AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 16, 2001.
REGISTRATION NOS. 333- AND 811-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. ------ [ ]
POST-EFFECTIVE AMENDMENT NO. ------ [ ]
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. ------ [ ]
------------------------
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
(EXACT NAME OF REGISTRANT)
MERRILL LYNCH LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
7 ROSZEL ROAD
PRINCETON, NEW JERSEY 08540
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(609) 627-3700
------------------------
NAME AND ADDRESS OF AGENT FOR SERVICE: COPY TO:
BARRY G. SKOLNICK, ESQ. STEPHEN E. ROTH, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL SUTHERLAND ASBILL & BRENNAN LLP
MERRILL LYNCH LIFE INSURANCE COMPANY 1275 PENNSYLVANIA AVENUE, N.W.
7 ROSZEL ROAD WASHINGTON, D.C. 20004-2415
PRINCETON, NEW JERSEY 08540
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
shall determine.
------------------------
TITLE OF SECURITIES BEING REGISTERED:
Units of interest in a separate account under flexible premium individual
deferred variable annuity contracts.
EXHIBIT INDEX CAN BE FOUND ON PAGE C-11
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PROSPECTUS
, 2001
Merrill Lynch Life Variable Annuity Separate Account C (the "Account")
FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT
issued by
MERRILL LYNCH LIFE INSURANCE COMPANY
HOME OFFICE: Little Rock, Arkansas 72201
SERVICE CENTER: P.O. Box 44222
Jacksonville, Florida 32231-4222
4804 Deer Lake Drive East
Jacksonville, Florida 32246
PHONE: (800) 535-5549
offered through
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
This prospectus gives you information you need to know before you invest. Keep
it for future reference. Address all communications concerning the Contract to
our Service Center at the address above.
The variable annuity contract described here provides a variety of investment
features. It also provides options for income protection later in life. It is
important that you understand how the contract works, and its benefits, costs,
and risks. First, some basics.
WHAT IS AN ANNUITY?
An annuity provides for the systematic liquidation of a sum of money at the
annuity date through a variety of annuity options. Each annuity option has
different protection features intended to cover different kinds of income needs.
Many of these annuity options provide income streams that can't be outlived.
WHAT IS A VARIABLE ANNUITY?
A variable annuity bases its benefits on the performance of underlying
investments. These investments may typically include stocks, bonds, and money
market instruments. The annuity described here is a variable annuity.
WHAT ARE THE RISKS IN OWNING A VARIABLE ANNUITY?
A variable annuity does not guarantee the performance of the underlying
investments. The performance can go up or down. It can even decrease the value
of money you've put in. You bear all of this risk. You could lose all or part of
the money you've put in.
HOW DOES THIS ANNUITY WORK?
We put your premium payments as you direct into one or more subaccounts of the
Account. In turn, we invest each subaccount's assets in corresponding portfolios
("Funds") of the following:
- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
- Basic Value Focus Fund
- Domestic Money Market Fund
- Fundamental Growth Focus Fund
- Government Bond Fund
- Index 500 Fund
- MERCURY HW VARIABLE TRUST
- Mercury HW International Value VIP Portfolio
The value of your Contract at any point in time up to the annuity date is called
your contract value. Before the annuity date, you are generally free to direct
your contract value among the subaccounts as you wish. You may also withdraw all
or part of your contract value provided the remaining contract value after
withdrawal is at least $5,000. If you die before the annuity date, we pay a
death benefit to your beneficiary.
We've designed this annuity as a long-term investment. Any money you take out of
the Contract to the extent of gain is subject to tax, and if taken before age
59 1/2 may also be subject to a 10% federal penalty tax. FOR THESE REASONS, YOU
NEED TO CONSIDER YOUR CURRENT AND SHORT-TERM INCOME NEEDS CAREFULLY BEFORE YOU
DECIDE TO BUY THE CONTRACT.
WHAT DOES THIS ANNUITY COST?
THIS ANNUITY DOES NOT IMPOSE ANY SALES CHARGES -- ON EITHER PURCHASES OR
WITHDRAWALS. However, we impose a number of other charges, including an
asset-based insurance charge. We provide more details on this charge, as well as
a description of all other charges, later in the prospectus.
------------------------
This prospectus contains information about the Contract and the Account that you
should know before you invest. A Statement of Additional Information contains
more information about the Contract and the Account. We have filed the Statement
of Additional Information, dated , 2001, with the Securities and
Exchange Commission. We incorporate this Statement of Additional Information by
reference. If you want to obtain this Statement of Additional Information,
simply call or write us at the phone number or address noted above. There is no
charge to obtain it. The Table of Contents for this Statement of Additional
Information is found on page of this prospectus.
The Securities and Exchange Commission ("SEC") maintains a web site that
contains the Statement of Additional Information, material incorporated by
reference, and other information regarding registrants that file electronically
with the SEC. The address of the site is http://www.sec.gov.
CURRENT PROSPECTUSES FOR THE MERRILL LYNCH VARIABLE SERIES FUNDS, INC. AND
MERCURY HW VARIABLE TRUST MUST ACCOMPANY THIS PROSPECTUS. PLEASE READ THESE
DOCUMENTS CAREFULLY AND RETAIN THEM FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE CONTRACTS OR
DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
2
TABLE OF CONTENTS
PAGE
----
DEFINITIONS................................................. 6
CAPSULE SUMMARY OF THE CONTRACT............................. 6
FEE TABLE................................................... 10
YIELDS AND TOTAL RETURNS.................................... 11
MERRILL LYNCH LIFE INSURANCE COMPANY........................ 12
THE ACCOUNT................................................. 13
Segregation of Account Assets............................. 13
Number of Subaccounts; Subaccount Investments............. 13
INVESTMENTS OF THE ACCOUNT.................................. 13
General Information and Investment Risks.................. 13
Merrill Lynch Variable Series Funds, Inc.................. 14
Basic Value Focus Fund................................. 14
Domestic Money Market Fund............................. 14
Fundamental Growth Focus Fund.......................... 14
Government Bond Fund................................... 14
Index 500 Fund......................................... 14
Mercury HW Variable Trust................................. 15
Mercury HW International Value VIP Portfolio........... 15
Purchases and Redemptions of Fund Shares; Reinvestment.... 15
Material Conflicts, Substitution of Investments and
Changes to the Account................................. 15
CHARGES, DEDUCTIONS AND CREDITS............................. 16
Asset-Based Insurance Charge.............................. 16
Contract Fee.............................................. 16
Other Charges............................................. 17
Transfer Charges....................................... 17
Tax Charges............................................ 17
Fund Expenses.......................................... 17
Premium Taxes.......................................... 17
Contract Value Credit.................................. 17
FEATURES AND BENEFITS OF THE CONTRACT....................... 18
Ownership of The Contract................................. 18
Issuing the Contract...................................... 18
Issue Age.............................................. 18
Information We Need To Issue The Contract.............. 19
Ten Day Right to Review................................ 19
Premiums.................................................. 19
Minimum and Maximum Premiums........................... 19
How to Make Payments................................... 19
Automatic Investment Feature........................... 19
Premium Investments.................................... 20
Accumulation Units........................................ 20
How Are My Contract Transactions Priced?.................. 20
How Do We Determine The Number of Units?.................. 21
ADDITIONAL PROVISIONS APPLICABLE TO ALL CONTRACTS........... 21
Death of Annuitant Prior to Annuity Date.................. 21
Transfers Among Subaccounts............................... 21
3
PAGE
----
Dollar Cost Averaging Program............................. 22
What Is It?............................................ 22
Participating in the DCA Program....................... 22
Minimum Amounts........................................ 22
When Do We Make DCA Transfers?......................... 22
Asset Allocation Program.................................. 23
Rebalancing Program....................................... 23
Withdrawals and Surrenders................................ 23
When and How Withdrawals are Made...................... 23
Minimum Amounts........................................ 23
Systematic Withdrawal Program.......................... 23
Surrenders............................................. 24
Payments to Contract Owners............................... 24
Contract Changes.......................................... 24
Death Benefit............................................. 24
General................................................ 24
Death Benefit Options.................................. 25
Calculation of Death Benefit -- Maximum Anniversary
Value Option.......................................... 25
Calculation of Death Benefit -- Premiums Compounded at
5% Option............................................. 26
Calculation of Death Benefit -- Estate Enhancer
Option................................................ 27
Calculation of Enhanced Death Benefit.................. 28
Spousal Continuation................................... 29
Annuity Payments.......................................... 29
Annuity Options........................................... 29
How We Determine Present Value of Future Guaranteed
Annuity Payments...................................... 30
Payments of a Fixed Amount............................. 30
Payments for a Fixed Period............................ 30
Life Annuity........................................... 30
Life Annuity With Payments Guaranteed for 5, 10, 15, or
20 Years.............................................. 30
Life Annuity With Guaranteed Return of Contract
Value................................................. 30
Joint and Survivor Life Annuity........................ 31
Joint and Survivor Life Annuity with Payments
Guaranteed for 5, 10, 15, or 20 Years................. 31
Individual Retirement Account Annuity.................. 31
Gender-Based Annuity Purchase Rates....................... 31
FEDERAL INCOME TAXES........................................ 31
Federal Income Taxes...................................... 31
Tax Status of the Contract................................ 32
Diversification Requirements........................... 32
Owner Control.......................................... 32
Required Distributions................................. 32
Taxation of Annuities..................................... 33
In General............................................. 33
Withdrawals and Surrenders............................. 33
Annuity Payments....................................... 33
Taxation of Death Benefit Proceeds..................... 33
Penalty Tax on Some Withdrawals........................... 33
Transfers, Assignments, or Exchanges of a Contract........ 34
Withholding............................................... 34
Multiple Contracts........................................ 34
Possible Changes In Taxation.............................. 34
Possible Charge For Our Taxes............................. 34
4
PAGE
----
Individual Retirement Annuities........................... 34
Traditional IRAs....................................... 34
Roth IRAs.............................................. 34
Other Tax Issues For IRAs and Roth IRAs................ 35
Tax Sheltered Annuities................................... 35
OTHER INFORMATION........................................... 35
Notices and Elections..................................... 35
Voting Rights............................................. 36
Reports to Contract Owners................................ 36
Selling the Contract...................................... 36
State Regulation.......................................... 37
Legal Proceedings......................................... 37
Experts................................................... 37
Legal Matters............................................. 38
Registration Statements................................... 38
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL
INFORMATION............................................... 39
APPENDIX A Maximum Anniversary Value Example................
APPENDIX B Premiums Compounded at 5% Example................
APPENDIX C Estate Enhancer Example..........................
APPENDIX D Maximum Anniversary Value with Estate Enhancer
Example...................................................
APPENDIX E Premiums Compounded at 5% with Estate Enhancer
Example...................................................
5
DEFINITIONS
accumulation unit: A unit of measure used to compute the value of your interest
in a subaccount prior to the annuity date.
annuitant: Annuity payments may depend upon the continuation of a person's life.
That person is called the annuitant.
annuity date: The date on which annuity payments are scheduled to begin.
attained age: The age of a person on the contract date plus the number of full
contract years since the contract date.
beneficiary(s): The person(s) designated by you to receive payment upon the
death of an owner prior to the annuity date.
contract anniversary: The yearly anniversary of the contract date.
contract date: The effective date of the Contract. This is usually the business
day we receive your initial premium at our Service Center.
contract value: The value of your interest in the Account.
contract year: The period from the contract date to the first contract
anniversary, and thereafter, the period from one contract anniversary to the
next contract anniversary.
Individual Retirement Account or Annuity ("IRA"): A retirement arrangement
meeting the requirements of Section 408 or 408A of the Internal Revenue Code
("IRC").
net investment factor: An index used to measure the investment performance of a
subaccount from one valuation period to the next.
nonqualified contract: A Contract issued in connection with a retirement
arrangement other than a qualified plan described under Section 401, 403, 408,
408A, 457 or any similar provisions of the IRC.
qualified contract: A Contract issued in connection with a retirement
arrangement described under Section 401, 403(b), 408, or 408A of the IRC.
tax sheltered annuity: A Contract issued in connection with a retirement
arrangement that receives favorable tax status under Section 403(b) of the IRC.
valuation period: The interval from one determination of the net asset value of
a subaccount to the next. Net asset values are determined as of the close of
business on each day the New York Stock Exchange is open.
CAPSULE SUMMARY OF THE CONTRACT
This capsule summary provides a brief overview of the Contract. More detailed
information about the Contract can be found in the sections of this Prospectus
that follow, all of which should be read in their entirety.
Contracts issued in your state may provide different features and benefits from
those described in this prospectus. This prospectus provides a general
description of the Contracts. Your actual Contract and any endorsements are the
controlling documents. If you would like to review a copy of the Contract or any
endorsements, contact our Service Center.
The Contract is available as a non-qualified contract or tax-sheltered annuity
or may be issued as an IRA or purchased through an established IRA or Roth IRA
custodial account with Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S"). Federal law limits maximum annual contributions to IRAs and Roth
IRAs. Transfer amounts from tax sheltered annuity plans that are not subject to
the Employee Retirement Income Security Act of 1974, as amended, will be
accepted as premium payments, as
6
permitted by law. Other premium payments will not be accepted under a Contract
used as a tax sheltered annuity.
The tax advantages typically provided by a variable annuity are already
available with tax-qualified plans, including IRAs and Roth IRAs. You should
carefully consider the advantages and disadvantages of owning a variable annuity
in a tax-qualified plan, including the costs and benefits of the Contract
(including the annuity income benefits), before you purchase the Contract in a
tax-qualified plan.
We offer other variable annuity contracts that have different death benefits,
contract features, fund selections, and optional programs. These other contracts
also have different charges that would affect your subaccount performance and
contract values. To obtain more information about these other contracts, contact
our Service Center or your Financial Advisor.
For information concerning compensation paid for the sale of Contracts, see
"Selling the Contract."
PREMIUMS
Generally, before the annuity date you can pay premiums as often as you like.
The minimum initial premium is $75,000. Subsequent premiums generally must be
$50 or more. The maximum premium that will be accepted without Company approval
is $1,000,000. Under an automatic investment feature, you can make subsequent
premium payments systematically from your Merrill Lynch brokerage account. For
more information, see "Automatic Investment Feature".
THE ACCOUNT
As you direct, we will put premiums into the subaccounts corresponding to the
Funds in which we invest your contract value. For the first 14 days following
the contract date, we put all premiums into the Domestic Money Market
Subaccount. After the 14 days, we'll put the money into the subaccounts you've
selected. In Pennsylvania, however, we won't wait 14 days. Instead, we'll invest
your premium immediately in the subaccounts you've selected. Currently, you may
allocate premiums or contract value among 20 of the available subaccounts.
Generally, within certain limits you may transfer contract value periodically
among subaccounts.
THE FUNDS AVAILABLE FOR INVESTMENT
- FUNDS OF MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
- Basic Value Focus Fund
- Domestic Money Market Fund
- Fundamental Growth Focus Fund
- Government Bond Fund
- Index 500 Fund
- FUNDS OF MERCURY HW VARIABLE TRUST
- Mercury HW International Value VIP Portfolio
If you want detailed information about the investment objectives of the Funds,
see "Investments of the Account" and the prospectuses for the Funds.
FEES, CHARGES AND CREDITS
ASSET-BASED INSURANCE CHARGE
We currently impose an asset-based insurance charge of 1.85% annually to cover
certain risks. It will never exceed 1.85% annually.
The asset-based insurance charge compensates us for:
- costs associated with the establishment and administration of the
Contract;
- mortality risks we assume for the annuity payment and death benefit
guarantees made under the Contract; and
7
- expense risks we assume to cover Contract maintenance expenses.
We deduct the asset-based insurance charge daily from the net asset value of the
subaccounts. This charge ends on the annuity date.
ADDITIONAL DEATH BENEFIT CHARGE
You can select an enhanced death benefit by choosing to combine the Estate
Enhancer with either the Maximum Anniversary Value or Premiums Compounded at 5%
(see "Death Benefit Options" on page ). If you do, you will pay an additional
annual charge of 0.25% of the average of your contract values as of the end of
each of the prior four contract quarters. We won't deduct this charge after the
annuity date.
CONTRACT FEE
We impose a $50 contract fee at the end of each contract year and upon a full
withdrawal to reimburse us for expenses related to maintenance of the Contract
(only if the greater of contract value, or premiums less withdrawals, is less
than $75,000). Accordingly, if your withdrawals have not decreased your
investment in the Contract below $75,000, we will not impose this annual fee. We
may also waive this fee in certain circumstances where you own at least three
Contracts. This fee ends after the annuity date.
PREMIUM TAXES
On the annuity date, we deduct a charge for any premium taxes imposed by a state
or local government. Premium tax rates vary from jurisdiction to jurisdiction.
They currently range from 0% to 5%. In some jurisdictions, we deduct a charge
for premium taxes from any withdrawal, surrender, or death benefit payment.
FUND EXPENSES
You will bear the costs of advisory fees and operating expenses deducted from
Fund assets.
You can find detailed information about all fees and charges imposed on the
Contract under "Charges and Deductions".
CONTRACT VALUE CREDIT
We may add a Contract Value Credit to your contract value, if your contract
value reaches certain amounts. The amount is added on the last business day of
each calendar quarter (and upon termination of the Contract) as the sum of
Contract Value Credits determined for each month within that calendar quarter.
