'S DEATH: If the surviving spouse of a deceased Participant is the Participant's Beneficiary, such spouse may choose to become the Participant and continue the Certificate in force on the same terms as before such Participant's death, and the spouse shall thereafter be the Annuitant. This option is also available if the surviving spouse and the deceased Participant were Co-Annuitants. 8.4 CERTIFICATE CONTINUATION OPTION ON ANNUITANT'S DEATH: If the Participant is not the Annuitant, the Participant may irrevocably choose prior to the Annuitant's death, to continue the Certificate in force upon the death of the Annuitant on the same terms as before such Annuitant's death. The Participant, or a person designated by the Participant, shall thereafter be the Annuitant. This option is not available if the Participant is not an individual, except for tax-qualified plans under Section 401 or 408 of the Internal Revenue Code. 8.5 DEATH AFTER ANNUITY DATE: See Section 10.8. 9. ANNUITY PROVISIONS 9.1 ANNUITY DATE: The Annuity Date must be on the first day of a month. It may not be later than the first day of the next month after the Annuitant's 85th birthday. If the Participant has not chosen an Annuity Date, it will be the first day of the next month after the Annuitant's 75th birthday. The Participant may change the Annuity Date up to 30 days prior to the Annuity Date. A MARKET VALUE ADJUSTMENT MAY BE APPLIED ON THE ANNUITY DATE. SEE SECTION 5.1. 9.2 ANNUITY OPTIONS: If the Participant has not chosen an annuity option, Option 4 will apply with a 10-year guarantee period. The Participant may change options only up to 30 days prior to the Annuity Date. An option not set forth in the contract may be chosen if acceptable to us. 9.3 MINIMUM ANNUITY PAYMENT: If the Net Account Value to be applied at the Annuity Date is less than $5,000, we may pay such amount in a lump sum. If any payment would be less than $50, we may change the frequency so payments are at least $50 each. 9.4 AMOUNT OF ANNUITY PAYMENTS: Any premium taxes imposed by a state or other government will be deducted from the Net Account Value at the Annuity Date. The remaining Net Account Value will be applied to the annuity option chosen at our current annuity rates, which will be furnished on request. The rates will assume interest of not less than 3%. They will not be less favorable than those shown in the annuity tables in this contract. The tables show the minimum guaranteed amount of each monthly payment for each $1,000 so applied, according to age and sex at the Annuity Date. The tables are based on the 1983 Table "a" projected forward to 1995 for Individual Annuity Valuation with interest at 3%. 10. ANNUITY OPTIONS 10.1 OPTION 1 - PAYMENTS OF A FIXED AMOUNT: Equal payments in the amount chosen will be made until the Net Account Value applied under this option is exhausted. The term over which such payments are made must be at least 5 years. 10.2 OPTION 2 - PAYMENTS FOR A FIXED PERIOD: Payments will be made for the period chosen. The period must be at least 5 years. 10.3 OPTION 3 - LIFE ANNUITY: Payments will be made for the life of the Annuitant. Payments will cease with the last payment due prior to the Annuitant's death. 10.4 OPTION 4 - LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS: Payments will be made for the guaranteed period chosen (10 or 20 years) and as long thereafter as the Annuitant lives. 10.5 OPTION 5 - LIFE ANNUITY WITH GUARANTEED RETURN OF NET ACCOUNT VALUE: Payments will be made until the sum of the annuity payments equals the Net Account Value applied under this option, and as long thereafter as the Annuitant lives. 10.6 OPTION 6 - JOINT AND SURVIVOR LIFE ANNUITY: Payments will be made during the lifetimes of the Annuitant and a designated second person. Upon death of one, payments for the life of the other will be made in the same amount. ________ Page Six ________ 7 10.7 OPTION 7 - QUALIFIED PLAN OPTION: This option is available only for tax-qualified plans under Section 401, 403, 404, 408, or any similar provision of the Internal Revenue Code. Annuity payments may be based on (a) the life expectancy of the Annuitant, (b) the joint life expectancy of the Annuitant and his or her spouse, or (c) the life expectancy of the surviving spouse if the Annuitant dies before the Annuity Date. Payments will be made annually. Each annual payment will be equal to the Net Account Value on the first day of that calendar year divided by the applicable current life expectancy, as defined by Internal Revenue Service regulations. Each subsequent payment will be made on the anniversary of the Annuity Date. Interest will be credited at our current rate for this option. The rate will not be less than 3%. On death of the measuring life or lives prior to full distribution of the net account value, the remaining Net Account Value will be paid to the beneficiary in a lump sum. 10.8 DEATH OF PARTICIPANT OR ANNUITANT AFTER ANNUITY DATE: On death of the Participant after the annuity date, any amounts remaining unpaid will be paid to the Participant's Beneficiary under the same method of distribution in force at the date of the death. On death of the Annuitant while guaranteed amounts remain unpaid, the Annuitant's Beneficiary may choose either: (a) To have the payments continue for the amount or period guaranteed, or (b) To receive the present value of the remaining guaranteed payments in a lump sum. If a beneficiary dies while guaranteed amounts remain unpaid, the present value will be paid in a lump sum to the beneficiary's estate. Present values will be computed at the interest rate or rates that were used to compute the amount of the initial annuity payment. 10.9 PAYMENT: Except for Option 7, payment will be made on the first day of each month starting with the Annuity Date, but prior to the Annuity Date the Participant may choose a less frequent payment interval instead. The amount of each payment on an annual, semiannual or quarterly basis will be not less than the monthly payment computed from the annuity tables in this contract multiplied by the appropriate factor: Annual Semiannual Quarterly ------ ---------- --------- 11.839 5.963 2.993 __________ Page Seven __________ 8 11. ANNUITY OPTION TABLES MINIMUM GUARANTEED MONTHLY ANNUITY PAYMENT FOR EACH $1,000 APPLIED UNDER OPTION OPTION 2 (Payments for a Fixed Period)
Years Each Years Each Years Each Years Each Payable Payment Payable Payment Payable Payment Payable Payment ------- ------- ------- ------- ------- ------- ------- ------- 5 17.91 9 10.53 13 7.71 17 6.23 6 15.14 10 9.61 14 7.26 18 5.96 7 13.16 11 8.86 15 6.87 19 5.73 8 11.68 12 8.24 16 6.53 20 5.51
OPTION 3 (Life Annuity), OPTION 4 (Life Annuity with 10 or 20 Years Guaranteed) and OPTION 5 (Return of Net Account Value Guaranteed)
*Adjusted Life 10 Years 20 Years Return of * Adjusted Life 10 Years 20 Years Return of Male Age Annuity Guaranteed Guaranteed Net Account Value Female Age Annuity Guaranteed Guaranteed Net Account Value - -------- ------- ---------- ---------- ----------------- ---------- ------- ---------- ---------- ----------------- 56 4.62 4.56 4.34 4.37 56 4.19 4.16 4.06 4.05 57 4.72 4.65 4.41 4.45 57 4.27 4.24 4.12 4.12 58 4.83 4.75 4.47 4.53 58 4.35 4.32 4.19 4.19 59 4.94 4.85 4.54 4.61 59 4.44 4.40 4.25 4.26 60 5.06 4.95 4.60 4.70 60 4.54 4.49 4.32 4.34 61 5.19 5.07 4.67 4.80 61 4.64 4.58 4.39 4.42 62 5.33 5.19 4.73 4.90 62 4.74 4.68 4.46 4.50 63 5.47 5.31 4.80 5.00 63 4.86 4.79 4.53 4.59 64 5.63 5.44 4.86 5.11 64 4.98 4.90 4.60 4.69 65 5.80 5.58 4.92 5.23 65 5.11 5.01 4.67 4.79 66 5.98 5.72 4.98 5.35 66 5.25 5.14 4.74 4.89 67 6.17 5.86 5.04 5.48 67 5.40 5.27 4.82 5.00 68 6.37 6.02 5.10 5.61 68 5.55 5.40 4.89 5.12 69 6.59 6.18 5.15 5.75 69 5.72 5.55 4.95 5.25 70 6.82 6.34 5.20 5.90 70 5.91 5.70 5.02 5.38 71 7.07 6.50 5.24 6.06 71 6.11 5.86 5.08 4.52 72 7.34 6.67 5.28 6.22 72 6.32 6.03 5.14 5.66 73 7.62 6.85 5.32 6.39 73 6.56 6.20 5.19 5.82 74 7.92 7.02 5.35 6.57 74 6.81 6.38 5.24 5.99 75 8.24 7.20 5.38 6.76 75 7.08 6.57 5.29 6.16 76 8.58 7.38 5.40 6.97 76 7.37 6.76 5.33 6.35 77 8.95 7.55 5.42 7.17 77 7.69 6.96 5.36 6.55 78 9.35 7.72 5.44 7.39 78 8.03 7.16 5.39 6.75 79 9.77 7.89 5.46 7.63 79 8.40 7.36 5.41 6.98 80 10.22 8.06 5.47 7.87 80 8.80 7.56 5.44 7.21 81 10.71 8.22 5.48 8.13 81 9.23 7.75 5.45 7.45 82 11.22 8.37 5.49 8.40 82 9.70 7.94 5.47 7.71 83 11.77 8.51 5.50 8.68 83 10.21 8.13 5.48 7.98 84 12.35 8.65 5.50 8.97 84 10.76 8.30 5.49 8.27 85 12.97 8.77 5.50 9.29 85 11.35 8.46 5.50 8.57
OPTION 6 (Joint and Survivor Life Annuity)
*Adjusted *Adjusted Male Age *Adjusted Female ------------------------------------------------------------------------------------------------ Female Age 50 55 60 65 70 75 80 85 Age - --------- ---- ---- ---- ---- ---- ---- ---- ---- --------- 50 3.52 3.60 3.66 3.71 3.74 3.76 3.78 3.78 50 55 3.65 3.77 3.87 3.95 4.01 4.05 4.08 4.09 55 60 3.78 3.94 4.10 4.23 4.34 4.41 4.46 4.49 60 65 3.88 4.10 4.33 4.54 4.72 4.86 4.96 5.02 65 70 3.96 4.23 4.54 4.85 5.15 5.40 5.59 5.72 70 75 4.02 4.34 4.72 5.14 5.59 6.01 6.37 6.64 75 80 4.06 4.41 4.85 5.38 5.99 6.63 7.24 7.76 80 85 4.09 4.46 4.94 5.55 6.30 7.17 8.11 9.01 85
Information for ages not shown will be furnished on request. *"Adjusted Age" means attained age at last birthday adjusted as follows: ANNUITY DATE ADJUSTED AGE ------------ ------------ Before 2000 Actual Age 2000-2009 Subtract 1 year from actual age 2010-2019 Subtract 2 years from actual age 2020-2029 Subtract 3 years from actual age 2030 and after Subtract 4 years from actual age __________ Page Eight __________ EX-4.B4 3 INDIVIDUAL CERTIFICATE 1 MERRILL LYNCH LIFE INSURANCE COMPANY Home Office: Little Rock, Arkansas Administrative Office: P.O. 44223, Jacksonville, FL 32231-4223 1-800-535-5549 CERTIFICATE OF PARTICIPATION This Certificate is a summary of your rights under the Group Modified Guaranteed Annuity Contract identified in the Certificate Schedule. See Section 2. It is subject to all provisions of the Contract, whether or not summarized in this Certificate. The Contract alone governs the rights of all parties. A copy of the Contract will be furnished on request. MERRILL LYNCH LIFE INSURANCE COMPANY certifies that the person named as Participant in the Certificate Schedule is a Participant under the Contract.
_____________________________________________________________________________________ TABLE OF CONTENTS Section Page - ------- ---- 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Certificate Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3. Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4. Contract Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5. Market Value Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . 4 6. Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 8. Payment at Death of Participant . . . . . . . . . . . . . . . . . . . . . 6 9. Annuity Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 10. Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 11. Annuity Option Tables . . . . . . . . . . . . . . . . . . . . . . . . . . 8 _____________________________________________________________________________________
TEN DAY RIGHT TO REVIEW CERTIFICATE You may cancel your Certificate within ten days after you receive it by returning or mailing it to us or our agent. We will refund your premium within ten days after the Certificate is received by us or our agent. The Certificate will be void from the beginning. /s/ Anthony J. Vespa /s/ Barry G. Skolnick - -------------------- --------------------- President Secretary ----------------------------------- Registrar Individual Certificate under Group Modified Guaranteed Annuity Contract Account Value is Subject to Market Value Adjustment Nonparticipating ML-AY-362/94 2 1. DEFINITIONS 1.1 CONTRACT: The group modified guaranteed annuity contract under which this Certificate has been issued. See Section 2. 1.2 ANNUITY: A series of predetermined periodic payments. See Section 9. 1.3 ANNUITANT: Annuity payments may depend upon the continuation of life of a person. That person is called an annuitant. The Annuitant for this Certificate is named in the Certificate Schedule. See Section 2. 1.4 ANNUITY DATE: The date shown in the Certificate Schedule on which payment of an annuity under the Contract is to start. See Sections 2 and 9.1. 1.5 PREMIUM: The money you paid us for this Certificate. See Section 2. 1.6 SUB-ACCOUNT: Your single premium will be allocated to one or more Sub-Accounts as directed by you. Each Sub-Account will correspond to a specified interest rate and Guarantee Period. See Section 3. 1.7 SUB-ACCOUNT VALUE: An amount equal to that part of your single premium allocated to a Sub-Account, or any reinvestment in a Sub-Account, plus credited interest, as adjusted for any prior withdrawals, Market Value Adjustments and withdrawal charges. See Section 4.1. 1.8 NET SUB-ACCOUNT VALUE: The Sub-Account Value after adjustment for any current Market Value Adjustment and withdrawal charge. 1.9 ACCOUNT VALUE:The sum of all Sub-Account Values. See Section 4.2. 1.10 NET ACCOUNT VALUE: The sum of all Net Sub-Account Values. 1.11 WITHDRAWAL CHARGE: A charge deducted from any Sub-Account from which a withdrawal is made prior to the end of a Guarantee Period. See Section 6.2. 1.12 MARKET VALUE ADJUSTMENT: An adjustment made to Sub-Account Value. It is applied upon withdrawal of all or part of the Sub-Account Value prior to the end of the Guarantee Period. If the Annuity Date is prior to the end of a Guarantee Period, the Market Value Adjustment is also applied at the Annuity Date. See Section 5.1. The adjustment may be either a deduction from or an addition to Sub-Account Value. The formula for this adjustment is shown in Section 5.2. 1.13 GUARANTEE PERIOD: The period for which we guarantee to credit a specified interest rate for a Sub-Account. See Section 3.2. 1.14 MAXIMUM GUARANTEE PERIOD OPTION: An option to have Sub-Account Values automatically transferred to the Sub-Account for the longest Guarantee Period in which Sub-Account Values are currently invested or reinvested, provided such Guarantee Period matures prior to the Annuity Date. See Section 3.4. 1.15 PARTICIPANT: The person named in the Certificate Schedule to whom this Certificate has been issued; referred to herein as "you." 1.16 CERTIFICATE ANNIVERSARY: Each anniversary of the Certificate Date. 1.17 CERTIFICATE DATE: The date on which this Certificate was issued. 1.18 CERTIFICATE YEAR: The year starting on the Certificate Date or a Certificate Anniversary and ending with the day just prior to the next Certificate Anniversary. 1.19 CO-ANNUITANTS: If two persons are named as Co-Annuitants on the Certificate Schedule, then wherever used in this Certificate: "Annuitant" means the Co-Annuitants; death of the Participant or Annuitant refers to death of both Participants or Co-Annuitants (except under Section 8.1); and age of the Annuitant refers to age of the older Co-Annuitant. The Co-Annuitants are joint Participants, and each is the Contingent Participant of the other's interest in this Certificate. Only Options 1, 2 and 6 of Section 10 are available while both Co-Annuitants are alive, and Option 6 will apply if no annuity option is chosen. 1.20 OTHER DEFINITIONS: Beneficiary: See Section 7.1. ________ Page Two ________ 3 2. CERTIFICATE SCHEDULE PARTICIPANT ANNUITANT MARTHA WASHINGTON GEORGE WASHINGTON -- -- GROUP CONTRACT HOLDER ANNUITY DATE REVOLUTIONARY WIDGETS, INC. JULY 1, 2014 -- -- GROUP CONTRACT NUMBER CERTIFICATE NUMBER 890123456 897654321 -- -- CERTIFICATE DATE AGE OF ANNUITANT July 1, 1989 FIFTY -- -- SINGLE PREMIUM SEX OF ANNUITANT $10,000 MALE
