<PAGE> 1
As filed with the Securities and Exchange Commission on April 19, 1999.
Registration No. 333-33351
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2
TO REGISTRATION STATEMENT ON FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF
UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
SEPARATE ACCOUNT B
(Formerly FNAL Variable Life Account I)
(Exact name of trust)
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
(formerly First North American Life Assurance Company)
(Name of depositor)
Corporate Center at Rye
555 Theodore Fremd Avenue
Rye, New York 10580
(Address of depositor's principal executive offices)
<TABLE>
<S> <C>
A. Scott Logan, President Copy to:
The Manufacturers Life Insurance Company of New York J. Sumner Jones
Corporate Center at Rye Jones & Blouch L.L.P.
555 Theodore Fremd Avenue 1025 Thomas Jefferson St., NW
Rye, New York 10580 Suite 405 West
(Name and Address of Agent for Service) Washington, DC 20007-0805
</TABLE>
Approximate date of commencement of proposed public offering: As soon after the
effective date of this Registration Statement as is practicable.
-----------------------
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on May 1, 1999 pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a)(1) of Rule 485
/ / on (date) pursuant to paragraph (a)(1) of Rule 485
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE> 2
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK SEPARATE ACCOUNT B
Registration Statement on Form S-6
Cross-Reference Sheet
FORM
N-8B-2
ITEM NO. CAPTION IN PROSPECTUS
1 Cover Page; General Information About Manulife New York, the Separate
Account and Manufacturers Investment Trust
2 Cover Page; General Information About Manulife New York, the Separate
Account and Manufacturers Investment Trust
3 *
4 Miscellaneous Matters (Distribution of the Policy)
5 General Information About Manulife New York, the Separate Account and
Manufacturers Investment Trust
6 General Information About Manulife New York, the Separate Account and
Manufacturers Investment Trust
7 *
8 *
9 Miscellaneous Matters (Pending Litigation)
10 Detailed Information About The Policies
11 General Information About Manulife New York, the Separate Account and
Manufacturers Investment Trust
12 General Information About Manulife New York, the Separate Account and
Manufacturers Investment Trust
13 Detailed Information About The Policies (Charges and Deductions)
14 Detailed Information About the Policies (Premium Provisions -- Policy
Issue and Initial Premium); Miscellaneous Matters (Responsibilities
Assumed By Manulife New York)
15 Detailed Information About The Policies (Premium Provisions -- Policy
Issue and Initial Premium)
16 **
17 Detailed Information About The Policies (Policy Values -- Partial
Withdrawals and Surrenders); Other Provisions -- Payment of Proceeds)
18 General Information About Manulife New York, the Separate Account and
Manufacturers Investment Trust
19 Detailed Information About The Policies (Other Provisions - Reports To
Policyowners); Miscellaneous Matters (Responsibilities Assumed By
Manulife New York)
20 *
21 Detailed Information About The Policies
22 *
23 **
24 Detailed Information About the Policies (Other General Policy
Provisions)
25 General Information About Manulife New York, the Separate Account and
Manufacturers Investment Trust
26 *
27 **
28 Miscellaneous Matters (The Directors And Officers Of Manulife New York)
29 General Information About Manulife New York, the Separate Account and
Manufacturers Investment Trust
30 *
31 *
32 *
33 *
34 *
35 **
36 *
37 *
38 Miscellaneous Matters (Distribution of the Policy; Responsibilities
Assumed By Manulife New York)
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39 Miscellaneous Matters (Distribution of the Policy)
40 *
41 **
42 *
43 *
44 Detailed Information About The Policies (Policy Values - Policy Value)
45 *
46 Detailed Information About The Policies (Policy Values - Partial
Withdrawals and Surrenders; Other Provisions -- Payment of Proceeds)
47 General Information About Manulife New York, the Separate Account and
Manufacturers Investment Trust
48 *
49 *
50 General Information About Manulife New York, the Separate Account and
Manufacturers Investment Trust
51 Detailed Information About The Policies
52 Detailed Information About The Policies (Miscellaneous Matters --
Portfolio Share Substitution)
53 **
54 *
55 *
56 *
57 *
58 *
59 Financial Statements
- --------------
* Omitted since answer is negative or item is not applicable.
** Omitted.
<PAGE> 4
PART I
PROSPECTUS
<PAGE> 5
PROSPECTUS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NEW YORK
SEPARATE ACCOUNT B
VENTURE VUL
A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes the flexible premium variable life insurance policy
(the "Policy") issued by The Manufacturers Life Insurance Company of New York
("we" or "us"), and made available for sale exclusively in New York. The
Policies are designed to provide lifetime insurance protection together with
flexibility as to:
- the timing and amount of premium payments;
- the investments underlying the Policy Value; and
- the amount of insurance coverage.
This flexibility allows you, the policyowner, to pay premiums and adjust
insurance coverage in light of your current financial circumstances and
insurance needs.
Policy Value may be accumulated on a fixed basis or vary with the investment
performance of the sub-accounts of our Separate Account B (the "Separate
Account").
We use the assets of each sub-account to purchase shares of a particular
investment portfolio ("Portfolio") of Manufacturers Investment Trust (the
"Trust"). The accompanying Trust prospectus and the corresponding statement of
additional information describe the investment objectives of the Portfolios in
which you may invest net premiums. The Portfolios available to you are set forth
commencing on the inside front cover. We may add other sub-accounts and
Portfolios in the future.
You should ask one of our sales representative if changing, or adding to,
existing insurance coverage would be advantageous. You should note that it may
not be advisable to purchase a Policy as a replacement for existing insurance.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS INFORMATION ABOUT THE SEPARATE ACCOUNT AND THE POLICY THAT YOU SHOULD
KNOW BEFORE INVESTING.
The Securities and Exchange Commission (the "SEC") maintains a Web site
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding registrants that file with the SEC.
<PAGE> 6
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
HOME OFFICE:
The Manufacturers Life Insurance
Company of New York
Corporate Center at Rye
555 Theodore Fremd Avenue
Rye, New York 10580-9966
SERVICE OFFICE MAILING ADDRESS:
The Manufacturers Life Insurance
Company of New York
P.O. Box 633, Niagara Square Station
Buffalo, New York 14201-0633
TELEPHONE: 1-888-267-7784
THE DATE OF THIS PROSPECTUS IS MAY 1, 1999.
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PROSPECTUS CONTENTS
PAGE
----
INTRODUCTION TO POLICIES.....................................................
GENERAL INFORMATION ABOUT US, ...............................................
THE SEPARATE ACCOUNT AND THE TRUST ......................................
Manulife New York .....................................................
Separate Account B .....................................................
Manufacturers Investment Trust ........................................
DETAILED INFORMATION ABOUT THE POLICIES......................................
PREMIUM PROVISIONS ......................................................
Policy Issue And Initial Premium ......................................
Premium Allocation ....................................................
Premium Limitations ...................................................
Short-Term Cancellation Right And "Free Look"...........................
Provisions ............................................................
INSURANCE BENEFIT .......................................................
The Insurance Benefit .................................................
No Lapse Guarantee .....................................................
No Lapse Guarantee Cumulative Premium Test .............................
Death Benefit Options .................................................
Death Benefit Option Changes ..........................................
Face Amount Changes ....................................................
POLICY VALUES ............................................................
Policy Value ...........................................................
Transfers Of Policy Value ..............................................
Policy Loans ...........................................................
Partial Withdrawals And Surrenders .....................................
Charges and Deductions .................................................
Deductions From Premiums ...............................................
Surrender Charges.......................................................
Monthly Deductions .....................................................
Administration Charge ..................................................
Cost Of Insurance Charge ...............................................
Mortality And Expense Risks Charge .....................................
Other Charges ..........................................................
The General Account ....................................................
OTHER GENERAL POLICY PROVISIONS ..........................................
Policy Default..........................................................
Policy Reinstatement ...................................................
Miscellaneous Policy Provisions ........................................
OTHER PROVISIONS .........................................................
Supplementary Benefits .................................................
Payment Of Proceeds ....................................................
Reports To Policyowners ................................................
MISCELLANEOUS MATTERS ......................................................
Portfolio Share Substitution ...........................................
Federal Income Tax Considerations ......................................
Tax Status Of The Policy ...............................................
Tax Treatment Of Policy Benefits .......................................
Our Taxes ..............................................................
Distribution Of The Policy .............................................
Responsibilities Assumed By Us and MSS .................................
vii
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Voting Rights ..........................................................
Directors And Officers Of Manulife New York ............................
State Regulations ......................................................
Pending Litigation .....................................................
Additional Information .................................................
Legal Matters ..........................................................
Independent Auditors ...................................................
Impact of Year 2000 ...................................................
FINANCIAL STATEMENTS ........................................................
APPENDICES ..................................................................
A. Sample Illustrations Of Policy Values, Cash Surrender...................
Values And Death Benefits ..............................................
B. Definitions ............................................................
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION WHERE IT
WOULD NOT BE LAWFUL. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS OR IN THE PROSPECTUS OR STATEMENT OF ADDITIONAL INFORMATION OF THE
TRUST. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT.
You should examine this prospectus carefully. The INTRODUCTION TO POLICIES will
briefly describe the Policy. More detailed information will be found within.
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<PAGE> 9
INTRODUCTION TO POLICIES
The following summary is intended to provide a general description of the most
important features of the Policy. It is not a complete description. You should
read all of this prospectus in order to fully understand the provisions of the
Policy.
GENERAL
The Policy provides a death benefit in the event of the death of the life
insured to the person you name as the beneficiary.
You may pay premiums at any time and in any amount, subject to certain
limitations.
You may instruct us as to how your premiums, net of certain deductions, will be
allocated. You may choose among the Fixed Account and the sub-accounts of the
Separate Account. The premiums you allocate to the sub-accounts of the Separate
Account are invested in shares of a particular Portfolio of the Trust. You may
change your instructions as to how premiums should be allocated at any time. You
may also transfer amounts among the sub-accounts subject to certain restrictions
(see "Transfers of Policy Value").
The Portfolios currently available to you are set forth beginning on the inside
front cover of this prospectus. In the future we may make available other
sub-accounts and Portfolios.
The Policy has a Policy Value reflecting premiums you have paid, the investment
performance of the accounts to which you have allocated premiums, and certain
charges for expenses and cost of insurance. You may obtain a portion of the
Policy Value by making a policy loan or a partial withdrawal, or by full
surrender of the Policy.
DEATH BENEFIT
DEATH BENEFIT OPTIONS. You choose one of two death benefit options:
- a death benefit equal to the face amount of
the Policy, or
- a death benefit equal to the face amount of
the Policy plus the Policy Value.
Under either option, the death benefit may have to be increased to satisfy the
so-called "corridor percentage test" under the definition of life insurance in
the Internal Revenue Code of 1986, as amended (the "Code"). See DETAILED
INFORMATION ABOUT THE POLICIES; INSURANCE BENEFIT -- "The Insurance Benefit" and
"Death Benefit Options."
YOU MAY CHANGE THE DEATH BENEFIT OPTION. You may change the death benefit option
after the Policy has been in force for one year. See DETAILED INFORMATION ABOUT
THE POLICIES; INSURANCE BENEFIT -- "Death Benefit Option Changes."
YOU MAY INCREASE THE FACE AMOUNT. After the Policy has been in force for one
year, you may increase the face amount of the Policy once per policy year. You
may have to furnish satisfactory evidence of your insurability. Usually a Policy
will have new surrender charges after an increase. See DETAILED INFORMATION
ABOUT THE POLICIES; INSURANCE BENEFIT -- "Face Amount Changes."
YOU MAY DECREASE THE FACE AMOUNT. After the Policy has been in force for one
year, you may decrease the face amount once per policy year. A decrease in face
amount may result in the deduction of
1
<PAGE> 10
surrender charges. See DETAILED INFORMATION ABOUT THE POLICIES; INSURANCE
BENEFIT -- "Face Amount Changes."
PREMIUM PAYMENTS ARE FLEXIBLE
You may pay premiums at any time and in any amount, subject to certain
limitations. See DETAILED INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS --
"Policy Issue" and "Premium Limitations."
You must pay at least the Initial Premium to put the Policy in force. See
DETAILED INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS - "Premium
Limitations."
After the Initial Premium is paid there is no minimum premium required. However,
for Policies with a face amount of at least $250,000, by complying with the No
Lapse Guarantee Cumulative Premium Test, you can ensure that the Policy will not
go into default for the first five policy years. See DETAILED INFORMATION ABOUT
THE POLICIES; INSURANCE BENEFIT - "No Lapse Guarantee."
The Policy is subject to maximum premium limitations to ensure that it qualifies
as life insurance under rules defined in the Code. See DETAILED INFORMATION
ABOUT THE POLICIES; PREMIUM PROVISIONS -- "Premium Limitations."
THE POLICY VALUE
The Policy has a Policy Value which reflects the following:
- the premium payments you have made;
- the investment performance of the sub-accounts to
which you have allocated net premiums.
- the interest we have credited to amounts allocated to
our Fixed Account;
- any partial withdrawals you have made;
- and charges we have deducted under the Policy.
The Policy Value is the sum of the values in the Investment Accounts, the
Fixed Account and the Loan Account.
