AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 2004.
REGISTRATION NOS. 333-73544 AND 811-10585
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 3 [X]
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 4 [X]
------------------------
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
(EXACT NAME OF REGISTRANT)
MERRILL LYNCH LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
1300 MERRILL LYNCH DRIVE, 2ND FLOOR
PENNINGTON, NEW JERSEY 08534
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(609) 274-6900
------------------------
NAME AND ADDRESS OF AGENT FOR SERVICE: COPY TO:
BARRY G. SKOLNICK, ESQ. STEPHEN E. ROTH, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL MARY E. THORNTON, ESQ.
MERRILL LYNCH LIFE INSURANCE COMPANY SUTHERLAND ASBILL & BRENNAN LLP
1300 MERRILL LYNCH DRIVE, 2ND FLOOR 1275 PENNSYLVANIA AVENUE, N.W.
PENNINGTON, NEW JERSEY 08534 WASHINGTON, D.C. 20004-2415
It is proposed that this filing will become effective (check
appropriate space):
[X] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on ___________ pursuant to paragraph (b) of Rule 485
(date)
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on ___________ pursuant to paragraph (a)(1) of Rule 485
(date)
If appropriate, check the following box:
[ ] this post-effective amendment designates a new
effective date for a previously filed
post-effective amendment.
------------------------
TITLE OF SECURITIES BEING REGISTERED:
Units of interest in a separate account under flexible premium individual
deferred variable annuity contracts.
EXHIBIT INDEX CAN BE FOUND ON PAGE C-11
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This registration statement incorporates by reference the prospectus dated May
1, 2004 for the Contracts, as filed in Post-Effective Amendment No. 2 to the
Registration Statement on Form N-4 (File No. 333-73544) filed on April 26, 2004.
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2004, AS REVISED ON MAY 19, 2004
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 May 1, 2004, 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
Selling the Contract........................................ 3
Financial Statements........................................ 3
Administrative Services Arrangements........................ 3
CALCULATION OF YIELDS AND TOTAL RETURNS..................... 3
Money Market Yield.......................................... 3
Other Subaccount Yields..................................... 5
Total Returns............................................... 6
FINANCIAL STATEMENTS OF MERRILL LYNCH LIFE VARIABLE ANNUITY
SEPARATE ACCOUNT C........................................ S-1
FINANCIAL STATEMENTS OF MERRILL LYNCH LIFE INSURANCE
COMPANY................................................... G-1
2
OTHER INFORMATION
SELLING THE CONTRACT
The Contracts are offered to the public on a continuous basis. We anticipate
continuing to offer the Contracts, but reserve the right to discontinue the
offering.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Distributor")
serves as principal underwriter for the Contracts. Distributor is a Delaware
corporation and its home office is located at 4 World Financial Center, New
York, New York 10080. Distributor is an indirect, wholly owned subsidiary of
Merrill Lynch & Co., Inc. Distributor is registered as a broker-dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
well as with the securities commissions in the states in which it operates, and
is a member of NASD, Inc. Distributor offers the Contracts through its Financial
Advisors. Financial Advisors are appointed as our insurance agents through the
various Merrill Lynch Life Agencies.
For the years ended December 31, 2003 and 2002, Distributor received $339,778
and $654,111, respectively, in connection with the sale of the Contracts.
Distributor did not receive any payments or commissions in connection with the
sale of the Contracts in prior years. Distributor retains a portion of
commissions it receives in return for its services as distributor for the
Contracts.
FINANCIAL STATEMENTS
The financial statements of Merrill Lynch Life included in this Statement of
Additional Information should be distinguished from the financial statements of
the 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, 2003 and 2002, Merrill Lynch Life paid
administrative services fees of $33.4 million and $33.8 million, respectively.
Merrill Lynch Life did not pay any administrative services fees in connection
with the Account or the Contracts in prior years.
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 ML Domestic Money Market V.I.
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
3
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)
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 ML Domestic Money
Market V.I. Subaccount for the same 7-day period, determined on a compounded
basis. The effective yield is calculated by compounding the unannualized base
period return according to the following formula:
Effective Yield = (1 + ((NCF - ES)/UV))(365/7) - 1
Where:
NCF = the net change in the value of the Fund (exclusive of
realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) for the 7-day
period attributable to a hypothetical account having a
balance of 1 unit.
ES = per unit expenses of the hypothetical account for the 7-day
period.
UV = the unit value for the first day of the 7-day period.
Because of the charges and deductions imposed under the Contract, the yield for
the ML Domestic Money Market V.I. Subaccount will be lower than the yield for
the corresponding underlying Fund.
The yields on amounts held in the ML Domestic Money Market V.I. 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 ML
Domestic Money Market V.I. 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 ML Domestic Money Market V.I. 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
4
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:
Yield = 2 X ((((NI - ES)/(U X UV)) + 1)(6) - 1)
Where:
NI = net investment income of the Fund for the 30-day or
one-month period attributable to the subaccount's units.
ES = expenses of the subaccount for the 30-day or one-month
period.
U = the average number of units outstanding.
UV = the unit value at the close of the last day in the 30-day or
one-month
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 and the subaccounts corresponding to the
Funds commenced operations as indicated below:
FUND SUBACCOUNT
INCEPTION INCEPTION
FUND DATE DATE
---- ----------------- ------------
Roszel/Lord Abbett Large Cap Value Portfolio July 1, 2002 July 1, 2002
Roszel/Levin Large Cap Value Portfolio July 1, 2002 July 1, 2002
Roszel/MLIM Relative Value Portfolio July 1, 2002 July 1, 2002
5
FUND SUBACCOUNT
INCEPTION INCEPTION
FUND DATE DATE
---- ----------------- ------------
Roszel/Sound Large Cap Core Portfolio July 1, 2002 July 1, 2002
Roszel/INVESCO-NAM Large Cap Core Portfolio July 1, 2002 July 1, 2002
Roszel/Nicholas-Applegate Large Cap Growth Portfolio July 1, 2002 July 1, 2002
Roszel/Rittenhouse Large Cap Growth Portfolio July 1, 2002 July 1, 2002
Roszel/Seneca Large Cap Growth Portfolio July 1, 2002 July 1, 2002
Roszel/Valenzuela Mid Cap Value Portfolio July 1, 2002 July 1, 2002
Roszel/Seneca Mid Cap Growth Portfolio July 1, 2002 July 1, 2002
Roszel/NWQ Small Cap Value Portfolio July 1, 2002 July 1, 2002
Roszel/Delaware Small-Mid Cap Growth Portfolio* July 1, 2002 July 1, 2002
Roszel/Lazard International Portfolio July 1, 2002 July 1, 2002
Roszel/Credit Suisse International Portfolio July 1, 2002 July 1, 2002
Roszel/Lord Abbett Government Securities Portfolio July 1, 2002 July 1, 2002
Roszel/MLIM Fixed-Income Portfolio July 1, 2002 July 1, 2002
ML Domestic Money Market V.I. Fund February 21, 1992 July 1, 2002
---------------
* Effective March 3, 2003, Delaware Management Company replaced Newberger Berman
Management, Inc. as investment subadviser and the Fund's name was changed from
the Roszel/Neuberger Berman Small Cap Growth Portfolio to the Roszel/Delaware
Small-Mid Cap Growth Portfolio.
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 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:
TR = ((ERV/P)(1/N)) -- 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
6
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.
7
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying statements of assets and
liabilities of each of the divisions of Merrill Lynch Life
Variable Annuity Separate Account C, comprised of divisions
investing in the Domestic Money Market V.I. Fund, Roszel /
Credit Suisse International Portfolio, Roszel / Lazard
International Portfolio, Roszel / Levin Large Cap Value
Portfolio, Roszel / Lord Abbett Government Securities
Portfolio, Roszel / Lord Abbett Large Cap Value Portfolio,
Roszel / MLIM Fixed-Income Portfolio, Roszel / MLIM Relative
Value Portfolio, Roszel / INVESCO-NAM Large Cap Core
Portfolio, Roszel / Delaware Small-Mid Cap Growth Portfolio
(formerly Roszel / Neuberger Berman Small Cap Growth
Portfolio), Roszel / Nicholas-Applegate Large Cap Growth
Portfolio, Roszel / NWQ Small Cap Value Portfolio, Roszel /
Rittenhouse Large Cap Growth Portfolio, Roszel / Seneca
Large Cap Growth Portfolio, Roszel / Seneca Mid Cap Growth
Portfolio, Roszel / Sound Large Cap Core Portfolio, and
Roszel / Valenzuela Mid Cap Value Portfolio (collectively,
the "Divisions"), as of December 31, 2003 and the related
statements of operations and changes in net assets for each
of the two years in the period then ended. These financial
statements are the responsibility of the management of
Merrill Lynch Life Insurance Company. Our responsibility is
to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States of
America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of mutual
fund securities owned at December 31, 2003. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial positions of the
Divisions as of December 31, 2003, the results of their
operations and the changes in their net assets for each
of the two years in the period then ended, in conformity
with accounting principles generally accepted in the United
States of America.
Deloitte & Touche, LLP
New York, New York
March 5, 2004
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 2003
Divisions Investing In
========================================================
Roszel /
Domestic Credit Roszel /
Money Suisse Lazard
Market International International
V.I. Fund Portfolio Portfolio
================== ================== ==================
(In thousands)
Assets
Investment in Merrill Lynch Variable Series Funds, Inc. (Note 1):
Domestic Money Market V.I. Fund, 3,318 shares
(Cost $3,318) $ 3,318 $ $
Investments in MLIG Variable Insurance Trust (Note 1):
Roszel / Credit Suisse International Portfolio, 284 shares
(Cost $2,543) 3,384
Roszel / Lazard International Portfolio, 312 shares
(Cost $2,962) 3,596
------------------ ------------------ ------------------
Total Assets $ 3,318 $ 3,384 $ 3,596
================== ================== ==================
Net Assets
Accumulation Units $ 3,318 $ 3,384 $ 3,596
Retained in Separate Account C by Merrill Lynch Life
Insurance Company (Note 4) 0 0 0
------------------ ------------------ ------------------
Total Net Assets $ 3,318 $ 3,384 $ 3,596
==========================================================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
AS OF DECEMBER 31, 2003
Divisions Investing In
========================================================
Roszel / Roszel / Roszel /
Levin Lord Abbett Lord Abbett
Large Cap Government Large Cap
Value Securities Value
Portfolio Portfolio Portfolio
================== ================== ==================
(In thousands)
Assets
Investments in MLIG Variable Insurance Trust (cont'd) (Note 1):
Roszel / Levin Large Cap Value Portfolio, 291 shares
(Cost $2,462) $ 3,172 $ $
Roszel / Lord Abbett Government Securities Portfolio, 1,205 shares
(Cost $12,566) 12,452
Roszel / Lord Abbett Large Cap Value Portfolio, 822 shares
(Cost $8,323) 10,609
------------------ ------------------ ------------------
Total Assets $ 3,172 $ 12,452 $ 10,609
================== ================== ==================
Net Assets
Accumulation Units $ 3,172 $ 12,452 $ 10,609
Retained in Separate Account C by Merrill Lynch Life
Insurance Company (Note 4) 0 0 0
------------------ ------------------ ------------------
Total Net Assets $ 3,172 $ 12,452 $ 10,609
==========================================================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
AS OF ENDED DECEMBER 31, 2003
Divisions Investing In
========================================================
Roszel / Roszel / Roszel /
MLIM MLIM INVESCO-NAM
Fixed- Relative Large Cap
Income Value Core
Portfolio Portfolio Portfolio
================== ================== ==================
(In thousands)
Assets
Investments in MLIG Variable Insurance Trust (cont'd) (Note 1):
Roszel / MLIM Fixed-Income Portfolio, 1,746 shares
(Cost $17,693) $ 17,699 $ $
Roszel / MLIM Relative Value Portfolio, 1,312 shares
(Cost $12,727) 15,621
Roszel / INVESCO-NAM Large Cap Core Portfolio, 214 shares
(Cost $2,003) 2,367
------------------ ------------------ ------------------
Total Assets $ 17,699 $ 15,621 $ 2,367
================== ================== ==================
Net Assets
Accumulation Units $ 17,699 $ 15,621 $ 2,367
Retained in Separate Account C by Merrill Lynch Life
Insurance Company (Note 4) 0 0 0
------------------ ------------------ ------------------
Total Net Assets $ 17,699 $ 15,621 $ 2,367
================== ================== ==================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
AS OF DECEMBER 31, 2003
Divisions Investing In
========================================================
Roszel / Roszel / Roszel /
Delaware Nicholas-Applegate NWQ
Small-Mid Large Cap Small Cap
Cap Growth Growth Value
Portfolio Portfolio Portfolio
================== ================== ==================
(In thousands)
Assets
Investments in MLIG Variable Insurance Trust (cont'd) (Note 1):
Roszel / Delaware Small-Mid Cap Growth Portfolio, 232 shares
(Cost $1,952) $ 2,404 $ $
Roszel / Nicholas-Applegate Large Cap Growth Portfolio, 118 shares
(Cost $1,129) 1,318
Roszel / NWQ Small Cap Value Portfolio, 430 shares
(Cost $3,608) 5,088
------------------ ------------------ ------------------
Total Assets $ 2,404 $ 1,318 $ 5,088
================== ================== ==================
Net Assets
Accumulation Units $ 2,404 $ 1,318 $ 5,088
Retained in Separate Account C by Merrill Lynch Life
Insurance Company (Note 4) 0 0 0
------------------ ------------------ ------------------
Total Net Assets $ 2,404 $ 1,318 $ 5,088
================== ================== ==================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
AS OF DECEMBER 31, 2003
Divisions Investing In
========================================================
Roszel / Roszel / Roszel /
Rittenhouse Seneca Seneca
Large Cap Large Cap Mid Cap
Growth Growth Growth
Portfolio Portfolio Portfolio
================== ================== ==================
(In thousands)
Assets
Investments in MLIG Variable Insurance Trust (cont'd) (Note 1):
Roszel / Rittenhouse Large Cap Growth Portfolio, 1,051 shares
(Cost $10,048) $ 11,438 $ $