__________ Page Three __________ 4 3. SUB-ACCOUNTS 3.1 SUB-ACCOUNT: Your single premium will be allocated to one or more Sub-Accounts as chosen by you. That part of your single premium allocated to a Sub-Account must be at least $5,000. 3.2 AVAILABLE GUARANTEE PERIODS: Guarantee Periods offered by us will be for terms of 1 year through 10 years. We may at our discretion offer additional Guarantee Periods. 3.3 TRANSFER OF SUB-ACCOUNT VALUE: Sub-Account Values may not be transferred to another Sub-Account, in full or in part, prior to the end of the Guarantee Period. At the end of a Guarantee Period, the Sub-Account Value may be transferred to another Sub-Account. The minimum amount that can be transferred to any one Sub-Account is the lesser of (a) $5,000, or (b) the total Sub-Account Value to be transferred. Upon notice to us prior to the end of the current Guarantee Period, the Sub-Account Value may be transferred at the end of the Guarantee Period to one or more Sub-Accounts as chosen by you. See Section 7.3. We will notify you of such right at least 30 days prior to the end of the Guarantee Period. If no notice is received from you, the Sub-Account Value will be automatically transferred to the Sub-Account for the 1-year Guarantee Period, unless the Maximum Guarantee Period Option has been chosen (see Section 3.4). 3.4 MAXIMUM GUARANTEE PERIOD OPTION: This choice may be made by you in the application for this Certificate or made or changed prior to the end of a Guarantee Period. See Section 7.3. Under this option, if no notice is received for transfer, all Sub-Account Values will be automatically transferred to the Sub-Account for the longest Guarantee Period in which your Sub-Account Values are currently invested, provided such Guarantee Period matures prior to the Annuity Date. If this option has not been chosen, automatic transfer will occur as stated in Section 3.3. 4. CONTRACT VALUES 4.1 SUB-ACCOUNT VALUE: The current Sub-Account Value at any time prior to the Annuity Date is an amount equal to the investment or reinvestment in the Sub-Account plus credited interest, as adjusted for any prior withdrawals, Market Value Adjustments and withdrawal charges. 4.2 ACCOUNT VALUE: The current Account Value at any time prior to the Annuity Date is equal to the sum of all Sub Account Values. 4.3 INTEREST RATES: Simple interest will be credited daily and compounded annually for each Certificate Year at the guaranteed interest rate for each Sub-Account in which the Account Value is invested. There are no guaranteed minimum interest rates for reinvestment of Sub-Account Values, except we guarantee that rates on reinvestment will be the same as the guaranteed interest rates offered for any new contracts on the same form as the Contract. 5. MARKET VALUE ADJUSTMENT 5.1 MARKET VALUE ADJUSTMENT: The Market Value Adjustment may be either negative or positive. It will be deducted from or added to Sub-Account Value according to the formula shown in Section 5.2 in the following events: (a) Upon withdrawal of all or part of the Sub-Account Value prior to the end of the Guarantee Period for that Sub-Account, or (b) At the Annuity Date if the Annuity Date is prior to the end of the Guarantee Period for that Sub-Account. 5.2 FORMULA: The Market Value Adjustment is determined by the following formula: (1 + B) n/365 A x [1- ------- ] (1 + C) _________ Page Four _________ 5 Where: "n" = The remaining number of days in the Guarantee Period; "A" = The amount withdrawn from the Sub-Account; "B" = The current guaranteed interest rate that we are offering for a Guarantee Period of a duration of years represented by "n/365." When n/365 is not a whole number, we determine B by straight-line interpolation. If n/365 is less than 1, we will assume B is equal to the rate for a one-year Guarantee Period; and "C" = The guaranteed interest rate for the Sub-Account. 6. WITHDRAWALS 6.1 WITHDRAWALS: You may withdraw all or part of the Net Account Value applied under this option upon notice to us received prior to the earlier of the Annuity Date or the death of the Participant or Annuitant. See Section 7.3. For full withdrawal, the Certificate must be surrendered at our administrative office. For partial withdrawals, the withdrawal must be at least $500. The Sub-Account Value of any remaining Sub-Accounts, after adjustment for any current Market Value Adjustment and withdrawal charge, must be at least $1,000. The remaining Account Value must be at least $5,000. You MUST specify the Sub-Accounts from which the withdrawal charges are to be made. See Section 7.3. If a Sub-Account has the same Guarantee Period as any other Sub-Account, the Participant may specify only the Sub-Account with the shortest time remaining in the Guarantee Period. 6.2 WITHDRAWAL CHARGE: The amount of the withdrawal charge will equal 6 months of simple interest on the amount withdrawn. Such interest will be computed at the rate we are crediting the Sub-Account from which the withdrawal is made. The withdrawal charge will be deducted from the Sub-Account from which the withdrawal was made. Withdrawal charges do not apply to: (a) Death payments under Section 8, (b) Annuity payments under Section 9, or (c) Withdrawal at the end of the Guarantee Period for the Sub-Account if we receive written notice from you of such withdrawal prior to the end of the Guarantee Period. 7. GENERAL PROVISIONS 7.1 BENEFICIARY: A beneficiary is the person who is to receive payment on death of the Participant or Annuitant under Section 8 or under Section 10 if guaranteed amounts remain unpaid. If the Participant is not the Annuitant, you may, if you desire, name one beneficiary to receive payment on death of the Participant ("Participant's Beneficiary") and a different beneficiary to receive payment on death of the Annuitant ("Annuitant's Beneficiary"). If the Participant is the Annuitant, then the Participant's Beneficiary must be the same person as the Annuitant's Beneficiary. You chose the beneficiary in the application for this Certificate. The Participant's Beneficiary may be changed while the Participant is alive. The Annuitant's Beneficiary may be changed while the Annuitant is alive. A beneficiary may be named irrevocably, in which case a change can be made later only with the beneficiary's written consent. We will not require such beneficiary's consent for withdrawals. If a beneficiary does not survive the Participant or Annuitant, the estate or heirs of such beneficiary have no rights under the Contract. If no beneficiary survives the Participant or Annuitant, payment will be made to the Participant, if living, otherwise to the Participant's estate. 7.2 COLLATERAL ASSIGNMENT: Upon notice to us, you may make a collateral assignment of your rights under the Contract to a creditor as security for a debt. The rights of an assignee have priority over the rights of a beneficiary. 7.3 NOTICES, CHANGES AND CHOICES: To be effective, all notices, changes and choices you make under the Contract must be in writing, signed and received by us at our administrative office, except that the following may be made by telephone: (a) Notices regarding transfers of Sub-Account Values under Section 3.3; (b) Choices regarding the Maximum Guarantee Period Option under Section 3.4; and (c) Specifications of Sub-Account deductions for withdrawals under Section 6.1. _________ Page Five _________ 6 We are not responsible for their validity. When recorded by us, notices, changes and choices relating to beneficiaries will take effect as of the date signed unless we have already acted in reliance on the prior status. 7.4 MISSTATEMENT OF AGE OR SEX: If the age or sex of an Annuitant or a joint annuitant is misstated, annuity payments will be adjusted to reflect the correct age and sex. Any amount we have overpaid as the result of such misstatement will be deducted from the next payments due under the Contract. Interest on the overpayment will be charged at the rate of 6% per year. Any amount we have underpaid will be paid in full with the next payment due under the Contract. We will pay interest on the underpayment at the rate of 6% per year. 7.5 PROOF OF AGE, SEX OR SURVIVAL: We may require satisfactory proof of the age, sex or survival of any person on whose continued life any payment under the Contract depends. 7.6 INCONTESTABILITY: We will not contest the Contract or this Certificate. 7.7 THE CONTRACT: The Contract, its attached application and any endorsements are the entire contract. Only our President, a Vice President, Secretary or Assistant Secretary may change the Contract. Any change must be in writing. 7.8 PAYMENTS: All sums payable to or by us are payable at our administrative office. We may require return of this Certificate prior to making payment. We may defer payments of partial or full withdrawals for up to 6 months. 7.9 REPORTS: Prior to the Annuity Date we will furnish you a report at least once each year. It will show your Account Value, Sub-Account Values and current interest rates. 7.10 COMPLIANCE WITH STATE AND FEDERAL LAW: We reserve the right to change the provisions of the Contract and the Certificates issued under the Contract to conform to any applicable law, regulation or ruling issued by a government agency. 8. PAYMENT AT DEATH OF PARTICIPANT OR ANNUITANT 8.1 DEATH PRIOR TO ANNUITY DATE: On death of the Participant or Annuitant prior to the Annuity Date, we will pay to the Participant's Beneficiary or Annuitant's Beneficiary, as the case may be, an amount equal to the greater of the Account Value or the Net Account Value on the date of payment. Payment will be made in a lump sum unless Section 8.2 is chosen. 8.2 ANNUITY OPTION: If the beneficiary is the surviving spouse of the deceased Participant or Annuitant, he or she may choose to receive payments under any of the annuity options of the Contract. For any other beneficiary, only those options are available that provide for full payment within 5 years of the date of such Participant's or Annuitant's death. 8.3 CERTIFICATE CONTINUATION OPTION ON PARTICIPANT'S DEATH: If the surviving spouse of the deceased Participant is the Participant's Beneficiary, such spouse may choose to become the Participant and continue the Certificate in force on the same terms as before the Participant's death, and the spouse shall thereafter be the Annuitant. This option is also available if the surviving spouse and the deceased Participant were Co-Annuitants. 8.4 CERTIFICATE CONTINUATION OPTION ON ANNUITANT'S DEATH: If the Participant is not the Annuitant, the Participant may irrevocably choose, prior to the Annuitant's death, to continue the Certificate in force upon the death of the Annuitant on the same terms as before such Annuitant's death. The Participant, or a person designated by the Participant, shall thereafter be the Annuitant. This option is not available if the Participant is not an individual. 8.5 DEATH AFTER ANNUITY DATE: See Section 10.8. 9. ANNUITY PROVISIONS 9.1 ANNUITY DATE: The Annuity Date must be on the first day of a month. It may not be later than the first day of the next month after the Annuitant's 85th birthday. If you have not chosen an Annuity Date, it will be the first day of the next month after the Annuitant's 75th birthday. You may change the Annuity Date up to 30 days prior to the Annuity Date. A MARKET VALUE ADJUSTMENT MAY BE APPLIED ON THE ANNUITY DATE. SEE SECTION 5.1. 9.2 ANNUITY OPTIONS: If you have not chosen an annuity option, Option 4 will apply with a 10-year guarantee period. You may change options only up to 30 days prior to the Annuity Date. An option not set forth in the Contract may be chosen if acceptable to us. 9.3 MINIMUM ANNUITY PAYMENT: If the Net Account Value to be applied at the Annuity Date is less than $5,000, we may pay such amount in a lump sum. If any payment would be less than $50, we may change the frequency so payments are at least $50 each. ________ Page Six ________ 7 9.4 AMOUNT OF ANNUITY PAYMENTS: Any premium taxes imposed by a state or other government will be deducted from the Net Account Value at the Annuity Date. The remaining Net Account Value will be applied to the annuity option chosen at our current annuity rates, which will be furnished on request. The rates will assume interest of not less than 3%. They will not be less favorable than those shown in the annuity tables in the Contract and this Certificate. The tables show the minimum guaranteed amount of each monthly payment for each $ 1,000 so applied, according to age and sex at the Annuity Date. The tables are based on the 1983 Table "a" projected forward to 1995 for Individual Annuity Valuation with interest at 3%. 10. ANNUITY OPTIONS 10.1 OPTION 1--PAYMENTS OF A FIXED AMOUNT: Equal payments in the amount chosen will be made until the Net Account Value applied under this option is exhausted. The term over which such payments are made must be at least 5 years. 10.2 OPTION 2--PAYMENTS FOR A FIXED PERIOD: Payments will be made for the period chosen. The period must be at least 5 years. 10.3 OPTION 3--LIFE ANNUITY: Payments will be made for the life of the Annuitant. Payments will cease with the last payment due prior to the Annuitant's death. 10.4 OPTION 4--LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS: Payments will be made for the guaranteed period chosen (10 or 20 years) and as long thereafter as the Annuitant lives. 10.5 OPTION 5--LIFE ANNUITY WITH GUARANTEED RETURN OF NET ACCOUNT VALUE: Payments will be made until the sum of the annuity payments equals the Net Account Value applied under this option, and as long thereafter as the Annuitant lives. 10.6 OPTION 6--JOINT AND SURVIVOR LIFE ANNUITY: Payments will be made during the lifetimes of the Annuitant and a designated second person. Upon death of one, payments for the life of the other will be made in the same amount. 10.7 OPTION 7--QUALIFIED PLAN OPTION: This option is available only for tax-qualified plans under Section 401, 403, 404, 408 or any similar provision of the Internal Revenue Code. Annuity payments may be based on (a) the life expectancy of the Annuitant, (b) the joint life expectancy of the Annuitant and his or her spouse, or (c) the life expectancy of the surviving spouse if the Annuitant dies before the Annuity Date. Payments will be made annually. Each annual payment will be equal to the Net Account Value on the first day of that calendar year divided by the applicable current life expectancy, as defined by Internal Revenue Service regulations. Each subsequent payment will be made on the anniversary of the Annuity Date. Interest will be credited at our current rate for this option. The rate will not be less than 3%. On death of the measuring life or lives prior to full distribution of the Net Account Value, the remaining Net Account Value will be paid to the beneficiary in a lump sum. 10.8 DEATH OF PARTICIPANT OR ANNUITANT: On death of the Participant after the Annuity Date, any amounts remaining unpaid will be paid to the Participant's Beneficiary under the same method of distribution in force at the date of death. On death of the Annuitant while guaranteed amounts remain unpaid, the Annuitant's Beneficiary may choose either: (a) To have the payments continue for the amount or period guaranteed, or (b) To receive the present value of the remaining guaranteed payments in a lump sum. If a beneficiary dies while guaranteed amounts remain unpaid, the present value will be paid in a lump sum to the beneficiary's estate. Present values will be computed at the interest rate or rates that were used to compute the amount of the initial annuity payment. 10.9 PAYMENT: Except for Option 7, payment will be made on the first day of each month starting with the Annuity Date, but prior to the Annuity Date you may choose a less frequent payment interval instead. The amount of each payment on an annual, semiannual or quarterly basis will be not less than the monthly payment computed from the annuity tables in the Contract and this Certificate multiplied by the appropriate factor. Annual Semiannual Quarterly ------ ---------- --------- 11.839 5.963 2.993 __________ Page Seven __________ 8 11. ANNUITY OPTION TABLES MINIMUM GUARANTEED MONTHLY ANNUITY PAYMENT FOR EACH $1,000 APPLIED UNDER OPTION OPTION 2 (Payments for a Fixed Period)
Years Each Years Each Years Each Years Each Payable Payment Payable Payment Payable Payment Payable Payment ------- ------- ------- ------- ------- ------- ------- ------- 5 17.91 9 10.53 13 7.71 17 6.23 6 15.14 10 9.61 14 7.26 18 5.96 7 13.16 11 8.86 15 6.87 19 5.73 8 11.68 12 8.24 16 6.53 20 5.51
OPTION 3 (Life Annuity), OPTION 4 (Life Annuity with 10 or 20 years guaranteed) and OPTION 5 (Return of Net Account Value Guaranteed)
*Adjusted Life 10 Years 20 Years Return of *Adjusted Life 10 Years 20 Years Return of Male Age Annuity Guaranteed Guaranteed Net Account Value Female Age Annuity Guaranteed Guaranteed Net Account Value - -------- ------- ---------- ---------- ----------------- ---------- ------- ---------- ---------- ----------------- 56 4.62 4.56 4.34 4.37 56 4.19 4.16 4.06 4.05 57 4.72 4.65 4.41 4.45 57 4.27 4.24 4.12 4.12 58 4.83 4.75 4.47 4.53 58 4.35 4.32 4.19 4.19 59 4.94 4.85 4.54 4.61 59 4.44 4.40 4.25 4.26 60 5.06 4.95 4.60 4.70 60 4.54 4.49 4.32 4.34 61 5.19 5.07 4.67 4.80 61 4.64 4.58 4.39 4.42 62 5.33 5.19 4.73 4.90 62 4.74 4.68 4.46 4.50 63 5.47 5.31 4.80 5.00 63 4.86 4.79 4.53 4.59 64 5.63 5.44 4.86 5.11 64 4.98 4.90 4.60 4.69 65 5.80 5.58 4.92 5.23 65 5.11 5.01 4.67 4.79 66 5.98 5.72 4.98 5.35 66 5.25 5.14 4.74 4.89 67 6.17 5.86 5.04 5.48 67 5.40 5.27 4.82 5.00 68 6.37 6.02 5.10 5.61 68 5.55 5.40 4.89 5.12 69 6.59 6.18 5.15 5.75 69 5.72 5.55 4.95 5.25 70 6.82 6.34 5.20 5.90 70 5.91 5.70 5.02 5.38 71 7.07 6.50 5.24 6.06 71 6.11 5.86 5.08 5.52 72 7.34 6.67 5.28 6.22 72 6.32 6.03 5.14 5.66 73 7.62 6.85 5.32 6.39 73 6.56 6.20 5.19 5.82 74 7.92 7.02 5.35 6.57 74 6.81 6.38 5.24 5.99 75 8.24 7.20 5.38 6.76 75 7.08 6.57 5.29 6.16 76 8.58 7.38 5.40 6.97 76 7.37 6.76 5.33 6.35 77 8.95 7.55 5.42 7.17 77 7.69 6.96 5.36 6.55 78 9.35 7.72 5.44 7.39 78 8.03 7.16 5.39 6.75 79 9.77 7.89 5.46 7.63 79 8.40 7.36 5.41 6.98 80 10.22 8.06 5.47 7.87 80 8.80 7.56 5.44 7.21 81 10.71 8.22 5.48 8.13 81 9.23 7.75 5.45 7.45 82 11.22 8.37 5.49 8.40 82 9.70 7.94 5.47 7.71 83 11.77 8.51 5.50 8.68 83 10.21 8.13 5.48 7.98 84 12.35 8.65 5.50 8.97 84 10.76 8.30 5.49 8.27 85 12.97 8.77 5.50 9.29 85 11.35 8.46 5.50 8.57
OPTION 6 (Joint and Survivor Life Annuity)
*Adjusted *Adjusted Male Age *Adjusted Female ------------------------------------------------------- Female Age 50 55 60 65 70 75 80 85 Age - --------- ---- ---- ---- ---- ---- ---- ---- ---- --------- 50 3.52 3.60 3.66 3.71 3.74 3.76 3.78 3.78 50 55 3.65 3.77 3.87 3.95 4.01 4.05 4.08 4.09 55 60 3.78 3.94 4.10 4.23 4.34 4.41 4.46 4.49 60 65 3.88 4.10 4.33 4.54 4.72 4.86 4.96 5.02 65 70 3.96 4.23 4.54 4.85 5.15 5.40 5.59 5.72 70 75 4.02 4.34 4.72 5.14 5.59 6.01 6.37 6.64 75 80 4.06 4.41 4.85 5.38 5.99 6.63 7.24 7.76 80 85 4.09 4.46 4.94 5.55 6.30 7.17 8.11 9.01 85
Information for ages not shown will be furnished on request. "Adjusted Age" means attained age at last birthday adjusted as follows: ANNUITY DATE ADJUSTED AGE ------------ ------------ Before 2000 Actual age 2000-2009 Subtract 1 year from actual age 2010-2019 Subtract 2 years from actual age 2020-2029 Subtract 3 years from actual age 2030 and after Subtract 4 years from actual age
__________ Page Eight __________ 9 MERRILL LYNCH LIFE INSURANCE COMPANY Home Office: Little Rock, Arkansas Administrative Office: P.O. 44223, Jacksonville, FL 32231-4223 1-800-535-5549 Individual Certificate under Group Modified Guaranteed Annuity Contract Account Value is Subject to Market Value Adjustment Nonparticipating EX-4.C3 4 INDIVIDUAL TAX-SHELTERED ANNUITY CERTIFICATE 1 MERRILL LYNCH LIFE INSURANCE COMPANY Home Office: Little Rock, Arkansas Administrative Office: P.O. 44223, Jacksonville, FL 32231-4223 1-800-535-5549 CERTIFICATE OF PARTICIPATION This Certificate is a summary of your rights under the Group Modified Guaranteed Annuity Contract identified in the Certificate Schedule. See Section 2. It is subject to all provisions of the Contract, whether or not summarized in this Certificate. The Contract alone governs the rights of all parties. A copy of the Contract will be furnished on request. MERRILL LYNCH LIFE INSURANCE COMPANY certifies that the person named as Participant in the Certificate Schedule is a Participant under the Contract.