INVESTMENT ACCOUNT. We establish an Investment Account under the Policy for each
sub-account of the Separate Account to which you have allocated net premiums or
have transferred amounts. An Investment Account measures the interest of the
Policy in the corresponding sub-account.
The value of each Investment Account under the Policy varies each Business Day
and reflects the investment performance of the Portfolio shares held in the
corresponding sub-account. See DETAILED INFORMATION ABOUT THE POLICIES; POLICY
VALUES -- "Policy Value."
FIXED ACCOUNT. The Fixed Account consists of that portion of the Policy Value
based on net premiums allocated to, and amounts transferred to, the general
account of the Company.
We credit interest on amounts in the Fixed Account at an effective annual rate
guaranteed to be at least 4%. See DETAILED INFORMATION ABOUT THE POLICIES;
POLICY VALUES -- "The General Account."
2
<PAGE> 11
LOAN ACCOUNT. When you make a policy loan, we will establish a Loan Account
under the Policy. We will transfer an amount from the Investment Accounts and
the Fixed Account to the Loan Account.
We will credit interest to amounts in the Loan Account at an effective annual
rate of at least 4%. The actual rate credited on loan amounts will be the rate
charged on loan amounts less an interest rate differential, currently 1.75%. For
Select Loan Amounts the interest rate differential is currently 0%. This is
subject to change in certain circumstances. See DETAILED INFORMATION ABOUT THE
POLICIES; POLICY VALUES -- "Policy Loans."
TRANSFERS ARE PERMITTED. You may transfer amounts among the sub-accounts of the
Separate Account and our Fixed Account, subject to certain restrictions.
We permit twelve transfers per policy year at no cost to you. Transfers in
excess of that will cost $25 per transfer. If you request more than one transfer
at the same time, we will treat your requests as a single request.
Certain restrictions may apply to transfer requests. See DETAILED INFORMATION
ABOUT THE POLICIES; POLICY VALUES -- "Policy Value."
USING THE POLICY VALUE
BORROWING AGAINST THE POLICY VALUE. You may borrow against the Policy Value. The
minimum loan amount is $500.
Loan interest will be charged on a fixed basis at an effective annual rate of
5.75%. See DETAILED INFORMATION ABOUT THE POLICIES; POLICY VALUES -- "Policy
Loans."
YOU MAY MAKE A PARTIAL WITHDRAWAL OF THE POLICY VALUE. After a Policy has been
in force for one year, you may make a partial withdrawal of the Policy Value.
The minimum amount you may withdraw is $500. You may specify that the withdrawal
is to be made from a specific Investment Account or the Fixed Account.
A partial withdrawal may result in a reduction in the face amount of the Policy.
It may also result in the assessment of a portion of the surrender charges to
which the Policy is subject. See DETAILED INFORMATION ABOUT THE POLICIES; POLICY
VALUES -- "Partial Withdrawals and Surrenders" and "Surrender Charges."
THE POLICY MAY BE SURRENDERED FOR ITS NET CASH SURRENDER VALUE. The Net Cash
Surrender Value is equal to the Policy Value less surrender charges, outstanding
monthly deductions due and the value of the Policy Debt Account. Surrender of a
Policy during the Surrender Charge Period will usually result in assessment of
surrender charges. See DETAILED INFORMATION ABOUT THE POLICIES; POLICY VALUES --
"Partial Withdrawals and Surrenders," "Charges and Deductions" and "Surrender
Charges."
CHARGES AND DEDUCTIONS
1) DEDUCTIONS FROM PREMIUMS. We reserve the right to make a charge for state,
local and Federal taxes in an amount not to exceed 3.60%. We currently make no
deduction of charges from premium payments for such taxes.
2) SURRENDER CHARGES. We usually deduct a deferred underwriting charge and a
deferred sales charge if, during the Surrender Charge Period:
- you surrender the Policy for its Net Cash
Surrender Value,
- you make a partial withdrawal in excess of
the Withdrawal Tier Amount,
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- you decrease the face amount of the Policy,
or
- the Policy lapses.
The deferred underwriting charge is $4.50 for each $1,000 of face amount of life
insurance coverage initially or added by increase.
In effect, the charge applies only to the first $500,000 of face amount
initially purchased or the first $500,000 of each subsequent increase in face
amount. Thus, the charge made in connection with any one underwriting will not
exceed $2,250.
The maximum deferred sales charge is 50% of premiums paid up to a maximum number
of Target Premiums that varies (from -2.00 to 2.59) according to the issue age
of the life insured, the face amount at issue and the amount of any increase. A
negative number of Target Premiums produces a negative deferred sales charge.
When combined with the deferred underwriting charge, the negative deferred sales
charge reduces the total surrendered charge.
The full amount of the deferred underwriting charge and the deferred sales
charge will be in effect for five years following Policy issue. Beginning in the
sixth year, these charges decrease by a set amount over a maximum ten-year
period. See DETAILED INFORMATION ABOUT THE POLICIES; POLICY VALUES -- "Charges
And Deductions" and "Surrender Charges."
If you increase the face amount, the surrender charges applicable to the
increase will be those rates that would apply if a Policy were issued to the
life insured at his or her then attained age and based on the amount of the
increase.
3) MONTHLY DEDUCTIONS. At the beginning of each policy month we deduct from the
Policy Value:
- an administration charge of $35 per month until the first
policy anniversary; thereafter $10 per month (the right is
reserved to increase the administration charge by up to $.01
per $1,000 of face amount per month),
- a charge for the cost of insurance,
- a charge for mortality and expense risks of 0.075% per month
through the later of the tenth policy anniversary and your
attained age 60 and, thereafter, 0.0375% per month (this
charge is assessed against the value of your investment
accounts), and
- charge(s) for any supplementary benefit(s) added to the
Policy.
The cost of insurance charge varies based on the net amount at risk under the
Policy and the applicable cost of insurance rate. Cost of insurance rates vary
according to issue age, the duration of the coverage, sex, any additional
ratings indicated in the policy, and risk class of the life insured. The maximum
cost of insurance rate we charge will not exceed the 1980 Commissioners Standard
Ordinary Smoker/Nonsmoker Mortality Tables. However, any additional ratings as
indicated in the Policy will be added to the cost of insurance rate. See
DETAILED INFORMATION ABOUT THE POLICIES; POLICY VALUES "Charges and Deductions"
and "Monthly Deductions."
If the Policy is still in force when the life insured attains age 100, we will
pay the policyowner the Net Cash Surrender Value as of the Maturity Date of the
Policy.
4) OTHER CHARGES. Charges will be imposed on certain transfers of Policy Values,
including a $25 charge for each transfer in excess of twelve per policy year and
a $5 charge for each Dollar Cost Averaging
4
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transfer if Policy Value does not exceed $15,000. See DETAILED INFORMATION ABOUT
THE POLICIES; POLICY VALUES -- "Transfers Of Policy Value."
INVESTMENT MANAGEMENT FEES AND EXPENSES
The Separate Account purchases shares of the Portfolios at net asset value. The
net asset value of those shares reflects investment management fees and certain
expenses. The Trust (excluding the Lifestyle Trusts) pays investment management
fees that range from 0.25% to 1.10% of the assets of the Portfolios. In
addition, the Portfolio's other expenses range from between 0.04% and 0.36% of
the assets of the Portfolios (excluding the Lifestyle Trusts). Because each
Lifestyle Trust invests in shares of other Portfolios, each bears its pro rata
share of the fees and expenses incurred by other Portfolios.
The fees and expenses for each Portfolio for the Trust's last fiscal year are
shown in the Table of Investment Management Fees and Expenses. These fees and
expenses are described in detail in the accompanying Trust prospectus to which
reference should be made.
We reserve the right to charge or establish a provision for any Federal, state
or local taxes that may be attributable to the Separate Account or our
operations with respect to the Policies. This charge or provision for taxes
would be in addition to the deductions for state, local and Federal taxes
currently being made.
SUPPLEMENTARY BENEFITS
You may choose to add certain supplementary benefits to the Policy. These
supplementary benefits are offered subject to state approval and include
- an accidental death benefit,
- change of life insured (for corporate owned Policies), and
- a disability benefit to waive the cost of monthly deductions.
The cost of any supplementary benefits will be deducted from the Policy Value
monthly. See DETAILED INFORMATION ABOUT THE POLICIES; OTHER PROVISIONS --
"Supplementary Benefits."
DEFAULT
Unless the No Lapse Guarantee is in effect, the Policy will go into default if
the Net Cash Surrender Value at the beginning of any policy month would go below
zero after deducting the monthly charges then due. The Policy will not go into
default if the policy qualifies for the No Lapse Guarantee. We will send a
notice to you if the Policy goes into default. It will allow a grace period in
which you may make a premium payment sufficient to bring the Policy out of
default. If you do not pay the required premium during the grace period, the
Policy will terminate. See DETAILED INFORMATION ABOUT THE POLICIES; OTHER
GENERAL POLICY PROVISIONS -- "Policy Default."
NO LAPSE GUARANTEE
On Policies issued with a face amount of at least $250,000, as long as the No
Lapse Guarantee Cumulative Premium Test is satisfied, we will guarantee that the
Policy will not go into default, even if a combination of Policy loans, adverse
investment experience and other factors should cause the Policy's Net Cash
Surrender Value to be insufficient to meet the monthly deductions due at the
beginning of a policy month. The No Lapse Guarantee Period is the first five
Policy Years for life insureds with an issue age up to and including 85. It is
not offered to life insureds whose Issue Age exceeds 85. See DETAILED
INFORMATION ABOUT THE POLICIES; INSURANCE BENEFIT - "No Lapse Guarantee."
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<PAGE> 14
REINSTATEMENT
If your Policy is terminated, you may have it reinstated within either the
21-day or five-year period following the date of termination, providing certain
conditions are met. See DETAILED INFORMATION ABOUT THE POLICIES; OTHER GENERAL
POLICY PROVISIONS -- "Policy Reinstatement."
FREE LOOK
You may return a Policy for a refund of premium within 10 days after you receive
the Policy.
If the Policy is purchased in connection with a replacement of an existing life
insurance policy (as defined in "DETAILED INFORMATION ABOUT THE POLICIES -
Short-Term Cancellation Right and 'Free Look' Provisions"), you may cancel the
Policy by returning it within 60 days after it is received.
If you request an increase in face amount which results in new surrender
charges, the "free look" provision will also apply to the increase. See DETAILED
INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS -- "Short-Term Cancellation
Right and 'Free Look' Provisions."
FEDERAL TAX MATTERS
We believe that a Policy issued on a standard risk class basis should meet the
definition of a life insurance contract as set forth in Section 7702 of the
Code. With respect to a Policy issued on a substandard basis, there is less
guidance available to determine if such a Policy would satisfy the Section 7702
definition of a life insurance contract, particularly if the policyowner pays
the full amount of premiums permitted under such a Policy. If your Policy
qualifies as a life insurance contract for Federal income tax purposes, you
should not be deemed to be in constructive receipt of Policy Value under a
Policy until there is a distribution from the Policy. Moreover, death benefits
payable under a Policy should be completely excludable from the gross income of
the beneficiary. As a result, the beneficiary generally should not be taxed on
these proceeds. See DETAILED INFORMATION ABOUT THE POLICIES; MISCELLANEOUS
MATTERS - "Federal Income Tax Considerations" and "Tax Status of the Policy."
Under certain circumstances, a Policy may be treated as a "Modified Endowment
Contract" ("MEC"). If the Policy is a MEC, then all pre-death distributions,
including Policy loans, will be treated first as a distribution of taxable
income and then as a return of investment in the Policy. In addition, prior to
age 59 1/2 any such distributions generally will be subject to a 10% penalty
tax. The Company has established appropriate procedures for monitoring the tax
compliance of Policies with Section 7702A of the Code (the "MEC" rules). See
DETAILED INFORMATION ABOUT THE POLICIES; MISCELLANEOUS MATTERS -- "Federal
Income Tax Considerations" and "Tax Treatment of Policy Benefits."
If the Policy is not a MEC, distributions generally will be treated first as a
return of investment in the Policy and then a disbursement of taxable income.
Moreover, loans will not be treated as distributions. Select Loans may, however,
be treated as taxable distributions. If you are considering the use of
systematic policy loans as one element of a comprehensive retirement income
plan, you should consult your personal tax adviser regarding the potential tax
consequences if such loans were to so reduce Policy Value that the Policy would
lapse, absent additional payments. The premium payment necessary to avert lapse
would increase with the age of the insured. Finally, neither distributions nor
loans under a Policy that is not a MEC are subject to the 10% penalty tax. See
DETAILED INFORMATION ABOUT THE POLICIES; MISCELLANEOUS MATTERS - "Federal Income
Tax Considerations."
The United States Congress has in the past considered, and in the future may
consider legislation that, if enacted, could change the tax treatment of life
insurance policies. In addition, the Treasury Department may amend existing
regulations, or adopt new interpretations of existing laws, state tax laws or,
if the policyowner is not a United States resident, foreign tax laws, which may
affect the tax consequences to him or her, the lives insured or the beneficiary.
These laws may change from time to time without notice and, as a result, the tax
consequences may be altered. There is no way of predicting whether, when or in
what form any such change would be adopted. Any such change could have a
retroactive effect regardless of the date of enactment. We suggest that you
consult a tax adviser.