The calculation of Contract Value Credits and the circumstances under which they
may be credited are described under "Contract Value Credits" on page .
TRANSFERS AMONG SUBACCOUNTS
Before the annuity date, you may transfer all or part of your contract value
among the subaccounts up to twelve times per contract year without charge. You
may make more than twelve transfers among available subaccounts, but we may
charge $25 per extra transfer. (See "Transfers".)
Two specialized transfer programs are available under the Contract. You cannot
use more than one such program at a time.
- We offer a Dollar Cost Averaging Program where money you've put in a
designated subaccount is systematically transferred monthly into other
subaccounts you select without charge. The program may allow you to take
advantage of fluctuations in fund share prices over time. (See "Dollar
Cost Averaging Program".) (There is no guarantee that Dollar Cost
Averaging will result in lower average prices or protect against market
loss.)
8
- You may choose to participate in a Rebalancing Program where we
automatically reallocate your contract value quarterly, semi-annually, or
annually in order to maintain a particular percentage allocation among
the subaccounts that you select. (See "Rebalancing Program".)
WITHDRAWALS
You can withdraw money from the Contract at anytime during the contract year.
Additionally, under a Systematic Withdrawal Program, you may have automatic
withdrawals of a specified dollar amount made monthly, quarterly, semi-annually,
or annually. These systematic withdrawals are in addition to the withdrawals
permitted under the Contract. For more information, see "Systematic Withdrawal
Program".
A withdrawal may have adverse tax consequences, including the imposition of a
penalty tax on withdrawals prior to age 59 1/2 (see "Federal Income Taxes").
DEATH BENEFIT
Regardless of investment experience, the Contract provides a guaranteed minimum
death benefit if you die before the annuity date.
When the Contract is issued, the death benefit equals the greatest of premiums
less adjusted withdrawals or the contract value. Without increasing your
asset-based insurance charge, you will choose one of three death benefit
options: Maximum Anniversary Value, Premiums Compounded at 5%, or Estate
Enhancer. For an additional annual charge, you may elect to combine the Estate
Enhancer option with either the Maximum Anniversary Value or Premiums Compounded
at 5%.
The Maximum Anniversary Value equals the greatest anniversary value for the
Contract. Premiums Compounded at 5% equals premiums paid with an interest rate
to yield 5% annually when compounded daily from the date received, less
"adjusted" withdrawals with an interest rate to yield 5% annually when
compounded daily from the date of withdrawal. "Adjusted" withdrawals are
described in "Death Benefits" on page . The Estate Enhancer benefit is an
optional rider that pays, on the death of the owner, a benefit that provides
proceeds that may be used to defray some or all of the expenses attributable to
death benefit proceeds paid under the Contract. Election of the Estate Enhancer
benefit is subject to our approval in certain circumstances.
You can find more detailed information about the death benefit and how it is
calculated, including age limitations that apply, under "Death Benefit".
The payment of a death benefit may have tax consequences (see "Federal Income
Taxes").
ANNUITY PAYMENTS
Annuity payments begin on the annuity date and are made under the annuity option
you select. You may select an annuity date that cannot be earlier than the First
Contract Anniversary nor later than the annuitant's 95th birthday. If you do not
select an annuity date, the annuity date for nonqualified Contracts is the
annuitant's 95th birthday. The annuity date for IRA or tax sheltered annuity
Contracts is when the owner/annuitant reaches age 70 1/2.
Details about the annuity options available under the Contract can be found
under "Annuity Options".
Annuity payments may have tax consequences (see "Federal Income Taxes").
TEN DAY REVIEW
When you receive the Contract, read it carefully to make sure it's what you
want. Generally, within 10 days after you receive the Contract, you may return
it for a refund. Some states allow a longer period of time to return the
Contract. To get a refund, return the Contract to the Service Center or to the
Financial Advisor who sold it. We will then refund the greater of all premiums
paid into the Contract or
9
the contract value as of the date you return the Contract. For contracts issued
in Pennsylvania, we'll refund the contract value as of the date you return the
Contract.
REPLACEMENT OF CONTRACTS
Generally, it is not advisable to purchase a Contract as a replacement for an
existing annuity contract. You should replace an existing contract only when you
determine that the Contract is better for you. You may have to pay a surrender
charge on your existing contract. Before you buy a Contract, ask your Financial
Advisor if purchasing a Contract would be advantageous, given the Contract's
features, benefits, and charges.
FEE TABLE
A... Contract Owner Transaction Expenses
1. Sales Load Imposed on Premium............................ None
2. Contingent Deferred Sales Charge......................... None
3. Transfer Fee............................................. $25
The first 12 transfers among subaccounts in a contract
year are free. We currently do not, but may in the
future, charge a $25 fee on all subsequent transfers.
The Fee Table and Examples do not include charges to
contract owners for premium taxes. Premium taxes may be
applicable. Refer to the "Premium Taxes" section in this
Prospectus for further details.
B. Annual Contract Fee......................................... $50
The Contract Fee will be assessed at the end of each
contract year and upon a full withdrawal only if the greater
of contract value, or premiums less withdrawals, is less
than $75,000.
C. Separate Account Annual Expenses (as a percentage of
contract value)
Current and Maximum Asset-Based Insurance
Charge -- Guaranteed Minimum Death Benefit.................. 1.85%
D. Enhanced Death Benefit Charge............................... 0.25%
An additional annual charge will be assessed when the Estate
Enhancer is combined with either the Maximum Anniversary
Value or Premiums Compounded at 5%. The charge will be
assessed annually on each contract anniversary based on the
average of your contract values as of the end of each of the
prior four contract quarters. We also impose a pro rata
amount of this charge upon surrender, annuitization, death,
or termination of the rider.
E. Fund Expenses for the Year Ended December 31, 2000 (see
"Notes to Fee Table") (as a percentage of each Fund's
average net assets)
MERCURY HW
VARIABLE
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. (CLASS A SHARES) TRUST
------------------------------------------------------------- -------------
DOMESTIC FUNDAMENTAL MERCURY HW
BASIC VALUE MONEY GROWTH GOVERNMENT INTERNATIONAL
ANNUAL EXPENSES FOCUS MARKET FOCUS BOND INDEX 500 VALUE VIP(c)
--------------- ----------- -------- ----------- ---------- --------- -------------
Investment Advisory Fees..........
Other Expenses....................
--- --- ---- --- --- -----
Total Annual Operating Expenses...
Expense Reimbursements............
--- --- ---- --- --- -----
Net Expenses......................
10
EXAMPLES OF CHARGES
If you surrender or annuitize your Contract at the end of the applicable time
period, you would pay the following cumulative expenses on each $1,000 invested,
assuming 5% annual return on assets:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
SUBACCOUNT INVESTING IN:
ML Basic Value Focus Fund................................... $ $ $ $
ML Domestic Money Market Fund...............................
ML Fundamental Growth Focus Fund............................
ML Government Bond Fund.....................................
ML Index 500 Fund...........................................
Mercury HW International Value VIP Portfolio................
---------------
Because there is no contingent deferred sales charge, you would pay the same
expenses whether you surrender your Contract at the end of the applicable time
period or not, based on the same assumptions.
------------------------
The preceding Fee Table and Examples help you understand the costs and expenses
you will bear, directly or indirectly. The Fee Table and Examples include
expenses and charges of the Account as well as the Funds. The Examples do not
reflect the $50 contract fee because, based on our estimates of average contract
size and withdrawals, its effect on the examples shown would be negligible. The
examples assume that the Estate Enhancer benefit is elected with either the
Maximum Anniversary Value or Premiums Compounded at 5% and reflect the annual
charge of 0.25% of the average contract value as of the end of the prior four
contract quarters. Premium taxes may also be applicable. See the CHARGES AND
DEDUCTIONS section in this Prospectus and the Fund prospectuses for a further
discussion of fees and charges.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR ANNUAL RATES OF RETURN OF ANY FUND. ACTUAL EXPENSES AND ANNUAL RATES
OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR THE PURPOSE OF THE
EXAMPLES.
YIELDS AND TOTAL RETURNS
From time to time, we may advertise yields, effective yields, and total returns
for the subaccounts. These figures are based on historical earnings and do not
indicate or project future performance. We may also advertise performance of the
subaccounts in comparison to certain performance rankings and indices. More
detailed information on the calculation of performance information, as well as
comparisons with unmanaged market indices, appears in the Statement of
Additional Information.
Effective yields and total returns for a subaccount are based on the investment
performance of the corresponding Fund. Fund expenses influence Fund performance.
The yield of the Domestic Money Market Subaccount refers to the annualized
income generated by an investment in the subaccount over a specified 7-day
period. The yield is calculated by assuming that the income generated for that
7-day period is generated each 7-day period over a 52-week period and is shown
as a percentage of the investment. The effective yield is calculated similarly
but, when annualized, the income earned by an investment is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment.
The yield of a subaccount (besides the Domestic Money Market Subaccount) refers
to the annualized income generated by an investment in the subaccount over a
specified 30-day or one month period. The yield is calculated by assuming the
income generated by the investment during that 30-day or one-month period is
generated each period over 12 months and is shown as a percentage of the
investment.
The average annual total return of a subaccount refers to return quotations
assuming an investment has been held in each subaccount for 1, 5 and 10 years,
or for a shorter period, if applicable. The average
11
annual total returns represent the average compounded rates of return that would
cause an initial investment of $1,000 to equal the value of that investment at
the end of each period. These percentages exclude any deductions for premium
taxes.
We may also advertise or present yield or total return performance information
computed on different bases, but this information will always be accompanied by
average annual total returns for the corresponding subaccounts. We may also
advertise total return performance information for the Funds. We may also
present total return performance information for a subaccount for periods before
the date the subaccount commenced operations. If we do, we'll base performance
of the corresponding Fund as if the subaccount existed for the same periods as
those indicated for the corresponding Fund, with a level of fees and charges
equal to those currently imposed under the Contracts. We may also present total
performance information for a hypothetical Contract assuming allocation of the
initial premium to more than one subaccount or assuming monthly transfers from
one subaccount to designated other subaccounts under a Dollar Cost Averaging
Program. We may also present total performance information for a hypothetical
Contract assuming participation in the Rebalancing Program. This information
will reflect the performance of the affected subaccounts for the duration of the
allocation under the hypothetical Contract. It will also reflect the deduction
of charges described above. This information may also be compared to various
indices.
Advertising and sales literature for the Contracts may also compare the
performance of the subaccounts and Funds to the performance of other variable
annuity issuers in general or to the performance of particular types of variable
annuities investing in mutual funds, with investment objectives similar to each
of the Funds corresponding to the subaccounts.
Performance information may also be based on rankings by services which monitor
and rank the performance of variable annuity issuers in each of the major
categories of investment objectives on an industry-wide basis. Ranking services
we may use as sources of performance comparison are Lipper, VARDS,
CDA/Weisenberger, Morningstar, MICROPAL, and Investment Company Data, Inc.
Advertising and sales literature for the Contracts may also compare the
performance of the subaccounts to the Standard & Poor's Index of 500 Common
Stocks, the Morgan Stanley EAFE Index, the Russell 2000 Index and the Dow Jones
Indices, all widely used measures of stock market performance. These unmanaged
indices assume the reinvestment of dividends, but do not reflect any deduction
for the expense of operating or managing an investment portfolio. Other sources
of performance comparison that we may use are Chase Investment Performance
Digest, Money, Forbes, Fortune, Business Week, Financial Services Weekly,
Kiplinger Personal Finance, Wall Street Journal, USA Today, Barrons, U.S. News &
World Report, Strategic Insight, Donaghues, Investors Business Daily, and
Ibbotson Associates.
Advertising and sales literature for the Contracts may also contain information
on the effect of tax deferred compounding on subaccount investment returns, or
returns in general. The tax deferral may be illustrated by graphs and charts and
may include a comparison at various points in time of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a currently taxable basis.
MERRILL LYNCH LIFE INSURANCE COMPANY
We are a stock life insurance company organized under the laws of the State of
Washington on January 27, 1986. We changed our corporate location to Arkansas on
August 31, 1991. We are an indirect wholly owned subsidiary of Merrill Lynch &
Co., Inc., a corporation whose common stock is traded on the New York Stock
Exchange.
Our financial statements can be found in the Statement of Additional
Information. You should consider them only in the context of our ability to meet
any Contract obligation.
12
THE ACCOUNT
The Merrill Lynch Life Variable Annuity Separate Account C (the "Account")
offers through its subaccounts a variety of investment options. Each option has
a different investment objective.
We established the Account on . It is governed by
Arkansas law, our state of domicile. The Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. The Account meets the definition of a separate
account under the federal securities laws. The Account's assets are segregated
from all of our other assets.
SEGREGATION OF ACCOUNT ASSETS
Obligations to contract owners and beneficiaries that arise under the Contract
are our obligations. We own all of the assets in the Account. The Account's
income, gains, and losses, whether or not realized, derived from Account assets
are credited to or charged against the Account without regard to our other
income, gains or losses. The assets in each Account will always be at least
equal to the reserves and other liabilities of the Account. If the Account's
assets exceed the required reserves and other Contract liabilities, we may
transfer the excess to our general account. Under Arkansas insurance law the
assets in the Account, to the extent of its reserves and liabilities, may not be
charged with liabilities arising out of any other business we conduct nor may
the assets of the Account be charged with any liabilities of other separate
accounts.
NUMBER OF SUBACCOUNTS; SUBACCOUNT INVESTMENTS
There are 20 subaccounts currently available through the Account. All
subaccounts invest in a corresponding portfolio of the Merrill Lynch Variable
Series Funds, Inc. (the "Variable Series Funds") or the Mercury HW Variable
Trust (the "Mercury HW Trust"). Additional subaccounts may be added or closed in
the future.
Although the investment objectives and policies of certain Funds are similar to
the investment objectives and policies of other portfolios that may be managed
or sponsored by the same investment adviser, manager, or sponsor, nevertheless,
we do not represent or assure that the investment results will be comparable to
any other portfolio, even where the investment advisor or manager is the same.
Differences in portfolio size, actual investments held, fund expenses, and other
factors all contribute to differences in fund performance. For all of these
reasons, you should expect investment results to differ. In particular, certain
funds available only through the Contract have names similar to funds not
available through the Contract. The performance of a fund not available through
the Contract does not indicate performance of the similarly named fund available
through the Contract.
INVESTMENTS OF THE ACCOUNT
GENERAL INFORMATION AND INVESTMENT RISKS
Information about investment objectives, management, policies, restrictions,
expenses, risks, and all other aspects of fund operations can be found in the
Funds' prospectuses and Statements of Additional Information. Read these
carefully before investing. Fund shares are currently sold to our separate
accounts as well as separate accounts of ML Life Insurance Company of New York
(an indirect wholly owned subsidiary of Merrill Lynch & Co., Inc.), and
insurance companies not affiliated with us, to fund benefits under certain
variable annuity and variable life insurance contracts. Shares of these funds
may be offered in the future to certain pension or retirement plans.
13
The investment adviser of a Fund (or its affiliates) may pay compensation to us
or our affiliates, which may be significant, in connection with administration,
distribution, or other services provided with respect to the Funds and their
availability through the Contracts. The amount of this compensation is based
upon a percentage of the assets of the Fund attributable to the Contracts and
other contracts that we or our affiliates issue. These percentages differ, and
some advisers (or affiliates) may pay more than others.
Generally, you should consider the funds as long-term investments and vehicles
for diversification, but not as a balanced investment program. Many of these
funds may not be appropriate as the exclusive investment to fund a Contract for
all contract owners. The Fund prospectuses also describe certain additional
risks, including investing on an international basis or in foreign securities
and investing in lower rated or unrated fixed income securities. There is no
guarantee that any fund will be able to meet its investment objectives. Meeting
these objectives depends upon future economic conditions and upon how well Fund
management anticipates changes in economic conditions.
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
The Merrill Lynch Variable Series Funds, Inc. ("Variable Series Funds") is
registered with the Securities and Exchange Commission as an open-end management
investment company. It currently offers the Account Class A shares of 5 of its
separate investment mutual fund portfolios.
Merrill Lynch Investment Managers, L.P. ("MLIM") is the investment adviser to
the Variable Series Funds. MLIM, together with its affiliates, Fund Asset
Management, L.P., Merrill Lynch Investment Managers International Ltd., and
Mercury Advisors, is a worldwide mutual fund leader, and had a total of $567.9
billion in investment company and other portfolio assets under management as of
the end of January 31, 2001. It is registered as an investment adviser under the
Investment Advisers Act of 1940. MLIM is an indirect subsidiary of Merrill Lynch
& Co., Inc. MLIM's principal business address is 800 Scudders Mill Road,
Plainsboro, New Jersey 08536. As the investment adviser, it is paid fees by
these Funds for its services. A summary of the investment objective and strategy
for each Fund is set forth below.
MLIM and Merrill Lynch Life Agency, Inc. have entered into a Reimbursement
Agreement that limits the operating expenses paid by each Fund of the Variable
Series Funds in a given year to 1.25% of its average net assets (see "Selling
the Contract").
BASIC VALUE FOCUS FUND. This Fund seeks capital appreciation and, secondarily,
income by investing in securities, primarily equities, that management of the
Fund believes are undervalued and therefore represent basic investment value.