____________________________________________________________________________________ TABLE OF CONTENTS Section Page - ------- ---- 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Certificate Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3. Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4. Contract Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5. Market Value Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . 4 6. Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 8. Payment at Death of Participant . . . . . . . . . . . . . . . . . . . . 6 9. Annuity Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 10. Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 11. Annuity Option Tables . . . . . . . . . . . . . . . . . . . . . . . . . 8 ____________________________________________________________________________________
TEN DAY RIGHT TO REVIEW CERTIFICATE You may cancel your Certificate within ten days after you receive it by returning or mailing it to us or our agent. We will refund your premium within ten days after the Certificate is received by us or our agent. The Certificate will be void from the beginning. /s/ Anthony J. Vespa /s/ Barry G. Skolnick - -------------------- --------------------- President Secretary -------------------------------------------------- Registrar Individual Tax-Sheltered Annuity Certificate under Group Modified Guaranteed Annuity Contract Account Value is Subject to Market Value Adjustment Nonparticipating ML-AY-372/94 2 1. DEFINITIONS 1.1 CONTRACT: The group modified guaranteed annuity contract under which this Certificate has been issued. See Section 2. 1.2 ANNUITY: A series of predetermined periodic payments. See Section 9. 1.3 ANNUITANT: Annuity payments may depend upon the continuation of life of a person. That person is called an annuitant. The Annuitant for this Certificate is named in the Certificate Schedule and is the same person as the Participant. See Section 2. 1.4 ANNUITY DATE: The date shown in the Certificate Schedule on which payment of an annuity under the Contract is to start. See Sections 2 and 9.1. 1.5 PREMIUM: The money paid to us for this Certificate. See Section 2. It must have been paid by an organization described in Section 403(b)(1)(A) of the Internal Revenue Code. 1.6 SUB-ACCOUNT: Your single premium will be allocated to one or more Sub-Accounts as directed by you. Each Sub-Account will correspond to a specified interest rate and Guarantee Period. See Section 3. 1.7 SUB-ACCOUNT VALUE: An amount equal to that part of your single premium allocated to a Sub-Account, or any reinvestment in a Sub-Account, plus credited interest, as adjusted for any prior withdrawals, Market Value Adjustments and withdrawal charges. See Section 4.1. 1.8 NET SUB-ACCOUNT VALUE: The Sub-Account Value after adjustment for any current Market Value Adjustment and withdrawal charge. 1.9 ACCOUNT VALUE: The sum of all Sub-Account Values. See Section 4.2. 1.10 NET ACCOUNT VALUE: The sum of all Net Sub-Account Values. 1.11 WITHDRAWAL CHARGE: A charge deducted from any Sub-Account from which a withdrawal is made prior to the end of a Guarantee Period. See Section 6.2. 1.12 MARKET VALUE ADJUSTMENT: An adjustment made to Sub-Account Value. It is applied upon withdrawal of all or part of the Sub-Account Value prior to the end of the Guarantee Period. If the Annuity Date is prior to the end of a Guarantee Period, the Market Value Adjustment is also applied at the Annuity Date. See Section 5.1. The adjustment may be either a deduction from or an addition to Sub-Account Value. The formula for this adjustment is shown in Section 5.2. 1.13 GUARANTEE PERIOD: The period for which we guarantee to credit a specified interest rate for a Sub-Account. See Section 3.2. 1.14 MAXIMUM GUARANTEE PERIOD OPTION: An option to have Sub-Account Values automatically transferred to the Sub-Account for the longest Guarantee Period in which Sub-Account Values are currently invested or reinvested, provided such Guarantee Period matures prior to the Annuity Date. See Section 3.4. 1.15 PARTICIPANT: The person named in the Certificate Schedule to whom this Certificate has been issued; referred to herein as "you." You must be an employee of an organization described in Section 403(b)(1)(A) of the Internal Revenue Code. 1.16 CERTIFICATE ANNIVERSARY: Each anniversary of the Certificate Date. 1.17 CERTIFICATE DATE: The date on which this Certificate was issued. 1.18 CERTIFICATE YEAR: The year starting on the Certificate Date or a Certificate Anniversary and ending with the day just prior to the next Certificate Anniversary. 1.19 OTHER DEFINITIONS: Beneficiary: See Section 7.1. ________ Page Two ________ 3 2. CERTIFICATE SCHEDULE PARTICIPANT ANNUITANT MARTHA WASHINGTON MARTHA WASHINGTON -- -- GROUP CONTRACT HOLDER ANNUITY DATE ABC SCHOOL DISTRICT JULY 1, 2004 -- -- GROUP CONTRACT NUMBER CERTIFICATE NUMBER 890123456 897654321 -- -- CERTIFICATE DATE AGE OF ANNUITANT JULY 1, 1989 FIFTY -- -- SINGLE PREMIUM $10,000 __________ Page Three __________ 4 3. SUB-ACCOUNTS 3.1 SUB-ACCOUNT: Your single premium will be allocated to one or more Sub-Accounts as chosen by you. That part of your single premium allocated to a Sub-Account must be at least $5,000. 3.2 AVAILABLE GUARANTEE PERIODS: Guarantee Periods offered by us will be for terms of 1 year through 10 years. We may at our discretion offer additional Guarantee Periods. 3.3 TRANSFER OF SUB-ACCOUNT VALUE: Sub-Account Values may not be transferred to another Sub-Account, in full or in part, prior to the end of the Guarantee Period. At the end of a Guarantee Period, the Sub-Account Value may be transferred to another Sub-Account. The minimum amount that can be transferred to any one Sub-Account is the lesser of (a) $5,000, or (b) the total Sub-Account Value to be transferred. Upon notice to us prior to the end of the current Guarantee Period, the Sub-Account Value may be transferred at the end of the Guarantee Period to one or more Sub-Accounts as chosen by you. See Section 7.3. We will notify you of such right at least 30 days prior to the end of the Guarantee Period. If no notice is received from you, the Sub-Account Value will be automatically transferred to the Sub-Account for the 1-year Guarantee Period, unless the Maximum Guarantee Period Option has been chosen (see Section 3.4). 3.4 MAXIMUM GUARANTEE PERIOD OPTION: This choice may be made by you in the application for this Certificate or made or changed prior to the end of a Guarantee Period. See Section 7.3. Under this option, if no notice is received for transfer, all Sub-Account Values will be automatically transferred to the Sub-Account for the longest Guarantee Period in which your Sub-Account Values are currently invested, provided such Guarantee Period matures prior to the Annuity Date. If this option has not been chosen, automatic transfer will occur as stated in Section 3.3. 4. CONTRACT VALUES 4.1 SUB-ACCOUNT VALUE: The current Sub-Account Value at any time prior to the Annuity Date is an amount equal to the investment or reinvestment in the Sub-Account plus credited interest, as adjusted for any prior withdrawals, Market Value Adjustments and withdrawal charges. 4.2 ACCOUNT VALUE: The Current Account Value at any time prior to the Annuity Date is equal to the sum of all Sub-Account Values. 4.3 INTEREST RATES: Simple interest will be credited daily and compounded annually for each Certificate Year at the guaranteed interest rate for each Sub-Account in which the Account Value is invested. There are no guaranteed minimum interest rates for reinvestment of Sub-Account Values, except we guarantee that rates on reinvestment will be the same as the guaranteed interest rates offered for any new contracts on the same form as the Contract. 5. MARKET VALUE ADJUSTMENT 5.1 MARKET VALUE ADJUSTMENT: The Market Value Adjustment may be either negative or positive. It will be deducted from or added to Sub-Account Value according to the formula shown in Section 5.2 in the following events: (a) Upon withdrawal of all or part of the Sub-Account Value prior to the end of the Guarantee Period for that Sub-Account, or (b) At the Annuity Date if the Annuity Date is prior to the end of the Guarantee Period for that Sub-Account. 5.2 FORMULA: The Market Value Adjustment is determined by the following formula: (1 + B) n/365 A x [1 - ------- ] (1 + C) Where: "n" = The remaining number of days in the Guarantee Period; "A" = The amount withdrawn from the Sub-Account; _________ Page Four _________ 5 "B" = The current guaranteed interest rate that we are offering for a Guarantee Period of a duration of years represented by "n/365." When n/365 is not a whole number, we determine B by straight-line interpolation. If n/365 is less than 1, we will assume B is equal to the rate for a one-year Guarantee Period; and "C" = The guaranteed interest rate for the Sub-Account. 6. WITHDRAWALS 6.1 WITHDRAWALS: You may withdraw all or part of the Net Account Value applied under this option upon notice to us received prior to the earlier of the Annuity Date or the death of the Participant. See Section 7.3. However, withdrawals under the Contract attributable to contributions made pursuant to a salary reduction agreement may be made only (1) after you attain age 59 1/2, (2) upon separation from service, (3) upon death or disability, or (4) for an amount not greater than the total of such contributions in the case of hardship. Any withdrawal shall effect a surrender of the Certificate to the extent of such withdrawal. For full withdrawal, the Certificate must be surrendered at our administrative office. For partial withdrawals, the withdrawal must be at least $500. The Sub-Account Value of any remaining Sub-Accounts, after adjustment for any current Market Value Adjustment and withdrawal charge, must be at least $1,000. The remaining Account Value must be at least $5,000. You MUST specify the Sub-Accounts from which the withdrawal is to be made. See Section 7.3. If a Sub-Account has the same Guarantee Period as any other Sub-Account, the Participant may specify only the Sub-Account with the shortest time remaining in the Guarantee Period. 6.2 WITHDRAWAL CHARGE: The amount of the withdrawal charge will equal 6 months of simple interest on the amount withdrawn. Such interest will be computed at the rate we are crediting the Sub-Account from which the withdrawal is made. The withdrawal charge will be deducted from the Sub-Account from which the withdrawal was made. Withdrawal charges do not apply to: (a) Death payments under Section 8, (b) Annuity payments under Section 9, or (c) Withdrawal at the end of the Guarantee Period for the Sub-Account if we receive written notice from you of such withdrawal prior to the end of the Guarantee Period. 7. GENERAL PROVISIONS 7.1 BENEFICIARY: The beneficiary is the person who is to receive payment on death of the Participant under Section 8 or under Section 10 if guaranteed amounts remain unpaid. You chose the beneficiary in the application for this Certificate. The beneficiary may be changed while the Participant is alive. The beneficiary may be named irrevocably, in which case a change can be made later only with the beneficiary's written consent. We will not require such beneficiary's consent for withdrawals. If a beneficiary does not survive the Participant, the estate or heirs of such beneficiary have no rights under the Contract. If no beneficiary survives the Participant, payment will be made to the Participant's estate. 7.2 NONTRANSFERABILITY: This Certificate is not transferable. It may not be sold, assigned, discounted or pledged as security for a loan or a security for any other obligation, other than to us. Your interest under the Contract is nonforfeitable. 7.3 NOTICES, CHANGES AND CHOICES: To be effective, all notices, changes and choices you make under the Contract must be in writing, signed and received by us at our administrative office, except that the following may be made by telephone: (a) Notices regarding transfers of Sub-Account Values under Section 3.3; (b) Choices regarding the Maximum Guarantee Period Option under Section 3.4; and (c) Specifications of Sub-Account deductions for withdrawals under Section 6.1. We are not responsible for their validity. When recorded by us, notices, changes and choices relating to beneficiaries will take effect as of the date signed unless we have already acted in reliance on the prior status. 7.4 MISSTATEMENT OF AGE: If the age of an Annuitant or a joint annuitant is misstated, annuity payments will be _________ Page Five _________ 6 adjusted to reflect the correct age. Any amount we have overpaid as the result of such misstatement will be deducted from the next payments due under the Contract. Interest on the overpayment will be charged at the rate of 6% per year. Any amount we have underpaid will be paid in full with the next payment due under the Contract. We will pay interest on the underpayment at the rate of 6% per year. 7.5 PROOF OF AGE OR SURVIVAL: We may require satisfactory proof of the age or survival of any person on whose continued life any payment under the Contract depends. 7.6 INCONTESTABILITY: We will not contest the Contract or this Certificate. 7.7 THE CONTRACT: The Contract, its attached application and any endorsements are the entire contract. Only our President, a Vice President, Secretary or Assistant Secretary may change the Contract. Any change must be in writing. 7.8 PAYMENTS: All sums payable to or by us are payable at our administrative office. We may require return of this Certificate prior to making payment. We may defer payments of partial or full withdrawals for up to 6 months. 7.9 REPORTS: Prior to the Annuity Date we will furnish you a report at least once each year. It will show your Account Value, Sub-Account Values and current interest rates. 7.10 COMPLIANCE WITH STATE AND FEDERAL LAW: We reserve the right to change the provisions of the Contract and the Certificates issued under the Contract to conform to any applicable law, regulation or ruling issued by a government agency. 8. PAYMENT AT DEATH OF PARTICIPANT 8.1 DEATH PRIOR TO ANNUITY DATE: On death of the Participant prior to the Annuity Date, we will pay to the beneficiary an amount equal to the greater of the Account Value or the Net Account Value on the date of payment. Payment will be made in a lump sum unless Section 8.2 is chosen. 8.2 ANNUITY OPTION: If the beneficiary is the surviving spouse of the deceased Participant, he or she may choose to receive payments under any of the annuity options of the Contract. For any other beneficiary, only those options are available that provide for full payment within 5 years of the date of such Participant's death. 8.3 CERTIFICATE CONTINUATION OPTION: If the surviving spouse of the deceased Participant is the Participant's Beneficiary, such spouse may choose to become the Participant and continue the Certificate in force on the same terms as before the Participant's death, and the spouse shall thereafter be the Annuitant. 8.4 DEATH AFTER ANNUITY DATE: See Section 10.8. 9. ANNUITY PROVISIONS 9.1 ANNUITY DATE: The Annuity Date must be on the first day of a month. If annuity payments are attributable to contributions made pursuant to a salary reduction agreement, the Annuity Date may not be earlier than (1) after you attain age 59 1/2, (2) upon separation from service, or (3) upon disability. The Annuity Date may not be later than April 1 of the year after the year in which you attain age 70 1/2 and will be such date if you have not chosen an Annuity Date. You may change the Annuity Date up to 30 days prior to the Annuity Date. A MARKET VALUE ADJUSTMENT MAY BE APPLIED ON THE ANNUITY DATE. SEE SECTION 5.1. 9.2 ANNUITY OPTIONS: If you have not chosen an annuity option, Option 4 will apply with a 10-year guarantee period or a period of years no greater than your life expectancy, whichever is less. You may change options only up to 30 days prior to the Annuity Date. An option not set forth in the Contract may be chosen if acceptable to us. When applicable, life expectancy will be determined according to Internal Revenue Service regulations and rulings. 9.3 MINIMUM ANNUITY PAYMENT: If the Net Account Value to be applied at the Annuity Date is less than $5,000, we may pay such amount in a lump sum. If any payment would be less than $50, we may change the frequency so payments are at least $50 each. 9.4 AMOUNT OF ANNUITY PAYMENTS: Any premium taxes imposed by a state or other government will be deducted from the Net Account Value at the Annuity Date. The remaining Net Account Value will be applied to the annuity option chosen at our current annuity rates, which will be furnished on request. The rates will assume interest of not less than 3%. They will not be less favorable than those shown in the annuity tables in the Contract and this Certificate. The tables show the minimum guaranteed amount of each monthly payment for each $1,000 so applied, according to age at the Annuity Date. The tables are based on the combined male/female 1983 Table "a" projected forward to 1995 for Individual Annuity Valuation with interest at 3%. _________ Page Six _________ 7 10. ANNUITY OPTIONS 10.1 OPTION 1 -- PAYMENTS OF A FIXED AMOUNT: Equal payments in the amount chosen will be made until the Net Account Value applied under this option is exhausted. The term over which such payments are made must be at least 5 years and may not exceed your life expectancy, or the joint life expectancy of you and your spouse (or, if you are not married, a designated second person), at the Annuity Date. If you die before the Annuity Date, the period may not exceed the life expectancy of your surviving spouse. 10.2 OPTION 2 -- PAYMENTS FOR A FIXED PERIOD: Payments will be made for the period chosen. The period must be at least 5 years and may not exceed your life expectancy, or the joint life expectancy of you and your spouse (or, if you are not married, a designated second person), at the Annuity Date. If you die before the Annuity Date, the period may not exceed the life expectancy of your surviving spouse. 10.3 OPTION 3 -- LIFE ANNUITY: Payments will be made for the life of the Annuitant. Payments will cease with the last payment due prior to the Annuitant's death. 10.4 OPTION 4 -- LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS: Payments will be made for the guaranteed period chosen (10 or 20 years) and as long thereafter as you live. The guaranteed period selected may not exceed your life expectancy, or the joint life expectancy of you and your spouse (or, if you are not married, a designated second person), at the Annuity Date. If you die before the Annuity Date, the period may not exceed the life expectancy of your surviving spouse. 10.5 OPTION 5--LIFE ANNUITY WITH GUARANTEED RETURN OF NET ACCOUNT VALUE: Payments will be made until the sum of the annuity payments equals the Net Account Value applied under this option, and as long thereafter as the Annuitant lives. The period required for distribution of the Net Account Value may not exceed your life expectancy or the joint life expectancy of you and your spouse (or, if you are not married, a designated second person), at the Annuity Date. If you die before the Annuity Date, the period required for distribution of the Net Account Value may not exceed the life expectancy of your surviving spouse. 10.6 OPTION 6 -- JOINT AND SURVIVOR LIFE ANNUITY: Payments will be made during the lifetimes of the Annuitant and a designated second person. The second person must be your spouse if you have a spouse. Upon death of one, payments for the life of the other will be made in the same amount. Option 6 is not available to the beneficiary. 10.7 OPTION 7 -- QUALIFIED PLAN OPTION: Annuity payments may be based on (a) your life expectancy, (b) the joint life expectancy of you and your spouse, or (c) the life expectancy of your surviving spouse if you die before the Annuity Date. Payments will be made annually. Each annual payment will be equal to the Net Account Value on the first day of that calendar year divided by the applicable current life expectancy, as defined by Internal Revenue Service regulations. Each subsequent payment will be made on the anniversary of the Annuity Date. Interest will be credited at our current rate for this option. The rate will not be less than 3%. On death of the measuring life or lives prior to full distribution of the Net Account Value, the remaining Net Account Value will be paid to the beneficiary in a lump sum. 10.8 DEATH OF PARTICIPANT: On death of the Participant after the Annuity Date while guaranteed amounts remain unpaid, the beneficiary may choose either: (a) To have the payments continue for the amount or period guaranteed, or (B) To receive the present value of the remaining guaranteed payments in a lump sum. If a beneficiary dies while guaranteed amounts remain unpaid, the present value will be paid in a lump sum to the beneficiary's estate. Present values will be computed at the interest rate or rates that were used to compute the amount of the initial annuity payment. 10.9 PAYMENT: Except for Option 7, payment will be made on the first day of each month starting with the Annuity Date, but prior to the Annuity Date you may choose a less frequent payment interval instead. The amount of each payment on an annual, semiannual or quarterly basis will be not less than the monthly payment computed from the annuity tables in the Contract and this Certificate multiplied by the appropriate factor: Annual Semiannual Quarterly ------ ---------- --------- 11.839 5.963 2.993 __________ Page Seven __________ 8 11. ANNUITY OPTION TABLES MINIMUM GUARANTEED MONTHLY ANNUITY PAYMENT FOR EACH $1,000 APPLIED UNDER OPTION OPTION 2 (Payments for a Fixed Period)
Years Each Years Each Years Each Years Each Payable Payment Payable Payment Payable Payment Payable Payment ------- ------- ------- ------- ------- ------- ------- ------- 9 10.53 13 7.71 17 6.23 6 15.14 10 9.61 14 7.26 18 5.96 7 13.16 11 8.86 15 6.87 19 5.73 8 11.68 12 8.24 16 6.53 20 5.51
OPTION 3 (Life Annuity), OPTION 4 (Life Annuity with 10 or 20 Years Guaranteed) and OPTION 5 (Return of Net Account Value Guaranteed)