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<PAGE> 15
ESTATE AND GENERATION-SKIPPING TAXES
The proceeds of this life insurance policy may be taxable under Estate and
Generation-Skipping Tax provisions of the Code. You should consult your tax
adviser regarding these taxes.
GENERAL INFORMATION ABOUT US, THE SEPARATE ACCOUNT AND THE TRUST
MANUFACTURERS LIFE OF NEW YORK
We are a stock life insurance company organized under the laws of New York on
March 4, 1992. Our principal office is located at Corporate Center at Rye, 555
Theodore Fremd Avenue, Rye, New York 10580. We are a wholly-owned subsidiary of
Manulife North America. Manulife North America is a stock life insurance company
organized under the laws of Delaware in 1979 with its principal office located
at 116 Huntington Avenue, Boston, Massachusetts 02116.
Our ultimate parent entity is The Manufacturers Life Insurance Company
("Manulife"), a Canadian mutual life insurance company based in Toronto, Canada.
Prior to January 1, 1996, Manulife North America was a wholly owned subsidiary
of North American Life Assurance Company ("NAL"), a Canadian mutual life
insurance company. On January 1, 1996 NAL and Manulife merged with the combined
company retaining the Manulife name.
Effective January 1, 1996, immediately following the merger of NAL and Manulife,
Manulife North America experienced a corporate restructuring which resulted in
the formation of a newly organized holding corporation, Manulife-Wood Logan
Holding Co., Inc., formerly NAWL Holding Co., Inc. ("MWL"). MWL holds all of the
outstanding shares of Manulife North America and Wood Logan Associates, Inc.
("WLA"). MWL is owned 62.5% by The Manufacturers Life Insurance Company
(U.S.A.), 22.5% by MRL Holding, LLC and 15% by the principals of WLA.
On January 20, 1998, the Board of Directors of Manulife announced that it had
asked the Management of Manulife to prepare a plan for conversion of Manulife
from a mutual life insurance company to an investor-owned, publicly traded stock
company. Any demutualization plan for Manulife is subject to the approval of the
Manulife Board of Directors and participating policy holders as well as
regulatory approval.
Manufacturers Life of New York's financial ratings are as follows:
A++ A.M. Best
Superior in financial strength; 1st category of 15
AAA Duff & Phelps
Highest in claims paying ability; 1st category of 18
AA+ Standard & Poor's
Very strong in financial strength; 2nd category of 21
These ratings, which are current as of the date of this prospectus and are
subject to change, are assigned as a measure of Manufacturers Life of New York's
ability to honor the death benefit and life annuitization guarantees but not
specifically to its products, the performance (return) of these products, the
value of any investment in these products upon withdrawal or to individual
securities held in any portfolio.
7
<PAGE> 16
SEPARATE ACCOUNT B
We established the Separate Account on May 6, 1997, subject to approval by the
Superintendent of Insurance of New York. The Separate Account holds assets that
are segregated from all of our other assets. The Separate Account is currently
used only to support variable life insurance policies.
We are the legal owner of the assets in the Separate Account. The income, gains
and losses of the Separate Account, whether or not realized, are, in accordance
with applicable contracts, credited to or charged against the Account without
regard to our other income, gains or losses.
We will at all times maintain assets in the Separate Account with a total market
value at least equal to the reserves and other liabilities relating to variable
benefits under all policies participating in the Separate Account. These assets
may not be charged with liabilities which arise from any other business we
conduct. However, our obligations under the policies are part of our general
corporate obligations.
The Separate Account is registered with the SEC under the Investment Company Act
of 1940, as amended (the "1940 Act") as a unit investment trust. A unit
investment trust is a type of investment company which invests its assets in
specified securities, such as the shares of one or more investment companies,
rather than in a portfolio of unspecified securities. Registration under the
1940 Act does not involve any supervision by the SEC of the management or
investment policies or practices of the Separate Account. For state law purposes
the Separate Account is treated as a part or division of Manufacturers Life of
New York.
MANUFACTURERS INVESTMENT TRUST
We invest the assets of each sub-account of the Separate Account in shares of a
particular Portfolio of the Trust. The Trust, formerly NASL Series Trust, is
registered under the 1940 Act as an open-end management investment company. It
receives investment advisory services from Manufacturers Securities Services,
LLC ("MSS"). MSS, the successor to NASL Financial Services, Inc., is a
registered investment adviser under the Investment Advisers Act of 1940.
The Trust also employs sub-advisers. The sub-adviser for each Portfolio is
identified in the description of the eligible Portfolios set forth commencing on
the inside front cover of this prospectus.
The Separate Account purchases and redeems shares of the Trust at net asset
value. Any dividend or capital gain distribution received from a Portfolio will
be reinvested immediately at net asset value in shares of that Portfolio and
retained as assets of the corresponding sub-account.
The list of Portfolios in which you may invest under the Policy and the
investment objectives and certain policies of those Portfolios is set forth
commencing on the inside front cover of this prospectus. A full description of
the Trust, its investment objectives, policies and restrictions, the risks
associated therewith, its expenses, and other aspects of its operation is
contained in the accompanying Trust prospectus, which should be read together
with this prospectus.
We use shares of the Trust to support benefits under both variable annuity
contracts and variable life insurance policies that we or life insurance
companies affiliated with us issue. We also purchase shares through our general
account for certain limited purposes including providing initial portfolio seed
money. For a description of the procedures for handling potential conflicts of
interest arising from the funding of benefits under both types of policies, you
should review the accompanying Trust prospectus.
ELIGIBLE PORTFOLIOS
The Portfolios of the Trust available under the Policies are as follows:
The PACIFIC RIM EMERGING MARKETS TRUST seeks long-term growth of capital by
investing in a diversified portfolio that is comprised primarily of common
stocks and equity-related securities of corporations domiciled in countries in
the Pacific Rim region.
The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital. Current income
is incidental to the portfolio's objective.
The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by investing
primarily in securities issued by foreign companies which have total market
capitalization or annual revenues of $1 billion or less. These securities may
represent companies in both established and emerging economies throughout the
world.
The AGGRESSIVE GROWTH TRUST (formerly, the Pilgrim Baxter Growth Trust) seeks
long-term capital appreciation by investing the portfolio's asset principally in
common stocks, convertible bonds, convertible preferred stocks and warrants of
companies which in the opinion of the subadviser are expected to achieve
earnings growth over time at a rate in excess of 15% per year. Many of these
companies are in the small and medium-sized category.
The EMERGING SMALL COMPANY TRUST (formerly, the Emerging Growth Trust) seeks
long-term growth of capital by investing, under normal market conditions, at
least 65% of the portfolio's total assets in common stock equity securities of
small capitalization ("small cap") growth companies. In general, companies in
which the portfolios invests will have market cap values of less than $1.5
billion at the time of purchase.
The SMALL COMPANY BLEND TRUST seeks long-term growth of capital and income by
investing the portfolio's assets, under normal market conditions, primarily in
equity and equity-related securities of companies with market capitalization
between $50 million and $1 billion.
The MID CAP GROWTH TRUST (formerly, the Small/Mid Cap Trust) seeks long-term
capital appreciation by investing the portfolio's assets principally in common
stocks, with emphasis on medium-sized and smaller emerging growth companies.
The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily
in equity securities of companies with market capitalizations that approximately
match the range of capitalization of the Wilshire Mid Cap 750 Index.
The OVERSEAS TRUST (formerly, the International Growth & Income Trust) seeks
growth of capital by investing, under normal market conditions, at least 65% of
the portfolios' assets in foreign securities (including American Depositary
Receipts (ADRs) and European Depositary Receipts (EDRs). The portfolios expects
to invest primarily in equity securities.
The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by investing
primarily in common stocks of established, non-U.S. companies.
The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by investing,
under normal market conditions, primarily in equity securities of companies
located outside the U.S., including in emerging markets.
The MID CAP BLEND TRUST (formerly, the Equity Trust) seeks growth of capital by
investing primarily in common stocks of United States issuers and securities
convertible into or carrying the right to buy common stocks.
The SMALL COMPANY VALUE TRUST seeks long term growth of capital by investing in
equity securities of smaller companies which are traded principally in the
markets of the United States.
The GLOBAL EQUITY TRUST seeks long-term capital appreciation by investing
primarily in equity securities throughout the world, including U.S. issuers and
emerging markets.
The GROWTH TRUST seeks long-term growth of capital by investing primarily in
large capitalization growth securities (market capitalizations of approximately
$1 billion or greater).
The LARGE CAP GROWTH TRUST (formerly, the Aggressive Asset Allocation Trust)
seeks long-term growth of capital by investing, under normal market conditions,
at least 65% of the portfolio's assets in equity securities of companies with
large market capitalizations.
The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and long-term growth
through capital appreciation and current income by investing in common stocks
and other equity securities of well established companies with promising
prospects for providing an above average rate of return.
The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital (current
income is a secondary objective) and many of the stocks in the portfolio are
expected to pay dividends.
The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of long-term
capital appreciation and satisfactory current income by investing in real estate
related equity and debt securities.
The VALUE TRUST seeks to realize an above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in common and preferred stocks, convertible securities, rights and
warrants to purchase common stocks, ADRs and other equity securities of
companies with equity capitalizations usually greater than $300 million.
The EQUITY INDEX TRUST seeks to achieve investment results which approximate
the aggregate total return of publicly traded common stocks which are included
in the Standard & Poors 500 Composite Stock Price Index.
The GROWTH & INCOME TRUST seeks long-term growth of capital and income,
consistent with prudent investment risk, by investing primarily in a diversified
portfolio of common stocks of United States issuers which the subadviser
believes are of high quality.
The U.S. LARGE CAP TRUST seeks long-term growth of capital and income by
investing the portfolio's assets, under normal market conditions, primarily in
equity and equity-related securities of companies with market capitalization
greater than $500 million.
The EQUITY-INCOME TRUST seeks to provide substantial dividend income and also
long-term capital appreciation by investing primarily in dividend-paying common
stocks, particularly of established companies with favorable prospects for both
increasing dividends and capital appreciation.
The INCOME & VALUE TRUST (formerly, the Moderate Asset Allocation Trust) seeks
the balanced accomplishment of (a) conservation of principal and (b) long-term
growth of capital and income by investing the portfolio's assets in both equity
and fixed-income securities. The subadviser has full discretion to determine the
allocation between equity and fixed-income securities.
The BALANCED TRUST seeks current income and capital appreciation by investing in
a balanced portfolio of common stocks, U.S. and foreign government obligations
and a variety of corporate fixed-income securities.
The HIGH YIELD TRUST seeks to realize an above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high yield debt securities, including corporate bonds and
other fixed-income securities.
The STRATEGIC BOND TRUST seeks a high level of total return consistent with
preservation of capital by giving its subadviser broad discretion to deploy the
portfolio's assets among certain segments of the fixed-income market as the
subadviser believes will best contribute to achievement of the portfolio's
investment objective.
The GLOBAL BOND TRUST (formerly, the Global Government Bond Trust) seeks to
realize maximum total return, consistent with preservation of capital and
prudent investment management by investing the portfolio's asset primarily in
fixed income securities denominated in major foreign currencies, baskets of
foreign currencies (such as the ECU),and the U.S. dollar.
The TOTAL RETURN TRUST seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management by investing, under
normal market conditions, at least 65% of the portfolio's assets in a
diversified portfolio of fixed income securities of varying maturities. The
average portfolio duration will normally vary within a three- to six- year time
frame based on PIMCO's forecast for interest rates.
The INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing
primarily in a diversified portfolio of investment grade corporate bonds and
U.S. Government bonds with intermediate to longer term maturities. The portfolio
may also invest up to 20% of its assets in non-investment grade fixed income
securities.
The DIVERSIFIED BOND TRUST (formerly, the Conservative Asset Allocation Trust)
seeks high total return as is consistent with the conservation of capital by
investing at least 75% of the portfolio's assets in fixed-income securities.
The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current income
consistent with preservation of capital and maintenance of liquidity, by
investing in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
derivative securities such as collateralized mortgage obligations backed by such
securities.
The MONEY MARKET TRUST seeks maximum current income consistent with preservation
of principal and liquidity by investing in high quality money market instruments
with maturities of 397 days or less issued primarily by United States entities.
The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth of capital
(current income is not a consideration) by investing 100% of the Lifestyle
Trust's assets in other portfolios of the Trust ("Underlying Portfolios") which
invest primarily in equity securities.
The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of capital with
consideration also given to current income by investing approximately 20% of the
Lifestyle Trust's assets in Underlying Portfolios which invest primarily in
fixed income securities and approximately 80% of its assets in Underlying
Portfolios which invest primarily in equity securities.
The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to capital
growth by investing approximately 40% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 60% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to high
income by investing approximately 60% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 40% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of current
income with some consideration also given to growth of capital by investing
approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and approximately 20% of its assets
in Underlying Portfolios which invest primarily in equity securities.
DETAILED INFORMATION ABOUT THE POLICIES
Unless otherwise indicated or required by the context, the discussion throughout
this prospectus assumes that the Policy has not gone into default, there is no
outstanding Policy Debt, and the death benefit is not determined by the corridor
percentage test (see "Death Benefit Options").