DOMESTIC MONEY MARKET FUND. This Fund seeks to preserve capital, maintain
liquidity, and achieve the highest possible current income consistent with the
foregoing objectives by investing in short-term domestic money market
securities.
FUNDAMENTAL GROWTH FOCUS FUND. This Fund seeks long-term growth of capital. The
Fund purchases primarily common stocks of U.S. companies that Fund management
believes have shown above-average rates of growth earnings over the long-term.
The Fund will invest at least 65% of its total assets in equity securities.
GOVERNMENT BOND FUND. This Fund seeks the highest possible current income
consistent with the protection of capital afforded by investing in debt
securities issued or guaranteed by the United States Government, its agencies or
instrumentalities.
INDEX 500 FUND. This Fund seeks investment results that, before expenses,
correspond to the aggregate price and yield performance of the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500 Index").
14
MERCURY HW VARIABLE TRUST
Mercury HW Variable Trust ("Mercury HW Trust"), a Massachusetts business trust,
is registered with the Securities and Exchange Commission as an open-end
management investment company. The Mercury HW Trust is intended to serve as the
investment medium for variable annuity contracts and variable life insurance
policies to be offered by the separate accounts of certain insurance companies.
Mercury Advisors, 725 S. Figueroa Street, Suite 4000, Los Angeles, California
90017-5400, serves as the investment adviser to the Mercury HW International
Value VIP Portfolio and generally administers the affairs of the Mercury HW
Trust. As the investment adviser, Mercury Advisors is paid fees by the Fund for
its services. A summary of the investment objective and strategy for the Fund is
set forth below.
MERCURY HW INTERNATIONAL VALUE VIP PORTFOLIO. The Fund's investment objective
is to provide current income and long-term growth of income, accompanied by
growth of capital. The Fund invests at least 65% of its total assets in stocks
in at least ten foreign markets. In investing the Fund, Mercury Advisors follows
a value style. This means that it buys stocks that it believes are currently
undervalued by the market and thus have a lower price than their true worth.
PURCHASES AND REDEMPTIONS OF FUND SHARES; REINVESTMENT
The Account will purchase and redeem shares of the Funds at net asset value to
provide benefits under the Contract. Fund distributions to the Account are
automatically reinvested at net asset value in additional shares of the Funds.
MATERIAL CONFLICTS, SUBSTITUTION OF INVESTMENTS AND CHANGES TO THE ACCOUNT
It is conceivable that material conflicts could arise as a result of both
variable annuity and variable life insurance separate accounts investing in the
Funds. Although no material conflicts are foreseen, the participating insurance
companies will monitor events in order to identify any material conflicts
between variable annuity and variable life insurance contract owners to
determine what action, if any, should be taken. Material conflicts could result
from such things as (1) changes in state insurance law, (2) changes in federal
income tax law or (3) differences between voting instructions given by variable
annuity and variable life insurance contract owners. If a conflict occurs, we
may be required to eliminate one or more subaccounts of the Account or
substitute a new subaccount. In responding to any conflict, we will take the
action we believe necessary to protect our contract owners.
We may substitute a different investment option for any of the current Funds. A
substitution may become necessary if, in our judgment, a portfolio no longer
suits the purposes of the Contracts or for any other reason in our sole
discretion. This may happen due to a change in laws or regulations, or a change
in a portfolio's investment objectives or restrictions, or because the portfolio
is no longer available for investment, or for some other reason. A substituted
portfolio may have different fees and expenses. Substitution may be made with
respect to existing contract value or future premium payments, or both for some
or all classes of Contracts. Furthermore, we may close subaccounts to allocation
of premium payments or contract value, or both for some or all classes of
Contracts, at any time in our sole discretion. However, before any such
substitution, we would need the approval of the Securities and Exchange
Commission and applicable state insurance departments. We will notify you of any
substitutions.
We may also add new subaccounts to the Account, eliminate subaccounts in the
Account, deregister the Account under the Investment Company Act of 1940 (the
"1940 Act"), make any changes required by the 1940 Act, operate the Account as a
managed investment company under the 1940 Act or any other form permitted by
law, transfer all or a portion of the assets of a subaccount or separate account
to another subaccount or separate account pursuant to a combination or
otherwise, and create new separate accounts. Before we make certain changes we
need approval of the Securities and Exchange Commission and applicable state
insurance departments. We will notify you of any changes.
15
CHARGES, DEDUCTIONS AND CREDITS
We deduct the charges described below to cover costs and expenses, services
provided, and risks assumed under the Contracts. The amount of a charge may not
necessarily correspond to the costs associated with providing the services or
benefits.
ASSET-BASED INSURANCE CHARGE
We currently impose an asset-based insurance charge on the Account that equals
1.85% annually. It will never exceed 1.85%.
We deduct this charge daily from the net asset value of the subaccounts. This
amount compensates us for mortality risks we assume for the annuity payment and
death benefit guarantees made under the Contract. These guarantees include
making annuity payments which won't change based on our actual mortality
experience, and providing a guaranteed minimum death benefit under the Contract.
The charge also compensates us for expense risks we assume to cover Contract
maintenance expenses. These expenses may include issuing Contracts, maintaining
records, and performing accounting, regulatory compliance, and reporting
functions. Finally, this charge compensates us for costs associated with the
establishment and administration of the Contract, including programs like
transfers and Dollar Cost Averaging.
If the asset-based insurance charge is inadequate to cover the actual expenses
of mortality, maintenance, and administration, we will bear the loss. If the
charge exceeds the actual expenses, we will add the excess to our profit and it
may be used to finance distribution expenses.
ADDITIONAL DEATH BENEFIT CHARGE
If you select the Estate Enhancer Benefit combined with either the Maximum
Anniversary Value or Premiums Compounded at 5% you will pay an additional annual
charge of 0.25% of the average of your contract values as of the end of each of
the prior four contract quarters. We won't deduct this charge after the annuity
date. We will impose a pro rata amount of this charge upon surrender,
annuitization, death, or termination of the rider between contract
anniversaries. We deduct this charge regardless of whether the Estate Enhancer
benefit has any value.
CONTRACT FEE
We may charge a $50 contract fee each year. We will only impose this fee if the
greater of contract value, or premiums less withdrawals, is less than $75,000.
Accordingly, if you have not made any withdrawals from your Contract (or your
withdrawals have not decreased your investment in the Contract below $75,000),
we will not impose this annual fee.
The contract fee reimburses us for additional expenses related to maintenance of
certain Contracts with lower contract values. We do not deduct the contract fee
after the annuity date. The contract fee will never increase.
If the contract fee applies, we will deduct it as follows:
- We deduct this fee from your contract value at the end of each contract
year before the annuity date.
- We deduct this fee from your contract value if you surrender the contract
on any date other than a contract anniversary.
- We deduct this fee on a pro rata basis from all subaccounts in which your
contract value is invested.
Currently, a contract owner of three or more Contracts will be assessed no more
than $150 in contract fees annually. We reserve the right to change this limit
on contract fees at any time.
16
OTHER CHARGES
TRANSFER CHARGES
You may make up to twelve transfers among subaccounts per contract year without
charge. If you make more than twelve, we may, but currently do not, charge you
$25 for each extra transfer. We deduct this charge pro rata from the subaccounts
from which you are transferring contract value. Currently, transfers made by us
under the Dollar Cost Averaging Program and the Rebalancing Program will not
count toward the twelve transfers permitted among subaccounts per contract year
without charge. (See "Dollar Cost Averaging Program", "Rebalancing Program", and
"Transfers".)
TAX CHARGES
We reserve the right, subject to any necessary regulatory approval, to charge
for assessments or federal premium taxes or federal, state or local excise,
profits or income taxes measured by or attributable to the receipt of premiums.
We also reserve the right to deduct from the Account any taxes imposed on the
Account's investment earnings. (See "Tax Status of the Contract".)
FUND EXPENSES
In calculating net asset value, the Funds deduct advisory fees and operating
expenses from assets. (See "Fee Table".) Information about those fees and
expenses also can be found in the prospectuses for the Funds, and in the
applicable Statement of Additional Information for each Fund.
PREMIUM TAXES
Various states impose a premium tax on annuity premiums when they are received
by an insurance company. In other jurisdictions, a premium tax is paid on the
contract value on the annuity date.
Premium tax rates vary from jurisdiction to jurisdiction and currently range
from 0% to 5%. Although we pay these taxes when due, we won't deduct them from
your contract value until the annuity date. In those jurisdictions that do not
allow an insurance company to reduce its current taxable premium income by the
amount of any withdrawal, surrender or death benefit paid, we will also deduct a
charge for these taxes on any withdrawal, surrender or death benefit paid under
the Contract.
Premium tax rates are subject to change by law, administrative interpretations,
or court decisions. Premium tax amounts will depend on, among other things, the
contract owner's state of residence, our status within that state, and the
premium tax laws of that state.
CONTRACT VALUE CREDIT
We may add a Contract Value Credit to your contract value if your contract value
reaches certain levels as shown below. The amount, if any, is added on the last
business day of each calendar quarter as the sum of Contract Value Credits
determined for each month within that calendar quarter. Contract Value Credits,
if any, will also be credited upon termination of the Contract due to full
withdrawal, annuitization, or receipt of Due Proof of Death. Contract Value
Credits are determined as follows:
(a) Determine the Contract Value on the last business day of the month or
date of Contract termination
(b)Allocate the Contract Value into the tiers shown below
(c) Multiply the amount in each tier by the corresponding annual credit
percentage
(d)Sum the results of each tier
(e) Multiply the number of days in the month that the Contract was in force
(excluding the Contract Date)
17
(f) Divide by 365
CONTRACT VALUE TIER ANNUAL CREDIT PERCENTAGE
------------------- ------------------------
Less than $250,000.......................................... 0.00%
Next $250,000............................................... 0.20%
Next $250,000............................................... 0.30%
Next $250,000............................................... 0.40%
Next $1,000,000............................................. 0.50%
Next $3,000,000............................................. 0.65%
Excess over $5,000,000...................................... 0.75%
Partial Contract Value Credits, if any, will be credited in the event of full
withdrawal, death or annuitization prior to the last business day of a calendar
quarter; we base partial Contract Value Credits on Contract Value on the last
business day of each calendar month during the calendar quarter of the full
withdrawal, death or annuitization.
FEATURES AND BENEFITS OF THE CONTRACT
As we describe the contract, we will often use the word "you". In this context
"you" means "contract owner".
OWNERSHIP OF THE CONTRACT
The contract owner is entitled to exercise all rights under the Contract. Unless
otherwise specified, the purchaser of the Contract will be the contract owner.
The Contract can be owned by a trust or a corporation. However, special tax
rules apply to Contracts owned by "non-natural persons" such as corporations or
trusts. If you are a human being, you are considered a "natural person." You may
designate a beneficiary. If you die, the beneficiary will receive a death
benefit. You may also designate an annuitant. You may change the annuitant at
any time prior to the annuity date. If you don't select an annuitant, you are
the annuitant.
If a non-natural person owns the Contract and changes the annuitant, the
Internal Revenue Code (IRC) requires us to treat the change as the death of a
contract owner. We will then pay the beneficiary the death benefit.
Only spouses may be co-owners of the Contract, except in Pennsylvania, New
Jersey, and Oregon. When co-owners are established, they exercise all rights
under the Contract jointly unless they elect otherwise. Co-owner spouses must
each be designated as beneficiary for the other. Co-owners may also designate a
beneficiary to receive benefits on the surviving co-owner's death. Qualified
contracts may not have co-owners.
You may assign the Contract to someone else by giving notice to our Service
Center. Only complete ownership of the Contract may be assigned to someone else.
You can't do it in part. An assignment to a new owner cancels all prior
beneficiary designations except a prior irrevocable beneficiary designation.
Assignment of the Contract may have tax consequences or may be prohibited on
certain qualified contracts, so you should consult with a qualified tax adviser
before assigning the Contract. (See "Federal Income Taxes".)
ISSUING THE CONTRACT
ISSUE AGE
You can buy a nonqualified Contract if you (and any co-owner) are less than 80
years old. Annuitants on nonqualified Contracts must be less than 80 years old
when we issue the Contract. For qualified Contracts owned by natural persons,
the contract owner and annuitant must be the same person. Contract owners and
annuitants on qualified Contracts must be less than 70 1/2 years old when we
issue the Contract.
18
INFORMATION WE NEED TO ISSUE THE CONTRACT
Before we issue the Contract, we need certain information from you. We may
require you to complete and return a written application in certain
circumstances, such as when the Contract is being issued to replace, or in
exchange for, another annuity or life insurance contract. Once we review and
approve the information provided or the application, and you pay the initial
premium, we'll issue a Contract. Generally, we'll issue the Contract and invest
the premium within two business days of our receiving your premium. If we
haven't received necessary information within five business days, however, we
will offer to return the premium and no Contract will be issued. You can consent
to our holding the premium until we get all necessary information, and then we
will invest the premium within two business days after we get the information.
TEN DAY RIGHT TO REVIEW
When you get the Contract, review it carefully to make sure it is what you
intended to purchase. Generally, within ten days after you receive the Contract,
you may return it for a refund. The Contract will then be deemed void. Some
states allow a longer period of time to return the Contract, particularly if the
Contract is replacing another contract. To get a refund, return the Contract to
our Service Center or to the Financial Advisor who sold it. We will then refund
the greater of all premiums paid into the Contract or the contract value as of
the date the Contract is returned. For contracts issued in Pennsylvania, we'll
refund the contract value as of the date the Contract is returned.
PREMIUMS
MINIMUM AND MAXIMUM PREMIUMS
Initial premium payments must be $75,000 or more. Subsequent premium payments
generally must be $50 or more. You can make subsequent premium payments at any
time before the annuity date. The maximum premium that will be accepted without
Company approval is $1,000,000. We also reserve the right to reject subsequent
premium payments.
The Contract is available as a non-qualified contract or may be issued as an IRA
or purchased through an established IRA or Roth IRA custodial account with
MLPF&S. Federal law limits maximum annual contributions to qualified contracts.
Transfer amounts from tax-sheltered annuity plans that are not subject to the
Employee Retirement Income Security Act of 1974, as amended, will be accepted as
premium payments, as permitted by law. Other premium payments will not be
accepted under a Contract used as a tax sheltered annuity. We may waive the $100
minimum for premiums paid under IRA Contracts held in custodial accounts with
MLPF&S where you're transferring the complete cash balance of such account into
a Contract.
HOW TO MAKE PAYMENTS
You can pay premiums directly to our Service Center at the address printed on
the first page of this Prospectus or have money debited from your MLPF&S
brokerage account.
AUTOMATIC INVESTMENT FEATURE
You may make systematic premium payments on a monthly, quarterly, semi-annual or
annual basis. Each payment must be for at least $50. Premiums paid under this
feature must be deducted from an MLPF&S brokerage account specified by you and
acceptable to us. You must specify how premiums paid under this feature will be
allocated among the subaccounts. If you select the Rebalancing Program, premiums
will be allocated based on the specified subaccounts and percentages you have
selected. You may change the specified premium amount, the premium allocation,
or cancel the Automatic Investment Feature at any time upon notice to us. We
reserve the right to make changes to this program at any time.
19
PREMIUM INVESTMENTS
For the first 14 days following the contract date, we'll hold all premiums in
the Domestic Money Market Subaccount. After the 14 days, we'll reallocate the
contract value to the subaccounts you selected. (In Pennsylvania, we'll invest
all premiums as of the contract date in the subaccounts you selected.)
Currently, you may allocate your premium among 20 of the subaccounts.
Allocations must be made in whole numbers. For example, 12% of a premium
received may be allocated to the Basic Value Focus Subaccount, 58% allocated to
the Government Bond Subaccount, and 30% allocated to the Index 500 Subaccount.
However, you may not allocate 33 1/3% to the Basic Value Focus Subaccount and
66 2/3% to the Government Bond Subaccount. If we don't get allocation
instructions when we receive subsequent premiums, we will allocate those
premiums according to the allocation instructions you last gave us. We reserve
the right to modify the limit on the number of subaccounts to which future
allocations may be made.
ACCUMULATION UNITS
Each subaccount has a distinct value, called the accumulation unit value. The
accumulation unit value for a subaccount varies daily with the performance and
expenses of the corresponding fund. We use this value to determine the number of
subaccount accumulation units represented by your investment in a subaccount.
HOW ARE MY CONTRACT TRANSACTIONS PRICED?
We calculate an accumulation unit value for each subaccount at the close of
business on each day that the New York Stock Exchange is open. Transactions are
priced, which means that accumulation units in your Contract are purchased
(added to your Contract) or redeemed (taken out of your contract), at the unit
value next calculated after our Service Center receives notice of the
transaction. For premium payments, transfers into a subaccount, or Contract
Value Credits, units are purchased. For payment of Contract proceeds (i.e.,
withdrawals, surrenders, annuitization, and death benefits), transfers out of a
subaccount, and deductions for any contract fee, any additional death benefit
charge, any transfer charge, and any premium taxes due, units are redeemed.
20
HOW DO WE DETERMINE THE NUMBER OF UNITS?
We determine the number of units by dividing the dollar value of the amount of
the purchase or transfer allocated to the subaccount by the value of one
accumulation unit for that subaccount for the valuation period in which the
purchase or transfer is made. The number of accumulation units in each
subaccount credited to a Contract will therefore increase or decrease as these
transactions are made. The number of subaccount accumulation units credited to a
Contract will not change as a result of investment experience or the deduction
of asset-based insurance charges. Instead, this charge and investment experience
are reflected in the accumulation unit value.