*Adjusted Life 10 Years 20 Years Return of *Adjusted Life 10 Years 20 Years Return of Age Annuity Guaranteed Guaranteed Net Account Value Age Annuity Guaranteed Guaranteed Net Account Value - -------- ------- ---------- ---------- ----------------- --------- ------- ---------- ---------- ----------------- 50 3.97 3.94 3.87 3.85 68 5.96 5.72 5.00 5.37 51 4.03 4.01 3.92 3.90 69 6.16 5.87 5.06 5.50 70 6.36 6.03 5.12 5.64 52 4.10 4.07 3.97 3.96 71 6.59 6.19 5.17 5.79 53 4.17 4.14 4.03 4.02 54 4.25 4.21 4.09 4.08 72 6.83 6.36 5.22 5.94 55 4.33 4.28 4.15 4.14 73 7.08 6.54 5.26 6.10 56 4.41 4.36 4.21 4.21 74 7.36 6.71 5.30 6.28 75 7.65 6.90 5.34 6.46 57 4.50 4.45 4.27 4.26 58 4.59 4.54 4.34 4.36 76 7.97 7.08 5.37 6.65 59 4.69 4.63 4.40 4.44 77 8.31 7.27 5.40 6.86 60 4.80 4.73 4.47 4.52 78 8.68 7.46 5.42 7.07 61 4.92 4.83 4.54 4.61 79 9.08 7.64 5.44 7.30 80 9.50 7.82 5.46 7.54 62 5.04 4.94 4.60 4.70 63 5.17 5.05 4.67 4.80 81 9.96 8.00 5.47 7.79 64 5.31 5.17 4.74 4.90 82 10.45 8.17 5.48 8.05 65 5.45 5.30 4.81 5.01 83 10.98 8.33 5.49 8.33 66 5.61 5.43 4.87 5.12 84 11.54 8.49 5.50 8.62 67 5.78 5.57 4.94 5.24 85 12.15 8.63 5.50 8.93
OPTION 6 (Joint and Survivor Life Annuity)
*Adjusted Age of Joint Annuitant ------------------------------------------------------------------------------------------------------------ *Adjusted 50 55 60 65 70 75 80 85 *Adjusted Age of ------------------------------------------------------------------------------------------------------------ Age of Annuitant 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 Annuitant - --------- ------------------------------------------------------------------------------------------------------------ --------- 50 3.54 3.81 3.65 3.96 3.74 4.12 3.81 4.30 3.86 4.49 3.90 4.69 3.93 4.90 3.94 5.10 50 55 3.79 4.13 3.93 4.32 4.05 4.53 4.14 4.76 4.21 5.00 4.26 5.25 4.29 5.49 55 60 4.13 4.55 4.31 4.81 4.46 5.09 4.58 5.39 4.67 5.69 4.73 5.97 60 65 4.58 5.13 4.82 5.48 5.03 5.85 5.19 6.23 5.30 6.60 65 70 5.19 5.92 5.54 6.41 5.82 6.91 6.04 7.40 70 75 6.06 7.04 6.55 7.72 6.94 8.40 75 80 7.30 8.63 7.98 9.59 80 85 9.06 10.91 85
Information for ages not shown will be furnished on request. *"Adjusted Age" means attained age at last birthday adjusted as follows: ANNUITY DATE ADJUSTED AGE - ------------ ------------ Before 2000 Actual Age 2000-2009 Subtract 1 year from actual age 2010-2019 Subtract 2 years from actual age 2020-2029 Subtract 3 years from actual age 2030 and after Subtract 4 years from actual age THE ABOVE TABLES ARE BASED ON THE COMBINED MALE/FEMALE 1983 TABLE "A" PROJECTED FORWARD TO 1995 FOR INDIVIDUAL ANNUITY VALUATION WITH INTEREST AT 3%. __________ Page Eight __________ 9 MERRILL LYNCH LIFE INSURANCE COMPANY Home Office: Little Rock Arkansas Administrative Office: P.O. 44223, Jacksonville, FL 32231-4223 1-800-535-5549 Individual Tax-Sheltered Annuity Certificate under Group Modified Guaranteed Annuity Contract Account Value is Subject to Market Value Adjustment Nonparticipating EX-4.D3 5 QUALIFIED RETIREMENT PLAN CERTIFICATE 1 MERRILL LYNCH LIFE INSURANCE COMPANY Home Office: Little Rock, Arkansas Administrative Office: P.O. 44223, Jacksonville, FL 32231-4223 1-800-535-5549 CERTIFICATE OF PARTICIPATION This Certificate is a summary of your rights under the Group Modified Guaranteed Annuity Contract identified in the Certificate Schedule. See Section 2. It is subject to all provisions of the Contract, whether or not summarized in this Certificate. The Contract alone governs the rights of all parties. A copy of the Contract will be furnished on request. MERRILL LYNCH LIFE INSURANCE COMPANY certifies that the person named as Participant in the Certificate Schedule is a Participant under the Contract. ________________________________________________________________________________ TABLE OF CONTENTS
Section Page - ------- ---- 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Certificate Schedule . . . . . . . . . . . . . . . . . . . . . . . . 3 3. Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4. Contract Values . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5. Market Value Adjustment . . . . . . . . . . . . . . . . . . . . . . 4 6. Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 5 8. Payment at Death of Annuitant . . . . . . . . . . . . . . . . . . . 6 9. Annuity Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 6 10. Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . 7 11. Annuity Option Tables . . . . . . . . . . . . . . . . . . . . . . . 9
________________________________________________________________________________ TEN DAY RIGHT TO REVIEW CERTIFICATE You may cancel your Certificate within ten days after you receive it by returning or mailing it to us or our agent. We will refund your premium within ten days after the Certificate is received by us or our agent. The Certificate will be void from the beginning. /s/ Anthony J. Vespa /s/ Barry G. Skolnick - -------------------- --------------------- President Secretary ------------------------------------------- Registrar Qualified Retirement Plan Certificate under Group Modified Guaranteed Annuity Contract Account Value is Subject to Market Value Adjustment Nonparticipating ML-AY-373/94 2 1. DEFINITIONS 1.1 CONTRACT: The group modified guaranteed annuity contract under which this Certificate has been issued. See Section 2. 1.2 ANNUITY: A series of predetermined periodic payments. See Section 9. 1.3 ANNUITANT: Annuity payments may depend upon the continuation of life of a person. That person is called an annuitant. The Annuitant for this Certificate is named in the Certificate Schedule. See Section 2. 1.4 ANNUITY DATE: The date shown in the Certificate Schedule on which payment of an annuity under the Contract is to start. See Sections 2 and 9.1. 1.5 PREMIUM: The money you paid us for this Certificate. See Section 2. 1.6 SUB-ACCOUNT: Your single premium will be allocated to one or more Sub-Accounts as directed by you. Each Sub-Account will correspond to a specified interest rate and Guarantee Period. See Section 3. 1.7 SUB-ACCOUNT VALUE: An amount equal to that part of your single premium allocated to a Sub-Account, or any reinvestment in a Sub-Account, plus credited interest, as adjusted for any prior withdrawals, Market Value Adjustments and withdrawal charges. See Section 4.1. 1.8 NET SUB-ACCOUNT VALUE: The Sub-Account Value after adjustment for any current Market Value Adjustment and withdrawal charge. 1.9 ACCOUNT VALUE: The sum of all Sub-Account Values. See Section 4.2. 1.10 NET ACCOUNT VALUE: The sum of all Net Sub-Account Values. 1.11 WITHDRAWAL CHARGE: A charge deducted from any Sub-Account from which a withdrawal is made prior to the end of a Guarantee Period. See Section 6.2. 1.12 MARKET VALUE ADJUSTMENT: An adjustment made to Sub-Account Value. It is applied upon withdrawal of all or part of the Sub-Account Value prior to the end of the Guarantee Period. If the Annuity Date is prior to the end of a Guarantee Period, the Market Value Adjustment is also applied at the Annuity Date. See Section 5.1. The adjustment may be either a deduction from or an addition to Sub-Account Value. The formula for this adjustment is shown in Section 5.2. 1.13 GUARANTEE PERIOD: The period for which we guarantee to credit a specified interest rate for a Sub-Account. See Section 3.2. 1.14 MAXIMUM GUARANTEE PERIOD OPTION: An option to have Sub-Account Values automatically transferred to the Sub-Account for the longest Guarantee Period in which Sub-Account Values are currently invested or reinvested, provided such Guarantee Period matures prior to the Annuity Date. See Section 3.4. 1.15 PARTICIPANT: The custodian or trustee of a qualified retirement plan named in the Certificate Schedule to whom this Certificate has been issued; referred to herein as "you." The Participant and Contract Holder are the same. However, if this Certificate is distributed by the Contract Holder to the Annuitant, the Annuitant becomes the Participant. 1.16 CERTIFICATE ANNIVERSARY: Each anniversary of the Certificate Date. 1.17 CERTIFICATE DATE. The date on which this Certificate was issued. 1.18 CERTIFICATE YEAR. The year starting on the Certificate Date or a Certificate Anniversary and ending with the day just prior to the next Certificate Anniversary. 1.19 OTHER DEFINITIONS: Beneficiary: See Section 7.1. __________ Page Two __________ 3 2. CERTIFICATE SCHEDULE PARTICIPANT ANNUITANT ABC COMPANY PENSION PLAN MARTHA WASHINGTON -- -- GROUP CONTRACT HOLDER ANNUITY DATE ABC COMPANY PENSION PLAN JULY 1, 2004 -- -- GROUP CONTRACT NUMBER CERTIFICATE NUMBER 890123456 897654321 -- -- CERTIFICATE DATE AGE OF ANNUITANT JULY 1, 1989 FIFTY -- -- SINGLE PREMIUM $10,000 __________ Page Three __________ 4 3. SUB-ACCOUNTS 3.1 SUB-ACCOUNT: Your single premium will be allocated to one or more Sub-Accounts as chosen by you. That part of your single premium allocated to a Sub-Account must be at least $5,000. 3.2 AVAILABLE GUARANTEE PERIODS: Guarantee Periods offered by us will be for terms of 1 year through 10 years. We may at our discretion offer additional Guarantee Periods. 3.3 TRANSFER OF SUB-ACCOUNT VALUE: Sub-Account Values may not be transferred to another Sub-Account, in full or in part, prior to the end of the Guarantee Period. At the end of a Guarantee Period, the Sub-Account Value may be transferred to another Sub-Account. The minimum amount that can be transferred to any one Sub-Account is the lesser of (a) $5,000, or (b) the total Sub-Account Value to be transferred. Upon notice to us prior to the end of the current Guarantee Period, the Sub-Account Value may be transferred at the end of the Guarantee Period to one or more Sub-Accounts as chosen by you. See Section 7.3. We will notify you of such right at least 30 days prior to the end of the Guarantee Period. If no notice is received from you, the Sub-Account Value will be automatically transferred to the Sub-Account for the 1-year Guarantee Period, unless the Maximum Guarantee Period Option has been chosen (see Section 3.4). 3.4 MAXIMUM GUARANTEE PERIOD OPTION: This choice may be made by you in the application for this Certificate or made or changed prior to the end of a Guarantee Period. See Section 7.3. Under this option, if no notice is received for transfer, all Sub-Account Values will be automatically transferred to the Sub-Account for the longest Guarantee Period in which your Sub-Account Values are currently invested, provided such Guarantee Period matures prior to the Annuity Date. If this option has not been chosen, automatic transfer will occur as stated in Section 3.3. 4. CONTRACT VALUES 4.1 SUB-ACCOUNT VALUE: The current Sub-Account Value at any time prior to the Annuity Date is an amount equal to the investment or reinvestment in the Sub-Account plus credited interest, as adjusted for any prior withdrawals, Market Value Adjustments and withdrawal charges. 4.2 ACCOUNT VALUE: The current Account Value at any time prior to the Annuity Date is equal to the sum of all Sub-Account Values. 4.3 INTEREST RATES: Simple interest will be credited daily and compounded annually for each Certificate Year at the guaranteed interest rate for each Sub-Account in which the Account Value is invested. There are no guaranteed minimum interest rates for reinvestments of Sub-Account Values, except we guarantee that rates on reinvestment will be the same as the guaranteed interest rates offered for any new contracts on the same form as the Contract. 5. MARKET VALUE ADJUSTMENT 5.1 MARKET VALUE ADJUSTMENT: The Market Value Adjustment may be either negative or positive. It will be deducted from or added to Sub-Account Value according to the formula shown in Section 5.2 in the following events: (a) Upon withdrawal of all or part of the Sub-Account Value prior to the end of the Guarantee Period for that Sub-Account, or (b) At the Annuity Date if the Annuity Date is prior to the end of the Guarantee Period for that Sub-Account. 5.2 FORMULA: The Market Value Adjustment is determined by the following formula: (1 + B) n/365 A x [1 - ------- ] (1 + C) Where: "n" = The remaining number of days in the Guarantee Period; __________ Page Four __________ 5 "A" = The amount withdrawn from the Sub-Account; "B" = The current guaranteed interest rate that we are offering for a Guarantee Period of a duration of years represented by "n/365." When n/365 is not a whole number, we determine B by straight-line interpolation. If n/365 is less than 1, we will assume B is equal to the rate for a one-year Guarantee Period; and "C" = The guaranteed interest rate for the Sub-Account. 6. WITHDRAWALS 6.1 WITHDRAWALS: You may withdraw all or part of the Net Account Value applied under this option upon notice to us received prior to the earlier of the Annuity Date or the death of the Annuitant. See Section 7.3. If this Certificate is distributed by the Contract Holder to the Annuitant, an Annuitant who is married must have the consent of his or her spouse to withdraw all or part of the Net Account Value. The form of the spouse's consent must satisfy Section 417 of the Internal Revenue Code. For full withdrawal, the Certificate must be surrendered at our administrative office. For partial withdrawals, the withdrawal must be at least $500. The Sub-Account Value of any remaining Sub-Accounts, after adjustment for any current Market Value Adjustment and withdrawal charge, must be at least $1,000. The remaining Account Value must be at least $5,000. You MUST specify the Sub-Accounts from which the withdrawal is to be made. See Section 7.3. If a Sub-Account has the same Guarantee Period as any other Sub-Account, the Participant may specify only the Sub-Account with the shortest time remaining in the Guarantee Period. 6.2 WITHDRAWAL CHARGE: The amount of the withdrawal charge will equal 6 months of simple interest on the amount withdrawn. Such interest will be computed at the rate we are crediting the Sub-Account from which the withdrawal is made. The withdrawal charge will be deducted from the Sub-Account from which the withdrawal was made. Withdrawal charges do not apply to: (a) Death payments under Section 8, (b) Annuity payments under Section 9, or (c) Withdrawal at the end of the Guarantee Period for the Sub-Account if we receive written notice from you of such withdrawal prior to the end of the Guarantee Period. 7. GENERAL PROVISIONS 7.1 BENEFICIARY: A beneficiary is the person or entity that is to receive payment on death of the Annuitant under Section 8 or under Section 10 if guaranteed amounts remain unpaid. The Contract Holder is the beneficiary unless this Certificate is distributed to the Annuitant, in which case the following provisions apply: The beneficiary may be changed while the Annuitant is alive. The beneficiary may be named irrevocably, in which case a change can be made later only with the beneficiary's written consent. We will not require such beneficiary's consent for withdrawals. If a beneficiary does not survive the Annuitant, the estate or heirs of such beneficiary have no rights under the Contract. If no beneficiary survives the Annuitant, payment will be made to the Annuitant's estate. 7.2 CERTIFICATE NONFORFEITABLE AFTER DISTRIBUTION: If this Certificate is distributed by the Contract Holder to the Annuitant, it is not transferable and may not be sold, assigned, discounted or pledged as security for a loan or as security for any other obligation, other than to us. Annuity payments under the Contract cannot be surrendered, commuted, assigned, encumbered or anticipated in any way. The interest of the Annuitant under the Contract is nonforfeitable. 7.3 NOTICES, CHANGES AND CHOICES: To be effective, all notices, changes and choices you make under the Contract must be in writing, signed and received by us at our administrative office, except that the following may be made by telephone: (a) Notices regarding transfers of Sub-Account Values under Section 3.3; (b) Choices regarding the Maximum Guarantee Period Option 3.4; and (c) Specifications of Sub-Account deductions for withdrawals under Section 6.1. We are not responsible for their validity. When recorded by us, notices, changes and choices relating to beneficiaries will take effect as of the date signed unless we have already acted in reliance on the prior status. __________ Page Five __________ 6 7.4 MISSTATEMENT OF AGE: If the age of an Annuitant or a joint annuitant is misstated, annuity payments will be adjusted to reflect the correct age. Any amount we have overpaid as the result of such misstatement will be deducted from the next payments due under the Contract. Interest on the overpayment will be charged at the rate of 6% per year. Any amount we have underpaid will be paid in full with the next payment due under the Contract. We will pay interest on the underpayment at the rate of 6% per year. 7.5 PROOF OF AGE OR SURVIVAL: We may require satisfactory proof of the age or survival of any person on whose continued life any payment under the Contract depends. 7.6 INCONTESTABILITY: We will not contest the Contract or this Certificate. 7.7 THE CONTRACT: The Contract, its attached application and any endorsements are the entire contract. Only our President, a Vice President, Secretary or Assistant Secretary may change the Contract. Any change must be in writing. 7.8 PAYMENTS: All sums payable to or by us are payable at our administrative office. We may require return of this Certificate prior to making payment. We may defer payments of partial or full withdrawals for up to 6 months. 7.9 REPORTS: Prior to the Annuity Date we will furnish you a report at least once each year. It will show your Account Value, Sub-Account Values and current interest rates. 7.10 COMPLIANCE WITH STATE AND FEDERAL LAW: We reserve the right to change the provisions of the Contract and the Certificates issued under the Contract to conform to any applicable law, regulation or ruling issued by a government agency. 8. PAYMENT AT DEATH OF ANNUITANT 8.1 DEATH PRIOR TO ANNUITY DATE: On death of the Annuitant prior to the Annuity Date, we will pay to the beneficiary an amount equal to the greater of the Account Value or the Net Account Value on the date of payment. Payment will be made in a lump sum unless Section 8.2 is chosen. 8.2 ANNUITY OPTION: If the beneficiary is the surviving spouse of the deceased Annuitant, he or she may choose to receive payments under any of the annuity options of the Contract. For any other beneficiary, only those options are available that provide for full payment within 5 years of the date of such Annuitant's death. 8. 3 CERTIFICATE CONTINUATION OPTION: If the Participant is not the Annuitant, the Participant may irrevocably choose, prior to the Annuitant's death, to continue the Certificate in force upon the death of the Annuitant on the same terms as before such Annuitant's death. A person designated by the Participant shall thereafter be the Annuitant. 8.4 DEATH AFTER ANNUITY DATE: See Section 10.8. 9. ANNUITY PROVISIONS 9.1 ANNUITY DATE: The Annuity Date must be on the first day of a month. It may be as late as the first day of the next month after the Annuitant's 85th birthday, except as stated below. If you have not chosen an Annuity Date, it will be the first day of the next month after the Annuitant's 75th birthday, except as stated below. You may change the Annuity Date up to 30 days prior to the Annuity Date. A MARKET VALUE ADJUSTMENT MAY BE APPLIED ON THE ANNUITY DATE. SEE SECTION 5.1. If this Certificate is distributed by the Contract Holder to the Annuitant, the Annuity Date may not be later than April 1 of the year after the year in which the Annuitant attains age 70 1/2 and will be such date if you have not chosen an Annuity Date (unless the Annuitant is then still a covered employee of the employer maintaining the plan and is not then a "5% owner" as defined in Section 416 of the Internal Revenue Code). 9.2 ANNUITY OPTIONS: If you have not chosen an annuity option, Option 4 will apply with a 10-year guarantee period, except as stated below. You may change options only up to 30 days prior to the Annuity Date. An option not set forth in the Contract may be chosen if acceptable to us. When applicable, life expectancy will be determined according to Internal Revenue Service regulations and rulings. If this Certificate is distributed by the Contract Holder to the Annuitant, an Annuitant who is married must have the consent of his or her spouse to choose an annuity option other than "OPTION 6 -- JOINT AND SURVIVOR LIFE ANNUITY." (If no annuity option is chosen, Option 6 will be automatic.) Upon death of the Annuitant prior to the annuity date, leaving a spouse surviving, the death benefit will be paid under "OPTION 3 -- LIFE ANNUITY" unless the spouse has consented to the designation of someone else as beneficiary or elects a different annuity option. The form of the spouse's consent must satisfy Section 417 of the Internal Revenue Code. If an Annuitant is not married on the annuity ________ Page Six ________ 7 date, and if no other annuity option is chosen, "OPTION 3--LIFE ANNUITY" will be automatic. 9.3 MINIMUM ANNUITY PAYMENT: If the Net Account Value to be applied at the Annuity Date is less than $3,500, we may pay such amount in a lump sum. If any payment would be less than $50, we may change the frequency so payments are at least $50 each. 9.4 AMOUNT OF ANNUITY PAYMENTS: Any premium taxes imposed by a state or other government will be deducted from the Net Account Value at the Annuity Date. The remaining Net Account Value will be applied to the annuity option chosen at our current annuity rates, which will be furnished on request. The rates will assume interest of not less than 3%. They will not be less favorable than those shown in the annuity tables in the Contract and this Certificate. The tables show the minimum guaranteed amount of each monthly payment for each $1,000 so applied, according to age at the Annuity Date. The tables are based on the combined male/female 1983 Table "a" projected forward to 1995 for Individual Annuity Valuation with interest at 3%. 10. ANNUITY OPTIONS 10.1 OPTION 1--PAYMENTS OF A FIXED AMOUNT: Equal payments in the amount chosen will be made until the Net Account Value applied under this option is exhausted. The term over which such payments are made must be at least 5 years. If this Certificate is distributed by the Contract Holder to the Annuitant, the term may not exceed the Annuitant's life expectancy, or the joint life expectancy of the Annuitant and the Annuitant's spouse (or, if the Annuitant is not married, a designated second person), at the Annuity Date. If the Annuitant dies before the Annuity Date, the period may not exceed the life expectancy of the Annuitant's surviving spouse. 