Roszel / Seneca Large Cap Growth Portfolio, 341 shares
(Cost $3,281) 3,852
Roszel / Seneca Mid Cap Growth Portfolio, 331 shares
(Cost $3,088) 3,707
------------------ ------------------ ------------------
Total Assets $ 11,438 $ 3,852 $ 3,707
================== ================== ==================
Net Assets
Accumulation Units $ 11,438 $ 3,852 $ 3,707
Retained in Separate Account C by Merrill Lynch Life
Insurance Company (Note 4) 0 0 0
------------------ ------------------ ------------------
Total Net Assets $ 11,438 $ 3,852 $ 3,707
================== ================== ==================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
AS OF DECEMBER 31, 2003
Divisions Investing In
=====================================
Roszel / Roszel /
Sound Valenzuela
Large Cap Mid Cap
Core Value
Portfolio Portfolio
================== ==================
(In thousands)
Assets
Investments in MLIG Variable Insurance Trust (cont'd) (Note 1):
Roszel / Sound Large Cap Core Portfolio, 85 shares
(Cost $832) $ 977 $
Roszel / Valenzuela Mid Cap Value Portfolio, 462 shares
(Cost $3,833) 4,868
---------------------------------------
Total Assets $ 977 $ 4,868
=======================================
Net Assets
Accumulation Units $ 862 $ 4,868
Retained in Separate Account C by Merrill Lynch Life
Insurance Company (Note 4) 115 0
------------------ ------------------
Total Net Assets $ 977 $ 4,868
=======================================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 2003
Divisions Investing In
========================================================
Roszel /
Domestic Credit Roszel /
Money Suisse Lazard
Market International International
V.I. Fund Portfolio Portfolio
================== ================== ==================
(In thousands)
Investment Income (Loss):
Ordinary Dividends (Note 2) $ 38 $ 6 $ 4
Asset-Based Insurance Charges (Note 7) (96) (56) (40)
------------------ ------------------ ------------------
Net Investment Income (Loss) (58) (50) (36)
------------------ ------------------ ------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Note 2) 0 62 37
Net Change In Unrealized Appreciation
(Depreciation) During the Year 0 868 637
Capital Gain Distributions (Note 2) 0 0 0
------------------ ------------------ ------------------
Net Gain (Loss) on Investments 0 930 674
------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (58) 880 638
------------------ ------------------ ------------------
Contract Transactions:
Premiums Received from Contract Owners 32,219 30 72
Contract Owner Withdrawals (1,407) (394) (42)
Net Transfers In (Out) (Note 3) (35,938) 540 1,892
Contract Charges (Note 7) (1) 0 0
------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions (5,127) 176 1,922
------------------ ------------------ ------------------
Increase (Decrease) in Amounts Retained
in Separate Account C, net (Note 4) 0 (89) (89)
------------------ ------------------ ------------------
Total Increase (Decrease) in Net Assets (5,185) 967 2,471
Net Assets, Beginning of Period 8,503 2,417 1,125
------------------ ------------------ ------------------
Net Assets, End of Period $ 3,318 $ 3,384 $ 3,596
================== ================== ==================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (Continued)
FOR THE PERIOD ENDED DECEMBER 31, 2003
Divisions Investing In
========================================================
Roszel / Roszel / Roszel /
Levin Lord Abbett Lord Abbett
Large Cap Government Large Cap
Value Securities Value
Portfolio Portfolio Portfolio
================== ================== ==================
(In thousands)
Investment Income (Loss):
Ordinary Dividends (Note 2) $ 17 $ 373 $ 14
Asset-Based Insurance Charges (Note 7) (51) (206) (151)
------------------ ------------------ ------------------
Net Investment Income (Loss) (34) 167 (137)
------------------ ------------------ ------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Note 2) 23 6 152
Net Change In Unrealized Appreciation
(Depreciation) During the Year 693 (211) 2,161
Capital Gain Distributions (Note 2) 9 15 19
------------------ ------------------ ------------------
Net Gain (Loss) on Investments 725 (190) 2,332
------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 691 (23) 2,195
------------------ ------------------ ------------------
Contract Transactions:
Premiums Received from Contract Owners 130 185 166
Contract Owner Withdrawals (110) (1,564) (644)
Net Transfers In (Out) (Note 3) 273 4,775 3,353
Contract Charges (Note 7) 0 (2) (1)
------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 293 3,394 2,874
------------------ ------------------ ------------------
Increase (Decrease) in Amounts Retained
in Separate Account C, net (Note 4) (85) 0 0
------------------ ------------------ ------------------
Total Increase (Decrease) in Net Assets 899 3,371 5,069
Net Assets, Beginning of Period 2,273 9,081 5,540
------------------ ------------------ ------------------
Net Assets, End of Period $ 3,172 $ 12,452 $ 10,609
================== ================== ==================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (Continued)
FOR THE PERIOD ENDED DECEMBER 31, 2003
Divisions Investing In
========================================================
Roszel / Roszel / Roszel /
MLIM MLIM INVESCO-NAM
Fixed- Relative Large Cap
Income Value Core
Portfolio Portfolio Portfolio
================== ================== ==================
(In thousands)
Investment Income (Loss):
Ordinary Dividends (Note 2) $ 442 $ 20 $ 5
Asset-Based Insurance Charges (Note 7) (275) (200) (38)
------------------ ------------------ ------------------
Net Investment Income (Loss) 167 (180) (33)
------------------ ------------------ ------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Note 2) 12 123 71
Net Change In Unrealized Appreciation
(Depreciation) During the Year (110) 2,786 393
Capital Gain Distributions (Note 2) 0 0 0
------------------ ------------------ ------------------
Net Gain (Loss) on Investments (98) 2,909 464
------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 69 2,729 431
------------------ ------------------ ------------------
Contract Transactions:
Premiums Received from Contract Owners 451 781 60
Contract Owner Withdrawals (1,355) (593) (86)
Net Transfers In (Out) (Note 3) 7,258 6,553 466
Contract Charges (Note 7) (4) (1) (1)
------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 6,350 6,740 439
------------------ ------------------ ------------------
Increase (Decrease) in Amounts Retained
in Separate Account C, net (Note 4) 0 0 (89)
------------------ ------------------ ------------------
Total Increase (Decrease) in Net Assets 6,419 9,469 781
Net Assets, Beginning of Period 11,280 6,152 1,586
------------------ ------------------ ------------------
Net Assets, End of Period $ 17,699 $ 15,621 $ 2,367
================== ================== ==================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (Continued)
FOR THE PERIOD ENDED DECEMBER 31, 2003
Divisions Investing In
========================================================
Roszel / Roszel / Roszel /
Delaware Nicholas-Applegate NWQ
Small-Mid Large Cap Small Cap
Cap Growth Growth Value
Portfolio Portfolio Portfolio
================== ================== ==================
(In thousands)
Investment Income (Loss):
Ordinary Dividends (Note 2) $ 0 $ 3 $ 7
Asset-Based Insurance Charges (Note 7) (32) (18) (67)
------------------ ------------------ ------------------
Net Investment Income (Loss) (32) (15) (60)
------------------ ------------------ ------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Note 2) 9 8 204
Net Change In Unrealized Appreciation
(Depreciation) During the Year 534 209 1,485
Capital Gain Distributions (Note 2) 0 0 0
------------------ ------------------ ------------------
Net Gain (Loss) on Investments 543 217 1,689
------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 511 202 1,629
------------------ ------------------ ------------------
Contract Transactions:
Premiums Received from Contract Owners 47 1 55
Contract Owner Withdrawals (109) (91) (249)
Net Transfers In (Out) (Note 3) 628 750 1,677
Contract Charges (Note 7) 0 0 (1)
------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 566 660 1,482
------------------ ------------------ ------------------
Increase (Decrease) in Amounts Retained
in Separate Account C, net (Note 4) (76) (89) (77)
------------------ ------------------ ------------------
Total Increase (Decrease) in Net Assets 1,001 773 3,034
Net Assets, Beginning of Period 1,403 545 2,054
------------------ ------------------ ------------------
Net Assets, End of Period $ 2,404 $ 1,318 $ 5,088
================== ================== ==================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (Continued)
FOR THE PERIOD ENDED DECEMBER 31, 2003
Divisions Investing In
========================================================
Roszel / Roszel / Roszel /
Rittenhouse Seneca Seneca
Large Cap Large Cap Mid Cap
Growth Growth Growth
Portfolio Portfolio Portfolio
================== ================== ==================
(In thousands)
Investment Income (Loss):
Ordinary Dividends (Note 2) $ 6 $ 5 $ 3
Asset-Based Insurance Charges (Note 7) (168) (55) (53)
------------------ ------------------ ------------------
Net Investment Income (Loss) (162) (50) (50)
------------------ ------------------ ------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Note 2) 34 47 57
Net Change In Unrealized Appreciation
(Depreciation) During the Year 1,600 625 682
Capital Gain Distributions (Note 2) 0 0 0
------------------ ------------------ ------------------
Net Gain (Loss) on Investments 1,634 672 739
------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 1,472 622 689
------------------ ------------------ ------------------
Contract Transactions:
Premiums Received from Contract Owners 343 137 38
Contract Owner Withdrawals (731) (362) (257)
Net Transfers In (Out) (Note 3) 3,839 1,208 1,483
Contract Charges (Note 7) (1) 0 (1)
------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 3,450 983 1,263
------------------ ------------------ ------------------
Increase (Decrease) in Amounts Retained
in Separate Account C, net (Note 4) 0 (90) (86)
------------------ ------------------ ------------------
Total Increase (Decrease) in Net Assets 4,922 1,515 1,866
Net Assets, Beginning of Period 6,516 2,337 1,841
------------------ ------------------ ------------------
Net Assets, End of Period $ 11,438 $ 3,852 $ 3,707
================== ================== ==================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (Continued)
FOR THE PERIOD ENDED DECEMBER 31, 2003
Divisions Investing In
=====================================
Roszel / Roszel /
Sound Valenzuela
Large Cap Mid Cap
Core Value
Portfolio Portfolio
================== ==================
(In thousands)
Investment Income (Loss):
Ordinary Dividends (Note 2) $ 4 $ 7
Asset-Based Insurance Charges (Note 7) (12) (72)
------------------ ------------------
Net Investment Income (Loss) (8) (65)
------------------ ------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Note 2) 6 2
Net Change In Unrealized Appreciation
(Depreciation) During the Year 147 1,140
Capital Gain Distributions (Note 2) 0 0
------------------ ------------------
Net Gain (Loss) on Investments 153 1,142
------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 145 1,077
------------------ ------------------
Contract Transactions:
Premiums Received from Contract Owners 10 112
Contract Owner Withdrawals (22) (305)
Net Transfers In (Out) (Note 3) 307 936
Contract Charges (Note 7) 0 (1)
------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 295 742
------------------ ------------------
Increase (Decrease) in Amounts Retained
in Separate Account C, net (Note 4) 24 (80)
------------------ ------------------
Total Increase (Decrease) in Net Assets 464 1,739
Net Assets, Beginning of Period 513 3,129
------------------ ------------------
Net Assets, End of Period $ 977 $ 4,868
================== ==================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 2002
Divisions Investing In
========================================================
Roszel /
Domestic Credit Roszel /
Money Suisse Lazard
Market International International
V.I. Fund Portfolio Portfolio
================== ================== ==================
(In thousands)
Investment Income (Loss):
Ordinary Dividends (Note 2) $ 41 $ 0 $ 0
Asset-Based Insurance Charges (Note 7) (60) (11) (2)
------------------ ------------------ ------------------
Net Investment Income (Loss) (19) (11) (2)
------------------ ------------------ ------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (Note 2) 0 (16) 0
Net Change In Unrealized Appreciation
(Depreciation) During the Year 0 (25) (1)
Capital Gain Distributions (Note 2) 0 0 0
------------------ ------------------ ------------------
Net Gain (Loss) on Investments 0 (41) (1)
------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (19) (52) (3)
------------------ ------------------ ------------------
Contract Transactions:
Premiums Received from Contract Owners 65,890 179 9
Contract Owner Withdrawals (1,046) (56) 0
Net Transfers In (Out) (Note 3) (56,322) 2,257 1,030
------------------ ------------------ ------------------
Net Increase in Net Assets
Resulting from Contract Transactions 8,522 2,380 1,039
------------------ ------------------ ------------------
Increase in Amounts Retained
in Separate Account C, net (Note 4) 0 89 89
------------------ ------------------ ------------------
Total Increase in Net Assets 8,503 2,417 1,125
Net Assets, Beginning of Period 0 0 0
------------------ ------------------ ------------------
Net Assets, End of Period $ 8,503 $ 2,417 $ 1,125
================== ================== ==================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (Continued)
FOR THE PERIOD ENDED DECEMBER 31, 2002
Divisions Investing In
========================================================
Roszel / Roszel / Roszel /
Levin Lord Abbett Lord Abbett
Large Cap Government Large Cap
Value Securities Value
Portfolio Portfolio Portfolio
================== ================== ==================
(In thousands)
Investment Income (Loss):
Ordinary Dividends (Note 2) $ 0 $ 36 $ 0
Asset-Based Insurance Charges (Note 7) (9) (33) (21)
------------------ ------------------ ------------------
Net Investment Income (Loss) (9) 3 (21)
------------------ ------------------ ------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (Note 2) (3) 9 10
Net Change In Unrealized Appreciation
(Depreciation) During the Year 19 97 126
Capital Gain Distributions (Note 2) 0 0 0
------------------ ------------------ ------------------
Net Gain (Loss) on Investments 16 106 136
------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 7 109 115
------------------ ------------------ ------------------
Contract Transactions:
Premiums Received from Contract Owners 86 366 75
Contract Owner Withdrawals (27) (337) (66)
Net Transfers In (Out) (Note 3) 2,122 8,943 5,416
------------------ ------------------ ------------------
Net Increase in Net Assets
Resulting from Contract Transactions 2,181 8,972 5,425
------------------ ------------------ ------------------
Increase in Amounts Retained