When we establish a subaccount, we set an initial value for an accumulation unit
(usually, $10). Accumulation unit values increase, decrease, or stay the same
from one valuation period to the next. An accumulation unit value for any
valuation period is determined by multiplying the accumulation unit value for
the prior valuation period by the net investment factor for the subaccount for
the current valuation period.
The net investment factor is an index used to measure the investment performance
of a subaccount from one valuation period to the next. For any subaccount, we
determine the net investment factor by dividing the value of the assets of the
subaccount for that valuation period by the value of the assets of the
subaccount for the preceding valuation period. We subtract from that result the
daily equivalent of the asset-based insurance charge for the valuation period.
We also take reinvestment of dividends and capital gains into account when we
determine the net investment factor.
We may adjust the net investment factor to make provisions for any change in tax
law that requires us to pay tax on earnings in the Account or any charge that
may be assessed against the Account for assessments or premium taxes or federal,
state or local excise, profits or income taxes measured by or attributable to
the receipt of premiums. (See "Other Charges".)
ADDITIONAL PROVISIONS APPLICABLE TO ALL CONTRACTS
DEATH OF ANNUITANT PRIOR TO ANNUITY DATE
If the annuitant dies before the annuity date, and the annuitant is not a
contract owner, the owner, provided the owner is a natural person, may designate
a new annuitant. If a new annuitant is not designated, the contract owner will
become the annuitant. If any contract owner is not a natural person, no new
annuitant may be named and the death benefit will be paid to the beneficiary.
TRANSFERS AMONG SUBACCOUNTS
Before the annuity date, you may transfer all or part of your contract value
among the subaccounts up to twelve times per contract year without charge. You
can make additional transfers among subaccounts, but we may charge you $25 for
each extra transfer. We will deduct the transfer charge pro rata from among the
subaccounts you're transferring from. Currently, transfers made by us under the
Dollar Cost Averaging Program and the Rebalancing Program will not count toward
the twelve transfers permitted among subaccounts per contract year without
charge. (See "Dollar Cost Averaging Program" and "Rebalancing Program".) We
reserve the right to change the number of additional transfers permitted each
contract year.
Transfers among subaccounts may be made in specific dollar amounts or as a
percentage of contract value. You must transfer at least $100 or the total value
of a subaccount, if less.
21
You may request transfers in writing or by telephone, once we get proper
telephone transfer authorization. Transfer requests may also be made through
your Merrill Lynch Financial Advisor, or another person you designate, once we
receive proper authorization. Transfers will take effect as of the end of the
valuation period on the date the Service Center receives the request. We will
consider telephone transfer requests received after 4:00 p.m. (ET) to be
received the following business day.
An excessive number of transfers, including short-term "market timing"
transfers, may adversely affect the performance of the underlying fund in which
a subaccount invests. If, in our sole opinion, a pattern of excessive transfers
develops, we reserve the right not to process a transfer request. We also
reserve the right not to process a transfer request when the sale or purchase of
shares of a Fund is not reasonably practicable due to actions taken or
limitations imposed by the Fund.
DOLLAR COST AVERAGING PROGRAM
WHAT IS IT?
The Contract offers an optional transfer program called Dollar Cost Averaging
("DCA"). This program allows you to reallocate money at monthly intervals from a
designated subaccount to one or more other subaccounts. The DCA Program is
intended to reduce the effect of short term price fluctuations on investment
cost. Since we transfer the same dollar amount to selected subaccounts monthly,
the DCA Program allows you to purchase more accumulation units when prices are
low and fewer accumulation units when prices are high. Therefore, you may
achieve a lower average cost per accumulation unit over the long-term. However,
it is important to understand that a DCA Program does not assure a profit or
protect against loss in a declining market. If you choose to participate in the
DCA Program you should have the financial ability to continue making investments
through periods of fluctuating markets.
If you choose to participate in the DCA Program, each month we will transfer
amounts from the subaccount that you designate and allocate them, in accordance
with your allocation instructions, to the subaccounts that you select.
If you choose the Rebalancing Program, you cannot use the DCA Program. We
reserve the right to make changes to this program at any time.
PARTICIPATING IN THE DCA PROGRAM
You can choose the DCA Program any time before the annuity date. To choose the
DCA Program, we must receive a written request from you. Once you start using
the DCA Program, you must continue it for at least three months. After three
months, you may cancel the DCA Program at any time by notifying us in writing.
Once you reach the annuity date, you may no longer use this program.
MINIMUM AMOUNTS
To elect the DCA Program, you need to have a minimum amount of money in the
designated subaccount. We determine the amount required by multiplying the
specified length of your DCA Program in months by your specified monthly
transfer amount. Amounts of $100 or more must be allotted for transfer each
month in the DCA Program. We reserve the right to change these minimums.
Allocations must be designated in whole percentage increments. No specific
dollar amount designations may be made. Should the amount in your selected
subaccount drop below the selected monthly transfer amount, we'll notify you
that you need to put more money in to continue the program.
WHEN DO WE MAKE DCA TRANSFERS?
You select the date for DCA transfers. We will make the first DCA transfer on
the selected date following the later of 14 days after the contract date or the
date we receive notice of your DCA election at our Service Center. We'll make
subsequent DCA transfers on the same day of each succeeding month. Currently, we
don't charge for DCA transfers; they are in addition to the twelve annual
transfers permitted without charge under the Contract.
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REBALANCING PROGRAM
Under the Rebalancing Program, we will allocate your premiums and rebalance your
contract value quarterly, semi-annually, or annually according to the frequency,
subaccounts and percentages you select based on your investment goals and risk
tolerance.
After you elect the Rebalancing Program, we allocate your premiums in accordance
with the subaccounts and percentages you have selected. Depending on the
frequency you select, on the last business day of each calendar quarter, or
semi-annual or annual period, we automatically reallocate your contract value to
maintain the particular percentage allocation among the subaccounts that you
have selected.
We perform this periodic rebalancing to take account of:
- increases and decreases in contract value in each subaccount due to
subaccount performance, and
- increases and decreases in contract value in each subaccount due to
withdrawals, transfers, and premiums.
The Rebalancing Program can be elected at issue or at any time after issue. You
may elect the Rebalancing Program in writing or by telephone, once we get proper
telephone transfer authorization. If you elect the Rebalancing Program, you must
include all contract value in the program. We allocate all systematic investment
premiums and, unless you instruct us otherwise, all other premiums in accordance
with the particular percentage allocation among the subaccounts that you have
selected. The percentages that you select under the Rebalancing Program will
override any prior percentage allocations that you have chosen and we will
allocate all future premiums accordingly. You may change your allocations at any
time. Once elected, you may instruct us, in a written form satisfactory to us,
at any time to terminate the program. Currently, we don't charge for transfers
under this program; they are in addition to the twelve annual transfers
permitted without charge under the Contract.
We reserve the right to make changes to this program at any time. If you choose
the DCA Program, you cannot use the Rebalancing Program.
WITHDRAWALS AND SURRENDERS
WHEN AND HOW WITHDRAWALS ARE MADE
Before the annuity date, you may make lump-sum withdrawals from the Contract at
any time during the contract year. In addition, you may make systematic
withdrawals, discussed below. Withdrawals are subject to tax to the extent of
gain and prior to age 59 1/2 may also be subject to a 10% federal penalty tax.
(See "Federal Income Taxes".)
Unless you direct us otherwise, we will make lump-sum withdrawals from
subaccounts in the same proportion as the subaccounts bear to your contract
value. You may make a withdrawal request in writing to our Service Center. You
may withdraw money by telephone, once you've submitted a proper telephone
authorization form to our Service Center, but only if the amount withdrawn is to
be paid into a Merrill Lynch brokerage account or sent to the address of record.
We will consider telephone withdrawal requests received after 4:00 p.m. (ET) to
be received the following business day.
MINIMUM AMOUNTS
The minimum amount that may be withdrawn is $100. At least $5,000 must remain in
the Contract after you make a withdrawal. We reserve the right to change these
minimums.
SYSTEMATIC WITHDRAWAL PROGRAM
You may have automatic withdrawals of a specified dollar amount made monthly,
quarterly, semi-annually or annually. Each withdrawal must be for at least $100
and the remaining contract value must be at least $5,000. You may change the
specified dollar amount or frequency of withdrawals or stop the Systematic
Withdrawal Program at any time upon notice to us. We will make systematic
withdrawals from
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subaccounts in the same proportion as the subaccounts bear to your contract
value. These systematic withdrawals are in addition to any lump-sum withdrawals
made each year under the Contract. We reserve the right to restrict the maximum
amount that may be withdrawn each year under the Systematic Withdrawal Program
and to make any other changes to this program at any time.
SURRENDERS
At any time before the annuity date you may surrender the Contract through a
full withdrawal. The Contract must be delivered to our Service Center. We will
pay you an amount equal to the contract value as of the end of the valuation
period when we process the surrender, adjusted for any Contract Value Credits,
minus the contract fee, if applicable, and minus any applicable charge for
premium taxes. (See "Charges and Deductions".) Surrenders are subject to tax
and, prior to age 59 1/2, may also be subject to a 10% federal penalty tax. (See
"Federal Income Taxes".)
PAYMENTS TO CONTRACT OWNERS
We'll make any payments to you usually within seven days of our Service Center
receiving your proper request. However, we may delay any payment, or delay
processing any annuity payment or transfer request if:
(a) the New York Stock Exchange is closed;
(b) trading on the New York Stock Exchange is restricted by the Securities
and Exchange Commission;
(c) the Securities and Exchange Commission declares that an emergency
exists making it not reasonably practicable to dispose of securities
held in the Account or to determine the value of the Account's assets;
(d) the Securities and Exchange Commission by order so permits for the
protection of security holders; or
(e) payment is derived from a check used to make a premium payment which
has not cleared through the banking system.
CONTRACT CHANGES
Requests to change the owner, beneficiary, annuitant, or annuity date of a
Contract will take effect as of the date you sign such a request, unless we have
already acted in reliance on the prior status. We are not responsible for the
validity of such a request.
If you change the owner or annuitant on a nonqualified Contract, the new owner
or annuitant must be less than 80 years old. For qualified Contracts, if you
change the owner or annuitant, the new owner or annuitant must be less than
70 1/2 years old.
DEATH BENEFIT
GENERAL
Regardless of investment experience, the Contract provides either a guaranteed
minimum death benefit to the beneficiary if you die before the annuity date or
the Estate Enhancer Benefit, that pays, on the death of the owner, proceeds that
may be used to defray some or all of the expenses attributable to death benefit
proceeds paid under the Contract. Death benefit proceeds are taxable to the
extent of gain. (If an owner is a non-natural person, then the death of the
annuitant will be treated as the death of the owner.)
We will pay the death benefit in a lump sum unless the beneficiary chooses an
annuity payment option available under the Contract. (See "Annuity Options".)
However, if you die before the annuity date, federal tax law generally requires
us to distribute the entire contract value within five years of the date of
death. Special rules may apply to a surviving spouse. (See "Federal Income
Taxes".)
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We determine the death benefit as of the date we receive certain information at
our Service Center. We call this information due proof of death. It consists of
the Beneficiary Statement, a certified death certificate, and any additional
documentation we may need to process the death claim. If we haven't received the
other documents within 60 days following our receipt of a certified death
certificate, we will consider due proof of death to have been received and we
will pay the death benefit in a lump sum.
If the age of an owner or annuitant, if the owner is a non-natural person, is
misstated, any death benefit will be adjusted to reflect the correct age. Unless
you irrevocably designated a beneficiary, you may change the beneficiary at any
time before the annuity date.
Death benefit proceeds are taxable. (See "Federal Income Taxes -- Taxation of
Death Benefit Proceeds".)
DEATH BENEFIT OPTIONS
Your Contract provides a guaranteed minimum death benefit equal to the greater
of: premiums paid into the Contract less "adjusted" withdrawals from the
Contract, or the contract value. Without increasing your asset-based insurance
charge, you also choose one of three additional guaranteed minimum death
benefits: Maximum Anniversary Value, Premiums Compounded at 5%, or Estate
Enhancer. For an additional annual charge of 0.25% of the average of your
contract values as of the end of each of the prior four contract quarters, you
may elect to enhance your death benefit by combining the Estate Enhancer option
with either the Maximum Anniversary Value or Premiums Compounded at 5% (the
"enhanced death benefit").
CALCULATION OF DEATH BENEFIT -- MAXIMUM ANNIVERSARY VALUE OPTION
The death benefit is the greatest of:
(i) the premiums paid into the Contract less "adjusted" withdrawals from
the Contract;
(ii) the contract value; or
(iii) the Maximum Anniversary Value.
For this formula, each "adjusted" withdrawal equals the amount withdrawn
multiplied by the greater of (a) or (b) / (c) where:
a = premiums paid into the Contract less previous "adjusted" withdrawals;
b = the Maximum Anniversary Value; and
c = the contract value.
Values for (a), (b), and (c) are calculated immediately prior to the
withdrawal.
The Maximum Anniversary Value is equal to the greatest anniversary value for the
Contract. An anniversary value is equal to the contract value on a contract
anniversary increased by premium payments and decreased by "adjusted"
withdrawals since that anniversary. "Adjusted" withdrawals are calculated
according to the formula that appears immediately above this section.
To determine the Maximum Anniversary Value, we will calculate an anniversary
value for each contract anniversary through the earlier of your attained age 80
or the anniversary on or prior to your date of death. If the contract has
co-owners, we will calculate the anniversary value through the earlier of the
older owner's attained age 80 or the anniversary on or prior to any owner's date
of death if a death benefit is payable. If an owner is a non-natural person,
then the annuitant's age, rather than the owner's, will be used.
We will calculate the Maximum Anniversary Value based on your age (or the age of
the older owner, if the Contract has co-owners, or the annuitant, if the owner
is a non-natural person) on the contract date. Subsequent changes in owner will
not increase the period of time used to determine the Maximum Anniversary Value.
If a new owner has not reached attained age 80 and is older than the owner whose
age is being used to determine the Maximum Anniversary Value at the time of the
ownership change, the
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period of time used in the calculation of the Maximum Anniversary Value will be
based on the age of the new owner at the time of the ownership change. If at the
time of an ownership change the new owner is attained age 80 or over, we will
use the Maximum Anniversary Value as of the anniversary on or prior to the
ownership change, increased by premium payments and decreased by "adjusted"
withdrawals since that anniversary.
For an example of the calculation of the Maximum Anniversary Value death
benefit, see Appendix A.
CALCULATION OF DEATH BENEFIT -- PREMIUMS COMPOUNDED AT 5% OPTION
If you choose the Premiums Compounded at 5% guaranteed minimum death benefit
option the death benefit is the greater of:
(i) the Contract Value; or
(ii)Premiums Compounded at 5%.
Premiums Compounded at 5% equals
(a)premiums paid into the Separate Account with interest on them from the
date received at an interest rate compounded daily to yield 5% annually,
less
(b)"adjusted" withdrawals from the Separate Account with interest on them
from the date of withdrawal at an interest rate compounded daily to
yield 5% annually.
Each "adjusted" withdrawal equals the amount withdrawn multiplied by an
adjustment factor. To determine the adjustment factor, we add the total of all
withdrawals taken during the Contract Year, including any withdrawal request
currently being processed.
If the total of all withdrawals since the previous Contract Anniversary is less
than or equal to 5% times Premiums Compounded at 5% as of the previous Contract
Anniversary, the adjustment factor is equal to 1.0 divided by 1.05, and then
raised to a fraction. The fraction is equal to the number of days remaining in
the Contract Year, excluding leap days, divided by 365.
If the total of all withdrawals since the previous Contract Anniversary is
greater than 5% times Premiums Compounded at 5% as of the previous Contract
Anniversary, the adjustment factor is equal to Premiums Compounded at 5% divided
by the Contract Value, where both values are determined immediately prior to the
withdrawal.
In order to compound interest at 5%, the interest will accrue until the earliest
of:
(1)the last day of the Contract Year in which the Owner (or older Owner, if
there are Co-Owners) attains age 80, or
(2)the last day of the 20(th) Contract Year, or
(3)the time of an ownership change where the new Owner is attained age 80
or older, or
(4)the date of the Owner's death.
No interest accrues thereafter. Premiums Compounded at 5% on the contract date
is equal to the initial premium.
The period for which we will calculate the Premiums Compounded at 5% is based on
your age (or the age of the older owner, if the Contract has co-owners, or if
the owner is a non-natural person, the age of the older annuitant if there are
co-annuitants) on the contract date. Subsequent changes of owner will not
increase the period of time used to determine the "Premiums Compounded at 5%."
If a new Owner has not reached attained age 80 and is older than the owner whose
age is being used to determine the Premiums Compounded at 5% at the time of the
ownership change, the period of time used in the calculation of the Premiums
Compounded at 5% will be based on the attained age of the new owner at the time
of the ownership change. If at the time of an ownership change the new owner is
attained age
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80 or over, we will use the Premiums Compounded at 5% as of the contract
anniversary on or prior to the ownership change, increased by premium payments
and decreased by "adjusted" withdrawals.
For an example of the calculation of the Premiums Compounded at 5% death
benefit, see Appendix B.