10.2 OPTION 2--PAYMENTS FOR A FIXED PERIOD: Payments will be made for the period chosen. The period must be at least 5 years. If this Certificate is distributed by the Contract Holder to the Annuitant, the period may not exceed the Annuitant's life expectancy, or the joint life expectancy of the Annuitant and the Annuitant's spouse (or, if the Annuitant is not married, a designated second person), at the Annuity Date. If the Annuitant dies before the Annuity Date, the period may not exceed the life expectancy of the Annuitant's surviving spouse. 10.3 OPTION 3--LIFE ANNUITY: Payments will be made for the life of the Annuitant. Payments will cease with the last payment due prior to the Annuitant's death. 10.4 OPTION 4--LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20) YEARS: Payments will be made for the guaranteed period chosen (10 or 20 years) and as long thereafter as the Annuitant lives. If this Certificate is distributed by the Contract Holder to the Annuitant, the guaranteed period selected may not exceed the Annuitant's life expectancy, or the joint life expectancy of the Annuitant and the Annuitant's spouse (or, if the Annuitant is not married, a designated second person), at the Annuity Date. If the Annuitant dies before the Annuity Date, the period may not exceed the life expectancy of the Annuitant's surviving spouse. 10.5 OPTION 5--LIFE ANNUITY WITH GUARANTEED RETURN OF NET ACCOUNT VALUE: Payments will be made until the sum of the annuity payments equals the Net Account Value applied under this option, and as long thereafter as the Annuitant lives. If this Certificate is distributed by the Contract Holder to the Annuitant, the period required for distribution of the Net Account Value may not exceed the Annuitant's life expectancy or the joint life expectancy of the Annuitant and his or her spouse (or, if the Annuitant is not married, a designated second person), at the Annuity Date. If the Annuitant dies before the Annuity Date, the period required for distribution of the Net Account Value may not exceed the life expectancy of the surviving spouse. 10.6 OPTION 6--JOINT AND SURVIVOR LIFE ANNUITY: Payments will be made during the lifetimes of the Annuitant and a designated second person. Upon death of one, payments for the life of the other will be made in the same amount. If this Certificate is distributed by the Contract Holder to the Annuitant, the second person must be the Annuitant's spouse if the Annuitant has a spouse, and Option 6 is not available to the beneficiary. 10.7 OPTION 7--QUALIFIED PLAN OPTION: Annuity payments may be based on (a) the life expectancy of the Annuitant, (b) the joint life expectancy of the Annuitant and his or her spouse, or (c) the life expectancy of the surviving spouse if the Annuitant dies before the Annuity Date. Payments will be made annually. Each annual payment will be equal to the Net Account Value on the first day of that calendar year divided by the applicable current life expectancy as defined by Internal Revenue Service regulations. Each subsequent payment will be made on the anniversary of the Annuity Date. Interest will be credited at our current rate for this option. The rate will not be less than 3%. On death of the measuring life or lives prior to full distribution of the Net Account Value, the remaining Net Account Value will be paid to the beneficiary in a lump sum. __________ Page Seven __________ 8 10.8 DEATH OF ANNUITANT: On death of the Annuitant after the Annuity Date while guaranteed amounts remain unpaid, the beneficiary may choose either: (a) To have the payments continue for the amount or period guaranteed, or (b) To receive the present value of the remaining guaranteed payments in a lump sum. If a beneficiary dies while guaranteed amounts remain unpaid, the present value will be paid in a lump sum to the beneficiary's estate. Present values will be computed at the interest rate or rates that were used to compute the amount of the initial annuity payment. 10.9 PAYMENT: Except for Option 7, payment will be made on the first day of each month starting with the Annuity Date, but prior to the Annuity Date you may choose a less frequent payment interval instead. The amount of each payment on an annual, semiannual or quarterly basis will be not less than the monthly payment computed from the annuity tables in the Contract and this Certificate multiplied by the appropriate factor. Annual Semiannual Quarterly ------ ---------- --------- 11.839 5.963 2.993 __________ Page Eight __________ 9 11. ANNUITY OPTION TABLES MINIMUM GUARANTEED MONTHLY ANNUITY PAYMENT FOR EACH $1,000 APPLIED UNDER OPTION OPTION 2 (Payments for a Fixed Period)
Years Each Years Each Years Each Years Each Payable Payment Payable Payment Payable Payment Payable Payment ------- ------- ------- ------- ------- ------- ------- ------- 9 10.53 13 7.71 17 6.23 6 15.14 10 9.61 14 7.26 18 5.96 7 13.16 11 8.86 15 6.87 19 5.73 8 11.68 12 8.24 16 6.53 20 5.51
OPTION 3 (Life Annuity), OPTION 4 (Life Annuity with 10 or 20 Years Guaranteed) and OPTION 5 (Return of Net Account Value Guaranteed)
*Adjusted Life 10 Years 20 Years Return of *Adjusted Life 10 Years 20 Years Return of Age Annuity Guaranteed Guaranteed Net Account Value Age Annuity Guaranteed Guaranteed Net Account Value - -------- ------- ---------- ---------- ----------------- --------- ------- ---------- ---------- ----------------- 50 3.97 3.94 3.87 3.85 68 5.96 5.72 5.00 5.37 51 4.03 4.01 3.92 3.90 69 6.16 5.87 5.06 5.50 70 6.36 6.03 5.12 5.64 52 4.10 4.07 3.97 3.96 71 6.59 6.19 5.17 5.79 53 4.17 4.14 4.03 4.02 54 4.25 4.21 4.09 4.08 72 6.83 6.36 5.22 5.94 55 4.33 4.28 4.15 4.14 73 7.08 6.54 5.26 6.10 56 4.41 4.36 4.21 4.21 74 7.36 6.71 5.30 6.28 75 7.65 6.90 5.34 6.46 57 4.50 4.45 4.27 4.28 58 4.59 4.54 4.34 4.36 76 7.97 7.08 5.37 6.65 59 4.69 4.63 4.40 4.44 77 8.31 7.27 5.40 6.86 60 4.80 4.73 4.47 4.52 78 8.68 7.46 5.42 7.07 61 4.92 4.83 4.54 4.61 79 9.08 7.64 5.44 7.30 80 9.50 7.82 5.46 7.54 62 5.04 4.94 4.60 4.70 63 5.17 5.05 4.67 4.80 81 9.96 8.00 5.47 7.79 64 5.31 5.17 4.74 4.90 82 10.45 8.17 5.48 8.05 65 5.45 5.30 4.81 5.01 83 10.98 8.33 5.49 8.33 66 5.61 5.43 4.87 5.12 84 11.54 8.49 5.50 8.62 67 5.78 5.57 4.94 5.24 85 12.15 8.63 5.50 8.93
OPTION 6 (Joint and Survivor Life Annuity)
*Adjusted Age of Joint Annuitant ------------------------------------------------------------------------------------------------------------ *Adjusted 50 55 60 65 70 75 80 85 *Adjusted Age of ------------------------------------------------------------------------------------------------------------ Age of Annuitant 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 Annuitant - --------- ------------------------------------------------------------------------------------------------------------ --------- 50 3.54 3.81 3.65 3.96 3.74 4.12 3.81 4.30 3.86 4.49 3.90 4.69 3.93 4.90 3.94 5.10 50 55 3.79 4.13 3.93 4.32 4.05 4.53 4.14 4.76 4.21 5.00 4.26 5.25 4.29 5.49 55 60 4.13 4.55 4.31 4.81 4.46 5.09 4.58 5.39 4.67 5.69 4.73 5.97 60 65 4.58 5.13 4.82 5.48 5.03 5.85 5.19 6.23 5.30 6.60 65 70 5.19 5.92 5.54 6.41 5.82 6.91 6.04 7.40 70 75 6.06 7.04 6.55 7.72 6.94 8.40 75 80 7.30 8.63 7.98 9.59 80 85 9.06 10.91 85
Information for ages not shown will be furnished on request. "Adjusted Age" means attained age at last birthday adjusted as follows: ANNUITY DATE ADJUSTED AGE - ------------ ------------ Before 2000 Actual Age 2000-2009 Subtract 1 year from actual age 2010-2019 Subtract 2 years from actual age 2020-2029 Subtract 3 years from actual age 2030 and after Subtract 4 years from actual age The above tables are based on the combined male/female 1983 Table "a" projected forward to 1995 for Individual Annuity Valuation with interest at 3%. _________ Page Nine _________ 10 MERRILL LYNCH LIFE INSURANCE COMPANY Home Office: Little Rock, Arkansas Administrative Office: P.O. 44223, Jacksonville, FL 32231-4223 1-800-535-5549 Qualified Retirement Plan Certificate under Group Modified Guaranteed Annuity Contract Account Value is Subject to Market Value Adjustment Nonparticipating EX-4.E5 6 INDIVIDUAL RETIREMENT ANNUITY CERTIFICATE 1 MERRILL LYNCH LIFE INSURANCE COMPANY Home Office: Little Rock, Arkansas Administrative Office: P.O. 44223, Jacksonville, FL 32231-4223 1-800-535-5549 CERTIFICATE OF PARTICIPATION This Certificate is a summary of your rights under the Group Modified Guaranteed Annuity Contract identified in the Certificate Schedule. See Section 2. It is subject to all provisions of the Contract, whether or not summarized in this Certificate. The Contract alone governs the rights of all parties. A copy of the Contract will be furnished on request. MERRILL LYNCH LIFE INSURANCE COMPANY certifies that the person named as Participant in the Certificate Schedule is a Participant under the Contract. ________________________________________________________________________________ TABLE OF CONTENTS
Section Page - ------- ---- 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Certificate Schedule . . . . . . . . . . . . . . . . . . . . . . . . 3 3. Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4. Contract Values . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5. Market Value Adjustment . . . . . . . . . . . . . . . . . . . . . . 4 6. Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 5 8. Payment at Death of Annuitant . . . . . . . . . . . . . . . . . . . 6 9. Annuity Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 6 10. Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . 7 11. Annuity Option Tables . . . . . . . . . . . . . . . . . . . . . . . 8
________________________________________________________________________________ TEN DAY RIGHT TO REVIEW CERTIFICATE You may revoke your Certificate by mailing or delivering, at your option, a written notice of revocation on or before the tenth day after your receipt of the Certificate. Upon revocation, you are entitled to a return of the entire premium without adjustment for such items as sales commissions, administrative expenses or fluctuation in market value. If you mail the notice, it shall be deemed mailed on the date of the postmark if deposited in the mail in the United States in an envelope or other appropriate wrapper, first class postage prepaid and properly addressed. If sent by certified or registered mail it will be deemed mailed on the date of the certification or registration. /s/ Anthony J. Vespa /s/ Barry G. Skolnick - -------------------- --------------------- President Secretary ------------------------------------------------ Registrar Individual Retirement Annuity Certificate under Group Modified Guaranteed Annuity Contract Account Value is Subject to Market Value Adjustment Nonparticipating ML-AY-374/94 2 1. DEFINITIONS 1.1 CONTRACT: The group modified guaranteed annuity contract under which this Certificate has been issued. See Section 2. 1.2 ANNUITY: A series of predetermined periodic payments. See Section 9. 1.3 ANNUITANT: Annuity payments may depend upon the continuation of life of a person. That person is called an annuitant. The Annuitant for this Certificate is named in the Certificate Schedule and is the same person as the Participant. See Section 2. 1.4 ANNUITY DATE: The date shown in the Certificate Schedule on which payment of an annuity under the Contract is to start. See Sections 2 and 9.1. 1.5 PREMIUM: The money you paid us for this Certificate. See Section 2. 1.6 SUB-ACCOUNT: Your single premium will be allocated to one or more Sub-Accounts as directed by you. Each Sub-Account will correspond to a specified interest rate and Guarantee Period. See Section 3. 1.7 SUB-ACCOUNT VALUE: An amount equal to that part of your single premium allocated to a Sub-Account, or any reinvestment in a Sub-Account, plus credited interest, as adjusted for any prior withdrawals, Market Value Adjustments and withdrawal charges. See Section 4.1. 1.8 NET SUB-ACCOUNT VALUE: The Sub-Account Value after adjustment for any current Market Value Adjustment and withdrawal charge. 1.9 ACCOUNT VALUE: The sum of all Sub-Account Values. See Section 4.2. 1.10 NET ACCOUNT VALUE: The sum of all Net Sub-Account Values. 1.11 WITHDRAWAL CHARGE: A charge deducted from any Sub-Account from which a withdrawal is made prior to the end of a Guarantee Period. See Section 6.2. 1.12 MARKET VALUE ADJUSTMENT: An adjustment made to Sub-Account Value. It is applied upon withdrawal of all or part of the Sub-Account Value prior to the end of the Guarantee Period. If the Annuity Date is prior to the end of a Guarantee Period, the Market Value Adjustment is also applied at the Annuity Date. See Section 5.1. The adjustment may be either a deduction from or an addition to Sub-Account Value. The formula for this adjustment is shown in Section 5.2. 1.13 GUARANTEE PERIOD: The period for which we guarantee to credit a specified interest rate for a Sub-Account. See Section 3.2. 1.14 MAXIMUM GUARANTEE PERIOD OPTION: An option to have Sub-Account Values automatically transferred to the Sub-Account for the longest Guarantee Period in which Sub-Account Values are currently invested or reinvested, provided such Guarantee Period matures prior to the Annuity Date. See Section 3.4. 1.15 PARTICIPANT: The person named in the Certificate Schedule to whom this Certificate has been issued; referred to herein as "you." 1.16 CERTIFICATE ANNIVERSARY: Each anniversary of the Certificate Date. 1.17 CERTIFICATE DATE: The date on which this Certificate was issued. 1.18 CERTIFICATE YEAR: The year starting on the Certificate Date or a Certificate Anniversary and ending with the day just prior to the next Certificate Anniversary. 1.19 OTHER DEFINITIONS: Beneficiary: See Section 7.1. __________ Page Two __________ 3 2. CERTIFICATE SCHEDULE PARTICIPANT ANNUITANT MARTHA WASHINGTON MARTHA WASHINGTON -- -- GROUP CONTRACT HOLDER ANNUITY DATE ABC COMPANY JULY 1, 2004 -- -- GROUP CONTRACT NUMBER CERTIFICATE NUMBER 890123456 897654321 -- -- CERTIFICATE DATE AGE OF ANNUITANT July 1, 1989 FIFTY -- -- SINGLE PREMIUM SEX OF ANNUITANT $10,000 MALE __________ Page Three __________ 4 3.SUB-ACCOUNTS 3.1 SUB-ACCOUNT: Your single premium will be allocated to one or more Sub-Accounts as chosen by you. That part of your single premium allocated to a Sub-Account must be at least $5,000. 3.2 AVAILABLE GUARANTEE PERIODS: Guarantee Periods offered by us will be for terms of 1 year through 10 years. We may at our discretion offer additional Guarantee Periods. 3.3 TRANSFER OF SUB-ACCOUNT VALUE: Sub-Account Values may not be transferred to another Sub-Account, in full or in part, prior to the end of the Guarantee Period. At the end of a Guarantee Period, the Sub-Account Value may be transferred to another Sub-Account. The minimum amount that can be transferred to any one Sub-Account is the lesser of (a) $5,000, or (b) the total Sub-Account Value to be transferred. Upon notice to us prior to the end of the current Guarantee Period, the Sub-Account Value may be transferred at the end of the Guarantee Period to one or more Sub-Accounts as chosen by you. See Section 7.3. We will notify you of such right at least 30 days prior to the end of the Guarantee Period. If no notice is received from you, the Sub-Account Value will be automatically transferred to the Sub-Account for the 1-year Guarantee Period, unless the Maximum Guarantee Period Option has been chosen (see Section 3.4). 3.4 MAXIMUM GUARANTEE PERIOD OPTION: This choice may be made by you in the application for this Certificate or made or changed prior to the end of a Guarantee Period. See Section 7.3. Under this option, if no notice is received for transfer, all Sub-Account Values will be automatically transferred to the Sub-Account for the longest Guarantee Period in which your Sub-Account Values are currently invested, provided such Guarantee Period matures prior to the Annuity Date. If this option has not been chosen, automatic transfer will occur as stated in Section 3.3. 4.CONTRACT VALUES 4.1 SUB-ACCOUNT VALUE: The current Sub-Account Value at any time prior to the Annuity Date is an amount equal to the investment or reinvestment in the Sub-Account plus credited interest, as adjusted for any prior withdrawals, Market Value Adjustments and withdrawal charges. 4.2 ACCOUNT VALUE: The Current Account Value at any time prior to the Annuity Date is equal to the sum of all Sub-Account Values. 4.3 INTEREST RATES: Simple interest will be credited daily and compounded annually for each Certificate Year at the guaranteed interest rate for each Sub-Account in which the Account Value is invested. There are no guaranteed minimum interest rates for reinvestments of Sub-Account Values, except we guarantee that rates on reinvestment will be the same as the guaranteed interest rates offered for any new contracts on the same form as the Contract. 5.MARKET VALUE ADJUSTMENT 5.1 MARKET VALUE ADJUSTMENT: The Market Value Adjustment may be either negative or positive. It will be deducted from or added to Sub-Account Value according to the formula shown in Section 5.2 in the following events: (a) Upon withdrawal of all or part of the Sub-Account Value prior to the end of the Guarantee Period for that Sub-Account, or (b) At the Annuity Date if the Annuity Date is prior to the end of the Guarantee Period for that Sub-Account. 5.2 FORMULA: The Market Value Adjustment is determined by the following formula: (1 + B) n/365 A x [1 - ------- ] (1 + C) Where: "n" = The remaining number of days in the Guarantee Period; "A" = The amount withdrawn from the Sub-Account; __________ Page Four __________ 5 "B" = The current guaranteed interest rate that we are offering for a Guarantee Period of a duration of years represented by "n/365." When n/365 is not a whole number, we determine B by straight-line interpolation. If n/365 is less than 1, we will assume B is equal to the rate for a one-year Guarantee Period; and "C" = The Guaranteed Interest Rate for the Sub-Account. 6. WITHDRAWALS 6.1 WITHDRAWALS: You may withdraw all or part of the Net Account Value applied under this option upon notice to us received prior to the earlier of the Annuity Date or the death of the Participant. See Section 7.3. For full withdrawal, the Certificate must be surrendered at our administrative office. For partial withdrawals, the withdrawal must be at least $500. The Sub-Account Value of any remaining Sub-Accounts, after adjustment for any current Market Value Adjustment and withdrawal charge, must be at least $1 ,000. The remaining Account Value must be at least $5,000. You MUST specify the Sub-Accounts from which the withdrawal is to be made. See Section 7.3. If a Sub-Account has the same Guarantee Period as any other Sub-Account, the Participant may specify only the Sub-Account with the shortest time remaining in the Guarantee Period. 6.2 WITHDRAWAL CHARGE: The amount of the withdrawal charge will equal 6 months of simple interest on the amount withdrawn. Such interest will be computed at the rate we are crediting the Sub-Account from which the withdrawal is made. The withdrawal charge will be deducted from the Sub-Account from which the withdrawal was made. Withdrawal charges do not apply to: (a) Death payments under Section 8, (b) Annuity payments under Section 9, or (c) Withdrawal at the end of the Guarantee Period for the Sub-Account if we receive written notice from you of such withdrawal prior to the end of the Guarantee Period. 7. GENERAL PROVISIONS 7.1 BENEFICIARY: The beneficiary is the person who is to receive payment on death of the Participant under Section 8 or under Section 10 if guaranteed amounts remain unpaid. You chose the beneficiary in the application for this Certificate. The beneficiary may be changed while the Participant is alive. The beneficiary may be named irrevocably, in which case a change can be made later only with the beneficiary's written consent. We will not require such beneficiary's consent for withdrawals. If the beneficiary does not survive the Participant, the estate or heirs of such beneficiary have no rights under the Contract. If no beneficiary survives the Participant, payment will be made to the Participant's estate. 7.2 NONTRANSFERABILITY: This Certificate is established for the exclusive benefit of you and your beneficiaries. It is not transferable. It may not be sold, assigned, discounted or pledged as security for a loan or as security for any other obligation. Annuity payments under the Contract cannot be surrendered, commuted, assigned, encumbered or anticipated in any way. Your interest under the Contract is nonforfeitable. 7.3 NOTICES, CHANGES AND CHOICES: To be effective, all notices, changes and choices you make under the Contract must be in writing, signed and received by us at our administrative office, except that the following may be made by telephone: (a) Notices regarding transfers of Sub-Account Values under Section 3.3; (b) Choices regarding the Maximum Guarantee Period Option under Section 3.4; and (c) Specifications of Sub-Account deductions for withdrawals under Section 6.1. We are not responsible for their validity. When recorded by us, notices changes and choices relating to beneficiaries will take effect as of the date signed unless we have already acted in reliance on the prior status. 7.4 MISSTATEMENT OF AGE OR SEX: If the age or sex of an Annuitant or a joint annuitant is misstated, annuity payments will be adjusted to reflect the correct age and sex. Any amount we have overpaid as the result of such misstatement will be deducted from the next payments due under the Contract. Interest on the overpayment will be __________ Page Five __________ 6 charged at the rate of 6% per year. Any amount we have underpaid will be paid in full with the next payment due under the Contract. We will pay interest on the underpayment at the rate of 6% per year. 7.5 PROOF OF AGE, SEX OR SURVIVAL: We may require satisfactory proof of the age, sex or survival of any person on whose continued life any payment under the Contract depends. 7.6 INCONTESTABILITY: We will not contest the Contract or this Certificate. 7.7 THE CONTRACT: The Contract, its attached application and any endorsements are the entire contract. Only our President, a Vice President, Secretary or Assistant Secretary may change the Contract. Any change must be in writing. 