in Separate Account C, net (Note 4) 85 0 0
------------------ ------------------ ------------------
2,273 9,081 5,540
Total Increase in Net Assets 0 0 0
Net Assets, Beginning of Period ------------------ ------------------ ------------------
$ 2,273 $ 9,081 $ 5,540
Net Assets, End of Period ================== ================== ==================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (Continued)
FOR THE PERIOD ENDED DECEMBER 31, 2002
Divisions Investing In
========================================================
Roszel / Roszel / Roszel /
MLIM MLIM INVESCO-NAM
Fixed- Relative Large Cap
Income Value Core
Portfolio Portfolio Portfolio
================== ================== ==================
(In thousands)
Investment Income (Loss):
Ordinary Dividends (Note 2) $ 54 $ 0 $ 0
Asset-Based Insurance Charges (Note 7) (40) (23) (6)
------------------ ------------------ ------------------
Net Investment Income (Loss) 14 (23) (6)
------------------ ------------------ ------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (Note 2) 1 12 (2)
Net Change In Unrealized Appreciation
(Depreciation) During the Year 117 107 (33)
Capital Gain Distributions (Note 2) 0 0 0
------------------ ------------------ ------------------
Net Gain (Loss) on Investments 118 119 (35)
------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 132 96 (41)
------------------ ------------------ ------------------
Contract Transactions:
Premiums Received from Contract Owners 615 293 49
Contract Owner Withdrawals (292) (274) (25)
Net Transfers In (Out) (Note 3) 10,825 6,037 1,514
------------------ ------------------ ------------------
Net Increase in Net Assets
Resulting from Contract Transactions 11,148 6,056 1,538
------------------ ------------------ ------------------
Increase in Amounts Retained
in Separate Account C, net (Note 4) 0 0 89
------------------ ------------------ ------------------
11,280 6,152 1,586
Total Increase in Net Assets 0 0 0
Net Assets, Beginning of Period ------------------ ------------------ ------------------
$ 11,280 $ 6,152 $ 1,586
Net Assets, End of Period ================== ================== ==================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (Continued)
FOR THE PERIOD ENDED DECEMBER 31, 2002
Divisions Investing In
========================================================
Roszel / Roszel / Roszel /
Delaware Nicholas-Applegate NWQ
Small-Mid Large Cap Small Cap
Cap Growth Growth Value
Portfolio Portfolio Portfolio
================== ================== ==================
(In thousands)
Investment Income (Loss):
Ordinary Dividends (Note 2) $ 0 $ 0 $ 0
Asset-Based Insurance Charges (Note 7) (6) (2) (8)
------------------ ------------------ ------------------
Net Investment Income (Loss) (6) (2) (8)
------------------ ------------------ ------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (Note 2) 0 (1) (9)
Net Change In Unrealized Appreciation
(Depreciation) During the Year (81) (26) (6)
Capital Gain Distributions (Note 2) 0 0 0
------------------ ------------------ ------------------
Net Gain (Loss) on Investments (81) (27) (15)
------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (87) (29) (23)
------------------ ------------------ ------------------
Contract Transactions:
Premiums Received from Contract Owners 11 18 58
Contract Owner Withdrawals (63) (2) (97)
Net Transfers In (Out) (Note 3) 1,466 469 2,039
------------------ ------------------ ------------------
Net Increase in Net Assets
Resulting from Contract Transactions 1,414 485 2,000
------------------ ------------------ ------------------
Increase in Amounts Retained
in Separate Account C, net (Note 4) 76 89 77
------------------ ------------------ ------------------
1,403 545 2,054
Total Increase in Net Assets 0 0 0
Net Assets, Beginning of Period ------------------ ------------------ ------------------
$ 1,403 $ 545 $ 2,054
Net Assets, End of Period ================== ================== ==================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (Continued)
FOR THE PERIOD ENDED DECEMBER 31, 2002
Divisions Investing In
========================================================
Roszel / Roszel / Roszel /
Rittenhouse Seneca Seneca
Large Cap Large Cap Mid Cap
Growth Growth Growth
Portfolio Portfolio Portfolio
================== ================== ==================
(In thousands)
Investment Income (Loss):
Ordinary Dividends (Note 2) $ 0 $ 0 $ 0
Asset-Based Insurance Charges (Note 7) (24) (9) (6)
------------------ ------------------ ------------------
Net Investment Income (Loss) (24) (9) (6)
------------------ ------------------ ------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (Note 2) 12 1 (1)
Net Change In Unrealized Appreciation
(Depreciation) During the Year (210) (55) (66)
Capital Gain Distributions (Note 2) 0 0 0
------------------ ------------------ ------------------
Net Gain (Loss) on Investments (198) (54) (67)
------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (222) (63) (73)
------------------ ------------------ ------------------
Contract Transactions:
Premiums Received from Contract Owners 359 15 17
Contract Owner Withdrawals (182) (25) (21)
Net Transfers In (Out) (Note 3) 6,561 2,320 1,832
------------------ ------------------ ------------------
Net Increase in Net Assets
Resulting from Contract Transactions 6,738 2,310 1,828
------------------ ------------------ ------------------
Increase in Amounts Retained
in Separate Account C, net (Note 4) 0 90 86
------------------ ------------------ ------------------
6,516 2,337 1,841
Total Increase in Net Assets 0 0 0
Net Assets, Beginning of Period ------------------ ------------------ ------------------
$ 6,516 $ 2,337 $ 1,841
Net Assets, End of Period ================== ================== ==================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (Continued)
FOR THE PERIOD ENDED DECEMBER 31, 2002
Divisions Investing In
=====================================
Roszel / Roszel /
Sound Valenzuela
Large Cap Mid Cap
Core Value
Portfolio Portfolio
================== ==================
(In thousands)
Investment Income (Loss):
Ordinary Dividends (Note 2) $ 0 $ 0
Asset-Based Insurance Charges (Note 7) (1) (11)
------------------ ------------------
Net Investment Income (Loss) (1) (11)
------------------ ------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (Note 2) (2) (7)
Net Change In Unrealized Appreciation
(Depreciation) During the Year (16) (104)
Capital Gain Distributions (Note 2) 0 0
------------------ ------------------
Net Gain (Loss) on Investments (18) (111)
------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (19) (122)
------------------ ------------------
Contract Transactions:
Premiums Received from Contract Owners 0 225
Contract Owner Withdrawals (1) (102)
Net Transfers In (Out) (Note 3) 443 3,048
------------------ ------------------
Net Increase in Net Assets
Resulting from Contract Transactions 442 3,171
------------------ ------------------
Increase in Amounts Retained
in Separate Account C, net (Note 4) 90 80
------------------ ------------------
513 3,129
Total Increase in Net Assets 0 0
Net Assets, Beginning of Period ------------------ ------------------
$ 513 $ 3,129
Net Assets, End of Period ================== ==================
See accompanying notes to financial statements.
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT C
MERRILL LYNCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Merrill Lynch Life Variable Annuity Separate Account C
("Separate Account C"), a separate account of Merrill
Lynch Life Insurance Company ("Merrill Lynch Life"), was
established to support Merrill Lynch Life's operations
with respect to certain variable annuity contracts
("Contracts"). Separate Account C is governed by Arkansas
State Insurance Law. Merrill Lynch Life is an indirect
wholly owned subsidiary of Merrill Lynch & Co., Inc.
("Merrill Lynch & Co."). Separate Account C is
registered as a unit investment trust under the
Investment Company Act of 1940, as amended, and consists
of seventeen investment divisions that support one
annuity contract - Consults Annuity. The investment
divisions are as follows:
- Merrill Lynch Variable Series Funds, Inc. - One of the
investment divisions invests in the shares of a single
mutual fund portfolio of the Merrill Lynch Variable
Series Funds, Inc. ("Merrill Variable Funds"). The
Investment advisor to the Merrill Variable Funds is
Merrill Lynch Investment Managers, L.P. ("MLIM"), an
Indirect subsidiary of Merrill Lynch & Co.
- MLIG Variable Insurance Trust - Sixteen of the
investment divisions each invest in the shares of a
single mutual fund portfolio of the MLIG Variable
Insurance Trust("MLIG Variable Trust"). The investment
advisor to the MLIG Variable Trust is Roszel Advisors,
LLC, an indirect subsidiary of Merrill Lynch & Co.
Effective March 3, 2003 the Roszel / Neuberger Berman
Small Cap Growth Portfolio was renamed the Roszel /
Delaware Small-Mid Cap Growth Portfolio. Effective
June 18, 2003, the Roszel / Levin Large Cap Value
Portfolio was placed on hold to allocations of
premiums and contract value from new investors. The
Investment division accepts additional deposits from
existing contract holders. Effective August 1, 2003,
the Roszel / Credit Suisse International Portfolio was
placed on hold to allocations of premiums and contract
value from new investors. The Investment division
accepts additional deposits from existing contract
holders. Effective October 17, 2003, the Roszel /
Sound Large Cap Core Portfolio was placed on hold to
allocations of premiums and contract value from new
investors. The Investment division accepts additional
deposits from existing contract holders.
The assets of Separate Account C are registered in the
name of Merrill Lynch Life. The portion of Separate
Account C's assets applicable to the Contracts are not
chargeable with liabilities arising out of any other
business Merrill Lynch Life may conduct.
The change in net assets accumulated in Separate Account
C provides the basis for the periodic determination of
the amount of increased or decreased benefits under the
Contracts.
The net assets may not be less than the amount required
under Arkansas State Insurance Law to provide for death
benefits (without regard to the guaranteed minimum death
benefits ("GMDB")) and other Contract benefits.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements included herein have been
prepared in accordance with accounting principles
generally accepted in the United States of America for
variable annuity separate accounts registered as unit
investment trusts. The preparation of financial
statements in conformity with accounting principles
generally accepted in the United States of America
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements
and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ
from those estimates.
Investments of the investment divisions are included in
the statement of assets and liabilities at the net asset
value of the shares held in the underlying funds, which
value their investments at market value. Dividend income
includes ordinary dividends and capital gain
distributions and is recognized on the ex-dividend date.
All dividends are automatically reinvested. Realized
gains and losses on the sales of investments are computed
on the first in first out basis. Investment transactions
are recorded on the trade date.
The operations of Separate Account C are included in the
Federal income tax return of Merrill Lynch Life. Under
the provisions of the Contracts, Merrill Lynch Life has
the right to charge Separate Account C for any Federal
income tax attributable to Separate Account C. No
charge is currently being made against Separate Account C
for such tax since, under current tax law, Merrill Lynch
Life pays no tax on investment income and capital gains
reflected in variable annuity contract reserves. However,
Merrill Lynch Life retains the right to charge for any
Federal income tax incurred that is attributable to
Separate Account C if the law is changed. Charges for
state and local taxes, if any, attributable to Separate
Account C may also be made.
3. NET TRANSFERS
Net transfers include transfers among applicable Separate
Account C investment divisions.
4. INVESTMENTS IN SEPARATE ACCOUNT
The $115,000 in net assets retained by Merrill Lynch Life
in Separate Account C represent an investment by Merrill
Lynch Life in certain investment divisions to facilitate
the establishment of those investment divisions. Merrill
Lynch Life's investment is not subject to charges for
mortality and expense risks and may be transferred to
Merrill Lynch Life's General Account.
5. PURCHASES AND SALES OF INVESTMENTS
The cost of purchases and proceeds from sales of investments for the year ended December 31, 2003 were as
follows:
(In thousands)
Purchases Sales
------------------ ------------------
Domestic Money Market V.I. Fund $ 23,535 $ 28,720
Roszel / Credit Suisse International Portfolio 1,152 1,125
Roszel / Lazard International Portfolio 2,787 999
Roszel / Levin Large Cap Value Portfolio 654 485
Roszel / Lord Abbett Government Securities Portfolio 6,462 2,886
Roszel / Lord Abbett Large Cap Value Portfolio 3,930 1,174
Roszel / MLIM Fixed-Income Portfolio 8,168 1,651
Roszel / MLIM Relative Value Portfolio 7,779 1,219
Roszel / INVESCO-NAM Large Cap Core Portfolio 1,326 1,024
Roszel / Delaware Small-Mid Cap Growth Portfolio 877 443
Roszel / Nicholas-Applegate Large Cap Growth Portfolio 828 290
Roszel / NWQ Small Cap Value Portfolio 2,501 1,181
Roszel / Rittenhouse Large Cap Growth Portfolio 4,126 838
Roszel / Seneca Large Cap Growth Portfolio 1,591 760
Roszel / Seneca Mid Cap Growth Portfolio 1,815 704
Roszel / Sound Large Cap Core Portfolio 359 72
Roszel / Valenzuela Mid Cap Value Portfolio 1,250 672
------------------ ------------------
$ 69,140 $ 44,243
================== ==================
6. UNIT VALUES
The following is a summary of units outstanding, unit values and net assets for variable annuity contracts. The investment
income ratio represents the dividends, excluding the distributions of capital gains, received by the investment division
from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets.
These ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions in the unit
values. The recognition of investment income by the investment division is affected by the timing of the declaration of
dividends by the underlying fund in which the investment divisions invest. The expense ratio represents the annualized
contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period
indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly
to contract owner accounts through the redemption of units and expenses of the underlying fund are excluded. The total
return amounts include changes in the value of the underlying mutual fund, which includes expenses assessed through the
reduction of unit values. The ratio does not include any expenses assessed through the redemption of units. Investment
divisions with a date notation indicate the effective date of that investment division in the separate account. The total
return is calculated for the period indicated or from the effective date through the end of the reporting period.