CALCULATION OF DEATH BENEFIT -- ESTATE ENHANCER OPTION
If you choose the Estate Enhancer guaranteed minimum death benefit option, you
will receive death benefit coverage in addition to the greater of:
(i) the premiums paid into the Contract less "adjusted" withdrawals from
the Contract; or
(ii)the contract value.
For this formula, each "adjusted" withdrawal equals the amount withdrawn
multiplied by (a) divided by (b), but not less than 1.0, where:
a =premiums compounded at 5%; and
b = the contract value.
Both (a) and (b) are calculated immediately prior to the withdrawal.
Under this option, additional coverage, if any, is determined on the date we
calculate the amount of the death benefit payable above. If you (or the older
owner, if the Contract has co-owners, or the annuitant, if the owner is a
non-natural person) are age 69 or under on the contract date, your additional
benefit is equal to:
(i) 45% of the Net Premiums, or
(ii)45% of the Contract Value less the Net Premiums, but not less than 0.
For this formula, the Net Premiums is equal to premiums paid into the Contract
less "adjusted withdrawals." Each "adjusted withdrawal" is equal to the portion
of the withdrawal which is considered "premium." In (i), the Net Premiums is
reduced by any premiums paid within one year prior to any Owner's date of death
and between the date of death and notification of death.
If you (or the older owner, if the Contract has co-owners, or the annuitant, if
the owner is a non-natural person) are age 70 or over on the contract date, your
additional benefit is equal to:
(i) 30% of the New Premiums, or
(ii)30% of the Contract Value less the Net Premiums, but not less than 0.
For this formula, the Net Premiums is equal to premiums paid into the Contract
less "adjusted withdrawals." Each "adjusted withdrawal" is equal to the portion
of the withdrawal which is considered "premium." In (i), the Net Premiums is
reduced by any premiums paid within one year prior to any Owner's date of death
and between the date of death and notification of death.
The Estate Enhancer benefit provides coverage in addition to that provided by
your death benefit. The Estate Enhancer benefit is designed to help offset
expenses, including income taxes, attributable to payment of the death benefit.
The Estate Enhancer benefit, like the death benefit payable under the Contract,
is subject to federal income taxes. You cannot elect the Estate Enhancer benefit
if you (or the older owner, if the Contract has co-owners, or the annuitant, if
the owner is a non-natural person) are age 76 or older on the contract date.
Estate Enhancer is not available in the state of Washington. Estate
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Enhancer availability is subject to our approval if "Estate Enhancer premiums"
on all contracts issued by us with the same owner(s) exceed $2,200,000. "Estate
Enhancer premiums" means initial premium plus subsequent premium payments if the
effective date is the Contract Date, and contract value on the effective date
plus subsequent premium payments if the effective date is other than the
Contract Date. The Estate Enhancer benefit terminates if you annuitize or
surrender the Contract, or if the Contract otherwise terminates. THE AMOUNT OF
ESTATE ENHANCER BENEFIT DEPENDS UPON THE AMOUNT OF GAIN IN YOUR CONTRACT.
BECAUSE WITHDRAWALS AND POOR INVESTMENT PERFORMANCE OF THE FUNDS WILL REDUCE THE
AMOUNT OF GAIN IN YOUR CONTRACT, THEY WILL REDUCE THE VALUE OF THE ESTATE
ENHANCER BENEFIT. IT IS POSSIBLE THAT THE ESTATE ENHANCER BENEFIT MAY NOT HAVE
ANY VALUE.
The percentage used to determine the benefit depends on your age (or the age of
the older owner, if the Contract has co-owners, or the annuitant, if the owner
is a non-natural person) on the contract date. If you are age 69 or under on the
contract date, your benefit is equal to 45% of the Estate Enhancer gain, but in
no event will it exceed 45% of net premiums (excluding any premiums paid within
one year prior to the death of any owner, or the annuitant, if the owner is a
non-natural person, and any premiums paid between the date of death and the date
we receive notification of death). Estate Enhancer gain is the contract value on
the date we calculate the death benefit minus net premiums paid into the
Contract. Net premiums equal the premiums paid into the Contract less the
portion of each withdrawal considered to be premium. Withdrawals reduce Estate
Enhancer gain first and only withdrawals in excess of Estate Enhancer gain
reduce net premiums. If you (or the older owner, if the Contract has co-owners,
or the annuitant, if the owner is a non-natural person) are age 70 or over on
the contract date, the percentages are reduced from 45% to 30% in the
calculation above.
If a surviving spouse continues the Contract, the contract value will be
increased to the amount that would have been paid as a death benefit, including
any Estate Enhancer benefit. If the surviving spouse is younger than attained
age 75 on the date he or she elects to continue the Contract, the Estate
Enhancer benefit will also be continued. We will use the date the surviving
spouse elects to continue the Contract as the effective date, and the
percentages used in the calculations above will be based on the surviving
spouse's attained age on the effective date. Estate Enhancer gain and net
premiums are calculated from the new effective date and the contract value on
the effective date is considered a premium for purpose of these calculations. If
the surviving spouse is attained age 75 or older on the date he or she elects to
continue the Contract, the Estate Enhancer benefit will terminate.
You may change the owner of the Contract to your spouse without terminating the
Estate Enhancer benefit provided that your spouse is younger than attained age
75 on the effective date. After such a change in owner, the amount of the Estate
Enhancer Benefit will be based on the attained age of your spouse, if older. We
reserve the right to terminate the Estate Enhancer benefit if there is any other
change of owner. If we do not terminate the Estate Enhancer benefit for a
non-spousal ownership change, the continuation of the benefit will be subject to
the parameters described in the preceding paragraph.
For an example of the calculation of the Estate Enhancer benefit, see Appendix
C.
CALCULATION OF ENHANCED DEATH BENEFIT
If you combine the Estate Enhancer with either Maximum Anniversary Value or
Premiums Compounded at 5% you will receive death benefit coverage in addition to
the death benefit received under either option. If you do select the enhanced
death benefit, you will pay an additional annual charge of 0.25% of the average
of your contract values as of the end of each of the prior four contract
quarters.
If you (or the older owner, if the Contract has co-owners, or the annuitant, if
the owner is a non-natural person) are age 69 or under on the contract date,
your additional benefit is equal to:
(i) 45% of the Net Premiums, or
(ii)45% of the Contract Value less the Net Premiums, but not less than 0.
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If you (or the older owner, if the Contract has co-owners, or the annuitant, if
the owner is a non-natural person) are age 70 or over on the contract date, your
additional benefit is equal to:
(i) 30% of the Net Premiums, or
(ii)30% of the Contract Value less the Net Premiums, but not less than 0.
For examples of the calculation of the enhanced death benefit, see Appendices D
and E.
SPOUSAL CONTINUATION
If your beneficiary is your surviving spouse, your spouse may elect to continue
the Contract if you die before the annuity date. Your spouse becomes the
contract owner and the beneficiary until your spouse names a new beneficiary. If
the death benefit which would have been paid to the surviving spouse is greater
than the contract value as of the date we determine the death benefit, we will
increase the contract value of the continued Contract to equal the death benefit
we would have paid to the surviving spouse. Your interest in each subaccount
will be increased by the ratio of your contract value in each subaccount to your
contract value.
ANNUITY PAYMENTS
We'll make the first annuity payment on the annuity date, and payments will
continue according to the annuity option selected. When you first buy the
Contract, the annuity date for non-qualified Contracts is the first day of the
month following the annuitant's 95th birthday. The annuity date for IRA or tax
sheltered annuity Contracts is when the owner/annuitant reaches age 70 1/2.
However, you may specify an earlier annuity date but not before the first
Contract Anniversary. You may change the annuity date at any time before the
annuity date.
Contract owners may select from a variety of fixed annuity payment options, as
outlined below in "Annuity Options." If you don't choose an annuity option,
we'll use the Life Annuity with Payments Guaranteed for 10 Years annuity option
when the contract owner reaches age 95 (age 70 1/2 for an IRA Contract or tax-
sheltered annuity). You may change the annuity option before the annuity date.
We reserve the right to limit annuity options available to IRA contract owners
to comply with the Internal Revenue Code or regulations under it.
We determine the dollar amount of annuity payments by applying your contract
value on the annuity date to our then current annuity purchase rates less any
applicable premium tax. Purchase rates show the amount of periodic payment that
a $1000 value buys. These rates are based on the annuitant's age and sex (where
permitted) at the time payments begin, and will assume interest of not less than
3% per year. The rates will never be less than those shown in the Contract.
If the age and/or sex of the annuitant was misstated to us, resulting in an
incorrect calculation of annuity payments, we will adjust future annuity
payments to reflect the correct age and/or sex. We will deduct any amount we
overpaid as the result of a misstatement from future payments with 6% annual
interest charges. Likewise, if we underpaid any amount as the result of a
misstatement, we correct it with the next payment made with 6% annual interest
credited.
If the contract value on the annuity date after the deduction of any applicable
premium taxes is less than $5,000, we may cash out your Contract in a lump sum.
If any annuity payment would be less than $50 (or a different minimum amount, if
required by state law), we may change the frequency of payments so that all
payments will be at least $50 (or the minimum amount required by state law).
Unless you tell us differently, we'll make annuity payments directly to your
Merrill Lynch brokerage account.
ANNUITY OPTIONS
We currently provide the following fixed annuity payment options. After the
annuity date, your contract value does not vary with the performance of the
Account. We may in the future offer more options. Once you begin to receive
annuity payments, you cannot change the payment option, payment amount, or the
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payment period. If you or the annuitant dies while guaranteed payments remain
unpaid, several options provide the ability to take the present value of future
guaranteed payments in a lump sum.
HOW WE DETERMINE PRESENT VALUE OF FUTURE
GUARANTEED ANNUITY PAYMENTS
Present value refers to the amount of money needed today to fund the remaining
guaranteed payments under the annuity payment option you select. The primary
factor in determining present value is the interest rate assumption we use. If
you are receiving annuity payments under an option that gives you the ability to
take the present value of future payments in a lump sum and you elect to take
the lump sum we will use the same interest rate assumption in calculating the
present value that we used to determine your payment stream at the time your
annuity payments commenced.
PAYMENTS OF A FIXED AMOUNT
We will make equal payments in an amount you choose until the sum of all
payments equals the contract value applied, increased for interest credited of
at least 3%. The amount you choose must provide at least five years of payments.
These payments don't depend on the annuitant's life. If the annuitant dies
before the guaranteed amount has been paid, you may elect to have payments
continued for the amount guaranteed or to receive the present value of the
remaining guaranteed payments in a lump sum. If the contract owner dies while
guaranteed amounts remain unpaid, the beneficiary may elect to receive the
present value of the remaining guaranteed payments in a lump sum.
PAYMENTS FOR A FIXED PERIOD
We will make equal payments for a period you select of at least five years.
These payments don't depend on the annuitant's life. If the annuitant dies
before the end of the period, you may elect to have payments continued for the
period guaranteed or to receive the present value of the remaining guaranteed
payments in a lump sum. If the contract owner dies while guaranteed amounts
remain unpaid, the beneficiary may elect to receive the present value of the
remaining guaranteed payments in a lump sum.
*LIFE ANNUITY
We make payments for as long as the annuitant lives. Payments will cease with
the last payment made before the annuitant's death.
LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 5, 10, 15, OR 20 YEARS
We make payments for as long as the annuitant lives. In addition, even if the
annuitant dies before the period ends, we guarantee payments for either 5, 10,
15, or 20 years as you selected. If the annuitant dies before the guaranteed
period ends, you may elect to have payments continued for the period guaranteed
or to receive the present value of the remaining guaranteed payments in a lump
sum. If the contract owner dies while guaranteed amounts remain unpaid, the
beneficiary may elect to receive the present value of the remaining guaranteed
payments in a lump sum.
LIFE ANNUITY WITH GUARANTEED RETURN OF CONTRACT VALUE
We make payments for as long as the annuitant lives. In addition, even if the
annuitant dies, we guarantee payments until the sum of all annuity payments
equals the contract value applied. If the annuitant dies while guaranteed
amounts remain unpaid, you may elect to have payments continued for the amount
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guaranteed or to receive the present value of the remaining guaranteed amount in
a lump sum. If the contract owner dies while guaranteed amounts remain unpaid,
the beneficiary may elect to receive the present value of the remaining
guaranteed amount in a lump sum.
*JOINT AND SURVIVOR LIFE ANNUITY
We make payments for the lives of the annuitant and a designated second person.
Payments will continue as long as either one is living.
JOINT AND SURVIVOR LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 5, 10, 15, OR
20 YEARS
We make payments during the lives of the annuitant and a designated second
person. Payments will continue as long as either one is living. In addition,
even if the annuitant and the designated second person die before the guaranteed
period ends, we guarantee payments for either 5, 10, 15, or 20 years as you
selected. If the annuitant and the designated second person die before the end
of the period, you may elect to have payments continued for the period
guaranteed or to receive the present value of the remaining guaranteed payments
in a lump sum. If the contract owner dies while guaranteed amounts remain
unpaid, the beneficiary may elect to receive the present value of the remaining
guaranteed payments in a lump sum.
INDIVIDUAL RETIREMENT ACCOUNT ANNUITY
This annuity option is available only to IRA contract owners. Payments will be
made annually 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. Each annual payment will be determined in accordance with the applicable
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, but will not be less than 3%. On the death of the
measuring life or lives prior to full distribution of the remaining value, we
will pay that value to the beneficiary in a lump sum.
GENDER-BASED ANNUITY PURCHASE RATES
Generally, the Contract provides for gender-based annuity purchase rates when
life annuity options are chosen. However, in states that have adopted
regulations prohibiting gender-based rates, blended unisex annuity purchase
rates will be applied to both male and female annuitants. Unisex annuity
purchase rates will provide the same annuity payments for male or female
annuitants that are the same age on their annuity dates.
Employers and employee organizations considering purchase of the Contract should
consult with their legal advisor to determine whether purchasing a Contract
containing gender-based annuity purchase rates is consistent with Title VII of
the Civil Rights Act of 1964 or other applicable law. We may offer such contract
owners Contracts containing unisex annuity purchase rates.
FEDERAL INCOME TAXES
FEDERAL INCOME TAXES
The following summary discussion is based on our understanding of current
federal income tax law as the Internal Revenue Service (IRS) now interprets it.
We can't guarantee that the law or the IRS's interpretation won't change. It
does not purport to be complete or to cover all tax situations. This
---------------
* These options are "pure" life annuities. Therefore, it is possible for the
payee to receive only one annuity payment if the person (or persons) on whose
life (lives) payment is based dies after only one payment or to receive only
two annuity payments if that person (those persons) dies after only two
payments, etc.
31
discussion is not intended as tax advice. Counsel or other tax advisors should
be consulted for further information.
We haven't considered any applicable federal gift, estate or any state or other
tax laws. Of course, your own tax status or that of your beneficiary can affect
the tax consequences of ownership or receipt of distributions.
When you invest in an annuity contract, you usually do not pay taxes on your
investment gains until you withdraw the money -- generally for retirement
purposes. If your annuity is independent of any formal retirement or pension
plan, it is termed a nonqualified contract. If you invest in a variable annuity
as part of an individual retirement annuity or tax sheltered annuity, your
contract is called a qualified contract. The tax rules applicable to qualified
contracts vary according to the type of retirement plan and the terms and
conditions of the plan.
TAX STATUS OF THE CONTRACT
DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Internal Revenue Code (IRC) and the regulations under it
provide that separate account investments underlying a contract must be
"adequately diversified" for it to qualify as an annuity contract under IRC
section 72. The Account, through the subaccounts, intends to comply with the
diversification requirements of the regulations under Section 817(h). This will
affect how we make investments.
OWNER CONTROL
In certain circumstances, owners of variable annuity contracts have been
considered for Federal income tax purposes to be the owners of the assets of the
separate account supporting their Contracts due to their ability to exercise
investment control over those assets. When this is the case, the contract owners
have been currently taxed on income and gains attributable to the separate
account assets. There is little guidance in this area, and some features such as
the flexibility of an owner to allocate premium payments and transfer contract
accumulation values, have not been explicitly addressed in IRS published
rulings. While we believe that the Contracts do not give owners investment
control over Account assets, we reserve the right to modify the Contracts as
necessary to prevent an owner from being treated as the owner of the Account
assets supporting the Contract.
REQUIRED DISTRIBUTIONS
To qualify as an annuity contract under Section 72(s) of the IRC, a
non-qualified annuity contract must provide that: (a) if any owner dies on or
after the annuity starting date but before all amounts under the Contract have
been distributed, the remaining amounts will be distributed at least as quickly
as under the method being used when the owner died; and (b) if any owner dies
before the annuity starting date, all amounts under the Contract will be
distributed within five years of the date of death. So long as the distributions
begin within a year of the owner's death, the IRS will consider these
requirements satisfied for any part of the owner's interest payable to or for
the benefit of a "designated beneficiary" and distributed over the beneficiary's
life or over a period that cannot exceed the beneficiary's life expectancy. A
designated beneficiary is the person the owner names as beneficiary and who
assumes ownership when the owner dies. A designated beneficiary must be a
natural person. If the deceased owner's spouse is the designated beneficiary, he
or she can continue the Contract when such contract owner dies.
The Contract is designed to comply with Section 72(s). We will review the
Contract and amend it if necessary to make sure that it continues to comply with
the section's requirements.
Other rules regarding required distributions apply to Individual Retirement
Annuities and tax sheltered annuities.