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<PAGE> 17
PREMIUM PROVISIONS
POLICY ISSUE AND INITIAL PREMIUM
To purchase a Policy, you must submit a completed application. We will issue a
Policy only if it has a face amount of at least $50,000 ($100,000 for preferred
risk policies). Generally, we issue a Policy only to persons between ages 0 and
90. In certain circumstances we may in our sole discretion issue a Policy to
persons above age 90. Before issuing a Policy, we will require evidence of
insurability satisfactory to us. A life insured will have a risk class of
preferred/non-smoker, preferred/smoker, standard/non-smoker or standard/smoker
as determined by our underwriting rules. We may issue Policies to persons who
fail to meet standard underwriting requirements by assigning an additional
rating.
We will accept an application if it meets our insurance underwriting rules. Each
Policy has a policy date from which policy years, policy months and policy
anniversaries are all determined. Each Policy also has an effective date which
is the date we become obligated under the Policy and when the first monthly
deductions are taken.
If an application is accompanied by a check for at least the Initial Premium and
we accept the application, the policy date will be the date we receive the
application and check at our Service Office. The effective date will be the date
our underwriters approve issuance of the Policy. If an application is
accompanied by a check for at least the Initial Premium, the life insured may be
covered under the terms of a conditional insurance agreement until the effective
date.
If an application that we accept is not accompanied by a check for at least the
Initial Premium, we will issue the Policy with a policy date which is seven days
after issuance of the Policy (the "issue date") and with an effective date which
is the date our Service Office receives at least the Initial Premium. In certain
situations a different policy date may be used. We must receive the Initial
Premium within 60 days after the policy date; however, we may require the
Initial Premium within 30 days on Policies issued with Additional Ratings. If
the Initial Premium is not paid or if the application is rejected, we will
cancel the Policy and return any premiums paid to the applicant.
Under certain circumstances we may issue a Policy with a backdated policy date.
A Policy will not be backdated more than six months before the date of the
application for the Policy. Monthly deductions will be made for the period the
policy date is backdated.
We will credit interest on all premiums received prior to the effective date of
a Policy from the date of receipt at the rate of return then being earned on
amounts allocated to the Money Market Trust. On the effective date, we will
allocate the premiums paid plus interest credited, net of deductions for
Federal, state and local taxes, among the Investment Accounts or the Fixed
Account in accordance with your instructions.
We will allocate all premiums received on or after the effective date of the
Policy among the Investment Accounts or the Fixed Account as of the date the
premiums were received at our Service Office. Monthly deductions are due on the
policy date and at the beginning of each policy month thereafter. However, if
due prior to the effective date, they will be taken on the effective date
instead of the dates they were due.
PREMIUM ALLOCATION
You may allocate your premium payments, net of deductions, to either the Fixed
Account or to one or more of the Investment Accounts. Amounts allocated to the
Fixed Account will accumulate at an annual rate of interest equal to at least
4%. Amounts allocated to the Investment Accounts will be invested in shares of
the Portfolios held by the corresponding sub-accounts of the Separate Account.
Your allocation must be made as a percentage of the Net Premium. The percentage
may be any whole number between zero and 100, provided the total percentage
equals 100. You may change the way in which your Net Premiums are
9
<PAGE> 18
allocated at any time without charge. The change will take effect on the date a
written or authorized telephonic request for change, in a format satisfactory to
us, is received at our Service Office.
PREMIUM LIMITATIONS
After you pay the Initial Premium, you may pay additional premiums at any time
and in any amount during the lifetime of the life insured subject to certain
limitations. After the Initial Premium, all premiums must be paid to our Service
Office. Unlike traditional insurance, premiums are not payable at specified
intervals or in specified amounts. Your Policy will be issued with a Planned
Premium which is based on the amount of premium you wish to pay. It is
recommended that the Planned Premium be such that the No Lapse Guarantee
Cumulative Premium Test will (see INSURANCE BENEFITS - "No Lapse Guarantee")
will be satisfied.
We will send notices to you setting forth the Planned Premium at the payment
interval you select, unless you are making payments pursuant to a pre-authorized
payment plan. However, you are under no obligation to make the indicated
payment.
We will not accept any premium payment which is less than $50, unless the
premium is payable pursuant to a pre-authorized payment plan. In that case we
will accept a payment of as little as $10. We may change these minimums on 90
days' written notice. The Policies also limit the sum of the premiums that may
be paid at any time in order to preserve the qualification of the Policies as
life insurance for Federal tax purposes. These limitations are set forth in each
Policy. We reserve the right to refuse or refund any premium payments that may
cause a Policy to fail to qualify as life insurance under applicable tax law.
SHORT-TERM CANCELLATION RIGHT AND "FREE LOOK" PROVISIONS
A Policy may be returned for a refund of the premium within 10 days after it is
received. The Policy can be mailed or delivered to the Manulife New York agent
who sold it or to the Manulife New York Service Office. Immediately on such
delivery or mailing, the Policy shall be deemed void from the beginning. Within
seven days after receipt of the returned Policy at its Service Office, Manulife
New York will refund any premium paid. Manulife New York reserves the right to
delay the refund of any premium paid by check until the check has cleared.
If the Policy is purchased in connection with a replacement of an existing
policy (as defined below), the policyowner may also cancel the Policy by
returning it to the Service Office or the Manulife New York agent who sold it at
any time within 60 days after receipt of the Policy. Within 10 days of receipt
of the Policy by the Company, the Company will pay the policyowner the Policy
Value, computed at the end of the valuation period during which the Policy is
received by the Company. In the case of a replacement of a policy issued by a
New York insurance company, the policyowner may have the right to reinstate the
prior policy. The policyowner should consult with his or her attorney or the
Manulife New York agent regarding this matter prior to purchasing the new
Policy.
Replacement of an existing life insurance policy generally is defined as the
purchase of a new life insurance policy in connection with (a) the lapse,
surrender or change of, or borrowing from, an existing life insurance policy or
(b) the assignment to a new issuer or an existing life insurance policy. This
description, however, does not necessarily cover all situations which could be
considered a replacement of an existing life insurance policy. Therefore, a
policyowner should consult with his or her Manulife New York agent or attorney
regarding whether the purchase of a new life insurance policy is a replacement
of an existing life insurance policy.
If you request an increase in face amount which results in new surrender
charges, you will have the same rights as described above to cancel the
increase. If canceled, the Policy Value and the surrender charges will be
recalculated to the amounts they would have been had the increase not taken
place. You may request a refund of all or any portion of premiums paid during
the free look period, and the Policy Value and the surrender charges will be
recalculated to the amounts they would have been had the premiums not been paid.
10
<PAGE> 19
PROVISIONS FOR AVOIDING LAPSE
NO LAPSE GUARANTEE
You may elect the No Lapse Guarantee on Policies issued with a face amount of at
least $250,000 (calculated as described below). If elected, as long as the No
Lapse Guarantee Cumulative Premium Test (see below) is satisfied during the
first five policy years, we guarantee that the Policy will not go into default
(see OTHER GENERAL POLICY PROVISIONS -- "Policy Default"). Our guarantee applies
even if a combination of Policy loans, adverse investment experience and other
factors causes the Policy's Net Cash Surrender Value to be insufficient to meet
the monthly deductions due at the beginning of a policy month.
The No Lapse Guarantee terminates at the end of the fifth policy year.
The No Lapse Guarantee is not offered to life insureds with an issue age
exceeding 85.
While the No Lapse Guarantee is in effect, we will determine at the beginning of
each policy month whether the No Lapse Guarantee Cumulative Premium Test,
described below, has been satisfied. If it has not been satisfied, we will
notify you of that fact and allow a 61-day grace period in which you may make a
premium payment sufficient to keep the No Lapse Guarantee in effect. This
required payment, as described in the notification to you, will be equal to the
outstanding premium required to meet the No Lapse Guarantee Cumulative Premium
Test as of the date the No Lapse Guarantee was not satisfied plus the Monthly No
Lapse Guarantee Premium due for the next two policy months.
If the required payment is not received by the end of the grace period, the No
Lapse Guarantee will terminate. Thereafter, the Policy may go into default if
the Policy's Net Cash Surrender Value is insufficient to meet the monthly
deductions due at the beginning of a policy month. A death benefit option change
will also terminate the No Lapse Guarantee if it is in effect at the time of the
change as will a decrease in face amount below $250,000. The No Lapse Guarantee
cannot be reinstated after it has been terminated. See OTHER GENERAL POLICY
PROVISIONS -- "Policy Default" and INSURANCE BENEFIT -- "Death Benefit Option
Changes."
NO LAPSE GUARANTEE CUMULATIVE PREMIUM TEST. The No Lapse Guarantee Cumulative
Premium Test is satisfied if, as of the beginning of the policy month, the sum
of all premiums paid to date less any partial withdrawals and less any Policy
Debt is at least equal to the sum of the Monthly No Lapse Guarantee Premiums due
since the policy date.
The Monthly No Lapse Guarantee Premium is one-twelfth of the No Lapse Guarantee
Premium. The No Lapse Guarantee Premium is set forth in the Policy. It is
subject to change if you change the face amount of the Policy (see INSURANCE
BENEFIT --"Face Amount Changes"), or if there is any change in the supplementary
benefits added to the Policy or in the risk class of any life insured.
INSURANCE BENEFIT
THE INSURANCE BENEFIT
If the Policy is in force at the time of the life insured's death, we will pay
an insurance benefit based on the death benefit option that you select upon
receipt of due proof of death. The amount payable will be the death benefit
under the selected option, plus any amounts payable under any supplementary
benefits added to the Policy, less the value of the Policy Debt at the date of
death. The insurance benefit will be paid in one sum unless we and the
beneficiary agree upon another form of settlement. If the insurance benefit is
paid in one sum, we will pay interest from the date of death to the date of
payment. If the life insured should die after our receipt of a request for
surrender, no insurance benefit will be payable, and we will pay only the Net
Cash Surrender Value.
11
<PAGE> 20
DEATH BENEFIT OPTIONS
You may select one of two death benefit options -- Option 1 and Option 2.
Under Option 1 the death benefit is
- the face amount of the Policy at the date of death or, if
greater,
- the Policy Value at the date of death multiplied by the
applicable percentage in the table set forth below.
Under Option 2 the death benefit is
- the face amount of the Policy plus the Policy Value at the
date of death or, if greater,
- the Policy Value at the date of death multiplied by the
applicable percentage in the following table:
<TABLE>
<CAPTION>
- ----------------- ------------- ---------- ----------- -------------- ---------- -------------- -------------
AGE CORRIDOR AGE CORRIDOR AGE CORRIDOR
PERCENTAGE PERCENTAGE PERCENTAGE
- ----------------- ------------- ---------- ----------- -------------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
40 & below 250% 53 164 67 118
41 243 54 157 68 117
42 236 55 150 69 116
43 229 56 146 70 115
44 222 57 142 71 113
45 215 58 138 72 111
58 138 59 134 73 109
46 209 60 130 74 107
47 203 61 128 75-90 105
48 197 62 126 91 104
49 191 63 124 92 103
50 185 64 122 93 102
51 178 65 120 94 101
52 171 66 119 95& above 100
</TABLE>
Regardless of which death benefit option is in effect, the relationship of
Policy Value to death benefit will change whenever we use the "corridor
percentages" to determine the amount of the death benefit. This will occur
whenever multiplying the Policy Value by the applicable percentage set forth in
the above table results in a greater death benefit than would otherwise apply
under the selected option.
For example, assume the life insured under a Policy with a face amount of
$100,000 has an attained age of 40. If Option 1 is in effect, the corridor
percentage will produce a greater death benefit whenever the Policy Value
exceeds $40,000 (250% x $40,000 = $100,000). If the Policy Value is less than
$40,000, an incremental change in Policy Value, up or down, will have no effect
on the death benefit. If the Policy Value is greater than $40,000, an
incremental change in Policy Value will result in a change in the death benefit
by a factor of 2.5. Thus, if the Policy Value were to increase to $40,010, the
death benefit would be increased to $100,025 (250% x $40,010 = $100,025).
If Option 2 were in effect in the above example, the corridor percentage would
produce a greater death benefit whenever the Policy Value exceeded $66,667 (250%
x 66,667 = 166,667). At that point the death benefit produced by multiplying the
Policy Value by 250% would result in a greater amount than adding the Policy
Value to the face amount of the Policy. If the Policy Value is less than
$66,667, an
12
<PAGE> 21
incremental change in Policy Value will have a dollar-for-dollar effect on the
death benefit. If the Policy Value is greater than $66,667, an incremental
change in Policy Value will result in a change in the death benefit by a factor
of 2.5 in the same manner as would be the case under Option 1 when the corridor
percentage determined the death benefit.
DEATH BENEFIT OPTION CHANGES
Your initial selection of the death benefit option is made in the application.
After the Policy has been in force for one year, you may change the death
benefit option. The change will be effective as of any subsequent policy month
following a request. Your written request for a change must be received by us at
least 30 days prior to the beginning of a policy month in order to become
effective on that date. We reserve the right to limit a request for change if
the change would cause the Policy to fail to qualify as life insurance for tax
purposes.
A change in death benefit option will result in a change in the Policy's face
amount. The change in face amount is required in order to avoid any change in
the amount of the death benefit.