(In thousands, except unit values)
Domestic Money Market V.I. Fund
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 337 $ 9.86 $ 3,318 0.73% 1.85% -1.12%
2002 853 9.97 8,503 1.26 1.85 -0.27
Roszel / Credit Suisse International Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 292 $ 11.60 $ 3,384 0.20% 1.85% 31.46%
2002 264 8.83 2,328 0.00 1.85 -11.72
Roszel / Lazard International Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 320 $ 11.21 $ 3,596 0.19% 1.85% 26.76%
2002 117 8.85 1,036 0.00 1.85 -11.53
Roszel / Levin Large Cap Value Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 297 $ 10.70 $ 3,172 0.62% 1.85% 26.89%
2002 260 8.43 2,188 0.00 1.85 -15.69
6. UNIT VALUES (Continued)
Roszel / Lord Abbett Government Securities Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 1,190 $ 10.47 $ 12,452 3.35% 1.85% -0.07%
2002 867 10.47 9,081 2.02 1.85 4.73
Roszel / Lord Abbett Large Cap Value Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 842 $ 12.59 $ 10,609 0.17% 1.85% 27.62%
2002 561 9.87 5,540 0.00 1.85 -1.32
Roszel / MLIM Fixed-Income Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 1,730 $ 10.23 $ 17,699 2.97% 1.85% 0.49%
2002 1,108 10.18 11,280 2.50 1.85 1.80
Roszel / MLIM Relative Value Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 1,346 $ 11.61 $ 15,621 0.19% 1.85% 24.09%
2002 658 9.35 6,152 0.00 1.85 -6.47
Roszel / INVESCO-NAM Large Cap Core Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 219 $ 10.79 $ 2,367 0.24% 1.85% 22.64%
2002 170 8.80 1,497 0.00 1.85 -12.02
6. UNIT VALUES (Continued)
Roszel / Delaware Small-Mid Cap Growth Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 238 $ 10.10 $ 2,404 0.00% 1.85% 33.76%
2002 176 7.55 1,327 0.00 1.85 -24.51
Roszel / Nicholas-Applegate Large Cap Growth Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 121 $ 10.87 $ 1,318 0.31% 1.85% 23.13%
2002 52 8.83 456 0.00 1.85 -11.72
Roszel / NWQ Small Cap Value Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 441 $ 11.54 $ 5,088 0.19% 1.85% 50.43%
2002 258 7.67 1,977 0.00 1.85 -23.32
Roszel / Rittenhouse Large Cap Growth Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 1,080 $ 10.59 $ 11,438 0.07% 1.85% 17.32%
2002 722 9.03 6,516 0.00 1.85 -9.74
Roszel / Seneca Large Cap Growth Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 350 $ 11.02 $ 3,852 0.17% 1.85% 23.98%
2002 253 8.89 2,247 0.00 1.85 -11.13
6. UNIT VALUES (Continued)
Roszel / Seneca Mid Cap Growth Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 340 $ 10.91 $ 3,707 0.10% 1.85% 27.79%
2002 205 8.54 1,755 0.00 1.85 -14.60
Roszel / Sound Large Cap Core Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 77 $ 11.17 $ 862 0.62% 1.85% 24.68%
2002 47 8.96 423 0.00 1.85 -10.44
Roszel / Valenzuela Mid Cap Value Portfolio
------------------------------------
Investment
Net Assets Income Expense Total
December 31, Units (000's) Unit Value (000's) Ratio Ratio Return
---------------------------------------------------------------------------------------
2003 475 $ 10.26 $ 4,868 0.18% 1.85% 30.10%
2002 387 7.89 3,049 0.00 1.85 -21.14
7.CHARGES AND FEES
The following table is a listing of all expenses charged to the separate account. Mortality and expense, rider and
administrative charges may be assessed through a reduction in unit value or redemption of units or as fixed charges.
Charge When Charge Is Deducted Amount Deducted
------------------------------------------ -------------------------------------- ---------------------------------------------
Mortality and expense charge Daily - reduction of unit values 1/365 of 1.85% per day
Contract maintenance charge Annually - redemption of units $50 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
Additional death benefit charge Quarterly - redemption of units 0.25% of the contract value at the end of
provides coverage in addition each contract year based on the average
to that provided by the death contract values as of the end of each of the
benefit prior four quarters and a pro rata amount of
this charge upon surrender, anuitization,
death, or termination of the rider if the
Estate Enhancer benefit was combined with
either the Maximum Anniversary Value GMDB or
Premiums Compounded at 5% GMDB
Transfer Fee Per incident - redemption of units $25 for each transfer after the twelfth
transfer in a contract year
8. UNITS ISSUED AND REDEEMED
Units issued and redeemed during 2003 and 2002 were as follows:
Roszel / Roszel /
Credit Roszel / Levin
Domestic Suisse Lazard Large Cap
Money International International Value
Market V.I. Fund Portfolio Portfolio Portfolio
-------------------- -------------------- -------------------- --------------------
(In thousands)
Outstanding at January 1, 2002 0 0 0 0
Activity during 2002:
Issued 3,406 301 118 269
Redeemed (2,553) (37) (1) (9)
-------------------- -------------------- -------------------- --------------------
Outstanding at December 31, 2002 853 264 117 260
Activity during 2003:
Issued 2,370 129 300 72
Redeemed (2,886) (101) (97) (35)
-------------------- -------------------- -------------------- --------------------
Outstanding at December 31, 2003 337 292 320 297
==================== ==================== ==================== ====================
8. UNITS ISSUED AND REDEEMED (Continued)
Roszel / Roszel / Roszel / Roszel /
Lord Abbett Lord Abbett MLIM MLIM
Government Large Cap Fixed- Relative
Securities Value Income Value
Portfolio Portfolio Portfolio Portfolio
-------------------- -------------------- -------------------- --------------------
(In thousands)
Outstanding at January 1, 2002 0 0 0 0
Activity during 2002:
Issued 908 576 1,141 694
Redeemed (41) (15) (33) (36)
-------------------- -------------------- -------------------- --------------------
Outstanding at December 31, 2002 867 561 1,108 658
Activity during 2003:
Issued 591 376 770 797
Redeemed (268) (95) (148) (109)
-------------------- -------------------- -------------------- --------------------
Outstanding at December 31, 2003 1,190 842 1,730 1,346
==================== ==================== ==================== ====================
8. UNITS ISSUED AND REDEEMED (Continued)
Roszel / Roszel / Roszel / Roszel /
INVESCO-NAM Delaware Nicholas-Applegate NWQ
Large Cap Small-Mid Large Cap Small Cap
Core Cap Growth Growth Value
Portfolio Portfolio Portfolio Portfolio
-------------------- -------------------- -------------------- --------------------
(In thousands)
Outstanding at January 1, 2002 0 0 0 0
Activity during 2002:
Issued 176 189 56 275
Redeemed (6) (13) (4) (17)
-------------------- -------------------- -------------------- --------------------
Outstanding at December 31, 2002 170 176 52 258
Activity during 2003:
Issued 141 98 86 289
Redeemed (92) (36) (17) (106)
-------------------- -------------------- -------------------- --------------------
Outstanding at December 31, 2003 219 238 121 441
==================== ==================== ==================== ====================
8. UNITS ISSUED AND REDEEMED (Continued)
Roszel / Roszel / Roszel / Roszel /
Rittenhouse Seneca Seneca Sound
Large Cap Large Cap Mid Cap Large Cap
Growth Growth Growth Core
Portfolio Portfolio Portfolio Portfolio
-------------------- -------------------- -------------------- --------------------
(In thousands)
Outstanding at January 1, 2002 0 0 0 0
Activity during 2002:
Issued 742 255 209 50
Redeemed (20) (2) (4) (3)
-------------------- -------------------- -------------------- --------------------
Outstanding at December 31, 2002 722 253 205 47
Activity during 2003:
Issued 434 160 193 36
Redeemed (76) (63) (58) (6)
-------------------- -------------------- -------------------- --------------------
Outstanding at December 31, 2003 1,080 350 340 77
==================== ==================== ==================== ====================
8. UNITS ISSUED AND REDEEMED (Continued)
Roszel /
Valenzuela
Mid Cap
Value
Portfolio
--------------------
(In thousands)
Outstanding at January 1, 2002 0
Activity during 2002:
Issued 400
Redeemed (13)
--------------------
Outstanding at December 31, 2002 387
Activity during 2003:
Issued 148
Redeemed (60)
--------------------
Outstanding at December 31, 2003 475
====================
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying balance sheets of Merrill Lynch Life Insurance
Company (the "Company"), a wholly owned subsidiary of Merrill Lynch Insurance
Group, Inc., as of December 31, 2003 and 2002, and the related statements of
earnings, comprehensive income, stockholder's equity, and cash flows for each of
the three years in the period ended December 31, 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2003 and
2002, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 2 to the financial statements, in 2004 the Company changed
its method of accounting for stock-based compensation to conform to SFAS 123,
Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting
for Stock-Based Compensation - Transition and Disclosure, and retroactively,
restated the 2003, 2002 and 2001 financial statements.
Deloitte & Touche, LLP
New York, New York
March 1, 2004 (May 4, 2004 as to Note 2)
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 2003 AND 2002
(Dollars in thousands, except common stock par value and shares)
2003 (1) 2002 (1)
----------- -----------
ASSETS
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 2003 - $2,108,310; 2002 - $1,844,077) $ 2,157,127 $ 1,856,732
Equity securities, at estimated fair value
(cost: 2003 - $78,816; 2002 - $112,903) 82,469 105,430
Trading account securities, at estimated fair value 26,186 21,949
Limited partnerships, at cost 11,880 12,150
Policy loans on insurance contracts 1,086,537 1,143,663
----------- -----------
Total Investments 3,364,199 3,139,924
CASH AND CASH EQUIVALENTS 75,429 312,217
ACCRUED INVESTMENT INCOME 63,565 63,603
DEFERRED POLICY ACQUISITION COSTS 364,414 404,220
FEDERAL INCOME TAXES - CURRENT - 40,910
REINSURANCE RECEIVABLES 6,004 8,197
AFFILIATED RECEIVABLES - NET - 67
RECEIVABLES FROM SECURITIES SOLD 1,349 10,072
OTHER ASSETS 36,245 37,399
SEPARATE ACCOUNTS ASSETS 10,736,343 9,079,285
----------- -----------
TOTAL ASSETS $14,647,548 $13,095,894
=========== ===========
(1) Amounts have been restated as discussed in Note 2 to the financial
statements.
See accompanying notes to financial statements. (Continued)
G-2
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS (Continued)
AS OF DECEMBER 31, 2003 AND 2002
(Dollars in thousands, except common stock par value and shares)
2003 (1) 2002 (1)
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
POLICYHOLDER LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 2,887,937 $ 3,084,042
Claims and claims settlement expenses 101,718 98,526
------------ ------------
Total policyholder liabilities and accruals 2,989,655 3,182,568
OTHER POLICYHOLDER FUNDS 12,915 11,815
LIABILITY FOR GUARANTY FUND ASSESSMENTS 7,139 7,221
FEDERAL INCOME TAXES - DEFERRED 31,965 67,304
FEDERAL INCOME TAXES - CURRENT 20,146 -
PAYABLES FOR SECURITIES PURCHASED 683 19,635
AFFILIATED PAYABLES - NET 2,365 -
UNEARNED POLICY CHARGE REVENUE 107,761 113,774
OTHER LIABILITIES 3,480 6,033
SEPARATE ACCOUNTS LIABILITIES 10,730,601 9,072,606
------------ ------------
Total Liabilities 13,906,710 12,480,956
------------ ------------
STOCKHOLDER'S EQUITY:
Common stock ($10 par value; authorized: 1,000,000 shares; issued and
outstanding: 250,000 shares) 2,500 2,500
Additional paid-in capital 397,324 347,324
Retained earnings 329,549 288,124
Accumulated other comprehensive income (loss) 11,465 (23,010)
------------ ------------
Total Stockholder's Equity 740,838 614,938
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 14,647,548 $ 13,095,894
============ ============
(1) Amounts have been restated as discussed in Note 2 to the financial
statements.
See accompanying notes to financial statements.
G-3
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Dollars in thousands)
2003 (1) 2002 (1) 2001(1)
--------- --------- ---------
REVENUES:
Policy charge revenue $ 228,878 $ 239,030 $ 253,837
Net investment income 174,662 207,064 221,872
Net realized investment gains (losses) 987 (9,056) (13,844)
--------- --------- ---------
Total Revenues 404,527 437,038 461,865
--------- --------- ---------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 128,958 141,373 153,111
Market value adjustment expense 4,806 3,683 2,296
Policy benefits (net of reinsurance recoveries: 2003 - $17,641;
2002 - $14,620; 2001 - $16,562) 64,631 58,060 37,773
Reinsurance premium ceded 22,599 23,131 24,535
Amortization of deferred policy acquisition costs 76,402 101,118 59,335
Insurance expenses and taxes 52,092 48,527 66,517
--------- --------- ---------
Total Benefits and Expenses 349,488 375,892 343,567
--------- --------- ---------
Net Earnings Before Federal Income Tax Provision 55,039 61,146 118,298
--------- --------- ---------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 67,516 (41,713) 22,728
Deferred (53,902) 55,301 17,875
--------- --------- ---------
Total Federal Income Tax Provision 13,614 13,588 40,603
--------- --------- ---------
NET EARNINGS $ 41,425 $ 47,558 $ 77,695
========= ========= =========
(1) Amounts have been restated as discussed in Note 2 to the financial
statements.
See accompanying notes to financial statements.
G-4
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Dollars in thousands)
2003 (1) 2002 (1) 2001(1)
-------- -------- --------
NET EARNINGS $ 41,425 $ 47,558 $ 77,695
-------- -------- --------
OTHER COMPREHENSIVE INCOME (LOSS):
Net unrealized gains on available-for-sale securities and investments in
separate accounts:
Net unrealized holding gains (losses) arising during the period 46,905 (1,799) 32,328
Reclassification adjustment for losses included in net earnings 3,286 11,494 12,600
-------- -------- --------
Net unrealized gains on investment securities 50,191 9,695 44,928
Adjustments for:
Policyholder liabilities 6,302 (15,214) (9,498)
Deferred policy acquisition costs (3,455) 9 (15,551)
Deferred federal income taxes (18,563) 1,928 (6,958)
-------- -------- --------
Total other comprehensive income (loss), net of tax 34,475 (3,582) 12,921
-------- -------- --------
COMPREHENSIVE INCOME $ 75,900 $ 43,976 $ 90,616
======== ======== ========
(1) Amounts have been restated as discussed in Note 2 to the financial
statements.