7.8 PAYMENTS: All sums payable to or by us are payable at our administrative office. We may require return of this Certificate prior to making payment. We may defer payments of partial or full withdrawals for up to 6 months. Except in the case of the Participant's death or disability or attainment of age 59 1/2, before distributing any amount under the Contract we must receive from you a signed declaration of your intention as to the disposition of the amount distributed. 7.9 REPORTS: Prior to the Annuity Date we will furnish you a report at least once each year. It will show your Account Value, Sub-Account Values and current interest rates. 7.10 COMPLIANCE WITH STATE AND FEDERAL LAW: We reserve the right to change the provisions of the Contract and the Certificates issued under the Contract to conform to any applicable law, regulation or ruling issued by a government agency. Such right is subject to the approval of the insurance regulator of the state in which the Contract was issued. We will promptly provide you with a copy of any such amendment. 8. PAYMENT AT DEATH OF PARTICIPANT 8.1 DEATH PRIOR TO ANNUITY DATE: On death of the Participant prior to the Annuity Date, we will pay to the beneficiary an amount equal to the greater of the Account Value or the Net Account Value on the date of payment. Payment will be made in a lump sum unless Section 8.2 is chosen. 8.2 ANNUITY OPTION: If the beneficiary is the surviving spouse of the deceased Participant, he or she may choose to receive payments under any of the annuity options of the Contract. For any other beneficiary, only those options are available that provide for full payment within 5 years of the date of such Participant's death. 8.3 CERTIFICATE CONTINUATION OPTION: If the surviving spouse of the deceased Participant is the Participant's Beneficiary, such spouse may choose to become the Participant and continue the Certificate in force on the same terms as before the Participant's death, and the spouse shall thereafter be the Annuitant. 8.4 DEATH AFTER ANNUITY DATE: See Section 10.8. 9. ANNUITY PROVISIONS 9.1 ANNUITY DATE: The Annuity Date must be on the first day of a month. The Annuity Date may not be later than April 1 of the year after the year in which you attain age 70 1/2 and will be such date if you have not chosen an Annuity Date. You may change the Annuity Date up to 30 days prior to the Annuity Date. A MARKET VALUE ADJUSTMENT MAY BE APPLIED ON THE ANNUITY DATE. SEE SECTION 5.1. 9.2 ANNUITY OPTIONS: If you have not chosen an annuity option, Option 4 will apply with a 10-year guarantee period or a period of years no greater than your life expectancy, whichever is less. You may change options only up to 30 days prior to the Annuity Date. An option not set forth in the Contract may be chosen if acceptable to us. When applicable, life expectancy will be determined according to Internal Revenue Service regulations and rulings. 9.3 MINIMUM ANNUITY PAYMENT: If the Net Account Value to be applied at the Annuity Date is less than $5,000, we may pay such amount in a lump sum. If any payment would be less than $50, we may change the frequency so payments are at least $50 each. 9.4 AMOUNT OF ANNUITY PAYMENTS: Any premium taxes imposed by a state or other government will be deducted from the Net Account Value at the Annuity Date. The remaining Net Account Value will be applied to the annuity option chosen at our current annuity rates, which will be furnished on request. The rates will assume interest of not less than 3%. They will not be less favorable than those shown in the annuity tables in the Contract and this Certificate. The tables show the minimum guaranteed amount of each monthly payment for each $1,000 so applied, according to age and sex at the Annuity Date. The tables are based on the 1983 Table "a" projected forward to 1995 for Individual Annuity Valuation with interest at 3%. __________ Page Six __________ 7 10. ANNUITY OPTIONS 10.1 OPTION 1 -- PAYMENTS OF A FIXED AMOUNT: Equal payments in the amount chosen will be made until the Net Account Value applied under this option is exhausted. The term over which such payments are made must be at least 5 years and may not exceed your life expectancy, or the joint life expectancy of you and your spouse (or, if you are not married, a designated second person), at the Annuity Date. If you die before the Annuity Date, the period may not exceed the life expectancy of your surviving spouse. 10.2 OPTION 2 -- PAYMENTS FOR A FIXED PERIOD: Payments will be made for the period chosen. The period must be at least 5 years and may not exceed your life expectancy, or the joint life expectancy of you and your spouse (or, if you are not married, a designated second person), at the Annuity Date. If you die before the Annuity Date, the period may not exceed the life expectancy of your surviving spouse. 10.3 OPTION 3 -- LIFE ANNUITY: Payments will be made for the life of the Annuitant. Payments will cease with the last payment due prior to the Annuitant's death. 10.4 OPTION 4 -- LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS: Payments will be made for the guaranteed period chosen (10 or 20 years) and as long thereafter as the Annuitant lives. The guaranteed period selected may not exceed your life expectancy, or the joint life expectancy of you and your spouse (or, if you are not married, a designated second person), at the Annuity Date. If you die before the Annuity Date, the period may not exceed the life expectancy of your surviving spouse. 10.5 OPTION 5 -- LIFE ANNUITY WITH GUARANTEED RETURN OF NET ACCOUNT VALUE: Payments will be made until the sum of the annuity payments equals the Net Account Value applied under this option, and as long thereafter as the Annuitant lives. The period required for distribution of the Net Account Value may not exceed your life expectancy or the joint life expectancy of you and your spouse (or, if you are not married, a designated second person), at the Annuity Date. If you die before the Annuity Date, the period required for distribution of the Net Account VALUE MAY not exceed the life expectancy of your surviving spouse. 10.6 OPTION 6 -- JOINT AND SURVIVOR LIFE ANNUITY: Payments will be made during the lifetimes of you and a designated second person. The second person must be your spouse if you have a spouse. Upon death of one, payments for the life of the other will be made in the same amount. Option 6 is not available to the beneficiary. 10.7 OPTION 7 -- QUALIFIED PLAN OPTION: Annuity payments may be based on (a) your life expectancy, (b) the joint life expectancy of you and your spouse, or (c) the life expectancy of your surviving spouse if you die before the Annuity Date. Payments will be made annually. Each annual payment will be equal to the Net Account Value on THE FIRST DAY of that calendar year divided by the applicable current life expectancy, as defined by Internal Revenue Service regulations. Each subsequent payment will be made on the anniversary of the Annuity Date. Interest will be credited at our current rate for this option. The rate will not be less than 3%. On death of the measuring life or lives prior to full distribution of the Net Account Value, the remaining Net Account Value will be paid to the beneficiary in a lump sum. 10.8 DEATH OF PARTICIPANT: On death of the Participant after the Annuity Date while guaranteed amounts remain unpaid, the beneficiary may choose either: (a) To have the payments continue for the amount or period guaranteed, or (b) To receive the present value of the remaining guaranteed payments in a lump sum. If a beneficiary dies while guaranteed amounts remain unpaid, the present value will be paid in a lump sum to the beneficiary's estate. Present values will be computed at the interest rate or rates that were used to compute the amount of the initial annuity payment. 10.9 PAYMENT: Except for Option 7, payment will be made on the first day of each month starting with the Annuity Date, but prior to the Annuity Date you may choose a less frequent payment interval instead. The amount of each payment on an annual, semiannual or quarterly basis will not be less than the monthly payment computed from the annuity tables in the Contract and this Certificate multiplied by the appropriate factor. Annual Semiannual Quarterly ------ ---------- --------- 11.839 5.963 2.993 __________ Page Seven __________ 8 11. ANNUITY OPTION TABLES MINIMUM GUARANTEED MONTHLY ANNUITY PAYMENT FOR EACH $1,000 APPLIED UNDER OPTION OPTION 2 (Payments for a Fixed Period)
Years Each Years Each Years Each Years Each Payable Payment Payable Payment Payable Payment Payable Payment ------- ------- ------- ------- ------- ------- ------- ------- 5 17.91 9 10.53 13 7.71 17 6.23 6 15.14 10 9.61 14 7.26 18 5.96 7 13.16 11 8.86 15 6.87 19 5.73 8 11.68 12 8.24 16 6.53 20 5.51
OPTION 3 (Life Annuity), OPTION 4 (Life Annuity with 10 or 20 Years Guaranteed) and OPTION 5 (Return of Net Account Value Guaranteed) *Adjusted Life 10 Years 20 Years Return of *Adjusted Life 10 Years 20 Years Return of Male Age Annuity Guaranteed Guaranteed Net Account Value Female Age Annuity Guaranteed Guaranteed Net Account Value - -------- ------- ---------- ---------- ----------------- ---------- ------- ---------- ---------- ----------------- 56 4.62 4.56 4.34 4.37 56 4.19 4.16 4.06 4.05 57 4.72 4.65 4.41 4.45 56 4.27 4.24 4.12 4.12 58 4.83 4.75 4.47 4.53 58 4.35 4.32 4.19 4.19 59 4.94 4.85 4.54 4.61 59 4.44 4.40 4.25 4.26 60 5.06 4.95 4.60 4.70 60 4.54 4.49 4.32 4.34 61 5 19 5.07 4.67 4.80 61 4.64 4.58 4.39 4.42 62 5.33 5.19 4.73 4.90 62 4.74 4.68 4.46 4.50 63 5.47 5.31 4.80 5.00 63 4.86 4.79 4 53 4.59 64 5.63 5.44 4.86 5.11 64 4.98 4.90 4.60 4.69 65 5.80 5.58 4.92 5.23 65 5.11 5.01 4.67 4.79 66 5.98 5.72 4.98 5.35 66 5.25 5.14 4.74 4.89 67 6.17 5.86 5.04 5.48 67 5.40 5.27 4.82 5.00 68 6.37 6.02 5.10 5.61 68 5.55 5.40 4.89 5.12 69 6.59 6.18 5.15 5.75 69 5.72 5.55 4.95 5.25 70 6.82 6.34 5.20 5.90 70 5.91 5.70 5.02 5.38 71 7.07 6.50 5.24 6.06 71 6.11 5.86 5.08 5.52 72 7.34 6.67 5.28 6.22 72 6.32 6.03 5.14 5.66 73 7.62 6.85 5.32 6.39 73 6.56 6.20 5.19 5.82 74 7.92 7.02 5.35 6.57 74 6.81 6.38 5.24 5.99 75 8.24 7.20 5.38 6.76 75 7.08 6.57 5.29 6.16 76 8.58 7.38 5.40 6.97 76 7.37 6.76 5.33 6.35 77 8.95 7.55 5.42 7.17 77 7.69 6.96 5.36 6.55 78 9.35 7.72 5.44 7.39 78 8.03 7.16 5.39 6.75 79 9.77 7.89 5.46 7.63 79 8.40 7.36 5.41 6.98 80 10.22 8.06 5.47 7.87 80 8.80 7.56 5.44 7.21 81 10.71 8.22 5.48 8.13 81 9.23 7.75 5.45 7.45 82 11.22 8.37 5.49 8.40 82 9.70 7.94 5.47 7.71 83 11.77 8.51 5.50 8.68 83 10.21 8.13 5.48 7.98 84 12 35 8.65 5.50 8.97 84 10.76 8.30 5.49 8.27 85 12.97 8.77 5.50 9.29 85 11.35 8.46 5.50 8.57
OPTION 6 (Joint and Survivor Life Annuity)
*Adjusted *Adjusted Male Age *Adjusted Female ----------------------------------------------------------------------------- Female Age 50 55 60 65 70 75 80 35 Age --------------------------------------------------------------------------------------------------- 50 3.52 3.60 3.66 3.71 3.74 3.76 3.78 3.78 50 55 3.65 3.77 3.87 3.95 4.01 4.05 4.08 4.09 55 60 3.78 3.94 4.10 4.23 4.34 4.41 4.46 4.49 60 65 3.88 4.10 4.33 4.54 4.72 4.86 4.96 5.02 65 70 3.96 4.23 4.54 4.85 5.15 5.40 5.59 5.72 70 75 4.02 4.34 4.72 5.14 5.59 6.01 6.37 6.64 75 80 4.06 4.41 4.85 5.38 5.99 6.63 7.24 7.76 80 85 4.09 4.46 4.94 5.55 6.30 7.17 8.11 9.01 85
Information for ages not shown will be furnished on request. *Adjusted Age" means attained age at last birthday adjusted as follows: ANNUITY DATE ADJUSTED AGE ------------ ------------ Before 2000 Actual age 2000-2009 Subtract 1 year from actual age 2010-2019 Subtract 2 years from actual age 2020-2029 Subtract 3 years from actual age 2030 and after Subtract 4 years from actual age __________ Page Eight __________ 9 MERRILL LYNCH LIFE INSURANCE COMPANY Home Office: Little Rock, Arkansas Administrative Office: P.O. 44223, Jacksonville, FL 32231-4223 1-800-535-5549 Individual Retirement Annuity Certificate under Group Modified Guaranteed Annuity Contract Account Value is Subject to Market Value Adjustment Nonparticipating EX-4.F3 7 INDIVIDUAL RETIREMENT ACCOUNT CERTIFICATE 1 MERRILL LYNCH LIFE INSURANCE COMPANY Home Office: Little Rock, Arkansas Administrative Office: P. O. Box 44223, Jacksonville, Florida, 32231-4223 1-800-535-5549 CERTIFICATE OF PARTICIPATION This Certificate is a summary of your rights under the Group Modified Guaranteed Annuity Contract identified in the Certificate Schedule. See Section 2. It is subject to all provisions of the Contract, whether or not summarized in this Certificate. The Contract alone governs the rights of all parties. A copy of the Contract will be furnished on request. MERRILL LYNCH LIFE INSURANCE COMPANY certifies that the person named as Participant in the Certificate Schedule is a Participant under the Contract.
________________________________________________________________________________________ TABLE OF CONTENTS Section Page - ------- ---- 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Certificate Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3. Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4. Contract Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5. Market Value Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . 4 6. Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 8. Payment at Death of Annuitant . . . . . . . . . . . . . . . . . . . . . . . 6 9. Annuity Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 10. Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 11. Annuity Option Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ________________________________________________________________________________________
TEN DAY RIGHT TO REVIEW CERTIFICATE You may cancel your Certificate within ten days after you receive it by returning or mailing it to us or our agent. We will refund your premium within ten days after the Certificate is received by us or our agent. The Certificate will be void from the beginning. /s/ Anthony J. Vespa /s/ Barry G. Skolnick - -------------------- --------------------- President Secretary ------------------------------------------------ Registrar Individual Retirement Account Certificate under Group Modified Guaranteed Annuity Contract Account Value is Subject to Market Value Adjustment Nonparticipating ML-AY-375/94 2 1. DEFINITIONS 1.1 CONTRACT: The group modified guaranteed annuity contract under which this Certificate has been issued. See Section 2. 1.2 ANNUITY: A series of predetermined periodic payments. See Section 9. 1.3 ANNUITANT: Annuity payments may depend upon the continuation of life of a person. That person is called an annuitant. The Annuitant for this Certificate is named in the Certificate Schedule. See Section 2. 1.4 ANNUITY DATE: The date shown in the Certificate Schedule on which payment of an annuity under the Contract is to start. See Sections 2 and 9.1. 1.5 PREMIUM: The money you paid us for this Certificate. See Section 2. 1.6 SUB-ACCOUNT: Your single premium will be allocated to one or more SubAccounts as directed by you. Each Sub-Account will correspond to a specified interest rate and Guarantee Period. See Section 3. 1.7 SUB-ACCOUNT VALUE: An amount equal to that part of your single premium allocated to a Sub-Account, or any reinvestment in a Sub-Account, plus credited interest, as adjusted for any prior withdrawals, Market Value Adjustments and withdrawal charges. See Section 4.1. 1.8 NET SUB-ACCOUNT VALUE: The Sub-Account Value after adjustment for any current Market Value Adjustment and withdrawal charge. 1.9 ACCOUNT VALUE: The sum of all Sub-Account Values. See Section 4.2. 1.10 NET ACCOUNT VALUE: The sum of all Net Sub-Account Values. 1.11 WITHDRAWAL CHARGE: A charge deducted from any Sub-Account from which a withdrawal is made prior to the end of a Guarantee Period. See Section 6.2. 1.12 MARKET VALUE ADJUSTMENT: An adjustment made to Sub-Account Value. It is applied upon withdrawal of all or part of the Sub-Account Value prior to the end of the Guarantee Period. If the Annuity Date is prior to the end of a Guarantee Period, the Market Value Adjustment is also applied at the Annuity Date. See Section 5.1. The adjustment may be either a deduction from or an addition to Sub-Account Value. The formula for this adjustment is shown in Section 5.2. 1.13 GUARANTEE PERIOD: The period for which we guarantee to credit a specified interest rate for a Sub-Account. See Section 3.2. 1.14 MAXIMUM GUARANTEE PERIOD OPTION: An option to have Sub-Account Values automatically transferred to the Sub-Account for the longest Guarantee Period in which Sub-Account Values are currently invested or reinvested, provided such Guarantee Period matures prior to the Annuity Date. See Section 3.4. 1.15 PARTICIPANT: The custodian or trustee of an Individual Retirement Account named in the Certificate Schedule to whom this Certificate has been issued; referred to herein as "you." The Participant and Contract Holder are the same. 1.16 CERTIFICATE ANNIVERSARY: Each anniversary of the Certificate Date. 1.17 CERTIFICATE DATE: The date on which this Certificate was issued. 1.18 CERTIFICATE YEAR: The year starting on the Certificate Date or a Certificate Anniversary and ending with the day just prior to the next Certificate Anniversary. 1.19 OTHER DEFINITIONS: Beneficiary: See Section 7.1. __________ Page Two __________ 3 2. CERTIFICATE SCHEDULE PARTICIPANT ANNUITANT ABC CUSTODIAN MARTHA WASHINGTON FBO MARTHA WASHINGTON -- -- GROUP CONTRACT HOLDER ANNUITY DATE ABC CUSTODIAN July 1, 2004 FBO MARTHA WASHINGTON -- -- GROUP CONTRACT NUMBER CERTIFICATE NUMBER 890123456 897654321 -- -- CERTIFICATE DATE AGE OF ANNUITANT July 1, 1989 FIFTY -- -- SINGLE PREMIUM SEX OF ANNUITANT $10,000 MALE __________ Page Three __________ 4 3.SUB-ACCOUNTS 3.1 SUB-ACCOUNT: Your single premium will be allocated to one or more Sub-Accounts as chosen by you. That part of your single premium allocated to a Sub-Account must be at least $5,000. 3.2 AVAILABLE GUARANTEE PERIODS: Guarantee Periods offered by us will be for terms of 1 year through 10 years. We may at our discretion offer additional Guarantee Periods. 3.3 TRANSFER OF SUB-ACCOUNT VALUE: Sub-Account Values may not be transferred to another Sub-Account, in full or in part, prior to the end of the Guarantee Period. At the end of a Guarantee Period, the Sub-Account Value may be transferred to another Sub-Account. The minimum amount that can be transferred to any one Sub-Account is the lesser of (a) $5,000, or (b) the total Sub-Account Value to be transferred. Upon notice to us prior to the end of the current Guarantee Period, the Sub-Account Value may be transferred at the end of the Guarantee Period to one or more Sub-Accounts as chosen by you. See Section 7.3. We will notify you of such right at least 30 days prior to the end of the Guarantee Period. If no notice is received from you, the Sub-Account Value will be automatically transferred to the Sub-Account for the 1-year Guarantee Period, unless the Maximum Guarantee Period Option has been chosen (see Section 3.4). 3.4 MAXIMUM GUARANTEE PERIOD OPTION: This choice may be made by you in the application for this Certificate or made or changed prior to the end of a Guarantee Period. See Section 7.3. Under this option, if no notice is received for transfer, all Sub-Account Values will be automatically transferred to the Sub-Account for the longest Guarantee Period in which your Sub-Account Values are currently invested, provided such Guarantee Period matures prior to the Annuity Date. If this option has not been chosen, automatic transfer will occur as stated in Section 3.3. 4.CONTRACT VALUES 4.1 SUB-ACCOUNT VALUE: The current Sub-Account Value at any time prior to the Annuity Date is an amount equal to the investment or reinvestment in the Sub-Account plus credited interest, as adjusted for any prior withdrawals, Market Value Adjustments and withdrawal charges. 4.2 ACCOUNT VALUE: The Current Account Value at any time prior to the Annuity Date is equal to the sum of all Sub-Account Values. 4.3 INTEREST RATES: Simple interest will be credited daily and compounded annually for each Certificate Year at the guaranteed interest rate for each Sub-Account in which the Account Value is invested. There are no guaranteed minimum interest rates for reinvestments of Sub-Account Values, except we guarantee that rates on reinvestment will be the same as the guaranteed interest rates offered for any new contracts on the same form as the Contract. 5.MARKET VALUE ADJUSTMENT 5.1 MARKET VALUE ADJUSTMENT: The Market Value Adjustment may be either negative or positive. It will be deducted from or added to Sub-Account Value according to the formula shown in Section 5.2 in the following events: (a) Upon withdrawal of all or part of the Sub-Account Value prior to the end of the Guarantee Period for that Sub-Account, or (b) At the Annuity Date if the Annuity Date is prior to the end of the Guarantee Period for that Sub-Account. 5.2 FORMULA: The Market Value Adjustment is determined by the following formula: (1 + B) n/365 A x [1- ------- ] (1 + C) Where: "n" = The remaining number of days in the Guarantee Period; "A" = The amount withdrawn from the Sub-Account; __________ Page Four __________ 5 "B" = The current guaranteed interest rate that we are offering for a Guarantee Period of a duration of years represented by "n/365." When n/365 is not a whole number, we determine B by straight-line interpolation. If n/365 is less than 1, we will assume B is equal to the rate for a one-year Guarantee Period; and "C" = The guaranteed interest rate for the Sub-Account. 6. WITHDRAWALS 6.1 WITHDRAWALS: You may withdraw all or part of the Net Account Value applied under this option upon notice to us received prior to the earlier of the Annuity Date or the death of the Annuitant. See Section 7.3. For full withdrawal, the Certificate must be surrendered at our administrative office. For partial withdrawals, the withdrawal must be at least $500. The Sub-Account Value of any remaining SubAccounts, after adjustment for any current Market Value Adjustment and withdrawal charge, must beat least $1,000. The remaining Account Value must beat least $5,000. You MUST specify the Sub-Accounts from which the withdrawal is to be made. See Section 7.3. If a Sub-Account has the same Guarantee Period as any other Sub-Account, the Participant may specify only the Sub-Account with the shortest time remaining in the Guarantee Period. 