32
TAXATION OF ANNUITIES
IN GENERAL
IRC Section 72 governs annuity taxation generally. We believe an owner who is a
natural person usually won't be taxed on increases in the value of a contract
until there is a distribution (i.e., the owner withdraws all or part of the
accumulation or takes annuity payments). Assigning, pledging, or agreeing to
assign or pledge any part of the accumulation usually will be considered a
distribution. Distributions of accumulated investment earnings are taxable as
ordinary income.
The owner of any annuity contract who is not a natural person (e.g., a
corporation or a trust) generally must include in income any increase in the
excess of the accumulation over the "investment in the contract" during the
taxable year. There are some exceptions to this rule and a prospective owner
that is not a natural person may wish to discuss them with a competent tax
advisor.
The following discussion applies generally to Contracts owned by a natural
person:
WITHDRAWALS AND SURRENDERS
When you take a withdrawal from a Contract, the amount received generally will
be treated as ordinary income subject to tax up to an amount equal to the excess
(if any) of the contract value immediately before the distribution over the
investment in the Contract (generally, the premiums or other consideration paid
for the Contract, reduced by any amount previously distributed from the Contract
that was not subject to tax) at that time. Other rules apply to Individual
Retirement Annuities.
If you withdraw your entire contract value, you will be taxed only on the part
that exceeds your "investment in the contract."
ANNUITY PAYMENTS
Although tax consequences may vary depending on the annuity option selected
under an annuity contract, a portion of each annuity payment is generally not
taxed and the remainder is taxed as ordinary income. The non-taxable portion of
an annuity payment is generally determined in a manner that is designed to allow
you to recover your investment in the Contract ratably on a tax-free basis over
the expected stream of annuity payments, as determined when annuity payments
start. Once your investment in the Contract has been fully recovered, however,
the full amount of each annuity payment is subject to tax as ordinary income.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be paid from a Contract because an owner or annuitant (if an owner
is not a natural person) has died. If the payments are made in a single sum,
they're taxed the same way a full withdrawal from the Contract is taxed. If they
are distributed as annuity payments, they're taxed as annuity payments.
PENALTY TAX ON SOME WITHDRAWALS
You may have to pay a penalty tax (10 percent of the amount treated as taxable
income) on some withdrawals. However, there is usually no penalty on
distributions:
(1) on or after you reach age 59 1/2;
(2) after you die (or after the annuitant dies, if an owner isn't an
individual);
(3) after you become disabled; or
(4) that are part of a series of substantially equal periodic (at least
annual) payments for your life (or life expectancy) or the joint lives
(or life expectancies) of you and your beneficiary.
Other exceptions may be applicable under certain circumstances and special rules
may apply in connection with the exceptions listed above. Also, additional
exceptions apply to distributions from an Individual
33
Retirement Annuity or tax sheltered annuity. You should consult a tax adviser
with regard to exceptions from the penalty tax.
TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF A CONTRACT
Transferring or assigning ownership of the Contract, designating a payee or
beneficiary who is not also the owner, or exchanging a Contract can have other
tax consequences that we don't discuss here. If you're thinking about any of
those transactions, contact a tax advisor.
WITHHOLDING
Annuity distributions usually 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. However, except for certain
distributions from tax sheltered annuities, recipients can usually choose not to
have tax withheld from distributions.
MULTIPLE CONTRACTS
All non-qualified deferred annuity Contracts that we (or our affiliates) issue
to the same owner during any calendar year are generally treated as one annuity
Contract for purposes of determining the amount includible in such owner's
income when a taxable distribution occurs. This could affect when income is
taxable and how much is subject to the ten percent penalty tax discussed above.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the Contracts could change by legislation
or other means. It is also possible that any change could be retroactive (that
is, effective prior to the date of the change). A tax adviser should be
consulted with respect to legislative developments and their effect on the
Contract.
POSSIBLE CHARGE FOR OUR TAXES
Currently we don't charge the Account for any federal, state, or local taxes on
them or the Contracts (other than premium taxes), but we reserve the right to
charge the Account or the Contracts for any tax or other cost resulting from the
tax laws that we believe should be attributed to them.
INDIVIDUAL RETIREMENT ANNUITIES
TRADITIONAL IRAS
Section 408 of the IRC permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity" or
"IRA." This Contract is available for purchase either as an IRA or through an
established IRA custodial account with MLPF&S. An individual may make annual
contributions of up to the lesser of $2,000 or 100% of adjusted gross income to
an IRA. The contributions may be deductible in whole or in part, depending on
the individual's income. Distributions from certain pension plans may be "rolled
over" into an IRA on a tax-deferred basis without regard to these limits.
Amounts in the IRA (other than nondeductible contributions) are taxed when
distributed from the IRA. A 10% penalty tax generally applies to distributions
made before age 59 1/2, unless certain exceptions apply. IRAs have minimum
distribution rules that govern the timing and amount of distributions. You
should refer to your adoption agreement or consult a tax advisor for more
information about these distribution rules. Adverse tax consequences may result
if you do not ensure that contributions, distributions and other transactions
with respect to the Contract comply with the law.
ROTH IRAS
A Contract is available for purchase by an individual who has separately
established a Roth IRA custodial account with MLPF&S. Roth IRAs, as described in
section 408A of the IRC, permit certain eligible
34
individuals to contribute to make non-deductible contributions to a Roth IRA in
cash or as a rollover or transfer from another Roth IRA or other IRA. An
individual may make annual contributions to a Roth IRA of up to the lesser of
$2,000 or 100% of adjusted gross income. A rollover from or conversion of an IRA
to a Roth IRA is generally subject to tax and other special rules apply. You may
wish to consult a tax adviser before combining any converted amounts with any
other Roth IRA contributions, including any other conversion amounts from other
tax years. Distributions from a Roth IRA generally are not taxed, except that,
once aggregate distributions exceed contributions to the Roth IRA, income tax
and a 10% penalty tax may apply to distributions made (1) before age 59 1/2
(subject to certain exceptions) or (2) during the five taxable years starting
with the year in which the first contribution is made to any Roth IRA. A 10%
penalty tax may apply to amounts attributable to a conversion from an IRA if
they are distributed during the five taxable years beginning with the year in
which the conversion was made.
OTHER TAX ISSUES FOR IRAS AND ROTH IRAS
Total annual contributions to all of an individual's IRAs and Roth IRAs may not
exceed $2,000 or 100% of the individual's adjusted gross income. Distributions
from an IRA or Roth IRA generally are subject to withholding for the
participant's federal income tax liability. The withholding rate varies
according to the type of distribution and the owner's tax status. The owner will
be provided the opportunity to elect not have tax withheld from distributions.
The IRS has not reviewed the Contract for qualification as an IRA or Roth IRA,
and has not addressed in a ruling of general applicability whether a death
benefit provision such as the enhanced death benefit provision in the Contract
comports with IRA and Roth IRA qualification requirements.
TAX SHELTERED ANNUITIES
Section 403(b) of the IRC allow employees of certain Section 501(c)(3)
organizations and public schools to exclude from their gross income the premium
payments made, within certain limits, on a contract that will provide an annuity
for the employee's retirement. Transfer amounts from tax sheltered annuity plans
that are not subject to the Employee Retirement Income Security Act of 1974, as
amended, are accepted as premium payments, as permitted by law, under a
Contract. Other premium payments, including premium payments subject to IRC
Section 402(g), will not be accepted. Distributions of (1) salary reduction
contributions made in years beginning after December 31, 1988; (2) earnings on
those contributions; and (3) earnings on amounts held as of the last year
beginning before January 1, 1989, are not allowed prior to age 59 1/2,
separation from service, death or disability. Salary reduction contributions may
also be distributed upon hardship, but would generally be subject to penalties.
Distributions from a tax sheltered annuity are generally subject to a mandatory
20% federal income tax withholding. The Contract includes an enhanced death
benefit provision that could be characterized as an incidental benefit, the
amount of which is limited in a tax sheltered annuity. Because the death benefit
may exceed this limitation, individuals using the Contract in connection with
such plans should consult their tax advisors.
OTHER INFORMATION
NOTICES AND ELECTIONS
You must send any changes, notices, and/or choices for your Contract to our
Service Center. These requests must be in writing and signed unless you have
submitted a telephone authorization form. If you have submitted an authorization
form, you may make the following choices via telephone:
1. Transfers
2. Premium allocation
3. Withdrawals, other than full surrenders
4. Requests to change the annuity date
35
We will use reasonable procedures to confirm that a telephone request is proper.
These procedures may include possible tape recording of telephone calls and
obtaining appropriate identification before effecting any telephone
transactions. We do not have any liability if we act on a request that we
reasonably believe is proper.
Telephone systems may not always be available. Any telephone system, whether it
is yours, your service provider's, your Financial Advisor's, or ours, can
experience outages or slowdowns for a variety of reasons. These outages or
slowdowns may delay or prevent our processing of your request. Although we have
taken precautions to help our systems handle heavy use, we cannot promise
reliability under all circumstances. If you are experiencing problems, you
should make your request by writing to our Service Center.
VOTING RIGHTS
We own all Fund shares held in the Account. As the owner, we have the right to
vote on any matter put to vote at any Funds' shareholder meetings. However, we
will vote all Fund shares attributable to Contracts by following instructions we
receive from you. If we don't receive voting instructions, we'll vote those
shares in the same proportion as shares for which we receive instructions. We
determine the number of shares you may give voting instructions on by dividing
your interest in a subaccount by the net asset value per share of the
corresponding Fund. We'll determine the number of shares you may give voting
instructions on as of a record date we choose. We may vote Fund shares in our
own right if laws change to permit us to do so.
You have voting rights until the annuity date. You may give voting instructions
concerning:
(1) the election of a Fund's Board of Directors;
(2) ratification of a Fund's independent accountant;
(3) approval of the investment advisory agreement for a Fund corresponding to
your selected subaccounts;
(4) any change in a fundamental investment policy of a Fund corresponding to
your selected subaccounts; and
(5) any other matter requiring a vote of the Fund's shareholders.
REPORTS TO CONTRACT OWNERS
At least once each contract year before the annuity date, we will send you
information about your Contract. It will outline all your Contract transactions
during the year, your Contract's current number of accumulation units in each
subaccount, the value of each accumulation unit of each subaccount, and the
contract value.
You will also receive an annual and a semi-annual report containing financial
statements and a list of portfolio securities of the Funds.
SELLING THE CONTRACT
MLPF&S is the principal underwriter of the Contract. Its principal business
address is World Financial Center, 250 Vesey Street, New York, New York 10281.
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. MLPF&S is an
indirect wholly owned subsidiary of Merrill Lynch & Co., Inc.
Registered representatives (Financial Advisors) of MLPF&S sell the Contract.
These Financial Advisors are registered with the NASD, licensed as insurance
agents in the states in which they do business, and appointed through various
Merrill Lynch Life Agencies as our insurance agents. Through a distribution
agreement we have with MLPF&S and companion sales agreements we have with the
Merrill Lynch Life Agencies, Merrill Lynch Life Agencies and/or MLPF&S
compensate the Financial Advisors. The
36
maximum commission paid to a Financial Advisor is % of each premium. In
addition, on the annuity date, the Financial Advisor will receive compensation
of up to % of contract value. Financial Advisors may also be paid
additional annual compensation of up to % of contract value. Reduced
compensation may be paid on Contracts purchased by our employees or their
spouses or dependents.
The maximum commission we will pay to the applicable insurance agency to be used
to pay commissions to Financial Advisors is % of each premium and up to
% of contract value. In addition, the maximum commission we will pay to the
applicable insurance agency on the annuity date is % of contract value.
MLPF&S may arrange for sales of the Contract by other broker-dealers. Registered
representatives of these other broker-dealers may be compensated on a different
basis than MLPF&S Financial Advisors; however, commissions paid to registered
representatives of these broker-dealers will not exceed those described above.
Selling firms may retain a portion of commissions. We pay commissions through
the registered broker-dealer, and may pay additional compensation to the
broker-dealer and/or reimburse it for a portion of expenses relating to sales of
the Contract. The registered representative may receive a portion of the expense
reimbursement allowance paid to the broker-dealer.
Registered representatives of MLPF&S are eligible for various cash benefits,
such as bonuses, insurance benefits and financing arrangements, and non-cash
compensation programs that MLPF&S offers, such as conferences, trips and awards.
Other payments may be made for services that do not directly involve the sale of
the Contracts. These services may include the recruitment and training of
personnel, production or promotional literature, and similar services.
We intend to recoup commissions and other sales expenses through fees and
charges imposed under the Contract. Commissions paid on the Contract, including
other incentives or payments, are not charged directly to the contract owners or
the Variable Account.
We offer the Contracts to the public on a continuous basis. We anticipate
continuing to offer the Contracts, but reserve the right to discontinue the
offering.
STATE REGULATION
We are subject to the laws of the State of Arkansas and to the regulations of
the Arkansas Insurance Department. We are also subject to the insurance laws and
regulations of all jurisdictions in which we're licensed to do business.
We file an annual statement with the insurance departments of jurisdictions
where we do business. The statement discloses our operations for the preceding
year and our financial condition as of the end of that year. Our books and
accounts are subject to insurance department review at all times. The Arkansas
Insurance Department, in conjunction with the National Association of Insurance
Commissioners, conducts a full examination of our operations periodically.
LEGAL PROCEEDINGS
There are no legal proceedings involving the Account. We and MLPF&S are engaged
in various kinds of routine litigation that, in our judgment, are not material
to our total assets.
EXPERTS
Deloitte & Touche LLP, independent auditors, have audited our financial
statements as of December 31, 2000 and 1999 and for each of the three years in
the period ended December 31, 2000. We include these financial statements in
reliance upon the reports of Deloitte & Touche LLP given upon their authority as
experts in accounting and auditing. Their principal business address is Two
World Financial Center, New York, New York 10281-1420.
37
LEGAL MATTERS
Our organization, our authority to issue the Contract, and the validity of the
form of the Contract have been passed upon by Barry G. Skolnick, our General
Counsel. Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice
on certain matters relating to federal securities laws.
REGISTRATION STATEMENTS
Registration Statements that relate to the Contract and its investment options
have been filed with the Securities and Exchange Commission under the Securities
Act of 1933 and the Investment Company Act of 1940. This Prospectus does not
contain all of the information in the registration statements. You can obtain
the omitted information from the Securities and Exchange Commission's principal
office in Washington, D.C., upon payment of a prescribed fee.
38
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The contents of the Statement of Additional Information for the Contract include
the following:
OTHER INFORMATION
Principal Underwriter
Financial Statements
Administrative Services Arrangements
CALCULATION OF YIELDS AND TOTAL RETURNS
FINANCIAL STATEMENTS OF MERRILL LYNCH LIFE INSURANCE COMPANY
39
STATEMENT OF ADDITIONAL INFORMATION
, 2001
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
MERRILL LYNCH LIFE INSURANCE COMPANY
HOME OFFICE: LITTLE ROCK, ARKANSAS 72201
SERVICE CENTER: P.O. BOX 44222
JACKSONVILLE, FLORIDA 32231-4222
4804 DEER LAKE DRIVE EAST
JACKSONVILLE, FLORIDA 32246
PHONE: (800) 535-5549
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
This individual deferred variable annuity contract (the "Contract") is designed
to provide comprehensive and flexible ways to invest and to create a source of
income protection for later in life through the payment of annuity benefits. An
annuity is intended to be a long term investment. Contract owners should
consider their need for deferred income before purchasing the Contract. The
Contract is issued by Merrill Lynch Life Insurance Company ("Merrill Lynch
Life") both on a nonqualified basis, and as an Individual Retirement Annuity
("IRA") that is given qualified tax status. The Contract may also be purchased
through an established IRA or Roth IRA custodial account with Merrill Lynch,
Pierce, Fenner & Smith Incorporated. Transfer amounts from tax sheltered annuity
plans that are not subject to the Employee Retirement Income Security Act of
1974, as amended, will be accepted as premium payments, as permitted by law.
Other premium payments will not be accepted under a Contract used as a tax
sheltered annuity.
This Statement of Additional Information is not a Prospectus and should be read
together with the Contract's Prospectus dated , 2001, which is
available on request and without charge by writing to or calling Merrill Lynch
Life at the Service Center address or phone number set forth above.
TABLE OF CONTENTS
PAGE
----
OTHER INFORMATION........................................... 3
Principal Underwriter....................................... 3
Financial Statements........................................ 3
Administrative Services Arrangements........................ 3
CALCULATION OF YIELDS AND TOTAL RETURNS..................... 3
Money Market Yields......................................... 3
Other Subaccount Yields..................................... 4
Total Returns............................................... 5
FINANCIAL STATEMENTS OF MERRILL LYNCH LIFE INSURANCE
COMPANY................................................... G-1
2
OTHER INFORMATION
PRINCIPAL UNDERWRITER
Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of Merrill
Lynch Life, performs all sales and distribution functions regarding the
Contracts and may be deemed the principal underwriter of Merrill Lynch Life
Variable Annuity Separate Account C (the "Account") under the Investment Company
Act of 1940. The offering is continuous. Merrill Lynch, Pierce, Fenner & Smith
has not received any payments or commissions in connection with the sale of the
Contracts in the past three years.