<TABLE>
<S> <C>
- ---------------------------------- --------------------------------------------------------------------------
CHANGE TO OPTION 2 If the change in death benefit is from Option 1 to Option 2, the new
face amount will be equal to the face amount prior to the change minus
NEW FACE AMOUNT = the Policy Value on the effective date of the change. A change to
OLD FACE AMOUNT Option 2 will not be allowed if it would cause the face amount of the
MINUS Policy to go below the minimum face amount of $50,000 ($100,000 for
POLICY VALUE preferred risk policies).
- ---------------------------------- --------------------------------------------------------------------------
CHANGE TO OPTION 1 If the change in death benefit is from Option 2 to Option 1, the new
face amount will be equal to the face amount prior to the change plus
NEW FACE AMOUNT = the Policy Value on the effective date of the change. The increase in
OLD FACE AMOUNT face amount resulting from a change in Option 1 will not affect the
PLUS amount of surrender charges to which a Policy may be subject. The
POLICY VALUE Company has the right to require satisfactory evidence of insurability
before permitting a change from Option 2 to
Option 1. The Company does not currently
require evidence of insurability when making
this change.
- ---------------------------------- --------------------------------------------------------------------------
</TABLE>
If you wish to have level insurance coverage, you should generally select Option
1. Under Option 1, increases in Policy Value usually will reduce the net amount
of risk under a Policy which will reduce cost of insurance charges. This means
that favorable investment performance should result in a faster increase in
Policy Value than would occur under an identical Policy with Option 2 in effect.
However, the larger Policy Value which may result under Option 1 will not affect
the amount of the death benefit unless the corridor percentages are used to
determine the death benefit.
If you want to have the Policy Value reflected in the death benefit so that any
increases in Policy Value will increase the death benefit, you should generally
select Option 2. Under Option 2, the net amount at risk will remain level unless
the corridor percentages are used to determine death benefit, in which case
increases in Policy Value will increase the net amount at risk.
FACE AMOUNT CHANGES
Subject to certain limitations, you may increase or decrease the face amount of
your Policy. A change in face amount may affect the monthly deductions and
surrender charges (see POLICY VALUES -- "Charges And Deductions").
13
<PAGE> 22
MINIMUM CHANGES. Currently, each increase or decrease in face amount (other than
a decrease resulting from a partial withdrawal) must be at least $50,000
($100,000 for increases in preferred risk policies). We reserve the right to
increase or decrease the minimum face amount change on 90 days' written notice
to you. We also reserve the right to limit a change in face amount to the extent
necessary to prevent the Policy from failing to qualify as life insurance for
tax purposes.
INCREASES. After the Policy has been in force for one year, you may increase the
face amount of your Policy once per policy year. Increases are subject to
satisfactory evidence of insurability. An increase will become effective at the
beginning of the next policy month following the date we approve the requested
increase. We reserve the right to refuse your request for an increase if the
life insured's age at the effective date of the increase would be greater than
the maximum issue age for new Policies at that time.
An increase in face amount will usually subject the Policy to new surrender
charges. The new surrender charges will be computed as if a new Policy were
being purchased for the increase in face amount. For purposes of determining the
new deferred sales charge, a portion of the Policy Value at the time of the
increase, and a portion of the premiums paid on or subsequent to the increase,
will be deemed to be premiums attributable to the increase. See POLICY VALUES -
"Charges and Deductions" and "Surrender Charges."
Any increase in face amount to a level less than the highest face amount
previously in effect will have no effect on the surrender charges to which the
Policy is subject, since surrender charges, if applicable, will have been
assessed in connection with the prior decrease in face amount. The insurance
coverage eliminated by the decrease of the oldest face amount will be deemed to
be restored first. As with the purchase of a Policy, you will have free look
right with respect to any increase resulting in new surrender charges.
No additional premium is required for a face amount increase. However, you may
need to pay an additional premium to keep the Policy from going into default.
This is because new surrender charges resulting from an increase would
automatically reduce the Net Cash Surrender Value of the Policy.
DECREASES. After the Policy has been in force for one year, you may decrease the
face amount of your Policy once per policy year. A decrease in face amount will
become effective at the beginning of the next policy month following the receipt
of a properly executed request. A decrease will not be allowed if it would cause
the face amount to go below the minimum face amount of $50,000 ($100,000 for
preferred risk policies).
Usually, we will deduct surrender charges from the Policy Value whenever a
decrease in face amount is made during the Surrender Charge Period. See POLICY
VALUES - "Charges and Deductions" and "Surrender Charges." For purposes of
determining surrender and cost of insurance charges, a decrease will reduce face
amount in the following order: (a) the face amount provided by the most recent
increase, then (b) the face amounts provided by the next most recent increases
successively, and finally (c) the initial face amount.
POLICY VALUES
POLICY VALUE
A Policy has a Policy Value. You may access a portion of the Policy Value by
making a policy loan or partial withdrawal or by surrendering the Policy. See
"Policy Loans" and "Partial Withdrawals And Surrenders," below. The Policy Value
may also affect the amount of the death benefit. See INSURANCE BENEFIT -- "Death
Benefit Options." The Policy Value at any time is equal to the sum of the values
in the Investment Accounts, the Fixed Account and the Loan Account. The
following discussion relates only to the Investment Accounts. Policy loans are
discussed under "Policy Loans" and the Fixed Account is discussed under "The
General Account." The portion of the Policy Value based on the Investment
Accounts is not guaranteed and will vary each Business Day with the investment
performance of the underlying Portfolio.
14
<PAGE> 23
We establish an Investment Account under the Policy for each sub-account of the
Separate Account to which you allocate net premiums or transfer amounts. Each
Investment Account measures the interest of the Policy in the corresponding
sub-account. The value of the Investment Account for a particular sub-account is
equal to the number of units of that sub-account credited to the Policy times
the value of such units.
We credit sub-account units to a Policy whenever you allocate net premiums or
transfer amounts to that sub-account. Sub-account units are canceled whenever
amounts are deducted, transferred or withdrawn from the sub-account. The number
of units credited or canceled for a specific transaction is based on the dollar
amount of the transaction divided by the value of the unit at the end of the
Business Day on which the transaction occurs. The number of units credited with
respect to a premium payment is based on the applicable unit values at the end
of the Business Day on which the premium is received at our Service Office or
other office or entity so designated by us.
Units are valued at the end of each Business Day. A Business Day is deemed to
end at the time of the determination of the net asset value of the underlying
Portfolio shares. When an order involving the crediting or canceling of units is
received after the end of a Business Day or on a day which is not a Business
Day, the order will be processed on the basis of unit values determined at the
end of the next Business Day. Similarly, any determination of Policy Value,
Investment Account value or death benefit to be made on a day which is not a
Business Day will be made at the end of the next Business Day.
The value of a unit of each sub-account was initially fixed at $10. For each
subsequent Business Day the unit value is determined by multiplying the unit
value for the preceding Business Day by the "net investment factor" for the
particular sub-account for that subsequent Business Day. The net investment
factor for a sub-account for any Business Day is equal to (a) divided by (b),
where:
(a) is the net asset value of the underlying Portfolio shares held
by that sub-account at the end of such Business Day before any
policy transactions are made on that day; and
(b) is the net asset value of the underlying Portfolio shares held
by that sub-account at the end of the immediately preceding
Business Day after all policy transactions have been made for
that day.
We reserve the right to adjust the above formula for any taxes determined by us
to be attributable to the operations of the sub-account.
TRANSFERS OF POLICY VALUE
You may change the extent to which your Policy Value is based upon any specific
sub-account of the Separate Account or the Company's general account. You make
those changes by transferring amounts from one or more Investment Accounts or
the Company's general account to other Investment Accounts or the Company's
general account. You are permitted to make twelve transfers each policy year
free of charge. If you make additional transfers in a policy year, we will
charge you $25 per transfer. We will assess this charge against the Investment
Account or Fixed Account from which the amount is being transferred. For this
purpose all transfer requests we receive from you on the same Business Day will
be treated as a single transfer request. There will be no change in issue age,
risk class of the life insured or face amount as a result of any transfer.
The most that you may transfer from the Fixed Account in any one policy year is
the greater of $500 or 15% of the Fixed Account value at the previous policy
anniversary. Any transfer which involves a transfer out of the Fixed Account may
not involve a transfer to the Investment Account for the Money Market Trust.
15
<PAGE> 24
While the Policy is in force, you may transfer the Policy Value from all of the
Investment Accounts to the Fixed Account, without incurring transfer charges:
(a) within 18 months after the Issue Date; or
(b) within 60 days of the effective date of a material change in
the investment objectives of the sub-accounts, or within 60
days of the date of notification of such change.
DOLLAR COST AVERAGING. We offer a Dollar Cost Averaging program. Under this
program amounts will be automatically transferred at predetermined intervals
from one Investment Account to any other Investment Account(s) or the Fixed
Account.
Under the Dollar Cost Averaging program you designate an amount to be
transferred at predetermined intervals from one Investment Account into any
other Investment Account(s) or the Fixed Account. Each transfer under the Dollar
Cost Averaging program must be of a minimum amount set by us. We may change this
minimum at any time in our discretion. Currently, no charge will be made for
this program if the Policy Value exceeds $15,000 on the date of transfer.
Otherwise, there will be a charge of $5 for each transfer. We will deduct the
charge from the value of the Investment Account out of which the transfer is
made. If there are insufficient funds to effect a Dollar Cost Averaging
transfer, including the charge, if applicable, we will not effect the transfer
and will notify you of that fact. We reserve the right to cease to offer this
program on 90 days' written notice.
ASSET ALLOCATION BALANCER TRANSFERS. We also offer policyowners the ability to
have amounts automatically transferred among stipulated Investment Accounts to
maintain an allocated percentage in each stipulated Investment Account.
Under the Asset Allocation Balancer program you designate an allocation of
Policy Value among Investment Accounts. At six month intervals, beginning six
months after the policy date, we will move amounts among the Investment Accounts
as necessary to maintain your chosen allocation. A change to your premium
allocation instructions will automatically result in a change in Asset
Allocation Balancer instructions so that the two are identical unless either you
instruct us differently or a Dollar Cost Averaging request is in effect.
Currently, we make no charge for this program; however, we reserves the right to
institute a charge on 90 days' written notice.
We reserve the right to cease to offer this program on 90 days' written notice.
POLICY LOANS
While the Policy is in force, you may borrow against your Policy Value. The
Policy serves as the only security for the loan. The minimum amount of any loan
is $500. The maximum loan amount is the amount which would cause the Modified
Policy Debt to equal the loan value of the Policy on the date of the loan. The
loan value is the Policy's Cash Surrender Value less the monthly deductions due
to the next policy anniversary. The Modified Policy Debt as of any date is the
Policy Debt (the aggregate amount of policy loans, including borrowed interest,
less any loan repayments) plus the amount of interest to be charged to the next
policy anniversary, all discounted from the next policy anniversary to such date
at an annual rate of 4%. We transfer an amount equal to the Modified Policy Debt
to the Loan Account to ensure that a sufficient amount will be available to pay
interest on the Policy Debt at the next policy anniversary.
For example, assume a Policy with a loan value of $5,000, no outstanding policy
loans and a loan interest rate of 5.75%. The maximum amount that can be borrowed
is an amount that will cause the Modified Policy Debt to equal $5,000. If the
loan is made on a policy anniversary, the maximum loan will be $4,917. This
amount at 5.75% interest will equal $5,200 one year later; $5,200 discounted to
the date of the loan at 4% (the Modified Policy Debt) equals $5,000. Because the
minimum rate of interest credited to the Loan Account is 4%, $5,000 must be
transferred to the Loan Account to ensure that $5,200 will be available at the
next policy anniversary to cover the interest accrued on the Policy Debt.
16
<PAGE> 25
When a loan is made, we will deduct from the Investment Accounts or the Fixed
Account, and transfer to the Loan Account, an amount which will result in the
Loan Account value being equal to the Modified Policy Debt. You may designate
how the amount to be transferred to the Loan Account is allocated among the
accounts from which the transfer is to be made. In the absence of instructions,
we will allocate the amount to be transferred to each account in the same
proportion as the value in each Investment Account and the Fixed Account bears
to the Net Policy Value. A transfer from an Investment Account will result in
the cancellation of units of the underlying sub-account equal in value to the
amount transferred from the Investment Account. However, since the Loan Account
is part of the Policy Value, transfers made in connection with a loan will not
change the Policy Value.
A policy loan may result in a Policy's failing to satisfy the No Lapse
Guarantee. As a result, the No Lapse Guarantee may terminate. See INSURANCE
BENEFIT -- "No Lapse Guarantee" and OTHER GENERAL POLICY PROVISIONS -- "Policy
Default."
Moreover, if the No Lapse Guarantee is not in force, a policy loan may cause a
Policy to be more susceptible to going into default, since a policy loan will be
reflected in the Net Cash Surrender Value. See OTHER GENERAL POLICY PROVISIONS
- -- "Policy Default."
A policy loan will also affect future Policy Values, since that portion of the
Policy Value in the Loan Account will increase in value at the crediting
interest rate rather than varying with the performance of the underlying
Portfolios selected by the policyowner or increasing in value at the rate of
interest credited for amounts allocated to the Fixed Account.