See accompanying notes to financial statements.
G-5
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Dollars in thousands)
Accumulated
Additional other Total
Common paid-in Retained comprehensive stockholder's
stock capital earnings(1) income (loss) equity (1)
--------- ---------- ----------- ------------- --------------
BALANCE, JANUARY 1, 2001 $ 2,500 $ 347,324 $ 193,770 $ (32,349) $ 511,245
Net earnings 77,695 77,695
Other comprehensive income, net of tax 12,921 12,921
--------- ---------- ----------- ------------- --------------
BALANCE, DECEMBER 31, 2001 2,500 347,324 271,465 (19,428) 601,861
Cash dividend paid to parent (30,899) (30,899)
Net earnings 47,558 47,558
Other comprehensive loss, net of tax (3,582) (3,582)
--------- ---------- ----------- ------------- --------------
BALANCE, DECEMBER 31, 2002 2,500 347,324 288,124 (23,010) 614,938
Capital contribution from parent 50,000 50,000
Net earnings 41,425 41,425
Other comprehensive income, net of tax 34,475 34,475
--------- ---------- ----------- ------------- --------------
BALANCE, DECEMBER 31, 2003 $ 2,500 $ 397,324 $ 329,549 $ 11,465 $ 740,838
========= ========== =========== ============= ==============
(1) Amounts have been restated as discussed in Note 2 to the financial
statements.
See accompanying notes to financial statements.
G-6
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Dollars in thousands)
2003 (1) 2002 (1) 2001 (1)
----------- ----------- -----------
Cash Flows From Operating Activities:
Net earnings $ 41,425 $ 47,558 $ 77,695
Noncash items included in earnings:
Amortization of deferred policy acquisition costs 76,402 101,118 59,335
Capitalization of policy acquisition costs (40,051) (34,391) (51,736)
Amortization (accretion) of investments 9,883 2,406 (1,033)
Interest credited to policyholders' account balances 128,958 141,373 153,111
Provision (benefit) for deferred Federal income tax (53,902) 55,301 17,875
(Increase) decrease in operating assets:
Accrued investment income 38 6,281 1,117
Federal income taxes - current 40,910 (40,910) -
Reinsurance receivables 2,193 1,231 (6,338)
Affiliated receivables - net 67 (67) -
Other 1,154 4,513 (1,298)
Increase (decrease) in operating liabilities:
Claims and claims settlement expenses 3,192 3,506 9,347
Other policyholder funds 1,100 (2,424) (3,439)
Liability for guaranty fund assessments (82) (1,228) (1,801)
Federal income taxes - current 20,146 (4,726) 114
Affiliated payables - net 2,365 (6,113) 5,220
Unearned policy charge revenue (6,013) 98 12,494
Other (2,553) (1,561) (24,695)
Other operating activities:
Net realized investment (gains) losses (987) 9,056 13,844
----------- ----------- -----------
Net cash and cash equivalents provided by operating activities 224,245 281,021 259,812
Cash Flow From Investing Activities:
Proceeds from (payments for):
Sales of available-for-sale securities 312,514 817,498 278,420
Maturities of available-for-sale securities 533,534 360,062 342,148
Purchases of available-for-sale securities (1,097,868) (988,168) (511,122)
Trading account securities (559) (456) (214)
Sales of real estate held-for-sale - 22,900 -
Sales of limited partnerships 470 - 1,000
Purchases of limited partnerships (200) (880) (1,857)
Policy loans on insurance contracts 57,126 50,815 (788)
Recapture of investment in separate accounts 3,015 1,785 -
Investment in separate accounts (304) (3,554) (1,009)
----------- ----------- -----------
Net cash and cash equivalents provided by (used in) investing activities (192,272) 260,002 106,578
----------- ----------- -----------
(1) Amounts have been restated as discussed in Note 2 to the financial
statements.
See accompanying notes to financial statements. (Continued)
G-7
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Dollars in thousands)
2003 (1) 2002 (1) 2001 (1)
----------- ----------- -----------
Cash Flows From Financing Activities:
Proceeds from (payments for):
Capital contribution received from (cash dividend paid to) parent $ 50,000 $ (30,899) $ -
Policyholder deposits (excludes internal policy replacement deposits) 936,437 640,103 1,090,788
Policyholder withdrawals (including transfers to/from separate accounts) (1,255,198) (968,439) (1,419,479)
----------- ----------- -----------
Net cash and cash equivalents used in financing activities (268,761) (359,235) (328,691)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (236,788) 181,788 37,699
CASH AND CASH EQUIVALENTS
Beginning of year 312,217 130,429 92,730
----------- ----------- -----------
End of year $ 75,429 $ 312,217 $ 130,429
=========== =========== ===========
Supplementary Disclosure of Cash Flow Information:
Cash paid to affiliates for:
Federal income taxes $ 6,460 $ 3,923 $ 22,614
Interest 197 125 639
(1) Amounts have been restated as discussed in Note 2 to the financial
statements.
See accompanying notes to financial statements.
G-8
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: Merrill Lynch Life Insurance Company (the
"Company") is a wholly owned subsidiary of Merrill Lynch Insurance Group,
Inc. ("MLIG"). The Company is an indirect wholly owned subsidiary of
Merrill Lynch & Co., Inc. ("Merrill Lynch & Co."). The Company is
domiciled in the State of Arkansas.
The Company sells non-participating annuity products, including variable
annuities, modified guaranteed annuities and immediate annuities. The
Company is currently licensed to sell insurance and annuities in
forty-nine states, the District of Columbia, Puerto Rico, the U.S. Virgin
Islands and Guam. The Company markets its products solely through the
retail network of Merrill Lynch, Pierce, Fenner & Smith, Incorporated
("MLPF&S"), a wholly owned broker-dealer subsidiary of Merrill Lynch & Co.
BASIS OF REPORTING: The accompanying financial statements have been
prepared in conformity with accounting principles generally accepted in
the United States of America and prevailing industry practices, both of
which require management to make estimates that affect the reported
amounts and disclosure of contingencies in the financial statements.
Actual results could differ from those estimates.
The significant accounting policies and related judgements underlying the
Company's financial statements are summarized below. In applying these
policies, management makes subjective and complex judgements that
frequently require estimates about matters that are inherently uncertain.
For the purpose of reporting cashflows, cash and cash equivalents include
cash on hand and on deposit and short-term investments with original
maturities of three months or less.
Certain reclassifications and format changes have been made to prior year
amounts to conform to the current year presentation.
REVENUE RECOGNITION: Revenues for variable annuity contracts consist of
policy charges for i) mortality and expense risks, ii) certain benefit
guarantees selected by the contract owner, iii) administration fees, iv)
annual contract maintenance charges, and v) withdrawal charges assessed on
contracts surrendered during the withdrawal charge period.
Revenues for variable life insurance contracts consist of policy charges
for i) mortality and expense risks, ii) cost of insurance fees, iii)
amortization of front-end and deferred sales charges, and iv) withdrawal
charges assessed on contracts surrendered during the withdrawal charge
period. The Company does not currently manufacture variable life insurance
contracts.
Revenues for interest-sensitive annuity contracts (market value adjusted
annuities and immediate annuities) and interest-sensitive life insurance
contracts (single premium whole life insurance, which is not currently
marketed) consist of i) investment income, ii) gains (losses) on the sale
of invested assets, and iii) withdrawal charges assessed on contracts
surrendered during the withdrawal charge period.
INVESTMENTS: The Company's investments in fixed maturity and equity
securities are classified as either available-for-sale or trading and are
reported at estimated fair value. Unrealized gains and losses on
available-for-sale securities are included in stockholder's equity as a
component of accumulated other comprehensive income (loss), net of tax.
Unrealized gains and losses on trading account securities are included in
net realized investment gains (losses). If management determines that a
decline in the value of an available-for-sale security is
G-9
other-than-temporary, the carrying value is adjusted to estimated fair
value and the decline in value is recorded as a net realized investment
loss. Management makes this determination through a series of discussions
with the Company's portfolio managers and credit analysts, as well as
information obtained from external sources (i.e. company announcements,
ratings agency announcements, or news wire services). The factors that
give rise to potential impairments include, but are not limited to, i)
certain credit-related events such as default of principal or interest
payments, ii) bankruptcy of issuer, and iii) certain security
restructurings. In the absence of a readily ascertainable market value,
the estimated fair value on these securities represents management's
estimate of the security's ultimate recovery value. Management bases this
determination on the most recent information available.
For fixed maturity securities, premiums are amortized to the earlier of
the call or maturity date, discounts are accreted to the maturity date,
and interest income is accrued daily. For equity securities, dividends are
recognized on the ex-dividend date. Realized gains and losses on the sale
or maturity of investments are determined on the basis of specific
identification. Investment transactions are recorded on the trade date.
Certain fixed maturity and equity securities are considered non-investment
grade. The Company defines non-investment grade securities as unsecured
debt obligations or equity positions that have a rating equivalent to
Standard and Poor's (or similar rating agency) BB+ or lower.
Investments in limited partnerships are carried at cost.
Policy loans on insurance contracts are stated at unpaid principal
balances.
DEFERRED POLICY ACQUISITION COSTS: Certain policy acquisition costs for
life and annuity contracts are deferred and amortized based on the
estimated future gross profits for each group of contracts. These future
gross profit estimates are subject to periodic evaluation by the Company,
with necessary revisions applied against amortization to date. The impact
of these revisions on cumulative amortization is recorded as a charge or
credit to current operations. It is reasonably possible that estimates of
future gross profits could be reduced in the future, resulting in a
material reduction in the carrying amount of deferred policy acquisition
costs.
Policy acquisition costs are principally commissions and a portion of
certain other expenses relating to policy acquisition, underwriting and
issuance that are primarily related to and vary with the production of new
business. Insurance expenses and taxes reported in the Statements of
Earnings are net of amounts deferred. Policy acquisition costs can also
arise from the acquisition or reinsurance of existing inforce policies
from other insurers. These costs include ceding commissions and
professional fees related to the reinsurance assumed. The deferred costs
are amortized in proportion to the estimated future gross profits over the
anticipated life of the acquired insurance contracts utilizing an interest
methodology.
During 1990, the Company entered into an assumption reinsurance agreement
with an unaffiliated insurer. The acquisition costs relating to this
agreement are being amortized over a twenty-five year period using an
effective interest rate of 7.5%. This reinsurance agreement provided for
payment of contingent ceding commissions, for a ten year period, based
upon the persistency and mortality experience of the insurance contracts
assumed. Payments made for contingent ceding commissions were capitalized
and amortized using an identical methodology as that used for the initial
acquisition costs. The following is a reconciliation of the acquisition
costs related to this reinsurance agreement for the years ended December
31:
2003 2002 2001
--------- --------- ---------
Beginning balance $ 81,425 $ 95,869 $ 105,503
Capitalized amounts - - 147
Interest accrued 6,107 7,190 7,913
Amortization (18,243) (21,634) (17,694)
--------- --------- ---------
Ending balance $ 69,289 $ 81,425 $ 95,869
========= ========= =========
G-10
The following table presents the expected amortization, net of interest
accrued, of these deferred acquisition costs over the next five years.
Amortization may be adjusted based on periodic evaluation of the expected
gross profits on the reinsured policies.
2004 $4,647
2005 $5,045
2006 $5,875
2007 $5,629
2008 $5,612
SEPARATE ACCOUNTS: Assets and liabilities of Separate Accounts,
representing net deposits and accumulated net investment earnings less
fees, held primarily for the benefit of contract owners, are shown as
separate captions in the Balance Sheets. Separate Accounts are established
in conformity with Arkansas State Insurance law and are generally not
chargeable with liabilities that arise from any other business of the
Company. Separate Accounts assets may be subject to general claims of the
Company only to the extent the value of such assets exceeds Separate
Accounts liabilities. At December 31, 2003 and 2002, the Company's
Separate Accounts assets exceeded Separate Accounts liabilities by $5,742
and $6,679, respectively. This excess represents the Company's temporary
investment in certain Separate Accounts investment divisions that were
made to facilitate the establishment of those investment divisions.
Net investment income and net realized and unrealized gains (losses)
attributable to Separate Accounts assets accrue directly to contract
owners and are not reported as revenue in the Company's Statements of
Earnings.
POLICYHOLDERS' ACCOUNT BALANCES: Liabilities for the Company's universal
life type contracts, including its life insurance and annuity products,
are equal to the full accumulation value of such contracts as of the
valuation date plus deficiency reserves for certain products.
Interest-crediting rates for the Company's fixed-rate products are as
follows:
Interest-sensitive life products 4.00% - 4.85%
Interest-sensitive deferred annuities 1.00% - 7.40%
Immediate annuities 3.00% - 11.00%
These rates may be changed at the option of the Company after initial
guaranteed rates expire, unless contracts are subject to minimum interest
rate guarantees.
CLAIMS AND CLAIMS SETTLEMENT EXPENSES: Liabilities for claims and claims
settlement expenses equal the death benefit (plus accrued interest) for
claims that have been reported to the Company but have not settled and an
estimate, based upon prior experience, for unreported claims.
Additionally, the Company has established a mortality benefit accrual for
its variable annuity products.
INCOME TAXES: The results of operations of the Company are included in the
consolidated Federal income tax return of Merrill Lynch & Co. The Company
has entered into a tax-sharing agreement with Merrill Lynch & Co. whereby
the Company will calculate its current tax provision based on its
operations. Under the agreement, the Company periodically remits to
Merrill Lynch & Co. its current Federal income tax liability.
The Company uses the asset and liability method in providing income taxes
on all transactions that have been recognized in the financial statements.
The asset and liability method requires that deferred taxes be adjusted to
reflect the tax rates at which future taxable amounts will likely be
settled or realized. The effects of tax rate changes on future deferred
tax liabilities and deferred tax assets, as well as other changes in
income tax laws, are recognized in net earnings in the period during which
such changes are enacted. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be
realized. See Note 4 to the financial statements for further information.
G-11
The Company is generally subject to taxes on premiums and, in
substantially all states, is exempt from state income taxes.