6.2 WITHDRAWAL CHARGE: The amount of the withdrawal charge will equal 6 months of simple interest on the amount withdrawn. Such interest will be computed at the rate we are crediting the Sub-Account from WHICH THE withdrawal is made. The withdrawal charge will be deducted from the Sub-Account from which the withdrawal was made. Withdrawal charges do not apply to: (a) Death payments under Section 8, (b) Annuity payments under Section 9, or (c) Withdrawal at the end of the Guarantee Period for the Sub-Account if we receive written notice from you of such withdrawal prior to the end of the Guarantee Period. 7. GENERAL PROVISIONS 7.1 BENEFICIARY: A beneficiary is the person or entity that is to receive payment on death of the Annuitant under Section 8 or under Section 10 if guaranteed amounts remain unpaid. The Contract Holder is the beneficiary. 7.2 ANNUITANT'S INTEREST NONFORFEITABLE: Annuity payments under the Contract cannot be surrendered, commuted, assigned, encumbered or anticipated in any way. The interest of the Annuitant under the Contract is nonforfeitable. 7.3 NOTICES, CHANGES AND CHOICES: To be effective, all notices, changes and choices you make under the Contract must be in writing, signed and received by us at our administrative office, except that the following may be made by telephone: (a) Notices regarding transfers of Sub-Account Values under Section 3.3; (b) Choices regarding the Maximum Guarantee Period Option under Section 3.4; and (c) Specifications of Sub-Account deductions for withdrawals under Section 6.1. We are not responsible for their validity. When recorded by us, notices, changes and choices relating to beneficiaries will take effect as of the date signed unless we have already acted in reliance on the prior status. 7.4 MISSTATEMENT OF AGE OR SEX: If the age or sex of an Annuitant or a joint annuitant is misstated, annuity payments will be adjusted to reflect the correct age and sex. Any amount we have overpaid as the result of such misstatement will be deducted from the next payments due under the Contract. Interest on the overpayment will be charged at the rate of 6% per year. Any amount we have underpaid will be paid in full with the next payment due under the Contract. We will pay interest on the underpayment at the rate of 6% per year. 7.5 PROOF OF AGE, SEX OR SURVIVAL: We may require satisfactory proof of the age, sex or survival of any person on whose continued life any payment under the Contract depends. 7.6 INCONTESTABILITY: We will not contest the Contract or this Certificate. 7.7 THE CONTRACT: The Contract, its attached application and any endorsements are the entire contract. Only our President, a Vice President, Secretary or Assistant Secretary may change the Contract. Any change must be in writing. __________ Page Five __________ 6 7.8 PAYMENTS: All sums payable to or by us are payable at our administrative office. We may require return of this Certificate prior to making payment. We may defer payments of partial or full withdrawals for up to 6 months. 7.9 REPORTS: Prior to the Annuity Date we will furnish you a report at least once each year. It will show your Account Value, Sub-Account Values and current interest rates. 7.10 COMPLIANCE WITH STATE AND FEDERAL LAW: We reserve the right to change the provisions of the Contract and the Certificates issued under the Contract to conform to any applicable law, regulation or ruling issued by a government agency. Such right is subject to the approval of the insurance regulator of the state in which the Contract was issued. We will promptly provide you with a copy of any such amendment. 8. PAYMENT AT DEATH OF ANNUITANT 8.1 DEATH PRIOR TO ANNUITY DATE: On death of the Annuitant prior to the Annuity Date, we will pay to the beneficiary an amount equal to the greater of the Account Value or the Net Account Value on the date of payment. Payment will be made in a lump sum unless Section 8.2 is chosen. 8. 2 ANNUITY OPTION: If the beneficiary is the surviving spouse of the deceased Annuitant, he or she may choose to receive payments under any of the annuity options of the Contract. For any other beneficiary, only those options are available that provide for full payment within 5 years of the date of such Annuitant's death. 8.3 CERTIFICATE CONTINUATION OPTION: The Participant may irrevocably choose, prior to the Annuitant's death, to continue the Certificate in force upon the death of the Annuitant on the same terms as before such Annuitant's death. A person designated by the Participant shall thereafter be the Annuitant. 8.4 DEATH AFTER ANNUITY DATE: See Section 10.8. 9. ANNUITY PROVISIONS 9.1 ANNUITY DATE: The Annuity Date must be on the first day of a month. The Annuity Date may not be later than April 1 of the year after the year in which the Annuitant attains age 70 1/2 and will be such date if you have not chosen an Annuity Date. You may change the Annuity Date up to 30 days prior to the Annuity Date. A MARKET VALUE ADJUSTMENT MAY BE APPLIED ON THE ANNUITY DATE. SEE SECTION 5.1. 9.2 ANNUITY OPTIONS: If you have not chosen an annuity option, Option 4 will apply with a 10-year guarantee period or a period of years no greater than the Annuitant's life expectancy, whichever is less. You may change options only up to 30 days prior to the Annuity Date. An option not set forth in the Contract may be chosen if acceptable to us. When applicable, life expectancy will be determined according to Internal Revenue Service regulations and rulings. 9.3 MINIMUM ANNUITY PAYMENT: If the Net Account Value to be applied at the Annuity Date is less than $5,000, we may pay such amount in a lump sum. If any payment would be less than $50, we may change the frequency so payments are at least $50 each. 9.4 AMOUNT OF ANNUITY PAYMENTS: Any premium taxes imposed by a state or other government will be deducted from the Net Account Value at the Annuity Date. The remaining Net Account Value will be applied to the annuity option chosen at our current annuity rates, which will be furnished on request. The rates will assume interest of not less than 3%. They will not be less favorable than those shown in the annuity tables in the Contract and this Certificate. The tables show the minimum guaranteed amount of each monthly payment for each $1,000 so applied, according to age and sex at the Annuity Date. The tables are based on the 1983 Table "a" projected forward to 1995 for Individual Annuity Valuation with interest at 3%. 10. ANNUITY OPTIONS 10.1 OPTION 1 -- PAYMENTS OF A FIXED AMOUNT: Equal payments in the amount chosen will be made until the Net Account Value applied under this option is exhausted. The term over which such payments are made must be at least 5 years and may not exceed the Annuitant's life expectancy, or, the joint life expectancy of the Annuitant and the Annuitant's spouse (or, if the Annuitant is not married, a designated second person), at the Annuity Date. If the Annuitant dies before the Annuity Date, the period may not exceed the life expectancy of the Annuitant's surviving spouse. __________ Page Six __________ 7 10.2 OPTION 2 -- PAYMENTS FOR A FIXED PERIOD: Payments will be made for the period chosen. The period must be at least 5 years and may not exceed your life expectancy, or the joint life expectancy of you and your spouse (or, if you are not married, a designated second person), at the Annuity Date. If you die before the Annuity Date, the period may not exceed the life expectancy of your surviving spouse. 10.3 OPTION 3 -- LIFE ANNUITY: Payments will be made for the life of the Annuitant. Payments will cease with the last payment due prior to the Annuitant's death. 10.4 OPTION 4 -- LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS: Payments will be made for the guaranteed period chosen (10 or 20 years) and as long thereafter as the Annuitant lives. The guaranteed period selected may not exceed your life expectancy, or the joint life expectancy of you and your spouse (or, if you are not married, a designated second person), at the Annuity Date. If you die before the Annuity Date, the period may not exceed the life expectancy of your surviving spouse. 10.5 OPTION 5 -- LIFE ANNUITY WITH GUARANTEED RETURN OF NET ACCOUNT VALUE: Payments will be made until the sum of the annuity payments equals the Net Account Value applied under this option, and as long thereafter as the Annuitant lives. The period required for distribution of the Net Account Value may not exceed your life expectancy or the joint life expectancy of you and your spouse (or, if you are not married, a designated second person), at the Annuity Date. If you die before the Annuity Date, the period required for distribution of the Net Account value may not exceed the life expectancy of your surviving spouse. 10.6 OPTION 6 -- JOINT AND SURVIVOR LIFE ANNUITY: Payments will be made during the lifetimes of you and a designated second person. The second person must be your spouse if you have a spouse. Upon death of one, payments for the life of the other will be made in the same amount. Option 6 is not available to the beneficiary. 10.7 OPTION 7 -- QUALIFIED PLAN OPTION: Annuity payments may be based on (a) your life expectancy, (b) the joint life expectancy of you and your spouse, or (c) the life expectancy of your surviving spouse if you die before the Annuity Date. Payments will be made annually. Each annual payment will be equal to the Net Account Value on THE FIRST DAY of that calendar year divided by the applicable current life expectancy, as defined by Internal Revenue Service regulations. Each subsequent payment will be made on the anniversary of the Annuity Date. Interest will be credited at our current rate for this option. The rate will not be less than 3%. On death of the measuring life or lives prior to full distribution of the Net Account Value, the remaining Net Account Value will be paid to the beneficiary in a lump sum. 10.8 DEATH OF PARTICIPANT: On death of the Participant after the Annuity Date while guaranteed amounts remain unpaid, the beneficiary may choose either: (a) To have the payments continue for the amount or period guaranteed, or (b) To receive the present value of the remaining guaranteed payments in a lump sum. If a beneficiary dies while guaranteed amounts remain unpaid, the present value will be paid in a lump sum to the beneficiary's estate. Present values will be computed at the interest rate or rates that were used to compute the amount of the initial annuity payment. 10.9 PAYMENT: Except for Option 7, payment will be made on the first day of each month starting with the Annuity Date, but prior to the Annuity Date you may choose a less frequent payment interval instead. The amount of each payment on an annual, semiannual or quarterly basis will not be less than the monthly payment computed from the annuity tables in the Contract and this Certificate multiplied by the appropriate factor. Annual Semiannual Quarterly ------ ---------- --------- 11.839 5.963 2.993 __________ Page Seven __________ 8
11. ANNUITY OPTION TABLES MINIMUM GUARANTEED MONTHLY ANNUITY PAYMENT FOR EACH $1,000 APPLIED UNDER OPTION OPTION 2 (Payments for a Fixed Period) Years Each Years Each Years Each Years Each Payable Payment Payable Payment Payable Payment Payable Payment ------- ------- ------- ------- ------- ------- ------- ------- 5 17.91 9 10.53 13 7.71 17 6.23 6 15.14 10 9.61 14 7.26 18 5.96 7 13.16 11 8.86 15 6.87 19 5.73 8 11.68 12 8.24 16 6.53 20 5.51
OPTION 3 (Life Annuity), OPTION 4 (Life Annuity with 10 or 20 Years Guaranteed) and OPTION 5 (Return of Net Account Value Guaranteed) *Adjusted Life 10 Years 20 Years Return of *Adjusted Life 10 Years 20 Years Return of Male Age Annuity Guaranteed Guaranteed Net Account Value Female Age Annuity Guaranteed Guaranteed Net Account Value - --------- ------- ---------- ---------- ----------------- ---------- ------- ---------- ---------- ----------------- 56 4.62 4.56 4.34 4.37 56 4.19 4.16 4.06 4.05 57 4.72 4.65 4.41 4.45 57 4.27 4.24 4.12 4.12 58 4.83 4.75 4.47 4.53 58 4.35 4.32 4.19 4.19 59 4.94 4.85 4.54 4.61 59 4.44 4.40 4.25 4.26 60 5.06 4.95 4.60 4.70 60 4.54 4.49 4.32 4.34 61 5 19 5.07 4.67 4.80 61 4.64 4.58 4.39 4.42 62 5.33 5.19 4.73 4.90 62 4.74 4.68 4.46 4.50 63 5.47 5.31 4.80 5.00 63 4.86 4.79 4.53 4.59 64 5.63 5.44 4.86 5.11 64 4.98 4.90 4.60 4.69 65 5.80 5.58 4.92 5.23 65 5.11 5.01 4.67 4.79 66 5.98 5.72 4.98 5.35 66 5.25 5.14 4.74 4.89 67 6.17 5.86 5.04 5.48 67 5.40 5.27 4.82 5.00 68 6.37 6.02 5.10 5.61 68 5.55 5.40 4.89 5.12 69 6.59 6.18 5.15 5.75 69 5.72 5.55 4.95 5.25 70 6.82 6.34 5.20 5.90 70 5.91 5.70 5.02 5.38 71 7.07 6.50 5.24 6.06 71 6.11 5.86 5.08 5.52 72 7.34 6.67 5.28 6.22 72 6.32 6.03 5.14 5.66 73 7.62 6.85 5.32 6.39 73 6.56 6.20 5.19 5.82 74 7.92 7.02 5.35 6.57 74 6.81 6.38 5.24 5.99 75 8.24 7.20 5.38 6.76 75 7.08 6.57 5.29 6.16 76 8.58 7.38 5.40 6.97 76 7.37 6.76 5.33 6.35 77 8.95 7.55 5.42 7.17 77 7.69 6.96 5.36 6.55 78 9.35 7.72 5.44 7.39 78 8.03 7.16 5.39 6.75 79 9.77 7.89 5.46 7.63 79 8.40 7.36 5.41 6.98 80 10.22 8.06 5.47 7.87 80 8.80 7.56 5.44 7.21 81 10.71 8.22 5.48 8.13 81 9.23 7.75 5.45 7.45 82 11.22 8.37 5.49 8.40 82 9.70 7.94 5.47 7.71 83 11.77 8.51 5.50 8.68 83 10.21 8.13 5.48 7.98 84 12 35 8.65 5.50 8.97 84 10.76 8.30 5.49 8.27 85 12.97 8.77 5.50 9.29 85 11.35 8.46 5.50 8.57
OPTION 6 (Joint and Survivor Life Annuity)
*Adjusted *Adjusted Male Age *Adjusted Female ----------------------------------------------------------------------------- Female Age 50 55 60 65 70 75 80 35 Age - ---------- ---- ---- ---- ---- ---- ---- ---- ---- --- 50 3 52 3.60 3.66 3.71 3.74 3.76 3.78 3.78 50 55 3.65 3.77 3.87 3.95 4.01 4.05 4.08 4.09 55 60 3.78 3.94 4.10 4.23 4.34 4.41 4.46 4.49 60 65 3.88 4.10 4.33 4.54 4.72 4.86 4.96 5.02 65 70 3.96 4.23 4.54 4.85 5.15 5.40 5.59 5.72 70 75 4.02 4.34 4.72 5.14 5.59 6.01 6.37 6.64 75 80 4.06 4.41 4.85 5.38 5.99 6.63 7.24 7.76 80 85 4.09 4.46 4.94 5.55 6.30 7.17 8.11 9.01 85
Information for ages not shown will be furnished on request. *"Adjusted Age" means attained age at last birthday adjusted as follows: Annuity Date Adjusted Age ------------ ------------ Before 2000 Actual age 2000-2009 Subtract 1 year from actual age 2010-2019 Subtract 2 years from actual age 2020-2029 Subtract 3 years from actual age 2030 and after Subtract 4 years from actual age __________ Page Eight __________ 9 MERRILL LYNCH LIFE INSURANCE COMPANY Home Office: Little Rock, Arkansas Administrative Office: P.O. 44223, Jacksonville, FL 32231-4223 1-800-535-5549 Individual Retirement Account Certificate under Group Modified Guaranteed Annuity Contract Account Value is Subject to Market Value Adjustment Nonparticipating EX-4.G3 8 SECTION 457 DEF. COMPENSATION PLAN CERTIFICATE 1 MERRILL LYNCH LIFE INSURANCE COMPANY Home Office: Little Rock, Arkansas Administrative Office: P.O. 44223, Jacksonville, FL 32231-4223 1-800-535-5549 CERTIFICATE OF PARTICIPATION This Certificate is a summary of your rights under the Group Modified Guaranteed Annuity Contract identified in the Certificate Schedule. See Section 2. It is subject to all provisions of the Contract, whether or not summarized in this Certificate. The Contract alone governs the rights of all parties. A copy of the Contract will be furnished on request. MERRILL LYNCH LIFE INSURANCE COMPANY certifies that the person named as Participant in the Certificate Schedule is a Participant under the Contract. ________________________________________________________________________________ TABLE OF CONTENTS
Section Page - ------- ---- 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Certificate Schedule . . . . . . . . . . . . . . . . . . . . . . . . . 3 3. Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4. Contract Values . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5. Market Value Adjustment . . . . . . . . . . . . . . . . . . . . . . . 4 6. Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 5 8. Payment at Death of Annuitant . . . . . . . . . . . . . . . . . . . . 6 9. Annuity Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 6 10. Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 11. Annuity Option Tables . . . . . . . . . . . . . . . . . . . . . . . . 8
_______________________________________________________________________________ TEN DAY RIGHT TO REVIEW CERTIFICATE You may cancel your Certificate within ten days after you receive it by returning or mailing it to us or our agent. We will refund your premium within ten days after the Certificate is received by us or our agent. The Certificate will be void from the beginning. /s/ Anthony J. Vespa /s/ Barry G. Skolnick - -------------------- --------------------- President Secretary ------------------------------------------------ Registrar Section 457 Deferred Compensation Plan Certificate under Group Modified Guaranteed Annuity Contract Account Value is Subject to Market Value Adjustment Nonparticipating ML-AY-376/94 2 1. DEFINITIONS 1.1 CONTRACT: The group modified guaranteed annuity contract under which this Certificate has been issued. See Section 2. 1.2 ANNUITY: A series of predetermined periodic payments. See Section 9. 1.3 ANNUITANT: Annuity payments may depend upon the continuation of life of a person. That person is called an annuitant. The Annuitant for this Certificate is named in the Certificate Schedule. See Section 2. The Annuitant has no vested rights in the Contract or this Certificate. 1.4 ANNUITY DATE: The date shown in the Certificate Schedule on which payment of an annuity under the Contract is to start. See Sections 2 and 9.1. 1.5 PREMIUM: The money paid to us for this Certificate. See Section 2. 1.6 SUB-ACCOUNT: Your single premium will be allocated to one or more Sub-Accounts as directed by you. Each Sub-Account will correspond to a specified interest rate and Guarantee Period. See Section 3. 1.7 SUB-ACCOUNT VALUE: An amount equal to that part of your single premium allocated to a Sub-Account, or any reinvestment in a Sub-Account, plus credited interest, as adjusted for any prior withdrawals, Market Value Adjustments and withdrawal charges. See Section 4.1. 1.8 NET SUB-ACCOUNT VALUE: The Sub-Account Value after adjustment for any current Market Value Adjustment and withdrawal charge. 1.9 ACCOUNT VALUE: The sum of all Sub-Account Values. See Section 4.2. 1.10 NET ACCOUNT VALUE: The sum of all Net Sub-Account Values. 1.11 WITHDRAWAL CHARGE: A charge deducted from any Sub-Account from which a withdrawal is made prior to the end of a Guarantee Period. See Section 6.2. 1.12 MARKET VALUE ADJUSTMENT: An adjustment made to Sub-Account Value. It is applied upon withdrawal of all or part of the Sub-Account Value prior to the end of the Guarantee Period. If the Annuity Date is prior to the end of a Guarantee Period, the Market Value Adjustment is also applied at the Annuity Date. See Section 5.1. The adjustment may be either a deduction from or an addition to SubAccount Value. The formula for this adjustment is shown in Section 5.2. 1.13 GUARANTEE PERIOD: The period for which we guarantee to credit a specified interest rate for a Sub-Account. See Section 3.2. 1.14 MAXIMUM GUARANTEE PERIOD OPTION: An option to have Sub-Account Values automatically transferred to the Sub-Account for the longest Guarantee Period in which Sub-Account Values are currently invested or reinvested, provided such Guarantee Period matures prior to the Annuity Date. See Section 3.4. 1.15 PARTICIPANT: An eligible employer as defined in Section 457 of the Internal Revenue Code to whom this Certificate has been issued; referred to herein as "you." The Participant is named in the Certificate Schedule. The Participant and Contract Holder are the same. 1.16 CERTIFICATE ANNIVERSARY: Each anniversary of the Certificate Date. 1.17 CERTIFICATE DATE: The date on which this Certificate was issued. 1.18 CERTIFICATE YEAR: The year starting on the Certificate Date or a Certificate Anniversary and ending with the day just prior to the next Certificate Anniversary. 1.19 OTHER DEFINITIONS: Beneficiary: See Section 7.1. __________ Page Two __________ 3 2. CERTIFICATE SCHEDULE PARTICIPANT ANNUITANT ABC COMPANY MARTHA WASHINGTON -- -- GROUP CONTRACT HOLDER ANNUITY DATE ABC COMPANY JULY 1, 2004 -- -- GROUP CONTRACT NUMBER CERTIFICATE NUMBER 890123456 897654321 -- -- CERTIFICATE DATE AGE OF ANNUITANT July 1, 1989 FIFTY -- -- SINGLE PREMIUM $10,000 __________ Page Three __________ 4 3. SUB-ACCOUNTS 3.1 SUB-ACCOUNT: Your single premium will be allocated to one or more Sub-Accounts as chosen by you. That part of your single premium allocated to a Sub-Account must be at least $5,000. 3.2 AVAILABLE GUARANTEE PERIODS: Guarantee Periods offered by us will be for terms of 1 year through 10 years. We may at our discretion offer additional Guarantee Periods. 3.3 TRANSFER OF SUB-ACCOUNT VALUE: Sub-Account Values may not be transferred to another Sub-Account, in full or in part, prior to the end of the Guarantee Period. At the end of a Guarantee Period, the Sub-Account Value may be transferred to another Sub-Account. The minimum amount that can be transferred to any one Sub-Account is the lesser of (a) $5,000, or (b) the total Sub-Account Value to be transferred. Upon notice to us prior to the end of the current Guarantee Period, the Sub-Account Value may be transferred at the end of the Guarantee Period to one or more Sub-Accounts as chosen by you. See Section 7.3. We will notify you of such right at least 30 days prior to the end of the Guarantee Period. If no notice is received from you, the SubAccount Value will be automatically transferred to the Sub-Account for the 1-year Guarantee Period, unless the Maximum Guarantee Period Option has been chosen (see Section 3.4). 3.4 MAXIMUM GUARANTEE PERIOD OPTION: This choice may be made by you in the application for this Certificate or made or changed prior to the end of a Guarantee Period. See Section 7.3. Under this option, if no notice is received for transfer, all Sub-Account Values will be automatically transferred to the Sub-Account for the longest Guarantee Period in which your Sub-Account Values are currently invested, provided such Guarantee Period matures prior to the Annuity Date. If this option has not been chosen, automatic transfer will occur as stated in Section 3.3. 4. CONTRACT VALUES 4.1 SUB-ACCOUNT VALUE: The current Sub-Account Value at any time prior to the Annuity Date is an amount equal to the investment or reinvestment in the Sub-Account plus credited interest, as adjusted for any prior withdrawals, Market Value Adjustments and withdrawal charges. 