Policy loans may have tax consequences. If you are considering the use of
systematic policy loans as one element of a comprehensive retirement income
plan, you should consult your personal tax adviser regarding the potential tax
consequences if such loans were to so reduce Policy Value that the Policy would
lapse, absent additional payments. The premium payment necessary to avert lapse
would increase with the age of the insured. See MISCELLANEOUS MATTERS - "Federal
Income Tax Considerations" and "Tax Treatment of Policy Benefits." In addition,
a policy loan will affect the amount payable on the death of the life insured,
since the death benefit is reduced by the value of the Policy Debt at the date
of death in arriving at the insurance benefit. Finally, upon a complete
surrender or lapse of a Policy or when benefits are paid at a Policy's maturity
date, if the amount received plus the amount of indebtedness exceeds the total
investment in the policy, the excess will generally be treated as ordinary
income subject to tax. See "Tax Treatment of Policy Benefits - In General."
INTEREST CHARGED ON POLICY LOANS. Interest on the Policy Debt will accrue daily
and be payable annually on the policy anniversary. We will fix the rate of
interest charged at an effective annual rate of 5.75%. If the interest due on a
policy anniversary is not paid by the policyowner, the interest will be borrowed
against the Policy.
INTEREST CREDITED TO THE LOAN ACCOUNT. We will credit interest to any amount in
the Loan Account at an effective annual rate of at least 4%. The actual rate
credited is:
- On amounts in excess of the Policy's Select Loan Amount, the
rate of interest charged on the policy loan less an interest
rate differential, currently 1.75%.
- On amounts up to the Policy's Select Loan Amount, the rate of
interest charged on the policy loan less an interest rate
differential, currently 0%.
The tax consequences associated with a loan interest credited differential of 0%
are unclear. A tax adviser should be consulted before effecting a loan to
evaluate the tax consequences that may arise in such a situation. If we
determine, in our sole discretion, that there is a substantial risk that a loan
will be treated as a taxable distribution under Federal tax law as a result of
the differential between the credited interest rate and the loan interest rate,
the Company retains the right to increase the loan interest rate to an amount
that would result in the transaction being treated as a loan under Federal tax
law. If this amount is not prescribed by any IRS ruling or regulation or any
court decision, the amount of increase will be that which
17
<PAGE> 26
the Company considers to be most likely to result in the transaction being
treated as a loan under Federal tax law.
Prior to the later of the tenth policy anniversary and the anniversary following
attained age 55, the amount available as a Select Loan is zero; after the later
of the tenth policy anniversary and the policy anniversary following attained
age 55, the amount available annually as a Select Loan is equal to 12% of the
Policy's Net Cash Surrender Value at the previous policy anniversary. The amount
available as a Select Loan applies to existing and new loans. If, at the time
your are considering a Select Loan, interest due currently on your outstanding
loans equals or exceeds the Select Loan Amount, the Select Loan feature can not
be used to withdraw additional cash from Policy Value. The total of all loans,
including the Select Loan Amount, cannot exceed the maximum loan amount as
described above.
To illustrate the amount available as a Select Loan, assume that a Policy has an
issue age of 47 and a Net Cash Surrender Value on the eleventh policy
anniversary of $10,000. The Select Loan Amount available during the twelfth
policy year is $1,200 (12% x $10,000). Assume that at the beginning of the
twelfth policy year, a loan of $1,500 is taken. $1,200 of that amount is
considered the Select Loan Amount, $300 an ordinary policy loan.
At the end of the twelfth policy year, assume that the Net Cash Surrender Value
is $9,000. The Select Loan Amount available during the thirteenth policy year is
$1,080 (12% x $9,000). If not already repaid, the $300 from the prior year's
loan that was not considered a Select Loan is immediately converted to a Select
Loan, leaving $780 of the Select Loan Amount available for the thirteenth policy
year (provided that the sum of all outstanding loans does not exceed the
Policy's maximum loan amount). The amount of any unpaid interest on the Select
Loan and the ordinary policy loan from the twelfth policy year also would be
borrowed as a Select Loan up to the maximum Select Loan Amount and thereby
reduce by that amount the $780 available for borrowing as a Select Loan during
the remainder of the thirteenth policy year.
LOAN ACCOUNT ADJUSTMENTS. Whenever a loan is first taken out, and at specified
events thereafter, we adjust the value of the Loan Account. We take the
difference between (i) the Loan Account before any adjustment and (ii) the
Modified Policy Debt at the time of adjustment and transfer that amount between
the Loan Account and the Investment Accounts or the Fixed Account. The amount
transferred to or from the Loan Account will be such that the value of the Loan
Account after the adjustment will be equal to the Modified Policy Debt.
The specified events which cause an adjustment to the Loan Account are (i) a
policy anniversary, (ii) a partial or full loan repayment, (iii) a new loan or
(iv) an amount is needed to meet a monthly deduction. A loan repayment may be
implicit in that policy debt is effectively repaid upon termination (i.e., upon
death of the life insured, surrender or lapse of the policy). In each of these
instances, the Loan Account will be adjusted so that any excess of the Loan
Account over the Modified Policy Debt after the repayment will be included in
the termination proceeds.
Except as noted below under "Loan Repayments," we will allocate amounts
transferred from the Loan Account to the Investment Accounts and the Fixed
Account in the same proportion as the value in the corresponding "loan
sub-account" bears to the value of the Loan Account. A "loan sub-account" exists
for each Investment Account and for the Fixed Account. Amounts transferred to
the Loan Account are allocated to the appropriate loan sub-account to reflect
the account from which the transfer was made.
LOAN ACCOUNT ILLUSTRATION. (Dollar amounts in this illustration have been
rounded to the nearest dollar.) The operation of the Loan Account may be
illustrated as follows: assume a Policy with a loan value of $5,000, a loan
interest rate of 5.75%, and a maximum loan amount on a policy anniversary of
$4,917. For purposes of the illustration, assume that the Select Loan Amount is
zero. If a loan in the maximum amount of $4,917 is made, an amount equal to the
Modified Policy Debt, $5,000, is transferred to the Loan Account. At the next
policy anniversary the value of the Loan Account will have increased to $5,200
($5,000 x 1.04) reflecting interest credited at an effective annual rate of
4.0%. At that time the loan will have accrued interest charges of $283 ($4,917 x
.0575), bringing the Policy Debt to $5,200.
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<PAGE> 27
If the accrued interest charges are paid on the policy anniversary, the Policy
Debt will continue to be $4,917, and the Modified Policy Debt, reflecting
interest for the next policy year and discounting the Policy Debt and such
interest at 4%, will be $5,000. An amount will be transferred from the Loan
Account to the Fixed Account or the Investment Accounts so that the Loan Account
value will equal the Modified Policy Debt. Since the Loan Account value was
$5,200, a transfer of $200 will be required ($5,200 -- $5,000).
If, however, the accrued interest charges of $283 are borrowed, an amount will
be transferred from the Investment Accounts and the Fixed Account so that the
Loan Account value will equal the Modified Policy Debt recomputed at the policy
anniversary. The new Modified Policy Debt is the Policy Debt, $5,200, plus loan
interest to be charged to the next policy anniversary, $299 ($5,200 x .0575),
discounted at 4%, which results in a figure of $5,288. Since the value of the
Loan Account was $5,200, a transfer of $88 will be required. This amount is
equivalent to the 1.75% interest rate differential on the $5,000 transferred to
the Loan Account on the previous policy anniversary.
LOAN REPAYMENTS. You may repay Policy Debt in whole or in part at any time prior
to the death of the life insured provided the Policy is in force. When a
repayment is made, we will credit the repayment amount to the Loan Account and
transfer an amount to the Fixed Account or the Investment Accounts so that the
Loan Account at that time will equal the Modified Policy Debt. We will allocate
loan repayments first to the Fixed Account until the associated loan sub-account
is reduced to zero. We will then allocate loan repayments to each Investment
Account in the same proportion as the value in the corresponding loan
sub-account bears to the value of the Loan Account. Amounts paid to us not
specifically designated in writing as loan repayments will be treated as
premiums.
PARTIAL WITHDRAWALS AND SURRENDERS
Partial Withdrawals. After a Policy has been in force for one policy year, you
may make a partial withdrawal of the Net Cash Surrender Value. The minimum
amount that may be withdrawn is $500. You should specify the portion of the
withdrawal to be taken from each Investment Account and the Fixed Account. In
the absence of instructions we will allocate the withdrawal among such accounts
in the same proportion as the Policy Value in each account bears to the Net
Policy Value. No more than one partial withdrawal may be made in any one policy
month.
If you make a partial withdrawal during the Surrender Charge Period, we will
usually assess a portion of the surrender charges to which the Policy is subject
(see POLICY VALUES - "Charges And Deductions" and "Surrender Charges") if the
amount withdrawn is in excess of the Withdrawal Tier Amount. The Withdrawal Tier
Amount is 10% of the Net Cash Surrender Value determined as of the previous
policy anniversary. The portion of a partial withdrawal that is considered to be
in excess of the Withdrawal Tier Amount includes all previous partial
withdrawals that have occurred in the current policy year. If the Option 1 death
benefit is in effect under a Policy from which a partial withdrawal is made, the
face amount of the Policy will be reduced. See POLICY VALUES -- "Charges And
Deductions" and "Surrender Charges."
Full Surrenders. You may surrender your Policy for its Net Cash Surrender Value
at any time while the life insured is living. The Net Cash Surrender Value is
the Policy Value less any surrender charges and outstanding monthly deductions
due (the "Cash Surrender Value") minus the value of the Policy Debt. The Net
Cash Surrender Value will be determined at the end of the Business Day on which
we receive the Policy and a written request for surrender at our Service Office.
After a Policy is surrendered, the insurance coverage and all other benefits
under the Policy will terminate. Surrender of a Policy during the Surrender
Charge Period will usually result in our assessment of surrender charges. See
POLICY VALUES -- "Charges And Deductions" and "Surrender Charges."
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<PAGE> 28
CHARGES AND DEDUCTIONS
The charges we make under the Policy are assessed as (i) deductions from
premiums, (ii) surrender charges upon surrender, partial withdrawals, decreases
in face amount or lapse, (iii) monthly deductions, and (iv) other charges.
These charges are described below.
DEDUCTIONS FROM PREMIUMS
We currently make no deduction from premium payments for state and local taxes.
The maximum amount we may deduct for such taxes in the future is 2.35%. We
currently make no deduction from premium payments for Federal taxes. The maximum
amount we may deduct for such taxes in the future is 1.25%.
SURRENDER CHARGES
We will assess surrender charges upon surrender, a partial withdrawal of Policy
Value in excess of the Withdrawal Tier Amount, a requested decrease in face
amount, or lapse. We usually assess these charges if any of the above
transactions occurs within the Surrender Charge Period unless the charges have
been previously deducted. There are two surrender charges -- a deferred
underwriting charge and a deferred sales charge.
DEFERRED UNDERWRITING CHARGE. The deferred underwriting charge is $4.50 for each
$1,000 of face amount of life insurance coverage initially purchased or added by
increase. In effect, the charge applies only to the first $500,000 of face
amount initially purchased or the first $500,000 of each subsequent increase in
face amount. Thus, the charge made in connection with any one underwriting will
not exceed $2,250. The amount of the charge remains level for five years.
Following the fifth year after issuance of the Policy or a face amount increase,
the charge applicable to the initial face amount or increase will decrease each
month by varying rates depending upon the life insured's issue age until the
charge has decreased to zero. The applicable percentage of the deferred
underwriting charges to which the Policy is subject is illustrated by the
following table:
TABLE 1: DEFERRED UNDERWRITING CHARGES
<TABLE>
<CAPTION>
Transaction Occurs
After Monthly
Deduction Taken Percent of Deferred Underwriting Charges by Issue Age*
For Last Month
Preceding End ------------------------------------------------------------------------------
of Month* Age
- ------------------ ------------------------------------------------------------------------------
Month 0-50 51 52 53 54 55+
- ------------------ --- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
12 100% 100% 100% 100% 100% 100%
24 100% 100% 100% 100% 100% 100%
36 100% 100% 100% 100% 100% 100%
48 100% 100% 100% 100% 100% 100%
60 100% 100% 100% 100% 100% 100%
72 90% 88.89% 87.50% 85.71% 83.33% 80.00%
84 80% 77.78% 75.00% 71.43% 66.67% 60.00%
96 70% 66.67% 62.50% 57.14% 50.00% 40.00%
108 60% 55.56% 50.00% 42.86% 33.33% 20.00%
120 50% 44.44% 37.50% 28.57% 16.67% 0%
132 40% 33.33% 25.00% 14.28% 0%
144 30% 22.22% 12.50% 0%
156 20% 11.11% 0%
168 10% 0%
180 0%
</TABLE>
20
<PAGE> 29
- ----------
* Months not shown may be calculated by interpolation.
We designed the deferred underwriting charge to cover the administrative
expenses associated with underwriting and policy issue, including the costs of
processing applications, conducting medical examinations, conducting medical
examinations, determining the life insured's risk class and establishing policy
records.