UNEARNED POLICY CHARGE REVENUE: Certain variable life insurance products
contain policy charges that are assessed at policy issuance. These policy
charges are deferred and amortized into policy charge revenue based on the
estimated future gross profits for each group of contracts. The Company
records a liability equal to the unamortized balance of these policy
charges.
ACCOUNTING PRONOUNCEMENTS: On April 30, 2003, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
SFAS No. 133. In addition, it clarifies when a derivative contains a
financing component that warrants special reporting in the statements of
cash flows. SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated
after June 30, 2003. The adoption of SFAS No. 149 did not have a material
impact on the Financial Statements.
On July 7, 2003, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 03-1, Accounting and Reporting by
Insurance Enterprises for Certain Nontraditional Long-Duration Contracts
and for Separate Accounts. The SOP provides guidance on accounting and
reporting by insurance companies for certain nontraditional long-duration
contracts and for separate accounts. The SOP is effective for financial
statements for the Company beginning in 2004. The SOP requires the
establishment of a liability for contracts that contain death or other
insurance benefits using a specified reserve methodology that is different
from the methodology that the Company currently employs. The adoption of
SOP 03-1, which is effective January 1, 2004, will approximately result in
a $43.0 million increase in policyholder liabilities and a corresponding
pre-tax charge to earnings. The adoption of SOP 03-1 is considered a
change in accounting principle.
In November of 2003, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue 03-01, The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments, as it relates to disclosures
for SFAS 115 securities. In addition to the disclosures already required
by SFAS 115, EITF Issue 03-01 requires both quantitative and qualitative
disclosures for marketable equity and debt securities. The new disclosure
requirements are required to be applied to financial statements for fiscal
years ending after December 15, 2003. See Note 3 to the Financial
Statements for these disclosures.
NOTE 2. OTHER EVENTS
Effective for the first quarter of 2004, Merrill Lynch & Co. adopted the
fair value method of accounting for stock-based compensation under SFAS
123, Accounting for Stock-Based Compensation, using the retroactive
restatement method described in SFAS 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. Under the fair value
recognition provisions of SFAS 123, stock-based compensation cost is
measured at the grant date based on the value of the award and is
recognized as expense over the vesting period. The adoption of the fair
value method of accounting by Merrill Lynch & Co. resulted in additional
allocated compensation expense to the Company. The December 31, 2003 and
December 31, 2002 Balance Sheets have been restated for the allocation of
these expenses. Accordingly, the December 31, 2003 Balance Sheet reflects
a $1,036 decrease in current federal income taxes payable, a $3,061
increase in net affiliated payables, and a $2,025 decrease in retained
earnings. The December 31, 2002 Balance Sheet reflects a $1,005 increase
in current federal income taxes receivable, a $2,973 decrease in net
affiliated receivables, and a $1,968 decrease in retained earnings.
For the years ended December 31, 2003, 2002, and 2001, $89 ($58
after-tax), $595 ($387 after-tax), and $817 ($543 after-tax),
respectively, of additional compensation expense was recorded. This
expense is reported as a component of insurance expenses and taxes in the
Statements of Earnings.
In addition, Note 5, Note 7, and Note 10 to the Financial Statements have
been restated accordingly.
G-12
NOTE 3. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are carried at fair value or amounts that
approximate fair value. The carrying value of financial instruments as of
December 31 were:
2003 2002
----------- -----------
Assets:
Fixed maturity securities (1) $ 2,157,127 $ 1,856,732
Equity securities (1) 82,469 105,430
Trading account securities (1) 26,186 21,949
Limited partnerships (2) 11,880 12,150
Policy loans on insurance contracts (3) 1,086,537 1,143,663
Cash and cash equivalents (4) 75,429 312,217
Separate Accounts assets (5) 10,736,343 9,079,285
----------- -----------
Total financial instruments $14,175,971 $12,531,426
=========== ===========
(1) For publicly traded securities, the estimated fair value is determined
using quoted market prices. For securities without a readily ascertainable
market value, the Company utilizes pricing services and broker quotes.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the balance
sheets. At December 31, 2003 and 2002, securities without a readily
ascertainable market value, having an amortized cost of $262,302 and
$292,466, had an estimated fair value of $270,731 and $283,064,
respectively.
(2) The Company has investments in three limited partnerships that do not have
readily ascertainable market values. Management has estimated the fair
value as equal to cost based on the review of the underlying investments
of the partnerships.
(3) The Company estimates the fair value of policy loans as equal to the book
value of the loans. Policy loans are fully collateralized by the account
value of the associated insurance contracts, and the spread between the
policy loan interest rate and the interest rate credited to the account
value held as collateral is fixed.
(4) The estimated fair value of cash and cash equivalents approximates the
carrying value.
(5) Assets held in Separate Accounts are carried at the net asset value
provided by the fund managers.
G-13
NOTE 4. INVESTMENTS
The amortized cost and estimated fair value of investments in fixed
maturity securities and equity securities (excluding trading account
securities) as of December 31 were:
2003
------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- -------------- --------------
Fixed maturity securities:
Corporate debt securities $ 2,003,958 $ 59,352 $ 12,349 $ 2,050,961
U.S. Government and agencies 69,346 1,752 646 70,452
Mortgage-backed securities 18,999 1,329 1 20,327
Foreign governments 11,953 345 1,106 11,192
Municipals 4,054 141 - 4,195
--------------- -------------- -------------- --------------
Total fixed maturity securities $ 2,108,310 $ 62,919 $ 14,102 $ 2,157,127
=============== ============== ============== ==============
Equity securities:
Non-redeemable preferred stocks $ 78,816 $ 3,916 $ 263 $ 82,469
=============== ============== ============== ==============
2002
----------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- -------------
Fixed maturity securities:
Corporate debt securities $ 1,705,862 $ 49,304 $ 39,971 $ 1,715,195
U.S. Government and agencies 74,309 2,706 356 76,659
Mortgage-backed securities 38,581 2,711 2 41,290
Foreign governments 12,955 300 2,380 10,875
Municipals 12,370 343 - 12,713
-------------- -------------- -------------- -------------
Total fixed maturity securities $ 1,844,077 $ 55,364 $ 42,709 $ 1,856,732
============== ============== ============== =============
Equity securities:
Non-redeemable preferred stocks $ 112,903 $ 1,395 $ 8,868 $ 105,430
============== ============== ============== =============
Estimated fair value and gross unrealized losses by length of time that
certain fixed maturity and equity securities have been in a continuous
unrealized loss position at December 31, 2003 were:
G-14
Less than 12 Months More than 12 Months Total
---------------------- ---------------------- ----------------------
Estimated Unrealized Estimated Unrealized Estimated Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
---------- ---------- ---------- ---------- ---------- ----------
Fixed Maturity Securities:
Corporate debt securities $365,765 $ 5,934 $ 93,749 $ 6,415 $ 459,514 $ 12,349
U.S. Government and agencies 18,458 646 - - 18,458 646
Foreign governments 7,873 1,106 - - 7,873 1,106
Mortgage-backed securities - - 93 1 93 1
Equity securities:
Non-redeemable preferred stocks - - 6,909 263 6,909 263
-------- -------- ---------- -------- ---------- --------
Total temporarily impaired securities $392,096 $ 7,686 $ 100,751 $ 6,679 $ 492,847 $ 14,365
======== ======== ========== ======== ========== ========
Unrealized losses primarily relate to corporate debt securities rated BBB
or higher and are due to price fluctuations as a result of changes in
interest rates. These investments are not considered
other-than-temporarily impaired since based on the most recent available
information the Company has the ability and intent to hold the investments
for a period of time sufficient for a forecasted market price recovery up
to or beyond the amortized cost of the investment.
Realized investment losses on securities deemed to have incurred
other-than-temporary declines in fair value were $9,139, $23,997 and
$11,153 for the years ended December 31, 2003, 2002, and 2001
respectively.
The amortized cost and estimated fair value of fixed maturity securities
at December 31, 2003 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
---------- ----------
Fixed maturity securities:
Due in one year or less $ 201,721 $ 204,855
Due after one year through five years 1,302,540 1,332,162
Due after five years through ten years 430,129 444,803
Due after ten years 154,921 154,980
---------- ----------
2,089,311 2,136,800
Mortgage-backed securities 18,999 20,327
---------- ----------
Total fixed maturity securities $2,108,310 $2,157,127
========== ==========
Fixed maturity securities not due at a single maturity date have been
included in the preceding table in the year of final maturity. Expected
maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
The amortized cost and estimated fair value of fixed maturity securities
at December 31, 2003 by rating agency equivalent were:
G-15
Estimated
Amortized Fair
Cost Value
---------- ----------
AAA $ 445,444 $ 452,068
AA 225,214 225,586
A 633,833 648,769
BBB 703,750 732,823
Non-investment grade 100,069 97,881
---------- ----------
Total fixed maturity securities $2,108,310 $2,157,127
========== ==========
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in connection with
unrealized holding gains or losses on investments classified as
available-for-sale. The Company adjusts those assets and liabilities as if
the unrealized holding gains or losses had actually been realized, with
corresponding credits or charges reported in accumulated other
comprehensive income (loss), net of taxes. The components of net
unrealized gains (losses) included in accumulated other comprehensive
income (loss) at December 31 were as follows:
2003 2002
--------- ---------
Assets:
Fixed maturity securities $ 48,817 $ 12,655
Equity securities 3,653 (7,473)
Deferred policy acquisition costs 260 3,715
Separate Accounts assets (341) (3,244)
-------- --------
52,389 5,653
-------- --------
Liabilities:
Policyholders' account balances 34,750 41,052
Federal income taxes - deferred 6,174 (12,389)
-------- --------
40,924 28,663
-------- --------
Stockholder's equity:
Accumulated other comprehensive income (loss) $ 11,465 $(23,010)
======== ========
Proceeds and gross realized investment gains and losses from the sale of
available-for-sale securities for the years ended December 31 were:
2003 2002 2001
-------- -------- --------
Proceeds $312,514 $817,498 $278,420
Gross realized investment gains 13,380 37,899 4,913
Gross realized investment losses 16,071 48,294 17,320
The Company considers fair value at the date of sale to be equal to
proceeds received. Proceeds received for gross realized investment losses
from the sale of available-for-sale securities were $65,451, $140,742 and
$60,640 for the years ended December 31, 2003, 2002, and 2001,
respectively.
The Company had investment securities with a carrying value of $25,570 and
$26,307 that were deposited with insurance regulatory authorities at
December 31, 2003 and 2002, respectively.
Excluding investments in U.S. Government and agencies, the Company is not
exposed to any significant concentration of credit risk in its fixed
maturity securities portfolio.
G-16
Net investment income arose from the following sources for the years ended
December 31:
2003 2002 2001
---------- ---------- ----------
Fixed maturity securities $ 107,940 $ 128,962 $ 139,285
Equity securities 9,162 12,624 15,303
Real estate held-for-sale - 3,220 924
Limited partnerships 28 24 39
Policy loans on insurance contracts 58,157 61,390 62,695
Cash and cash equivalents 2,155 2,912 7,578
Other 233 1,200 335
--------- --------- ---------
Gross investment income 177,675 210,332 226,159
Less investment expenses (3,013) (3,268) (4,287)
--------- --------- ---------
Net investment income $ 174,662 $ 207,064 $ 221,872
========= ========= =========
Net realized investment gains (losses), for the years ended December 31
were as follows:
2003 2002 2001
--------- --------- ---------
Fixed maturity securities $ (1,167) $(11,416) $(12,035)
Equity securities (395) 1,021 (372)
Trading account securities 3,678 (2,143) (1,437)
Real estate held-for-sale - 3,453 -
Investment in Separate Accounts (1,129) 29 -
-------- -------- --------
Net realized investment gains (losses) $ 987 $ (9,056) $(13,844)
======== ======== ========
The Company maintains a trading portfolio comprised of convertible debt
and equity securities. The net unrealized holdings gains (losses) on
trading account securities included in net realized investment gains
(losses) were $1,663, ($515) and $462 at December 31, 2003, 2002 and 2001,
respectively.
NOTE 5. FEDERAL INCOME TAXES
The following is a reconciliation of the provision for income taxes based
on earnings before Federal income taxes, computed using the Federal
statutory tax rate, versus the reported provision for income taxes for the
years ended December 31:
2003 2002 2001
--------- --------- ---------
Provision for income taxes computed at Federal statutory rate $ 19,264 $ 21,401 $ 41,416
Increase (decrease) in income taxes resulting from:
Dividend received deduction (3,478) (7,782) (1,024)
Foreign tax credit (2,172) (31) (310)
Non-deductible fees - - 521
-------- -------- --------
Federal income tax provision $ 13,614 $ 13,588 $ 40,603
======== ======== ========
The Federal statutory rate for each of the three years ended December 31,
2003 was 35%.
G-17
The Company provides for deferred income taxes resulting from temporary
differences that arise from recording certain transactions in different
years for income tax reporting purposes than for financial reporting
purposes. The sources of these differences and the tax effect of each are
as follows:
2003 2002 2001
--------- --------- ---------
Policyholders' account balances $(45,837) $ 72,680 $ 19,520
Deferred policy acquisition costs (8,582) (18,789) (2,336)
Liability for guaranty fund assessments 29 430 630
Investment adjustments 488 980 61
-------- -------- --------
Deferred Federal income tax provision (benefit) $(53,902) $ 55,301 $ 17,875
======== ======== ========
Deferred tax assets and liabilities as of December 31 are determined as
follows:
2003 2002
-------- --------
Deferred tax assets:
Policyholders' account balances $ 66,815 $ 20,978
Liability for guaranty fund assessments 2,498 2,527
Investment adjustments 985 1,473
Net unrealized investment loss on investment securities - 12,389
-------- --------
Total deferred tax assets 70,298 37,367
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs 92,101 100,683
Net unrealized gains on investment securities 6,174 -
Other 3,988 3,988
-------- --------
Total deferred tax liabilities 102,263 104,671
-------- --------
Net deferred tax liability $ 31,965 $ 67,304
======== ========
The Company anticipates that all deferred tax assets will be realized;
therefore no valuation allowance has been provided.