4.2 ACCOUNT VALUE: The Current Account Value at any time prior to the Annuity Date is equal to the sum of all Sub-Account Values. 4.3 INTEREST RATES: Simple interest will be credited daily and compounded annually for each Certificate Year at the guaranteed interest rate for each Sub-Account in which the Account Value is invested. There are no guaranteed minimum interest rates for reinvestments of Sub-Account Values, except we guarantee that rates on reinvestment will be the same as the guaranteed interest rates offered for any new contracts on the same form as the Contract. 5. MARKET VALUE ADJUSTMENT 5.1 MARKET VALUE ADJUSTMENT: The Market Value Adjustment may be either negative or positive. It will be deducted from or added to Sub-Account Value according to the formula shown in Section 5.2 in the following events: (a) Upon withdrawal of all or part of the Sub-Account Value prior to the end of the Guarantee Period for that Sub-Account, or (b) At the Annuity Date if the Annuity Date is prior to the end of the Guarantee Period for that Sub-Account. 5.2 FORMULA: The Market Value adjustment is determined by the following formula: (1 + B) n/365 A x [1 - ------- ] (1 + C) Where: "n" = The remaining number of days in the Guarantee Period; "n" = The amount withdrawn from the Sub-Account; __________ Page Four __________ 5 "B" = The current guaranteed interest rate that we are offering for a Guarantee Period of a duration of years represented by "n/365." When n/365 is not a whole number, we determine B by straight-line interpolation. If n/365 is less than 1, we will assume B is equal to the rate for a one-year Guarantee Period; and "C" = The guaranteed interest rate for the Sub-Account. 6. WITHDRAWALS 6.1 WITHDRAWALS: You may withdraw all or part of the Net Account Value applied under this option upon notice to us received prior to the earlier of the Annuity Date or the death of the Annuitant. See Section 7.3. For full withdrawal, the Certificate must be surrendered at our administrative office. For partial withdrawals, the withdrawal must be at least $500. The Sub-Account Value of any remaining Sub-Accounts, after adjustment for any current Market Value Adjustment and withdrawal charge, must be at least $1,000. The remaining Account Value must be at least $5,000. You MUST specify the Sub-Accounts from which the withdrawal is to be made. See Section 7.3. If a Sub-Account has the same Guarantee Period as any other Sub-Account, the Participant may specify only the Sub-Account with the shortest time remaining in the Guarantee Period. 6.2 WITHDRAWAL CHARGE: The amount of the withdrawal charge will equal 6 months of simple interest on the amount withdrawn. Such interest will be computed at the rate we are crediting the Sub-Account from which the withdrawal is made. The withdrawal charge will be deducted from the Sub-Account from which the withdrawal was made. Withdrawal charges do not apply to: (a) Death payments under Section 8. (b) Annuity payments under Section 9, or (c) Withdrawal at the end of the Guarantee Period for the Sub-Account if we receive written notice from you of such withdrawal prior to the end of the Guarantee Period. 7. GENERAL PROVISIONS 7.1 BENEFICIARY: A beneficiary is the person or entity that is to receive payment on death of the Annuitant under Section 8 or under Section 10 if guaranteed amounts remain unpaid. The Contract Holder is the beneficiary. 7.2 COLLATERAL ASSIGNMENT: Upon notice to us, you may make a collateral assignment of your rights under the Contract to a creditor as security for a debt. The rights of an assignee have priority over the rights of a beneficiary. 7.3 NOTICES, CHANGES AND CHOICES: To be effective, all notices, changes and choices you make under the Contract must be in writing, signed and received by us at our administrative office, except that the following may be made by telephone: (a) Notices regarding transfers of Sub-Account Values under Section 3.3; (b) Choices regarding the Maximum Guarantee Period Option under Section 3.4; and (c) Specifications of Sub-Account deductions for withdrawals under Section 6.1. We are not responsible for their validity. When recorded by us, notices, changes and choices relating to beneficiaries will take effect as of the date signed unless we have already acted in reliance on the prior status. 7.4 MISSTATEMENT OF AGE: If the age of an Annuitant or a joint annuitant is misstated, annuity payments will be adjusted to reflect the correct age. Any amount we have overpaid as the result of such misstatement will be deducted from the next payments due under the Contract. Interest on the overpayment will be charged at the rate of 6% per year. Any amount we have underpaid will be paid in full with the next payment due under the Contract. We will pay interest on the underpayment at the rate of 6% per year. 7.5 PROOF OF AGE OR SURVIVAL: We may require satisfactory proof of the age or survival of any person on whose continued life any payment under the Contract depends. 7.6 INCONTESTABILITY: We will not contest the Contract or this Certificate 7.7 THE CONTRACT: The Contract, its attached application and any endorsements are the entire contract. Only our President, a Vice President, Secretary or Assistant Secretary may change the Contract. Any change must be in writing. __________ Page Five __________ 6 7.8 PAYMENTS: All sums payable to or by us are payable at our administrative office. We may require return of this Certificate prior to making payment. We may defer payments of partial or full withdrawals for up to 6 months. The Participant agrees that amounts payable under the Contract will not be made available to the Annuitant any earlier than when the Annuitant (1) separates from service, or (2) is faced with an unforseeable emergency, as defined by federal tax laws and regulations. 7.9 REPORTS: Prior to the Annuity Date we will furnish you a report at least once each year. It will show your Account Value, Sub-Account Values and current interest rates. 7.10 COMPLIANCE WITH STATE AND FEDERAL LAW: We reserve the right to change the provisions of the Contract and the Certificates issued under the Contract to conform to any applicable law, regulation or ruling issued by a government agency. Such right is subject to the approval of the insurance regulator of the state in which the Contract was issued. We will promptly provide you with a copy of any such amendment. 8. PAYMENT AT DEATH OF ANNUITANT 8.1 DEATH PRIOR TO ANNUITY DATE: On death of the Annuitant prior to the Annuity Date, we will pay to the beneficiary an amount equal to the greater of the Account Value or the Net Account Value on the date of payment. Payment will be made in a lump sum unless Section 8.2 is chosen. 8.2 ANNUITY OPTION: If the beneficiary is the surviving spouse of the deceased Annuitant, he or she may choose to receive payments under any of the annuity options of the Contract. For any other beneficiary, only those options are available that provide for full payment within 5 years of the date of such Annuitant's death. 8.3 DEATH AFTER ANNUITY DATE: See Section 10.7. 9. ANNUITY PROVISIONS 9.1 ANNUITY DATE: The Annuity Date must be on the first day of a month. The Annuity Date may not be later than April 1 of the year after the year in which the Annuitant attains age 70 1/2 and will be such date if you have not chosen an Annuity Date. You may change the Annuity Date up to 30 days prior to the Annuity Date. A MARKET VALUE ADJUSTMENT MAY BE APPLIED ON THE ANNUITY DATE. SEE SECTION 5.1. 9.2 ANNUITY OPTIONS: If you have not chosen an annuity option, Option 4 will apply with a 10-year guarantee period or a period of years no greater than the Annuitant's life expectancy, whichever is less. You may change options only up to 30 days prior to the Annuity Date. An option not set forth in the Contract may be chosen if acceptable to us. When applicable, life expectancy will be determined according to Internal Revenue Service regulations and rulings. 9.3 MINIMUM ANNUITY PAYMENT: If the Net Account Value to be applied at the Annuity Date is less than $5,000, we may pay such amount in a lump sum. If any payment would be less than $50, we may change the frequency so payments are at least $50 each. 9.4 AMOUNT OF ANNUITY PAYMENTS: Any premium taxes imposed by a state or other government will be deducted from the Net Account Value at the Annuity Date. The remaining Net Account Value will be applied to the annuity option chosen at our current annuity rates, which will be furnished on request. The rates will assume interest of not less than 3%. They will not be less favorable than those shown in the annuity tables in the Contract and this Certificate. The tables show the minimum guaranteed amount of each monthly payment for each $1,000 so applied, according to age at the Annuity Date. The tables are based on the combined male/female 1983 Table "a" projected forward to 1995 for Individual Annuity Valuation with interest at 3%. 10. ANNUITY OPTIONS 10.1 OPTION 1--PAYMENTS OF A FIXED AMOUNT: Equal payments in the amount chosen will be made until the Net Account Value applied under this option is exhausted. The term over which such payments are made must be at least 5 years and may not exceed the Annuitant's life expectancy, or the joint life expectancy of the Annuitant and the Annuitant's spouse (or, if the Annuitant is not married, a designated second person), at the Annuity Date. If the Annuitant dies before the Annuity Date, the period may not exceed the life expectancy of the Annuitant's surviving spouse. __________ Page Six __________ 7 10.2 OPTION 2 -- PAYMENTS FOR A FIXED PERIOD: Payments will be made for the period chosen. The period must be at least 5 years and may not exceed the Annuitant's life expectancy, or the joint life expectancy of the Annuitant and the Annuitant's spouse (or, if the Annuitant is not married, a designated second person), at the Annuity Date. If the Annuitant dies before the Annuity Date, the period may not exceed the life expectancy of the Annuitant's surviving spouse. 10.3 OPTION 3 -- LIFE ANNUITY: Payments will be made for the life of the Annuitant. PAYMENTS WILL CEASE WITH THE last payment due prior to the Annuitant's death. 10.4 OPTION 4 -- LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS: Payments will be made for the guaranteed period chosen (10 or 20 years) and as long thereafter as the Annuitant lives. The guaranteed period selected may not exceed the Annuitant's life expectancy, or the joint life expectancy of the Annuitant and the Annuitant's spouse (or, if the Annuitant is not married, a designated second person), at the Annuity Date. If the Annuitant dies before the Annuity Date, the period may not exceed the life expectancy of the Annuitant's surviving spouse. 10.5 OPTION 5 -- LIFE ANNUITY WITH GUARANTEED RETURN OF NET ACCOUNT VALUE: Payments will be made until the sum of the annuity payments equals the Net Account Value applied under this option, and as long thereafter as the Annuitant lives. The period required for distribution of the Net Account Value may not exceed the Annuitant's life expectancy or the joint life expectancy of the Annuitant and his or her spouse (or, if the Annuitant is not married, a designated second person), at the Annuity Date. If the Annuitant dies before the Annuity Date, the period required for distribution of the Net Account Value may not exceed the life expectancy of the surviving spouse. 10.6 OPTION 6 -- JOINT AND SURVIVOR LIFE ANNUITY: Payments will be made during the lifetimes of the Annuitant and a designated second person. The second person must be the Annuitant's spouse if the Annuitant has a spouse. Upon death of one, payments for the life of the other will be made in the same amount. Option 6 is not available to the beneficiary. 10.7 DEATH OF ANNUITANT: On death of the Annuitant after the Annuity Date while guaranteed amounts remain unpaid, the beneficiary may choose either: (a) To have the payments continue for the amount or period guaranteed, or (b) To receive the present value of the remaining guaranteed payments in a lump sum. Present values will be computed at the interest rate or rates that were used to compute the amount of the initial annuity payment. 10.8 PAYMENT: Payment will be made on the first day of each month starting with the Annuity Date, but prior to the Annuity Date you may choose a less frequent payment interval instead. The amount of each payment on an annual, semiannual or quarterly basis will be not less than the monthly payment computed from the annuity tables in the Contract and this Certificate multiplied by the appropriate factor. Annual Semiannual Quarterly ------ ---------- --------- 11.839 5.963 2.993 __________ Page Seven __________ 8 11. ANNUITY OPTION TABLES MINIMUM GUARANTEED MONTHLY ANNUITY PAYMENT FOR EACH $1,000 APPLIED UNDER OPTION OPTION 2 (Payments for a Fixed Period)
Years Each Years Each Years Each Years Each Payable Payment Payable Payment Payable Payment Payable Payment ------- ------- ------- ------- ------- ------- ------- ------- 9 10.53 13 7.71 17 6.23 6 15.14 10 9.61 14 7.26 18 5.96 7 13.16 11 8.86 15 6.87 19 5.73 8 11.68 12 8.24 16 6.53 20 5.51
OPTION 3 (Life Annuity), OPTION 4 (Life Annuity with 10 or 20 Years Guaranteed) and OPTION 5 (Return of Net Account Value Guaranteed)
*Adjusted Life 10 Years 20 Years Return of *Adjusted Life 10 Years 20 Years Return of Age Annuity Guaranteed Guaranteed Net Account Value Age Annuity Guaranteed Guaranteed Net Account Value - -------- ------- ---------- ---------- ----------------- --------- ------- ---------- ---------- ----------------- 50 3.97 3.94 3.87 3.85 68 5.96 5.72 5.00 5.37 51 4.03 4.01 3.92 3.90 69 6.16 5.87 5.06 5.50 70 6.36 6.03 5.12 5.64 52 4.10 4.07 3.97 3.96 71 6.59 6.19 5.17 5.79 53 4.17 4.14 4.03 4.02 54 4.25 4.21 4.09 4.08 72 6.83 6.36 5.22 5.94 55 4.33 4.28 4.15 4.14 73 7.08 6.54 5.26 6.10 56 4.41 4.36 4.21 4.21 74 7.36 6.71 5.30 6.28 75 7.65 6.90 5.34 6.46 57 4.50 4.45 4.27 4.26 58 4.59 4.54 4.34 4.36 76 7.97 7.08 5.37 6.65 59 4.69 4.63 4.40 4.44 77 8.31 7.27 5.40 6.86 60 4.80 4.73 4.47 4.52 78 8.68 7.46 5.42 7.07 61 4.92 4.83 4.54 4.61 79 9.08 7.64 5.44 7.30 80 9.50 7.82 5.46 7.54 62 5.04 4.94 4.60 4.70 63 5.17 5.05 4.67 4.80 81 9.96 8.00 5.47 7.79 64 5.31 5.17 4.74 4.90 82 10.45 8.17 5.48 8.05 65 5.45 5.30 4.81 5.01 83 10.98 8.33 5.49 8.33 66 5.61 5.43 4.87 5.12 84 11.54 8.49 5.50 8.62 67 5.78 5.57 4.94 5.24 85 12.15 8.63 5.50 8.93
OPTION 6 (Joint and Survivor Life Annuity)
*Adjusted Age of Joint Annuitant ------------------------------------------------------------------------------------------------------------ *Adjusted 50 55 60 65 70 75 80 85 *Adjusted Age of ------------------------------------------------------------------------------------------------------------ Age of Annuitant 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 Annuitant - --------- ------------------------------------------------------------------------------------------------------------ --------- 50 3.54 3.81 3.65 3.96 3.74 4.12 3.81 4.30 3.86 4.49 3.90 4.69 3.93 4.90 3.94 5.10 50 55 3.79 4.13 3.93 4.32 4.05 4.53 4.14 4.76 4.21 5.00 4.26 5.25 4.29 5.49 55 60 4.13 4.55 4.31 4.81 4.46 5.09 4.58 5.39 4.67 5.69 4.73 5.97 60 65 4.58 5.13 4.82 5.48 5.03 5.85 5.19 6.23 5.30 6.60 65 70 5.19 5.92 5.54 6.41 5.82 6.91 6.04 7.40 70 75 6.06 7.04 6.55 7.72 6.94 8.40 75 80 7.30 8.63 7.98 9.59 80 85 9.06 10.91 85
Information for ages not shown will be furnished on request. *"Adjusted Age" means attained age at last birthday adjusted as follows: Annuity Date Adjusted Age - ------------ ------------ Before 2000 Actual Age 2000-2009 Subtract 1 year from actual age 2010-2019 Subtract 2 years from actual age 2020-2029 Subtract 3 years from actual age 2030 and after Subtract 4 years from actual age THE ABOVE TABLES ARE BASED ON THE COMBINED MALE/FEMALE 1983 TABLE "A" PROJECTED FORWARD TO 1995 FOR INDIVIDUAL ANNUITY VALUATION WITH INTEREST AT 3%. __________ Page Eight __________ 9 MERRILL LYNCH LIFE INSURANCE COMPANY Home Office: Little Rock, Arkansas Administrative Office: P.O. 44223, Jacksonville, FL 32231-4223 1-800-535-5549 Section 457 Deferred Compensation Plan Certificate under Group Modified Guaranteed Annuity Contract Account Value is Subject to Market Value Adjustment Nonparticipating EX-4.M3 9 QUALIFIED PLAN ENDORSEMENT 1 MERRILL LYNCH LIFE INSURANCE COMPANY QUALIFIED PLAN ENDORSEMENT The following tables are substituted for the tables set forth in the contract to which this endorsement is attached: ANNUITY OPTION TABLES MINIMUM GUARANTEED MONTHLY ANNUITY PAYMENT FOR EACH $1,000 APPLIED UNDER OPTION OPTION 2 (Payments for a Fixed Period)
Years Each Years Each Years Each Years Each Payable Payment Payable Payment Payable Payment Payable Payment ------- ------- ------- ------- ------- ------- ------- ------- 9 10.53 13 7.71 17 6.23 6 15.14 10 9.61 14 7.26 18 5.96 7 13.16 11 8.86 15 6.87 19 5.73 8 11.68 12 8.24 16 6.53 20 5.51
OPTION 3 (Life Annuity), OPTION 4 (Life Annuity with 10 or 20 Years Guaranteed) and OPTION 5 (Return of Net Account Value Guaranteed)
*Adjusted Life 10 Years 20 Years Return of *Adjusted Life 10 Years 20 Years Return of Age Annuity Guaranteed Guaranteed Net Account Value Age Annuity Guaranteed Guaranteed Net Account Value - -------- ------- ---------- ---------- ----------------- --------- ------- ---------- ---------- ----------------- 50 3.97 3.94 3.87 3.85 68 5.96 5.72 5.00 5.37 51 4.03 4.01 3.92 3.90 69 6.16 5.87 5.06 5.50 70 6.36 6.03 5.12 5.64 52 4.10 4.07 3.97 3.96 71 6.59 6.19 5.17 5.79 53 4.17 4.14 4.03 4.02 54 4.25 4.21 4.09 4.08 72 6.83 6.36 5.22 5.94 55 4.33 4.28 4.15 4.14 73 7.08 6.54 5.26 6.10 56 4.41 4.36 4.21 4.21 74 7.36 6.71 5.30 6.28 75 7.65 6.90 5.34 6.46 57 4.50 4.45 4.27 4.28 58 4.59 4.54 4.34 4.36 76 7.97 7.08 5.37 6.65 59 4.69 4.63 4.40 4.44 77 8.31 7.27 5.40 6.86 60 4.80 4.73 4.47 4.52 78 8.68 7.46 5.42 7.07 61 4.92 4.83 4.54 4.61 79 9.08 7.64 5.44 7.30 80 9.50 7.82 5.46 7.54 62 5.04 4.94 4.60 4.70 63 5.17 5.05 4.67 4.80 81 9.96 8.00 5.47 7.79 64 5.31 5.17 4.74 4.90 82 10.45 8.17 5.48 8.05 65 5.45 5.30 4.81 5.01 83 10.98 8.33 5.49 8.33 66 5.61 5.43 4.87 5.12 84 11.54 8.49 5.50 8.62 67 5.78 5.57 4.94 5.24 85 12.15 8.63 5.50 8.93
OPTION 6 (Joint and Survivor Life Annuity)
*Adjusted Age of Joint Annuitant ------------------------------------------------------------------------------------------------------------ *Adjusted 50 55 60 65 70 75 80 85 *Adjusted Age of ------------------------------------------------------------------------------------------------------------ Age of Annuitant 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 100% 2/3 Annuitant - --------- ------------------------------------------------------------------------------------------------------------ --------- 50 3.54 3.81 3.65 3.96 3.74 4.12 3.81 4.30 3.86 4.49 3.90 4.69 3.93 4.90 3.94 5.10 50 55 3.79 4.13 3.93 4.32 4.05 4.53 4.14 4.76 4.21 5.00 4.26 5.25 4.29 5.49 55 60 4.13 4.55 4.31 4.81 4.46 5.09 4.58 5.39 4.67 5.69 4.73 5.97 60 65 4.58 5.13 4.82 5.48 5.03 5.85 5.19 6.23 5.30 6.60 65 70 5.19 5.92 5.54 6.41 5.82 6.91 6.04 7.40 70 75 6.06 7.04 6.55 7.72 6.94 8.40 75 80 7.30 8.63 7.98 9.59 80 85 9.06 10.91 85
Information for ages not shown will be furnished on request. *"Adjusted Age" means attained age at last birthday adjusted as follows: ANNUITY DATE ADJUSTED AGE - ------------ ------------ Before 2000 Actual Age 2000-2009 Subtract 1 year from actual age 2010-2019 Subtract 2 years from actual age 2020-2029 Subtract 3 years from actual age 2030 and after Subtract 4 years from actual age THE ABOVE TABLES ARE BASED ON THE COMBINED MALE/FEMALE 1983 TABLE "A" PROJECTED FORWARD TO 1995 FOR INDIVIDUAL ANNUITY VALUATION WITH INTEREST AT 3%. MERRILL LYNCH LIFE INSURANCE COMPANY By /s/ Barry G. Skolnick --------------------------------- ML-AY-448/94 EX-5 10 OPINION OF BARRY G. SKOLNICK, ESQ. 1 December 7, 1994 Board of Directors Merrill Lynch Life Insurance Company 320 West Capitol Avenue Little Rock, Arkansas 72201 Gentlemen: In my capacity as General Counsel of Merrill Lynch Life Insurance Company ("Company"), I have supervised the preparation of the registration statement for the ASSET I group modified guaranteed annuity contract ("Contract") to be filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933. I am of the following opinion: (1) The Company was organized in accordance with the laws of the State of Washington and redomesticated in accordance with the laws of the State of Arkansas and is a duly authorized stock life insurance company under the laws of Arkansas and the laws of those states in which the Company is admitted to do business; (2) The Company is authorized to issue the Contracts in those states in which it is admitted and upon compliance with applicable local law; (3) The Contracts, when issued in accordance with the prospectus contained in the aforesaid registration statement and upon compliance with applicable local law, will be legal and binding obligations of the Company in accordance with their terms. In arriving at the foregoing opinion, I have made such examination of law and examined such records and other documents as in my judgment are necessary or appropriate. I hereby consent to the filing of this opinion as an exhibit to the aforesaid registration statement and to the reference to me under the caption "Legal Matters" in the prospectus contained in said registration statement. Sincerely, /s/ Barry G. Skolnick Barry G. Skolnick Senior Vice President and General Counsel EX-23.A 11 CONSENT OF SUTHERLAND, ASBILL & BRENNAN 1 [Letterhead] CONSENT OF SUTHERLAND, ASBILL & BRENNAN We consent to the reference to our firm under the heading "Legal Matters" in the prospectus included in Post-Effective Amendment No. 3 to the Registration Statement on Form S-1 (File No. 33-60290) for certain modified guaranteed annuity contracts issued by 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. /s/ Sutherland, Asbill & Brennan SUTHERLAND, ASBILL & BRENNAN Washington, D.C. December 5, 1994 EX-23.B 12 CONSENT OF DELOITTE & TOUCHE 1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-Effective Amendment No. 3 to Registration Statement No. 33-60290 of Merrill Lynch Life Insurance Company of our report dated February 28, 1994 appearing in the Prospectus, which is a part of such Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte and Touche New York, New York December 7, 1994 -----END PRIVACY-ENHANCED MESSAGE-----