DEFERRED SALES CHARGE. The maximum deferred sales charge is 50% of premiums paid
up to a maximum number of Target Premiums that varies (from - 2.00 to 2.59)
according to the issue age of the life insured, the face amount at issue and the
amount of any increase. This charge compensates us for some of the expenses of
selling and distributing the Policies, including agents' commissions,
advertising, agent training and the printing of prospectuses and sales
literature.
The deferred sales charge deducted in any policy year is not specifically
related to sales expenses incurred in that year. Instead, we expect that the
major portion of the sales expenses attributable to a Policy will be incurred
during the first policy year, although the deferred sales charge might be
deducted up to fifteen years later. We anticipate that the aggregate amounts we
receive under the Policies for sales charges will be insufficient to cover our
aggregate sales expenses. To the extent that our sales expenses exceed our sales
charges, we will pay the excess from our other assets or surplus, including
amounts derived from the mortality and expense risks charge described below.
We specify the Target Premium for the initial face amount in the Policy. We will
compute a Target Premium for each increase in face amount above the highest face
amount of coverage previously in effect, and we will advise you of each new
Target Premium. Target Premiums depend upon the face amount of insurance
provided at issue or by an increase and the issue age and sex of the life
insured. The maximum number of Target Premiums subject to the deferred sales
charge varies, based on the issue age of the life insured, the face amount at
issue and the amount of any increase, according to the following tables:
TABLE 2: NUMBER OF TARGET PREMIUMS SUBJECT TO DEFERRED SALES CHARGE
(APPLICABLE TO THE INITIAL FACE AMOUNT AND INCREASES)
<TABLE>
<CAPTION>
Age $250,000 Under Age $250,000 Under Age $250,000 Under
or More 250,000 or More $250,000 or More $250,000
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 -2.00* 1.68 30 1.56 2.15 60 2.06 2.43
1 -0.52* 1.46 31 1.61 2.19 61 2.06 2.43
2 0.06 1.45 32 1.67 2.23 62 2.05 2.43
3 0.24 1.45 33 1.72 2.27 63 2.05 2.43
4 0.62 1.46 34 1.78 2.30 64 2.05 2.42
5 0.63 1.47 35 1.83 2.33 65 2.05 2.41
6 0.67 1.49 36 1.86 2.38 66 2.03 2.41
7 0.69 1.51 37 1.89 2.41 67 2.03 2.41
8 0.72 1.52 38 1.91 2.45 68 1.96 2.41
9 0.75 1.54 39 1.94 2.49 69 1.83 2.30
10 0.78 1.55 40 1.96 2.52 70 1.71 2.17
11 0.82 1.58 41 1.98 2.55 71 1.58 2.05
12 0.85 1.60 42 2.01 2.59 72 1.46 1.92
13 0.88 1.61 43 2.04 2.57 73 1.35 1.80
14 0.92 1.63 44 2.06 2.55 74 1.25 1.70
</TABLE>
21
<PAGE> 30
<TABLE>
<CAPTION>
Age $250,000 Under Age $250,000 Under Age $250,000 Under
or More 250,000 or More $250,000 or More $250,000
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15 0.88 1.52 45 2.08 2.54 75 1.16 1.60
16 0.90 1.53 46 2.12 2.53 76 1.08 1.50
17 0.94 1.58 47 2.16 2.51 77 1.01 1.40
18 0.99 1.64 48 2.20 2.50 78 0.93 1.30
19 1.03 1.68 49 2.21 2.49 79 0.87 1.22
20 1.07 1.72 50 2.19 2.48 80 0.82 1.14
21 1.11 1.77 51 2.17 2.47 81 0.76 1.07
22 1.16 1.82 52 2.16 2.47 82 0.71 1.01
23 1.20 1.86 53 2.15 2.46 83 0.67 0.95
24 1.25 1.91 54 2.13 2.46 84 0.62 0.89
25 1.30 1.95 55 2.12 2.45 85 0.58 0.83
26 1.35 1.99 56 2.10 2.44 86 0.56 0.78
27 1.40 2.04 57 2.09 2.44 87 0.54 0.73
28 1.46 2.08 58 2.08 2.43 88 0.52 0.68
29 1.51 2.12 59 2.07 2.43 89 0.50 0.64
90 0.50 0.63
</TABLE>
- ----------
* The negative Number of Target Premiums produces a negative Deferred Sales
Charge. When combined with the Deferred Underwriting Charge, the negative
Deferred Sales Charge reduces the total surrender charge.
The maximum deferred sales charge will be in effect for at least the first five
years of the Surrender Charge Period. After that, the portion of the deferred
sales charge that remains in effect will grade down at a rate that also varies
according to the issue age of the life insured until, at the end of the
Surrender Charge Period, there is no deferred sales charge. The table to be used
to reduce the applicable deferred sales charge during the Surrender Charge
Period is set forth in Table 1 above. The applicable table will be set forth in
each Policy and the policyowner will be informed of the table to be used in
connection with sales charges on increases in face amount.
In order to determine the deferred sales charge applicable to a face amount
increase, we will treat a portion of the Policy Value on the date of increase as
a premium attributable to the increase. In addition, a portion of each premium
paid on or subsequent to the increase will be attributed to the increase. In
each case, the portion attributable to the increase will be the ratio of the
"guideline annual premium" for the increase to the sum of the guideline annual
premiums for the initial face amount and all increases including the requested
increase.
The following example illustrates how deferred underwriting and deferred sales
charges are calculated using data from Tables 1 and 2 above.
Assume a 36-year-old male (standard risk), whose Policy was issued at age 30,
and who has paid $9,000 in premiums under a Policy with a Target Premium of $593
and a face amount of $100,000, surrenders his Policy during the last month of
the sixth policy year.
A deferred underwriting charge of $405 will be assessed. The maximum deferred
underwriting charge of $450 ($4.50 per $1,000 of face amount x 100) will be
multiplied by the 90% listed in Table 1 as applicable to surrenders during the
last month of the sixth policy year [90% x ($4.50 x 100) = $405].
A deferred sales charge of $573.73 will also be assessed. According to Table 2,
the maximum number of Target Premiums subject to the deferred sales charge for a
person who was 30 years old when his or her Policy with a face amount less than
$250,000 was issued would be 2.15. Thus $1,274.95 (2.15 x $593) will be the
maximum amount of premiums subject to the 50% sales charge, producing a maximum
22
<PAGE> 31
sales charge of $637.46 (50% x $1,274.95 = $637.49). Because the surrender
occurs during the last month of the sixth policy year, only 90% (from the Table
1 for issue age 30) of the maximum sales charge remains applicable [90% x (.50 x
2.15 x $593) = $573.73].
CHARGES ON PARTIAL WITHDRAWALS. Whenever a portion of the surrender charges is
deducted as a result of a partial withdrawal of Policy Value in excess of the
Withdrawal Tier Amount, we will reduce the Policy's remaining surrender charges
by the amount of the charges taken. The surrender charges not assessed as a
result of the 10% free withdrawal provision remain in effect under the Policy
and may be assessed upon surrender or lapse, other partial withdrawals, or a
requested decrease in face amount. The portion of the surrender charges assessed
will be based on the ratio of (i) to (ii), where
(i) is the amount of the withdrawal in excess of the Withdrawal
Tier Amount, and
(ii) is the Net Cash Surrender Value of the Policy less the
Withdrawal Tier Amount immediately prior to the withdrawal.
We will deduct the surrender charges from each Investment Account and the Fixed
Account in the same proportion as the amount of the withdrawal taken from such
account bears to the total amount of the withdrawal. If the amount in the
account is insufficient to pay the portion of the surrender charges allocated to
that account, then the portion of the withdrawal allocated to that account will
be reduced so that the withdrawal plus the portion of the surrender charges
allocated to that account equal the value of that account.
Units equal to the amount of the partial withdrawal taken, and surrender charges
deducted, from each Investment Account will be canceled based on the value of
such units determined at the end of the Business Day on which we receive a
written request for withdrawal at our Service Office.
If the Option 1 death benefit is in effect under a Policy from which a partial
withdrawal is made, we will reduce the face amount of the Policy. If the death
benefit is equal to the face amount at the time of withdrawal, the face amount
will be reduced by the amount of the withdrawal plus the portion of the
surrender charges assessed. If the death benefit is based upon the Policy Value
times the applicable percentage set forth under INSURANCE BENEFIT -- "Death
Benefit Options" above, the face amount will be reduced only to the extent that
the amount of the withdrawal plus the portion of the surrender charges assessed
exceeds the difference between the death benefit and the face amount.
Reductions in face amount resulting from partial withdrawals will not incur any
surrender charges above the surrender charges applicable to the withdrawal. When
the face amount of a Policy is based on one or more increases subsequent to
issuance of the Policy, a reduction resulting from a partial withdrawal will be
applied in the same manner as a requested decrease in face amount, i.e., against
the face amount provided by the most recent increase, then against the next most
recent increases successively and finally against the initial face amount.
CHARGES ON DECREASES IN FACE AMOUNT. As with partial withdrawals, we will deduct
a portion of a Policy's surrender charges upon a decrease, or a cancellation of
an increase, in face amount which you request. Since surrender charges are
determined separately for the initial face amount and each face amount increase,
and since a decrease in face amount will have a different impact on each level
of insurance coverage, we will determine separately the portion of the surrender
charges to be deducted with respect to each level of insurance coverage. That
portion will be the same as the ratio of the amount of the reduction in such
coverage to the amount of such coverage prior to the reduction.
As noted under INSURANCE BENEFIT -- "Face Amount Changes," we apply decreases to
the most recent increase first and thereafter to the next most recent increases
successively. We will deduct the charges from the Policy Value, and we will
allocate the amount so deducted among the Investment Accounts and the Fixed
Account in the same proportion as the Policy Value in each bears to the Net
Policy Value. Whenever a portion of the surrender charges is deducted as a
result of a decrease in face amount, the Policy's remaining surrender charges
will be reduced by the amount of the charges taken.
23
<PAGE> 32
CHARGES REMAINING AFTER FACE AMOUNT DECREASES OR PARTIAL WITHDRAWALS. Each time
a pro-rata deferred underwriting charge or a pro-rata deferred sales charge for
a face amount decrease or for a partial withdrawal is deducted, the remaining
deferred underwriting charge and deferred sales charge will be reduced
proportionately.
We will calculate the remaining deferred underwriting charge using Table 1
above. The actual remaining charge will be the result of (a) divided by (b),
multiplied by (c), where
(a) is the grading percentage applicable to the life insured's
issue age and Policy duration;
(b) is the grading percentage applicable to the life insured's
issued age at the time of the last face amount decrease or
partial withdrawal; and
(c) is the remaining deferred sales charge prior to the last face
amount decrease or partial withdrawal less the deferred
underwriting charge deducted for that face amount decrease or
partial withdrawal.
We will calculate the remaining deferred sales charge using Table 1 above. The
actual remaining charge will be the result of (a) divided by (b), multiplied by
(c), where:
(a) is the grading percentage applicable to the Policy duration;
(b) is the grading percentage at the time of the last face amount
decrease or partial withdrawal; and
(c) is the remaining deferred sales charge prior to the last face
amount decrease or partial withdrawal less the deferred sales
charge deducted for that face amount decrease or partial
withdrawal.
Until the sum of premiums paid equals or exceeds the number of Target Premiums
subject to deferred sales charge multiplied by the Target Premium, subsequent
premium payments will increase the remaining deferred sales charge.
MONTHLY DEDUCTIONS
Each month we make a deduction from Policy Value consisting of an administration
charge, a charge for the cost of insurance, a charge for mortality and expense
risks, and charge(s) for any supplementary benefit(s) (see OTHER PROVISIONS --
"Supplementary Benefits"). We allocate the monthly deduction among the
Investment Accounts and (other than the mortality and expense risks charge) the
Fixed Account in the same proportion as the Policy Value in each bears to the
Net Policy Value. Monthly deductions due prior to the effective date will be
taken on the effective date instead of the dates they were due. If the Policy is
still in force when the life insured attains age 100, we will pay the
policyowner the Net Cash Surrender Value as of the Maturity Date of the Policy.
ADMINISTRATION CHARGE
The monthly administration charge is $35 until the first anniversary and,
thereafter, $10 (the right is reserved to increase the administration charge by
an additional amount up to $.01 per $1,000 of face amount per month). The charge
is designed to cover certain administrative expenses associated with the Policy,
including maintaining policy records, collecting premiums and processing death
claims, surrender and withdrawal requests and various charges permitted under a
Policy.
24
<PAGE> 33
COST OF INSURANCE CHARGE
The monthly charge for the cost of insurance is determined by multiplying the
applicable cost of insurance rate times the net amount at risk at the beginning
of each policy month. The cost of insurance rate is based on:
- the life insured's issue age,
- the duration of the coverage,
- sex, and
- risk class.
We determine the rate separately for the initial face amount and for each
increase in face amount. Cost of insurance rates will generally increase with
the life insured's age. Any additional ratings as indicated in the Policy will
be added to the cost of insurance rate.
We use cost of insurance rates that reflect our expectations as to future
mortality experience as based on current experience. We may change the rates
from time to time on a basis which does not unfairly discriminate within the
class of life insureds. In no event will the cost of insurance rate exceed the
guaranteed rate set forth in the Policy except to the extent that an extra rate
is imposed because of an additional rating applicable to the life insured. The
guaranteed rates are based on the 1980 Commissioners Standard Ordinary
Smoker/Nonsmoker Mortality Tables.