FINANCIAL STATEMENTS
The financial statements of Merrill Lynch Life included in this Statement of
Additional Information should be distinguished from the financial statements of
the Account and should be considered only as bearing upon the ability of Merrill
Lynch Life to meet any obligations it may have under the Contract.
ADMINISTRATIVE SERVICES ARRANGEMENTS
Merrill Lynch Life has entered into a Service Agreement with its parent, Merrill
Lynch Insurance Group, Inc. ("MLIG") pursuant to which Merrill Lynch Life can
arrange for MLIG to provide directly or through affiliates certain services.
Pursuant to this agreement, Merrill Lynch Life has arranged for MLIG to provide
administrative services for the Account and the Contracts, and MLIG, in turn,
has arranged for a subsidiary, Merrill Lynch Insurance Group Services, Inc.
("MLIG Services"), to provide these services. Compensation for these services,
which will be paid by Merrill Lynch Life, will be based on the charges and
expenses incurred by MLIG Services, and will reflect MLIG Services' actual
costs. For the years ended December 31, 2000, 1999, and 1998, Merrill Lynch Life
paid administrative services fees of $47.7 million, $43.4 million, and $43.2
million, respectively.
CALCULATION OF YIELDS AND TOTAL RETURNS
MONEY MARKET YIELD
From time to time, Merrill Lynch Life may quote in advertisements and sales
literature the current annualized yield for the Domestic Money Market Subaccount
for a 7-day period in a manner that does not take into consideration any
realized or unrealized gains or losses on shares of the underlying Funds or on
their respective portfolio securities. The current annualized yield is computed
by: (a) determining the net change (exclusive of realized gains and losses on
the sales of securities and unrealized appreciation and depreciation) at the end
of the 7-day period in the value of a hypothetical account under a Contract
having a balance of 1 unit at the beginning of the period, (b) dividing such net
change in account value by the value of the account at the beginning of the
period to determine the base period return; and (c) annualizing this quotient on
a 365-day basis. The net change in account value reflects: (1) net income from
the Fund attributable to the hypothetical account; and (2) charges and
deductions imposed under the Contract which are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the
hypothetical account for: (1) the asset-based insurance charge; and (2) the
annual contract fee. For purposes of calculating current yield for a Contract,
an average per unit contract fee is used. Based on our current estimates of
average contract size and withdrawals, we have assumed the average per unit
contract fee to be 0.00%. Current yield will be calculated according to the
following formula:
Current Yield = ((NCF - ES)/UV) X (365/7)
3
Where:
NCF = the net change in the value of the Fund (exclusive of
realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) for the 7-day
period attributable to a hypothetical account having a
balance of 1 unit.
ES = per unit expenses for the hypothetical account for the 7-day
period.
UV = the unit value on the first day of the 7-day period.
Merrill Lynch Life also may quote the effective yield of the Domestic Money
Market Subaccount for the same 7-day period, determined on a compounded basis.
The effective yield is calculated by compounding the unannualized base period
return according to the following formula:
(365/7)
Effective Yield = (1 + ((NCF - ES)/UV)) - 1
Where:
NCF = the net change in the value of the Fund (exclusive of
realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) for the 7-day
period attributable to a hypothetical account having a
balance of 1 unit.
ES = per unit expenses of the hypothetical account for the 7-day
period.
UV = the unit value for the first day of the 7-day period.
Because of the charges and deductions imposed under the Contract, the yield for
the Domestic Money Market Subaccount will be lower than the yield for the
corresponding underlying Fund.
The yields on amounts held in the Domestic Money Market Subaccount normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The actual yield for the subaccount is affected by changes in interest
rates on money market securities, average portfolio maturity of the underlying
Fund, the types and qualities of portfolio securities held by the Fund and the
Fund's operating expenses. Yields on amounts held in the Domestic Money Market
Subaccount may also be presented for periods other than a 7-day period.
OTHER SUBACCOUNT YIELDS
From time to time, Merrill Lynch Life may quote in sales literature or
advertisements the current annualized yield of one or more of the subaccounts
(other than the Domestic Money Market Subaccount) for a Contract for a 30-day or
one-month period. The annualized yield of a subaccount refers to income
generated by the subaccount over a specified 30-day or one-month period. Because
the yield is annualized, the yield generated by the subaccount during the 30-day
or one-month period is assumed to be generated each period over a 12-month
period. The yield is computed by: (1) dividing the net investment income of the
Fund attributable to the subaccount units less subaccount expenses for the
period; by (2) the maximum offering price per unit on the last day of the period
times the daily average number of units outstanding for the period; then (3)
compounding that yield for a 6-month period; and then (4) multiplying that
result by 2. Expenses attributable to the subaccount include the asset-based
insurance charge and the annual contract fee. For purposes of calculating the
30-day or one-month yield, an average contract fee per dollar of contract value
in the subaccount is used to determine the amount of the charge attributable to
the subaccount for the 30-day or one-month period. Based on our current
estimates of average contract size and withdrawals, we have assumed the average
contract fee to be 0.00%. The 30-day or one-month yield is calculated according
to the following formula:
(6)
Yield = 2 X ((((NI - ES)/(U X UV)) + 1) - 1)
4
Where:
NI = net investment income of the Fund for the 30-day or
one-month period attributable to the subaccount's units.
ES = expenses of the subaccount for the 30-day or one-month
period.
U = the average number of units outstanding.
UV = the unit value at the close of the last day in the 30-day or
one-month
Currently, Merrill Lynch Life may quote yields on bond subaccounts. Because of
the charges and deductions imposed under the Contracts, the yield for a
subaccount will be lower than the yield for the corresponding Fund.
The yield on the amounts held in the subaccounts normally will fluctuate over
time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. A subaccount's
actual yield is affected by the types and quality of portfolio securities held
by the corresponding Fund, and its operating expenses.
TOTAL RETURNS
From time to time, Merrill Lynch Life also may quote in sales literature or
advertisements, total returns, including average annual total returns for one or
more of the subaccounts for various periods of time. Average annual total
returns will be provided for a subaccount for 1, 5 and 10 years, or for a
shorter period, if applicable.
Total returns assume the Contract was surrendered at the end of the period
shown, and are not indicative of performance if the Contract was continued for a
longer period. The Contract does not impose any surrender charge.
Average annual total returns for other periods of time may also be disclosed
from time to time. For example, average annual total returns may be provided
based on the assumption that a subaccount had been in existence and had invested
in the corresponding underlying Fund for the same period as the corresponding
Fund had been in operation. The Funds commenced operations as indicated below:
FUND COMMENCED OPERATIONS
---- --------------------
ML Basic Value Focus Fund July 1, 1993
ML Domestic Money Market Fund February 21, 1992
ML Fundamental Growth Focus Fund March 28, 2000
ML Government Bond Fund May 16, 1994
ML Index 500 Fund December 13, 1996
Mercury HW International Value VIP Portfolio June 10, 1998
Average annual total returns represent the average annual compounded rates of
return that would equate an initial investment of $1,000 under a Contract to the
redemption value or that investment as of the last day of each of the periods.
The ending date for each period for which total return quotations are provided
will generally be as of the most recent calendar quarter-end.
Average annual total returns are calculated using subaccount unit values
calculated on each valuation day based on the performance of the corresponding
underlying Fund, the deductions for the asset-based insurance charge and the
contract fee, and assume a surrender of the Contract at the end of the period
for the return quotation (although the Contract does not impose a surrender
charge). For purposes of calculating total return, an average per dollar
contract fee attributable to the hypothetical account for the period is used.
Based
5
on our current estimates of average contract size and withdrawals, we have
assumed the average contract fee to be 0.00%. The average annual total return is
then calculated according to the following formula:
(1/N)
TR = ((ERV/P) ) -- 1
Where:
TR = the average annual total return net of subaccount recurring
charges (such as the asset-based insurance charge and
contract fee).
ERV = the ending redeemable value at the end of the period of the
hypothetical account with an initial payment of $1,000.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
From time to time, Merrill Lynch Life also may quote in sales literature or
advertisements total returns for other periods.
From time to time, Merrill Lynch Life also may quote in sales literature or
advertisements total returns or other performance information for a hypothetical
Contract assuming the initial premium is allocated to more than one subaccount
or assuming monthly transfers from a specified subaccount to one or more
designated subaccounts under a dollar cost averaging program. Merrill Lynch Life
also may quote in sales literature or advertisements total returns or other
performance information for a hypothetical Contract assuming participation in an
asset allocation or rebalancing program. These returns will reflect the
performance of the affected subaccount(s) for the amount and duration of the
allocation to each subaccount for the hypothetical Contract. They also will
reflect the deduction of the charges described above. For example, total return
information for a Contract with a dollar cost averaging program for a 12-month
period will assume commencement of the program at the beginning of the most
recent 12-month period for which average annual total return information is
available. This information will assume an initial lump-sum investment in a
specified subaccount (the "DCA subaccount") at the beginning of that period and
monthly transfers of a portion of the contract value from the DCA subaccount to
designated other subaccount(s) during the 12-month period. The total return for
the Contract for this 12-month period therefore will reflect the return on the
portion of the contract value that remains invested in the DCA subaccount for
the period it is assumed to be so invested, as affected by monthly transfers,
and the return on amounts transferred to the designated other subaccounts for
the period during which those amounts are assumed to be invested in those
subaccounts. The return for an amount invested in a subaccount will be based on
the performance of that subaccount for the duration of the investment, and will
reflect the charges described above. Performance information for a dollar
cost-averaging program also may show the returns for various periods for a
designated subaccount assuming monthly transfers to the subaccount, and may
compare those returns to returns assuming an initial lump-sum investment in that
subaccount. This information also may be compared to various indices, such as
the Merrill Lynch 91-day Treasury Bills index or the U.S. Treasury Bills index
and may be illustrated by graphs, charts, or otherwise.
6
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(1) Financial Statements of Merrill Lynch Life Insurance Company
for the three years ended December 31, 2000 and the Notes
relating thereto appear in the Statement of Additional
Information.
(b) Exhibits
(1) Resolution of the Board of Directors of Merrill Lynch Life
Insurance Company establishing the Merrill Lynch Life
Variable Annuity Separate Account C.
(2) Not Applicable.
(3) (a) Underwriting Agreement Between Merrill Lynch Life Insurance
Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated. (Incorporated by Reference to Merrill Lynch
Life Variable Annuity Separate Account A's Post-Effective
Amendment No. 10 to Form N-4, Registration No. 33-43773
Filed December 10, 1996.)
(b) Amended Underwriting Agreement. (To be Filed by Amendment.)
(4) (a) Form of Contract for the Flexible Premium Individual
Deferred Variable Annuity.
(b) Individual Retirement Annuity Endorsement. (Incorporated by
Reference to Merrill Lynch Life Variable Annuity Separate
Account A's Registration Statement on Form N-4,
Registration No. 333-90243 filed November 3, 1999.)
(c) Tax-Sheltered Annuity Endorsement.
(d) Estate Enhancer Death Benefit Enhancement Rider.
(Incorporated by Reference to Merrill Lynch Life Variable
Annuity Separate Account A's Post-Effective Amendment No. 2
to Form N-4, Registration No. 333-90243 Filed July 24,
2001.)
(e) Death Benefit Endorsement ML056. (Incorporated by Reference
to Merrill Lynch Life Variable Annuity Separate Account A's
Registration Statement on Form N-4, Registration No.
333-63904 Filed June 26, 2001.)
(f) Death Benefit Endorsement ML067.
(g) Qualified Plan Endorsement.
(5) Form of Application for the Flexible Premium Individual
Deferred Variable Annuity.
(6) (a) Articles of Amendment, Restatement and Redomestication of
the Articles of Incorporation of Merrill Lynch Life
Insurance Company. (Incorporated by Reference to Merrill
Lynch Life Variable Annuity Separate Account A's
Post-Effective Amendment No. 10 to Form N-4, Registration
No. 33-43773 Filed December 10, 1996.)
(b) Amended and Restated By-Laws of Merrill Lynch Life Insurance
Company. (Incorporated by Reference to Merrill Lynch Life
Variable Annuity Separate Account A's Post-Effective
Amendment No. 10 to Form N-4, Registration No. 33-43773
Filed December 10, 1996.)
(7) Not Applicable.
(8) (a) Amended General Agency Agreement. (Incorporated by Reference
to Merrill Lynch Life Variable Annuity Separate Account A's
Post-Effective Amendment No. 5 to Form N-4, Registration
No. 33-43773 Filed April 28, 1994.)
(b) Indemnity Agreement Between Merrill Lynch Life Insurance
Company and Merrill Lynch Life Agency, Inc. (Incorporated
by Reference to Merrill Lynch Life Variable Annuity
Separate Account A's Post-Effective Amendment No. 10 to
Form N-4, Registration No. 33-43773 Filed December 10,
1996.)
(c) Management Agreement Between Merrill Lynch Life Insurance
Company and Merrill Lynch Asset Management, Inc.
(Incorporated by Reference to Merrill Lynch Life Variable
Annuity Separate Account A's Post-Effective Amendment No.
10 to Form N-4, Registration No. 33-43773 Filed December
10, 1996.)
C-1
(d) Agreement Between Merrill Lynch Life Insurance Company and
Merrill Lynch Variable Series Funds, Inc. Relating to
Maintaining Constant Net Asset Value for the Domestic Money
Market Fund. (Incorporated by Reference to Merrill Lynch
Life Variable Annuity Separate Account A's Post-Effective
Amendment No. 10 to Form N-4, Registration No. 33-43773
Filed December 10, 1996.)
(e) Agreement Between Merrill Lynch Life Insurance Company and
Merrill Lynch Variable Series Funds, Inc. Relating to
Valuation and Purchase Procedures. (Incorporated by
Reference to Merrill Lynch Life Variable Annuity Separate
Account A's Post Effective Amendment No. 10 to Form N-4,
Registration No. 33-43773 Filed December 10, 1996.)
(f) Amended Service Agreement Between Merrill Lynch Life
Insurance Company and Merrill Lynch Insurance Group, Inc.
(Incorporated by Reference to Merrill Lynch Life Variable
Annuity Separate Account A's Post-Effective Amendment No. 5
to Form N-4, Registration No. 33-43773 Filed April 28,
1994.)
(g) Reimbursement Agreement Between Merrill Lynch Asset
Management, L.P. and Merrill Lynch Life Agency, Inc.
(Incorporated by Reference to Merrill Lynch Life Variable
Annuity Separate Account A's Post-Effective Amendment No.
10 to Form N-4, Registration No. 33-43773 Filed December
10, 1996.)
(h) Amendment to the Reimbursement Agreement Between Merrill
Lynch Asset Management, L.P. and Merrill Lynch Life Agency,
Inc. (Incorporated by Reference to Merrill Lynch Life
Variable Annuity Separate Account A's Registration
Statement on Form N-4, Registration No. 333-90243 Filed
November 3, 1999.)
(i) Form of Participation Agreement Between Merrill Lynch
Variable Series Funds, Inc. and Merrill Lynch Life
Insurance Company. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 10 to Form N-4,
Registration No. 33-43773 Filed December 10, 1996.)
(j) Amendment to the Participation Agreement Between Merrill
Lynch Variable Series Funds, Inc. and Merrill Lynch Life
Insurance Company. (Incorporated by Reference to Merrill
Lynch Life Variable Annuity Separate Account A's
Registration Statement on Form N-4, Registration No.
333-90243 Filed November 3, 1999.)
(k) Amendment to General Agency Agreement. (To be Filed by
Amendment.)
(l) Form of Participation Agreement Among Merrill Lynch Life
Insurance Company and Hotchkis and Wiley Variable Trust.
(Incorporated by Reference to Merrill Lynch Life Variable
Annuity Separate Account A's Post-Effective Amendment No.
12 to Form N-4, Registration No. 33-43773 Filed May 1,
1998.)
(m) Amendment to the Participation Agreement Among Merrill Lynch
Life Insurance Company and Hotchkis and Wiley Variable
Trust. (Incorporated by Reference to Merrill Lynch Life
Variable Annuity Separate Account A's Registration
Statement on Form N-4, Registration No. 333-90243 Filed
November 3, 1999.)
(9) Opinion of Barry G. Skolnick, Esq. and Consent to its use as
to the legality of the securities being registered. (To be
Filed by Amendment.)
(10) (a) Written Consent of Sutherland Asbill & Brennan LLP. (To be
Filed by Amendment.)
(b) Written Consent of Deloitte & Touche LLP, independent
auditors. (To be Filed by Amendment.)
(c) Written Consent of Barry G. Skolnick, Esq. (To be Filed by
Amendment.)
(11) Not Applicable.
(12) Not Applicable.
(13) Schedule of Performance Computations. (To be Filed by
Amendment.)
(14) (a) Power of Attorney from Barry G. Skolnick. (Incorporated by
Reference to Merrill Lynch Life Variable Annuity Separate
Account A's Post-Effective Amendment No. 4 to Form N-4,
Registration No. 33-43773 Filed March 2, 1994.)
(b) Power of Attorney from Matthew J. Rider. (Incorporated by
Reference to Merrill Lynch Variable Life Separate Account's
Form S-6, Registration No. 333-47844 Filed October 12,
2000.)
C-2
(c) Power of Attorney from Nikos K. Kardassis. (Incorporated by Reference to Merrill Lynch Life
Variable Annuity Separate Account A's Pre-Effective Amendment No. 1 to Form N-4, Registration No.
333-63904 Filed September 7, 2001.)