NOTE 6. REINSURANCE
In the normal course of business, the Company seeks to limit its exposure
to loss on any single insured life and to recover a portion of benefits
paid by ceding reinsurance to other insurance enterprises or reinsurers
under indemnity reinsurance agreements, primarily excess coverage and
coinsurance agreements. The maximum amount of mortality risk retained by
the Company is approximately $500 on single life policies and $750 on
joint life policies.
Indemnity reinsurance agreements do not relieve the Company from its
obligations to policyholders. Failure of reinsurers to honor their
obligations could result in losses to the Company. The Company regularly
evaluates the financial condition of its reinsurers so as to minimize its
exposure to significant losses from reinsurer insolvencies. The Company
holds collateral under reinsurance agreements in the form of letters of
credit and funds withheld totaling $585 that can be drawn upon for
delinquent reinsurance recoverables.
As of December 31, 2003 the Company had the following life insurance
inforce:
G-18
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies amount net
----------- ---------- ---------- ---------- ----------
Life insurance
inforce $11,931,195 $3,606,160 $994 $8,326,029 0.01%
The Company had entered into an indemnity reinsurance agreement with an
unaffiliated insurer whereby the Company coinsures, on a modified
coinsurance basis, 50% of the unaffiliated insurer's variable annuity
contracts sold through the Merrill Lynch & Co. distribution system. During
2001, the agreement was amended whereby the Company ceased reinsuring
variable annuity contracts sold subsequent to June 30, 2001.
In addition, the Company seeks to limit its exposure to guaranteed
features contained in certain variable annuity contracts. Specifically,
the Company reinsures certain guaranteed living and minimum death benefit
provisions to the extent reinsurance capacity is available in the
marketplace. As of December 31, 2003, 100% and 11% of the account value
for variable annuity contracts containing guaranteed living and minimum
death benefit provisions, respectively, were reinsured.
NOTE 7. RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby MLIG has
agreed to provide certain accounting, data processing, legal, actuarial,
management, advertising and other services to the Company. Expenses
incurred by MLIG in relation to this service agreement are reimbursed by
the Company on an allocated cost basis. Charges billed to the Company by
MLIG pursuant to the agreement were $33,518, $34,428 and $51,392 for 2003,
2002 and 2001, respectively. Charges attributable to this agreement are
included in insurance expenses and taxes, except for investment related
expenses, which are included in net investment income. The Company is
allocated interest expense on its accounts payable to MLIG that
approximates the daily Federal funds rate. Total intercompany interest
incurred was $197, $125 and $639 for 2003, 2002 and 2001, respectively.
Intercompany interest is included in net investment income.
The Company and Merrill Lynch Investment Managers, L.P. ("MLIM") are
parties to a service agreement whereby MLIM has agreed to provide certain
invested asset management services to the Company. The Company pays a fee
to MLIM for these services through the MLIG service agreement. Charges
attributable to this agreement and allocated to the Company by MLIG were
$1,845, $1,787 and $1,990 for 2003, 2002 and 2001, respectively.
MLIG has entered into agreements with MLIM and Roszel Advisors, LLC, a
subsidiary of MLIG (collectively, "Affiliated Investment Advisors"), with
respect to administrative services for the Merrill Lynch Series Fund,
Inc., Merrill Lynch Variable Series Funds, Inc., Mercury Variable Trust,
and MLIG Variable Insurance Trust (collectively, "the Funds"). Certain
Separate Accounts of the Company may invest in the various mutual fund
portfolios of the Funds in connection with the variable life insurance and
annuity contracts the Company has inforce. Under these agreements, the
Affiliated Investment Advisors pay MLIG an amount equal to a percentage of
the assets invested in the Funds through the Separate Accounts. Revenue
attributable to these agreements is included in policy charge revenue. The
Company received from MLIG its allocable share of such compensation in the
amount of $18,471, $19,677 and $21,667 during 2003, 2002 and 2001,
respectively.
The Company has a general agency agreement with Merrill Lynch Life Agency
Inc. ("MLLA") whereby registered representatives of MLPF&S, who are the
Company's licensed insurance agents, solicit applications for contracts to
be issued by the Company. MLLA is paid commissions for the contracts sold
by such agents. Commissions paid to MLLA were $60,686, $43,099 and $65,021
for 2003, 2002 and 2001, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisition costs and are
being amortized in accordance with the policy discussed in Note 1 to the
Financial Statements.
G-19
While management believes that the service agreements referenced above are
calculated on a reasonable basis, they may not necessarily be indicative
of the costs that would have been incurred with an unrelated third party.
Affiliated agreements generally contain reciprocal indemnity provisions
pertaining to each party's representations and contractual obligations
thereunder.
NOTE 8. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
The Company paid no dividend in 2003 or 2001. During 2002, the Company
paid an ordinary cash dividend of $30,899 to MLIG.
During 2002, the Company established $144,000 in statutory reserves to
support its cashflow testing analysis required by state insurance
regulation. As a result, statutory capital and surplus was significantly
reduced from December 2001, but remained in excess of regulatory capital
requirements. However, due to the inherent volatility in statutory
earnings, the Company received a $50,000 capital contribution from MLIG on
March 3, 2003.
Statutory capital and surplus at December 31, 2003 and 2002, were $295,722
and $136,823, respectively. At December 31, 2003 and 2002, approximately
$29,322 and $13,432, respectively, of stockholder's equity was available
for distribution to MLIG.
Applicable insurance department regulations require that the Company
report its accounts in accordance with statutory accounting practices.
Statutory accounting practices differ from principles utilized in these
financial statements as follows: policy acquisition costs are expensed as
incurred, future policy benefit reserves are established using different
actuarial assumptions, provisions for deferred income taxes are limited to
temporary differences that will be recognized within one year, and
securities are valued on a different basis. The Company's statutory net
income (loss) for 2003, 2002 and 2001 was $98,570, ($140,955) and $48,108,
respectively. The statutory net loss incurred during 2002 was primarily
due to establishing additional policy benefit reserves required by state
insurance regulation.
The Company's statutory financial statements are presented on the basis of
accounting practices prescribed or permitted by the Arkansas Insurance
Department. The State of Arkansas has adopted the National Association of
Insurance Commissioner's statutory accounting practices as a component of
prescribed or permitted practices by the State of Arkansas.
The National Association of Insurance Commissioners utilizes the Risk
Based Capital ("RBC") adequacy monitoring system. The RBC calculates the
amount of adjusted capital that a life insurance company should have based
upon that company's risk profile. As of December 31, 2003 and 2002, based
on the RBC formula, the Company's total adjusted capital level was in
excess of the minimum amount of capital required to avoid regulatory
action.
NOTE 9. COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers who are
licensed to transact business within a state become members of the state's
life insurance guaranty association. These associations have been
established for the protection of policyholders from loss (within
specified limits) as a result of the insolvency of an insurer. At the time
an insolvency occurs, the guaranty association assesses the remaining
members of the association an amount sufficient to satisfy the insolvent
insurer's policyholder obligations (within specified limits). The Company
has utilized public information to estimate what future assessments it
will incur as a result of insolvencies. At December 31, 2003 and 2002, the
Company's estimated liability for future guaranty fund assessments was
$7,139 and $7,221, respectively. If additional future insolvencies occur,
the Company's estimated liability may not be sufficient to fund these
insolvenicies and the estimated liability may need to be adjusted. The
Company regularly monitors public information regarding insurer
insolvencies and adjusts its estimated liability appropriately.
G-20
During 2000, the Company committed to participate in a limited
partnership. As of December 31, 2003, $4,300 had been advanced towards the
Company's $10,000 commitment to the limited partnership.
In the normal course of business, the Company is subject to various claims
and assessments. Management believes the settlement of these matters would
not have a material effect on the financial position or results of
operations of the Company.
NOTE 10. SEGMENT INFORMATION
In reporting to management, the Company's operating results are
categorized into two business segments: Life Insurance and Annuities. The
Company's Life Insurance segment consists of variable life insurance
products and interest-sensitive life insurance products. The Company's
Annuity segment consists of variable annuities and interest-sensitive
annuities. The accounting policies of the business segments are the same
as those described in the summary of significant accounting policies. All
revenue and expense transactions are recorded at the product level and
accumulated at the business segment level for review by management. The
"Other" category, presented in the following segment financial
information, represents net revenues and earnings on assets that do not
support life or annuity contract owner liabilities.
The following table summarizes each business segment's contribution to the
consolidated amounts:
Life
2003 Insurance Annuities Other Total
----------- ----------- ----------- -----------
Net interest spread (a) $ 14,823 $ 25,887 $ 4,994 $ 45,704
Other revenues 91,176 134,868 3,821 229,865
----------- ----------- ----------- -----------
Net revenues 105,999 160,755 8,815 275,569
----------- ----------- ----------- -----------
Policy benefits 18,238 46,393 - 64,631
Reinsurance premium ceded 21,337 1,262 - 22,599
Amortization of deferred policy
acquisition costs 31,467 44,935 - 76,402
Other non-interest expenses 8,192 48,706 - 56,898
----------- ----------- ----------- -----------
Total non-interest expenses 79,234 141,296 - 220,530
----------- ----------- ----------- -----------
Net earnings before Federal
income tax provision 26,765 19,459 8,815 55,039
Federal income tax provision 5,778 4,751 3,085 13,614
----------- ----------- ----------- -----------
Net earnings $ 20,987 $ 14,708 $ 5,730 $ 41,425
=========== =========== =========== ===========
Balance Sheet Information:
Total assets $ 5,036,572 $ 9,438,256 $ 172,720 $14,647,548
Deferred policy acquisition costs 178,918 185,496 - 364,414
Policyholder liabilities and accruals 1,916,761 1,072,894 - 2,989,655
Other policyholder funds 6,213 6,702 - 12,915
G-21
Life
2002 Insurance Annuities Other Total
----------- ----------- ----------- ------------
Net interest spread (a) $ 24,791 $ 34,444 $ 6,456 $ 65,691
Other revenues 98,435 137,513 (5,974) 229,974
----------- ----------- ----------- -----------
Net revenues 123,226 171,957 482 295,665
----------- ----------- ----------- -----------
Policy benefits 19,632 38,428 - 58,060
Reinsurance premium ceded 22,883 248 - 23,131
Amortization of deferred policy
acquisition costs 41,190 59,928 - 101,118
Other non-interest expenses 7,602 44,608 - 52,210
----------- ----------- ----------- -----------
Total non-interest expenses 91,307 143,212 - 234,519
----------- ----------- ----------- -----------
Net earnings before Federal income
tax provision 31,919 28,745 482 61,146
Federal income tax provision 8,734 4,685 169 13,588
----------- ----------- ----------- -----------
Net earnings $ 23,185 $ 24,060 $ 313 $ 47,558
=========== =========== =========== ===========
Balance Sheet Information:
Total assets $ 4,970,748 $ 8,110,326 $ 14,820 $13,095,894
Deferred policy acquisition costs 211,999 192,221 - 404,220
Policyholder liabilities and accruals 2,005,718 1,176,850 - 3,182,568
Other policyholder funds 4,995 6,820 - 11,815
G-22
Life
2001 Insurance Annuities Other Total
----------- ----------- ------------ -----------
Net interest spread (a) $ 34,815 $ 31,302 $ 2,644 $ 68,761
Other revenues 101,685 139,727 (1,419) 239,993
----------- ----------- ----------- -----------
Net revenues 136,500 171,029 1,225 308,754
----------- ----------- ----------- -----------
Policy benefits 21,320 16,453 - 37,773
Reinsurance premium ceded 24,531 4 - 24,535
Amortization of deferred policy
acquisition costs 30,913 28,422 - 59,335
Other non-interest expenses 18,415 50,398 - 68,813
----------- ----------- ----------- -----------
Total non-interest expenses 95,179 95,277 - 190,456
----------- ----------- ----------- -----------
Net earnings before Federal
income tax provision 41,321 75,752 1,225 118,298
Federal income tax provision 15,502 24,672 429 40,603
----------- ----------- ----------- -----------
Net earnings $ 25,819 $ 51,080 $ 796 $ 77,695
=========== =========== =========== ===========
Balance Sheet Information:
Total assets $ 5,674,704 $ 9,625,104 $ 150,208 $15,450,016
Deferred policy acquisition costs 251,245 219,693 - 470,938
Policyholder liabilities and accruals 2,094,195 1,256,616 - 3,350,811
Other policyholder funds 9,236 5,003 - 14,239
(a) Management considers investment income net of interest credited to
policyholders' account balances in evaluating results.
The table below summarizes the Company's net revenues by product for 2003, 2002
and 2001:
2003 2002 2001
-------- -------- --------
Life Insurance
Variable life insurance $ 97,002 $102,603 $110,842
Interest-sensitive life insurance 8,997 20,623 25,658
-------- -------- --------
Total Life Insurance 105,999 123,226 136,500
-------- -------- --------
Annuities
Variable annuities 139,577 139,210 152,427
Interest-sensitive annuities 21,178 32,747 18,602
-------- -------- --------
Total Annuities 160,755 171,957 171,029
-------- -------- --------
Other 8,815 482 1,225
-------- -------- --------
Total $275,569 $295,665 $308,754
======== ======== ========
* * * * *
G-23
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(1) Financial Statements of Merrill Lynch Life Variable Annuity
Separate Account C as of December 31, 2003 and for the two
years ended December 31, 2003 and the Notes relating
thereto appear in the Statement of Additional Information.
(2) Financial Statements of Merrill Lynch Life Insurance Company
for the three years ended December 31, 2003 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. (Incorporated by
Reference to Registrant's Registration Statement on Form
N-4, Registration No. 333-73544 Filed November 16, 2001.)
(2) Not Applicable.
(3) Form of Underwriting Agreement Between Merrill Lynch Life
Insurance Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated. (Incorporated by Reference to Registrant's
Pre-Effective Amendment No. 1 to Form N-4, Registration No.
333-73544 Filed May 31, 2002.)