(d) Power of Attorney from H. McIntyre Gardner. (Incorporated by Reference to Merrill Lynch Life
Variable Annuity Separate Account A's Registration Statement on Form N-4, Registration No.
333-63904 Filed June 26, 2001.)
(e) Power of Attorney from Christopher J. Grady. (Incorporated by Reference to Merrill Lynch Life
Variable Annuity Separate Account A's Registration Statement on Form N-4, Registration No.
333-63904 Filed June 26, 2001.)
(f) Power of Attorney from Michael P. Cogswell. (Incorporated by Reference to Merrill Lynch Life
Variable Annuity Separate Account A's Pre-Effective Amendment No. 1 to Form N-4, Registration No.
333-63904 Filed September 7, 2001.)
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR*
NAME PRINCIPAL BUSINESS ADDRESS POSITION WITH DEPOSITOR
---- -------------------------- ---------------------------------------
H. McIntyre Gardner............ 7 Roszel Road Director and Chairman of the Board.
Princeton, NJ 08540
Christopher J. Grady........... 7 Roszel Road Director and Senior Vice President.
Princeton, NJ 08540
Nikos K. Kardassis............. 7 Roszel Road Director, President and Chief Executive
Princeton, NJ 08540 Officer.
Matthew J. Rider............... 7 Roszel Road Director, Senior Vice President,
Princeton, NJ 08540 Chief Financial Officer and Treasurer
Barry G. Skolnick.............. 7 Roszel Road Director, Senior Vice President and
General
Princeton, NJ 08540 Counsel.
Michael P. Cogswell............ 7 Roszel Road Director and Senior Vice President.
Princeton, NJ 08540
Deborah J. Adler............... 7 Roszel Road Vice President and Chief Actuary.
Princeton, NJ 08540
Tracy Bartoy................... 4804 Deer Lake Drive East Vice President and Assistant
Jacksonville, FL 32246 Secretary.
Toni DeChiara.................. 7 Roszel Road Vice President.
Princeton, NJ 08540
Edward W. Diffin, Jr........... 7 Roszel Road Vice President and Senior Counsel.
Princeton, NJ 08540
Amy L. Ferrero................. 4804 Deer Lake Drive East Vice President.
Jacksonville, FL 32246
Michael W. Fulks............... 4804 Deer Lake Drive East Vice President.
Jacksonville, FL 32246 Vice President.
1414 Main Street
Springfield, MA 01102
Thomas Funk.................... 7 Roszel Road Vice President.
Princeton, NJ 08540
Frances Grabish................ 7 Roszel Road Vice President and Senior Counsel.
Princeton, NJ 08540
Diana Joyner................... 4804 Deer Lake Drive East Senior Vice President, Administration.
Jacksonville, FL 32246
Joseph Justice................. 7 Roszel Road Vice President and Controller.
Princeton, NJ 08540
Eric Lin....................... 7 Roszel Road Vice President.
Princeton, NJ 08540
C-3
NAME PRINCIPAL BUSINESS ADDRESS POSITION WITH DEPOSITOR
---- -------------------------- ---------------------------------------
Jeanne K. Markey............... 7 Roszel Road Vice President.
Princeton, NJ 08540
Robin Maston................... 7 Roszel Road Vice President and Senior
Princeton, NJ 08540 Compliance Officer.
Jane Michael................... 4804 Deer Lake Drive East Vice President.
Jacksonville, FL 32246
Kelly A. O'Dea................. 7 Roszel Road Vice President and Senior
Princeton, NJ 08540 Compliance Officer.
Shelley K. Parker.............. 4804 Deer Lake Drive East Vice President and Assistant
Jacksonville, FL 32246 Secretary.
Terry L. Rapp.................. 7 Roszel Road Vice President, Assistant Secretary
Princeton, NJ 08540 and Senior Compliance Officer.
Julia Raven.................... 7 Roszel Road Vice President.
Princeton, NJ 08540
Lori M. Salvo.................. 7 Roszel Road Vice President, Senior Counsel and
Princeton, NJ 08540 Secretary.
John A. Shea................... 7 Roszel Road Vice President.
Princeton, NJ 08540
Linda Skibik................... 7 Roszel Road Vice President.
Princeton, NJ 08540
Amy S. Winston................. 7 Roszel Road Vice President and Director of
Princeton, NJ 08540 Compliance.
Kelley Woods................... 4804 Deer Lake Drive East Vice President.
Jacksonville, FL 32246
Denis G. Wuestman.............. 7 Roszel Road Vice President.
Princeton, NJ 08540
---------------
* Each director is elected to serve until the next annual shareholder meeting or
until his or her successor is elected and shall have qualified.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
ML Life Insurance Company of New York is an indirect wholly owned
subsidiary of Merrill Lynch & Co., Inc.
A list of subsidiaries of Merrill Lynch & Co., Inc. ("ML & Co.") appears
below.
C-4
SUBSIDIARIES OF THE REGISTRANT
The following are subsidiaries of ML & Co. as of February 27, 2001 and the
states or jurisdictions in which they are organized. Indentation indicates the
principal parent of each subsidiary. Except as otherwise specified, in each case
ML & Co. owns, directly or indirectly, at least 99% of the voting securities of
each subsidiary. The names of particular subsidiaries have been omitted because,
considered in the aggregate as a single subsidiary, they would not constitute,
as of the end of the year covered by this report, a "significant subsidiary" as
that term is defined in Rule 1.02(w) of the Regulation S-X under the Securities
Exchange Act of 1934.
STATE OR
NAME JURISDICTION OF ENTITY
---- ----------------------
Merrill Lynch & Co., Inc. .............................. Delaware
Merrill Lynch, Pierce, Fenner & Smith Delaware
Incorporated(1)....................................
Broadcort Capital Corp. ........................... Delaware
Merrill Lynch Life Agency Inc.(2).................. Washington
Merrill Lynch Professional Clearing Corp.(3)....... Delaware
Merrill Lynch Bank & Trust Co ........................ New Jersey
Merrill Lynch Capital Services, Inc. ................. Delaware
Merrill Lynch Government Securities, Inc. ............ Delaware
Merrill Lynch Money Markets Inc. .................. Delaware
Merrill Lynch Group, Inc. ............................ Delaware
Merrill Lynch Investment Managers Group England
Limited(4).......................................
Merrill Lynch Investment Managers Holdings England
Limited.......................................
Merrill Lynch Investment Managers, L.P.(5)......... Delaware
Merrill Lynch Capital Partners, Inc. .............. Delaware
Merrill Lynch Futures Inc. ........................ Delaware
Merrill Lynch Insurance Group, Inc. ............... Delaware
Merrill Lynch Life Insurance Company............. Arkansas
ML Life Insurance Company of New York............ New York
Merrill Lynch International Finance Corporation.... New York
Merrill Lynch International Bank Limited......... England
Merrill Lynch Bank (Suisse) S.A. ............. Switzerland
Merrill Lynch Group Holdings Limited............... Ireland
Merrill Lynch Capital Markets Bank Limited....... Ireland
Merrill Lynch Mortgage Capital Inc. ............... Delaware
Merrill Lynch Trust Company(6)..................... New Jersey
Merrill Lynch Investment Partners Inc. ............ Delaware
MLDP Holdings, Inc.(7)............................. Delaware
Merrill Lynch Derivative Products AG............. Switzerland
ML IBK Positions, Inc. ............................ Delaware
Merrill Lynch Capital Corporation................ Delaware
ML Leasing Equipment Corp.(8)...................... Delaware
Merrill Lynch Canada Holdings Company.............. Nova Scotia
Merrill Lynch Canada Finance Company............. Nova Scotia
Merrill Lynch & Co., Canada Ltd. ................ Ontario
Merrill Lynch Canada Inc. .................... Utah
Merrill Lynch Bank USA................................ Delaware
Merrill Lynch Business Financial Services Delaware
Inc. .........................................
Merrill Lynch Credit Corporation................. Delaware
Merrill Lynch International Incorporated. ............ Delaware
Merrill Lynch (Australasia) Pty Limited............ New South Wales
Merrill Lynch Finance (Australia) Pty Limited...... Australia
C-5
STATE OR
NAME JURISDICTION OF ENTITY
---- ----------------------
Merrill Lynch International (Australia) New South Wales
Limited(9)....................................
Merrill Lynch International Bank (Edge Act United States
Corporation).....................................
Merrill Lynch International Holdings Inc. ......... Delaware
Merrill Lynch Bank and Trust Company Cayman Islands,
(Cayman)Limited............................... British West Indies
Merrill Lynch Capital Markets AG................. Switzerland
Merrill Lynch Europe PLC......................... England
Merrill Lynch Holdings Limited................ England
Merrill Lynch International(10).......... England
Merrill Lynch, Pierce, Fenner & Smith (Brokers
& Dealers) Limited.......................... England
Merrill Lynch Capital Markets Espana S.A. Spain
S.V.B. .....................................
Merrill Lynch (Singapore) Pte. Ltd.(11)....... Singapore
Merrill Lynch South Africa (Pty) Ltd.(12)........ South Africa
Merrill Lynch Mexico, S.A. de C.V., Casa de Mexico
Bolsa.........................................
Merrill Lynch S.A. Sociedad de Bolsa............. Argentina
Banco Merrill Lynch S.A. ........................ Brazil
Merrill Lynch S.A. .............................. Luxembourg
Merrill Lynch Europe Ltd ........................ Cayman Islands,
British West Indies
Merrill Lynch France S.A ........................ France
Merrill Lynch Finance S.A. ................... France
Merrill Lynch Capital Markets (France) France
S.A. .......................................
Merrill Lynch (Asia Pacific) Limited............. Hong Kong
Merrill Lynch Far East Limited................ Hong Kong
Merrill Lynch Japan Securities Co., Ltd ........... Japan
Herzog, Heine, Geduld, Inc. .......................... New York
---------------
(1) MLPF&S also conducts business as "Merrill Lynch & Co."
(2) Similarly named affiliates and subsidiaries that engage in the sale of
life insurance and annuity products are incorporated in various other
jurisdictions.
(3) The preferred stock of the corporation is owned by an unaffiliated group
of investors.
(4) Held through several intermediate holding companies.
(5) Merrill Lynch Investment Managers, L.P. is a limited partnership whose
general partner is Princeton Services, Inc. and whose limited partner is
ML & Co.
(6) Similarly named affiliates and subsidiaries that provide trust and
custodial services are incorporated in various other jurisdictions.
(7) Merrill Lynch Group, Inc. owns 100% of this corporation's outstanding
common voting stock. 100% of the outstanding preferred voting stock is
held by outside parties.
(8) This corporation has more than 45 direct or indirect subsidiaries
operating in the United States and serving as either general partners or
associate general partners of limited partnerships.
(9) Held through an intermediate subsidiary.
(10) Partially owned by another indirect subsidiary of ML & Co.
(11) Held through intermediate subsidiaries.
(12) Partially owned by another indirect subsidiary of ML & Co.
ITEM 27. NUMBER OF CONTRACTS
As of , 2001, there were no contracts in force.
C-6
ITEM 28. INDEMNIFICATION
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.
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
C-7
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.
OTHER INDEMNIFICATION
There is no indemnification of the principal underwriter, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, with respect to the Contract.
The indemnity agreement between Merrill Lynch Life Insurance Company
("Merrill Lynch Life") and its affiliate Merrill Lynch Life Agency, Inc.
("MLLA"), with respect to MLLA's general agency responsibilities on behalf of
Merrill Lynch Life and the Contract, provides:
Merrill Lynch Life will indemnify and hold harmless MLLA and all persons
associated with MLLA as such term is defined in Section 3(a) (21) of the
Securities Exchange Act of 1934 against all claims, losses, liabilities
and expenses, to include reasonable attorneys' fees, arising out of the
sale by MLLA of insurance products under the above-referenced Agreement,
provided that Merrill Lynch Life shall not be bound to indemnify or hold
harmless MLLA or its associated persons for claims, losses, liabilities
and expenses arising directly out of the willful misconduct or
negligence of MLLA or its associated persons.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registration pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue. There is no indemnification of the principal underwriter, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, with respect to the Contract.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Merrill Lynch, Pierce, Fenner & Smith Incorporated also acts as
principal underwriter for the following additional funds: CBA Money Fund; CMA
Government Securities Fund; CMA Money Fund; CMA Tax-Exempt Fund; CMA Treasury
Fund; CMA Multi-State Municipal Series Trust; The Corporate Fund Accumulation
Program, Inc.; The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury
Securities; Merrill Lynch Trust for Government Securities; Municipal Income
Fund; Municipal Investment Trust Fund; and The Municipal Fund Accumulation
Program, Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated also acts as principal
underwriter for the following additional accounts: ML of New York Variable
Annuity Separate Account B; Merrill Lynch Life Variable Life Separate Account;
Merrill Lynch Life Variable Life Separate Account II; Merrill Lynch Life
Variable Annuity Separate Account; Merrill Lynch Life Variable Annuity Separate
Account A; Merrill Lynch Life Variable Annuity Separate Account B; ML of New
York Variable Life Separate Account; ML of New York Variable Life Separate
Account II and ML of New York Variable Annuity Separate Account.
C-8
(b) The directors, president, treasurer and executive vice presidents of
Merrill Lynch, Pierce, Fenner & Smith Incorporated are as follows:
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES WITH UNDERWRITER
------------------ --------------------------------------
E. Stanley O'Neal(1) Director, Chairman of the Board and Chief Executive
Officer
Rosemary T. Berkery(1) Executive Vice President
Thomas W. Davis(1) Executive Vice President
Barry S. Friedberg(1) Executive Vice President
Edward L. Goldberg(1) Executive Vice President
James P. Gorman(1) Executive Vice President
Jerome P. Kenney(1) Executive Vice President
John A. McKinley(1) Executive Vice President
Thomas H. Patrick(1) Director and Executive Vice President
George A. Schieren(2) Director, General Counsel and Senior Vice President
Winthrop H. Smith, Executive Vice President
Jr.(1)
Arshad R. Zakaria(1) Executive Vice President
---------------
(1) World Financial Center, 250 Vesey Street, New York, NY 10080
(2) 222 Broadway Street, 14th Floor, New York, NY 10038
(c) Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and records required to be maintained by Section 31(a)
of the 1940 Act and the rules promulgated thereunder are maintained by the
depositor at Merrill Lynch Insurance Group Services, Inc., at 4804 Deer Lake
Drive East, Jacksonville, Florida 32246, and at the office of the General
Counsel at 7 Roszel Road, Princeton, New Jersey 08540.
ITEM 31. NOT APPLICABLE
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) Registrant undertakes to file a post-effective amendment to the
Registrant Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted.
(b) Registrant undertakes to include either (1) as part of any application
to purchase a contract offered by the prospectus, a space that an applicant can
check to request a statement of additional information, or (2) a postcard or
similar written communications affixed to or included in the prospectus that the
applicant can remove to send for a statement of additional information.
(c) Registrant undertakes to deliver any statement of additional
information and any financial statements required to be made available under
this Form promptly upon written or oral request.
(d) Merrill Lynch Life Insurance Company hereby represents that the fees
and charges deducted under the Contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by Merrill Lynch Life Insurance Company.
(e) Registrant hereby represents that it is relying on the American Council
of Life Insurance (avail. Nov. 28, 1998) no-action letter with respect to
Contracts used in connection with retirement plans meeting the requirements of
Section 403(b) of the Internal Revenue Code, and represents further that it will
comply with the provisions of paragraphs (1) through (4) set forth in that
no-action letter.
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SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Merrill Lynch Life Variable Annuity Separate Account C,
has caused this Registration Statement to be signed on its behalf, in the
Township of Princeton, State of New Jersey, on this 15th day of November, 2001.
Merrill Lynch Life Variable
Annuity
Separate Account C
(Registrant)
Attest: /s/ EDWARD W. DIFFIN, JR. By: /s/ BARRY G. SKOLNICK
-------------------------------------- -----------------------------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President and Senior Counsel Senior Vice President
Merrill Lynch Life Insurance
Company
(Depositor)
Attest: /s/ EDWARD W. DIFFIN, JR. By: /s/ BARRY G. SKOLNICK
-------------------------------------- -----------------------------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President and Senior Counsel Senior Vice President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities indicated on November 15,
2001.
SIGNATURE TITLE
--------- -----
* Director and Chairman of the Board
---------------------------------------------
H. McIntyre Gardner
* Director, President and Chief Executive
--------------------------------------------- Officer
Nikos K. Kardassis
* Director, Senior Vice President, Chief
--------------------------------------------- Financial Officer and Treasurer
Matthew J. Rider
* Director and Senior Vice President
---------------------------------------------
Christopher J. Grady
* Director and Senior Vice President
---------------------------------------------
Michael P. Cogswell
*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
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EXHIBIT LIST
Exhibit 1 Resolution of the Board of Directors of Merrill Lynch Life
Insurance Company establishing the Merrill Lynch Life
Variable Annuity Separate Account C
Exhibit 4(a) Form of Contract for the Flexible Premium Individual
Deferred Variable Annuity
Exhibit 4(c) Tax-Sheltered Annuity Endorsement
Exhibit 4(f) Death Benefit Endorsement ML067
Exhibit 4(g) Qualified Plan Endorsement
Exhibit (5) Form of Application for the Flexible Premium Individual
Deferred Variable Annuity
C-11