(4) (a) Form of Contract for the Flexible Premium Individual
Deferred Variable Annuity. (Incorporated by Reference to
Registrant's Registration Statement on Form N-4,
Registration No. 333-73544 Filed November 16, 2001.)
(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. (Incorporated by
Reference to Registrant's Registration Statement on Form
N-4, Registration No. 333-73544 Filed November 16, 2001.)
(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. (Incorporated by Reference
to Registrant's Registration Statement on Form N-4,
Registration No. 333-73544 Filed November 16, 2001.)
(g) Qualified Plan Endorsement. (Incorporated by Reference to
Registrant's Registration Statement on Form N-4,
Registration No. 333-73544 Filed November 16, 2001.)
(5) Form of Application for the Flexible Premium Individual
Deferred Variable Annuity. (Incorporated by Reference to
Registrant's Registration Statement on Form N-4,
Registration No. 333-73544 Filed November 16, 2001.)
(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.)
C-1
(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) 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.)
(d) 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.)
(e) 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.)
(f) 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.)
(g) Form of 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
Post-Effective Amendment No. 10 to Form N-4, Registration
No. 33-43773 Filed December 10, 1996.)
(h) 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.)
(9) Opinion of Barry G. Skolnick, Esq. and Consent to its use as
to the legality of the securities being registered.
(Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form N-4, Registration No. 333-73544
Filed May 31, 2002.)
(10) (a) Written Consent of Sutherland Asbill & Brennan LLP.
(b) Written Consent of Deloitte & Touche LLP, independent
auditors.
(c) Written Consent of Barry G. Skolnick, Esq.
(11) Not Applicable.
(12) Not Applicable.
(13) (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 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.)
C-2
(c) 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.)
(d) 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.)
(e) Power of Attorney from Deborah J. Adler. (Incorporated by Reference to Merrill Lynch Life Variable
Annuity Separate Account A's Post-Effective Amendment No. 6 to Form N-4, Registration No.
333-90243 Filed April 22, 2003.)
(f) Power of Attorney from Joseph E. Justice. (Incorporated by Reference to Merrill Lynch Life
Variable Annuity Separate Account A's Post-Effective Amendment No. 6 to Form N-4, Registration
No. 333-90243 Filed April 22, 2003.)
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR*
NAME PRINCIPAL BUSINESS ADDRESS POSITION WITH DEPOSITOR
---- ----------------------------------- ----------------------------------
Deborah J. Adler............ 1300 Merrill Lynch Drive, 2nd Floor Director, Senior Vice President,
Pennington, New Jersey 08534 and Chief Actuary.
H. McIntyre Gardner......... 4 World Financial Center Director and Chairman of the
Board.
New York, NY 10080
Christopher J. Grady........ 800 Scudders Mill Road -- 3D Director and Senior Vice
President.
Plainsboro, New Jersey 08536
Joseph E. Justice........... 1300 Merrill Lynch Drive, 2nd Floor Director, Senior Vice President,
Pennington, New Jersey 08534 Chief Financial Officer, and
Treasurer.
Nikos K. Kardassis.......... 800 Scudders Mill Road -- 3D Director, President and Chief
Plainsboro, New Jersey 08536 Executive Officer.
Barry G. Skolnick........... 1300 Merrill Lynch Drive, 2nd Floor Director, Senior Vice President
Pennington, New Jersey 08534 and General Counsel.
Andrew J. Bucklee........... 1300 Merrill Lynch Drive, 2nd Floor Senior Vice President.
Pennington, New Jersey 08534
Brian H. Buckley............ 1300 Merrill Lynch Drive, 2nd Floor Vice President and Senior Counsel.
Pennington, New Jersey 08534
Toni DeChiara............... 1300 Merrill Lynch Drive, 2nd Floor Vice President.
Pennington, New Jersey 08534
Alison Denis................ 800 Scudders Mill Road -- 3D Senior Vice President.
Plainsboro, New Jersey 08536
Edward W. Diffin, Jr........ 1300 Merrill Lynch Drive, 2nd Floor Vice President and Senior Counsel.
Pennington, New Jersey 08534
Scott Edblom................ 1300 Merrill Lynch Drive, 2nd Floor Vice President and Product
Actuary.
Pennington, New Jersey 08534
Amy L. Ferrero.............. 4804 Deer Lake Drive East Senior Vice President,
Administration.
Jacksonville, FL 32246
Frances C. Grabish.......... 1300 Merrill Lynch Drive, 2nd Floor Vice President and Senior Counsel.
Pennington, New Jersey 08534
Roger Helms................. 1300 Merrill Lynch Drive, 2nd Floor Vice President.
Pennington, New Jersey 08534
Patrick Lusk................ 1300 Merrill Lynch Drive, 2nd Floor Vice President.
Pennington, New Jersey 08534
Robin A. Maston............. 1300 Merrill Lynch Drive, 2nd Floor Vice President and Senior
Pennington, New Jersey 08534 Compliance Officer.
Jane R. Michael............. 4804 Deer Lake Drive East Vice President.
Jacksonville, FL 32246
C-3
NAME PRINCIPAL BUSINESS ADDRESS POSITION WITH DEPOSITOR
---- ----------------------------------- ----------------------------------
Terry L. Rapp............... 1300 Merrill Lynch Drive, 2nd Floor Vice President, Senior Compliance
Pennington, New Jersey 08534 Officer and Assistant Secretary.
Concetta M. Ruggiero........ 800 Scudders Mill Road -- 3D Senior Vice President.
Plainsboro, New Jersey 08536
Lori M. Salvo............... 1300 Merrill Lynch Drive, 2nd Floor Vice President, Senior Counsel,
Pennington, New Jersey 08534 and Director of Compliance.
Greta Rein Ulmer............ 1300 Merrill Lynch Drive, 2nd Floor Vice President and Senior
Pennington, New Jersey 08534 Compliance Officer.
Kelley Woods................ 4804 Deer Lake Drive East Vice President.
Jacksonville, FL 32246
Connie F. Yost.............. 1300 Merrill Lynch Drive, 2nd Floor Vice President and Controller.
Pennington, New Jersey 08534
---------------
* 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.
Merrill Lynch Life Insurance Company is an indirect wholly owned subsidiary
of Merrill Lynch & Co., Inc.
A list of subsidiaries of Merrill Lynch & Co., Inc. ("ML & Co.") appears
below.
C-4
SUBSIDIARIES OF THE REGISTRANT
The following are subsidiaries of ML & Co. as of February 24, 2004 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 Incorporated
(1)................................................ Delaware
Merrill Lynch Life Agency Inc. (2)................. Washington
Merrill Lynch Professional Clearing Corp. (3)...... Delaware
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 Limited
(4).............................................. England
Merrill Lynch Investment Managers Holdings
Limited....................................... England
Merrill Lynch Investment Managers Limited........ England
Fund Asset Management, L.P. (5).................... Delaware
Merrill Lynch Investment Managers, L.P. (5)........ Delaware
Merrill Lynch Investment Managers, LLC........... Delaware
Merrill Lynch Alternative Investments LLC........ Delaware
Merrill Lynch Bank & Trust Co. .................... New Jersey
Financial Data Services, Inc. ................... Florida
ML Mortgage Holdings Inc. .................... Delaware
Merrill Lynch Insurance Group, Inc. ............... Delaware
Merrill Lynch Life Insurance Company............. Arkansas
ML Life Insurance Company of New York............ New York
Roszel Advisors, LLC............................. Delaware
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. (6)............ Delaware
Merrill Lynch Trust Company, FSB................... Federal
Merrill Lynch Fiduciary Services, Inc. ............ New York
MLDP Holdings, Inc. ............................... Delaware
Merrill Lynch Derivatives Products AG............ Switzerland
ML IBK Positions, Inc. ............................... Delaware
Merrill Lynch Capital Corporation.................. Delaware
ML Leasing Equipment Corp. (7)........................ 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. ....................... Canada
Merrill Lynch Bank USA.................................. Utah
Merrill Lynch Bank USA Funding Corporation............ Delaware
Merrill Lynch Business Financial Services Inc. ....... Delaware
Merrill Lynch Credit Corporation...................... Delaware
Merrill Lynch NJ Investment Corporation............ New Jersey
C-5
STATE OR
NAME JURISDICTION OF ENTITY
---- ----------------------
Merrill Lynch Utah Investment Corporation............. Utah
Merrill Lynch Community Development Company, LLC...... New Jersey
Merrill Lynch Commercial Finance Corp. ............... Delaware
Merrill Lynch International Incorporated................ Delaware
Merrill Lynch (Australasia) Pty Limited............... New South Wales, Australia
Merrill Lynch Finance (Australia) Pty Limited...... Victoria, Australia
Merrill Lynch International (Australia) Limited
(8).............................................. New South Wales, Australia
Merrill Lynch International Holdings Inc. ............ Delaware
Merrill Lynch Bank and Trust Company (Cayman)
Limited.......................................... Cayman Islands, British West
Indies
Merrill Lynch Capital Markets AG................... Switzerland
Merrill Lynch Europe PLC........................... England
Merrill Lynch Holdings Limited (9)............... England
Merrill Lynch International (10).............. England
Merrill Lynch Capital Markets Espana S.A.
S.V. ......................................... Spain
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
Bolsa............................................ Mexico
Merrill Lynch Argentina S.A. ...................... Argentina
Merrill Lynch Pierce Fenner & Smith de Argentina
S.A.F.M. y de M.................................. Argentina
Banco Merrill Lynch de Investimentos S.A. ......... Brazil
Merrill Lynch S.A. ................................ Luxembourg
Merrill Lynch Europe Ltd. ......................... Cayman Islands, British West
Indies
Merrill Lynch France S.A.S. ....................... France
Merrill Lynch Capital Markets (France) S.A.S. ... France
Merrill Lynch, Pierce, Fenner & Smith S.A.S. .... France
Merrill Lynch (Asia Pacific) Limited............... Hong Kong
Merrill Lynch Far East Limited................... Hong Kong
Merrill Lynch Japan Securities Co., Ltd. ............. Japan
Merrill Lynch Japan Finance Co., Ltd. ............. Japan
---------------
(1) MLPF&S also conducts business as "Merrill Lynch & Co."
(2) Similarly named affiliates and subsidiaries that engage in the sale of
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) Princeton Services, Inc. is general partner and ML & Co. is limited
partner.
(6) Held through several intermediate subsidiaries.
(7) This corporation has more than 32 direct or indirect subsidiaries operating
in the United States and serving as either general partners or associate
general partners of limited partnerships.
(8) Held through an intermediate subsidiary.
(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
The number of Contracts in force as of March 19, 2004 was 498.
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; WCMA Money Fund; WCMA Government
Securities Fund; WCMA Tax-Exempt Fund; WCMA Treasury Fund; The Merrill Lynch
Fund of Stripped ("Zero") U.S. Treasury Securities; The Fund of Stripped
("Zero") U.S. Treasury Securities; Merrill Lynch Trust for Government
Securities; MLIG Variable Insurance Trust; Municipal Income Fund; Municipal
Investment Trust Fund; Defined Asset Funds; Corporate Income Fund; Government
Securities Income Fund; Equity Investor Fund; and Preferred Income Strategies
Fund, 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 A; ML of New York Variable Annuity Separate Account B;
ML of New York Variable Annuity Separate Account C; ML of New York Variable
Annuity Separate Account D; Merrill Lynch 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; Merrill Lynch
Life Variable Annuity Separate Account D; 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.
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(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
------------------ --------------------------------------
Candace E. Browning Director and Senior Vice President
Gregory J. Fleming Director and Executive Vice President
James P. Gorman Director, Chairman of the Board and Chief Executive
Officer
Do Woo Kim Director and Executive Vice President
Carlos M. Morales Director and Senior Vice President
Rosemary T. Berkery Executive Vice President
Ahmass L. Fakahany Executive Vice President
Allen G. Braithwaite, III Treasurer
---------------
Business address for all persons listed: 4 World Financial Center, New York,
NY 10080.
(c) Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and records required to be maintained by Section 31(a)
of the 1940 Act and the rules promulgated thereunder are maintained by the
depositor at the principal executive offices at 1300 Merrill Lynch Drive, 2nd
Floor, Pennington, New Jersey 08534 and at the Service Center at 4804 Deer Lake
Drive East, Jacksonville, Florida 32246.
ITEM 31. NOT APPLICABLE
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) Registrant undertakes to file a post-effective amendment to the
Registrant Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted.
(b) Registrant undertakes to include either (1) as part of any application
to purchase a contract offered by the prospectus, a space that an applicant can
check to request a statement of additional information, or (2) a postcard or
similar written communications affixed to or included in the prospectus that the
applicant can remove to send for a statement of additional information.
(c) Registrant undertakes to deliver any statement of additional
information and any financial statements required to be made available under
this Form promptly upon written or oral request.
(d) Merrill Lynch Life Insurance Company hereby represents that the fees
and charges deducted under the Contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by Merrill Lynch Life Insurance Company.
(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,
certifies that this Post-Effective Amendment meets all the requirements for
effectiveness under paragraph (b) of Rule 485, and accordingly, has caused this
Amendment to be signed on its behalf, in the Borough of Pennington, State of New
Jersey, on this 18th day of May, 2004.
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 and General Counsel
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 and General Counsel
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 3 to the Registration Statement has been signed below by the following
persons in the capacities indicated on May 18, 2004.
SIGNATURE TITLE
--------- -----
* Director, Senior Vice President, and Chief
--------------------------------------------- Actuary
Deborah J. Adler
* Director and Chairman of the Board
---------------------------------------------
H. McIntyre Gardner
* Director and Senior Vice President
---------------------------------------------
Christopher J. Grady
* Director, Senior Vice President, Chief
--------------------------------------------- Financial Officer, and Treasurer
Joseph E. Justice
* Director, President and Chief Executive
--------------------------------------------- Officer
Nikos K. Kardassis
*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
(10) (a) Written Consent of Sutherland Asbill & Brennan LLP.
(b) Written Consent of Deloitte & Touche LLP, independent
auditors.
(c) Written Consent of Barry G. Skolnick, Esq.
C-11