The net amount at risk to which the cost of insurance rate is applied is the
difference between the death benefit, divided by 1.0032737 (a factor which
reduces the net amount at risk for cost of insurance charge purposes by taking
into account assumed monthly earnings at an annual rate of 4%), and the Policy
Value. Because different cost of insurance rates may apply to different levels
of insurance coverage, we will calculate the net amount at risk separately for
each level of insurance coverage. When the Option 1 death benefit is in effect,
for purposes of determining the net amount at risk applicable to each level of
insurance coverage, the Policy Value is attributed first to the initial face
amount and then, if the Policy Value is greater than the initial face amount, to
each increase in face amount in the order made.
Because the calculation of the net amount at risk is different under the death
benefit options when more than one level of insurance coverage is in effect, a
change in the death benefit option may result in a different net amount at risk
for each level of insurance coverage than would have occurred had the death
benefit option not been changed. Since the cost of insurance is calculated
separately for each level of insurance coverage, any change in the net amount at
risk for a level of insurance coverage resulting from a change in the death
benefit option may affect the amount of the charge for the cost of insurance.
Partial withdrawals and decreases in face amount will also affect the manner in
which the net amount at risk for each level of insurance coverage is calculated.
MORTALITY AND EXPENSE RISKS CHARGE
We make a monthly charge against your Policy Value for the mortality and expense
risks we assume under the Policies. We make this charge at the beginning of each
policy month at a rate of
- 0.075% through the later of the tenth anniversary of the
Policy and your attained age of 60
- and, thereafter, 0.0375%.
We assess the charge against the value of your Investment Accounts by canceling
units in the same proportion as the value of each Investment Account bears to
the total value of your Investment Accounts.
25
<PAGE> 34
The mortality risk assumed is that lives insured may live for a shorter period
of time than we estimated. The expense risk assumed is that expenses incurred in
issuing and administering the Policies will be greater than we estimated. We
estimate that virtually all of the mortality and expense risks charge currently
relates to expense risks. We will realize a gain from this charge to the extent
it is not needed to provide benefits and pay expenses under the Policies.
OTHER CHARGES
Currently, we make no charge against the Separate Account for Federal, state or
local taxes that may be attributable to the Separate Account or to our
operations with respect to the Policies. However, if we incur any such taxes, we
may make a charge therefor. We impose charges on certain transfers of Policy
Values, including a $25 charge for each transfer in excess of twelve in a policy
year and a $5 charge for each Dollar Cost Averaging transfer when Policy Value
does not exceed $15,000. See POLICY VALUES -- "Transfers Of Policy Value."
The Separate Account purchases shares of Portfolios at net asset value. The net
asset value of those shares reflects the investment management fees and expenses
of the Portfolios which are set forth below. More detailed information
concerning these fees and expenses is set forth under the caption "Management of
The Trust" in the prospectus for the Trust that accompanies this prospectus.
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets)
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
TRUST PORTFOLIO FEES REIMBURSEMENT)*** ANNUAL EXPENSES
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets........ 0.850% 0.360% 1.210%
Science & Technology................ 1.100% 0.110% 1.210%
International Small Cap............. 1.100% 0.150% 1.250%
Aggressive Growth................... 1.000%+ 0.090% 1.090%
Emerging Small Company.............. 1.050% 0.050% 1.100%
Small Company Blend................. 1.050% 0.150%* 1.200%
Mid Cap Growth...................... 0.950%+ 0.040% 0.990%
Mid Cap Stock....................... 0.925% 0.000%* 0.925%
Overseas............................ 0.950% 0.210% 1.160%
International Stock................. 1.050% 0.200% 1.250%
International Value................. 1.000% 0.300%* 1.300%
Mid Cap Blend....................... 0.850%+ 0.050% 0.900%
Small Company Value................. 1.050% 0.180% 1.230%
Global Equity....................... 0.900% 0.110% 1.010%
Growth.............................. 0.850% 0.050% 0.900%
Large Cap Growth.................... 0.875%+ 0.130% 1.005%
Quantitative Equity................. 0.700% 0.060% 0.760%
Blue Chip Growth.................... 0.875%+ 0.045% 0.920%
Real Estate Securities.............. 0.700% 0.060% 0.760%
Value............................... 0.800% 0.050% 0.850%
Equity Index........................ 0.250%** 0.150%** 0.400%**
Growth & Income..................... 0.750% 0.040% 0.790%
U.S. Large Cap Value................ 0.875% 0.100%* 0.975%
Equity-Income....................... 0.875%+ 0.050% 0.925%
Income & Value...................... 0.800% 0.090% 0.890%
Balanced............................ 0.800% 0.070% 0.870%
High Yield.......................... 0.775% 0.065% 0.840%
Strategic Bond...................... 0.775% 0.075% 0.850%
Global Bond......................... 0.800% 0.110% 0.910%
Total Return........................ 0.775% 0.100%* 0.875%
Investment Quality Bond............. 0.650% 0.070% 0.720%
</TABLE>
26
<PAGE> 35
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
TRUST PORTFOLIO FEES REIMBURSEMENT)*** ANNUAL EXPENSES
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Diversified Bond.................... 0.750% 0.140% 0.890%
U.S. Government Securities.......... 0.650% 0.070% 0.720%
Money Market........................ 0.500% 0.120% 0.620%
Lifestyle Aggressive 1000#.......... 0% 1.110%*** 1.110%
Lifestyle Growth 820#............... 0% 1.000%*** 1.000%
Lifestyle Balanced 640#............. 0% 0.920%*** 0.920%
Lifestyle Moderate 460#............. 0% 0.830%*** 0.830%
Lifestyle Conservative 280#......... 0% 0.720%*** 0.720%
</TABLE>
+ Management Fees for these portfolios changed effective May 1, 1999. Prior
to May 1, 1999, management fees were as follows:
<TABLE>
<S> <C>
Aggressive Growth Trust 1.050%
Mid Cap Growth Trust 1.000%
Mid Cap Blend Trust 0.750%
Large Cap Growth Trust 0.750%
Blue Chip Growth Trust 0.925%
Equity Income Trust 0.800%
Income & Value Trust 0.750%
</TABLE>
- ----------
* Based on estimates of payments to be made during the current fiscal year.
** Under the Advisory Agreement, MSS has agreed to reduce its advisory fee or
reimburse the Equity Index Trust if the total of all expenses (excluding
advisory fees, taxes, portfolio brokerage commissions, interest, litigation
and indemnification expenses and other extraordinary expenses not incurred
in the ordinary course of the Trust's business) exceed an annual rate of
0.15% of the average annual net assets of the Equity Index Trust. The
expense limitation will continue in effect from year to year unless
otherwise terminated at any year end by MSS on 30 days' notice to the
Trust. If this expense reimbursement had not been in effect, Total Trust
Annual Expenses would have been 0.55%, and Other Expenses would have been
0.30%, of the average annual net assets of the Equity Index Trust.
*** Reflects expenses of the Underlying Portfolios. Manufacturers Securities
Services, LLC ("MSS") has voluntarily agreed to pay the expenses of each
Lifestyle Trust (excluding the expenses of the Underlying Portfolios). This
voluntary expense reimbursement may be terminated at any time. If such
expense reimbursement was not in effect, Total Trust Annual Expenses would
be 0.02% higher, except for the Lifestyle Conservative 280 Trust, which
would be 0.03% higher (based on expenses of the Lifestyle Trusts for the
fiscal year ended December 31, 1998) as noted in the chart below:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lifestyle Aggressive 1000........... 0% 1.130% 1.130%
Lifestyle Growth 820................ 0% 1.020% 1.020%
Lifestyle Balanced 640.............. 0% 0.940% 0.940%
Lifestyle Moderate 460.............. 0% 0.850% 0.850%
Lifestyle Conservative 280.......... 0% 0.750% 0.750%
</TABLE>
- ----------
# Each Lifestyle Trust will bear its own pro rata share of the fees and
expenses incurred by the Underlying Portfolios in which it invests, and the
investment return of each Lifestyle Trust will be net of the Underlying
Portfolio expenses. Each Lifestyle Portfolio must also bear its own
expenses. However, MSS is currently paying those expenses as described in
footnote (***) above.
THE GENERAL ACCOUNT
By virtue of exclusionary provisions, interests in our general account have not
been registered under the Securities Act of 1933 and our general account has not
been registered as an investment company under the 1940 Act. Accordingly,
neither our general account nor any interests therein are subject to the
provisions of these acts, and as a result the staff of the SEC has not reviewed
the disclosures in this prospectus relating to the general account. Disclosures
regarding the general account may, however, be subject to certain generally
applicable provisions of the Federal securities laws relating to the accuracy
and completeness of statements made in a prospectus.
Our general account consists of all assets owned by us other than those in our
separate accounts. Subject to applicable law, we have sole discretion over the
investment of the assets of our general account.
27
<PAGE> 36
You may elect to allocate net premiums to the Fixed Account or to transfer all
or a portion of your Policy Value to the Fixed Account from the Investment
Accounts. Transfers from the Fixed Account to the Investment Accounts are
subject to restrictions. See POLICY VALUES -- "Transfers Of Policy Value" and
"Policy Value." We will hold the reserves required for any portion of the Policy
Value allocated to the Fixed Account in our general account. However, your
allocation of Policy Value to the Fixed Account does not entitle you to share in
the investment experience of our general account. Instead, we guarantee that
your Policy Value in the Fixed Account will accrue interest daily at an
effective annual rate of at least 4%, without regard to the actual investment
experience of our general account. We may, at our sole discretion, credit a
higher rate of interest, although we are not obligated to do so. You assume the
risk that interest credited may not exceed the guaranteed minimum rate of 4% per
year.
OTHER GENERAL POLICY PROVISIONS
POLICY DEFAULT
Unless the No Lapse Guarantee is in effect, your Policy will go into default if
the Policy's Net Cash Surrender Value at the beginning of any policy month would
go below zero after deducting the monthly deductions then due. We will notify
you of the default and will allow a 61-day grace period in which you may make a
premium payment sufficient to bring the Policy out of default. The payment you
must make will be equal to the amount necessary to bring the Net Cash Surrender
Value to zero, if it was less than zero at the date of default, plus the monthly
deductions due at the date of default and at the beginning of each of the two
policy months thereafter, based on the Policy Value at the date of default. If
we do not receive the required payment by the end of the grace period, we will
terminate the Policy and pay to you the Net Cash Surrender Value as of the date
of default less the monthly deductions then due. If the life insured should die
during the grace period following a Policy's going into default, the Policy
Value used in the calculation of the death benefit will be the Policy Value as
of the date of default, and the insurance benefit payable will be reduced by any
outstanding monthly deductions due at the time of death.
POLICY REINSTATEMENT
You can reinstate a Policy which has terminated after going into default at any
time within 21 days following the date of termination without furnishing
evidence of insurability, subject to the following conditions:
(a) The life insured's risk class is standard or preferred; and
(b) The life insured's attained age is less than 46.
You can reinstate a Policy which has terminated after going into default at any
time within the five-year period following the date of termination subject to
the following conditions:
(a) You must not have been surrendered the Policy for its Net Cash
Surrender Value;
(b) You furnish to us satisfactory evidence of the life insured's
insurability;
(c) You pay us a premium equal to the payment required during the 61-day
grace period following default to keep the Policy in force; and
(d) You repay to us an amount equal to any amounts paid by us in
connection with the termination of the Policy.
If we approve the reinstatement, the date of reinstatement will be the later of
the date of your written request or the date we receive the required payment at
our Service Office.
28
<PAGE> 37
MISCELLANEOUS POLICY PROVISIONS
BENEFICIARY. You may appoint one or more beneficiaries of the Policy by naming
them in the application. Beneficiaries may be appointed in three classes --
primary, secondary and final. Thereafter you may change the beneficiary during
the life insured's lifetime by giving written notice to us in a form
satisfactory to us unless an irrevocable designation has been elected. If the
life insured dies and there is no surviving beneficiary, you, or your estate if
you are the life insured, will be the beneficiary. If a beneficiary dies before
the seventh day after the death of the life insured, we will pay the insurance
benefit as if the beneficiary had died before the life insured.
INCONTESTABILITY. We will not contest the validity of a Policy after it has been
in force during the life insured's lifetime for two years from the issue date.
We will not contest the validity of an increase in face amount or the addition
of a supplementary benefit after such increase or addition has been in force
during the life insured's lifetime for two years. If a Policy has been
reinstated and been in force for less than two years from the reinstatement
date, we can contest any misrepresentation of a fact material to the
reinstatement.
MISSTATEMENT OF AGE OR SEX. If the life insured's stated age or sex or both in
the Policy are incorrect, we will change the face amount of insurance so that
the death benefit will be that which the most recent monthly charge for the cost
of insurance would have bought for the correct age and sex.
SUICIDE EXCLUSION. If the life insured dies by suicide within two years from the
issue date, we will pay only the premiums paid less any partial withdrawals of
the Net Cash Surrender Value and any amount in the Policy Debt. If the life
insured should die by suicide within two years after a face amount increase, the
death benefit for the increase will be limited to the monthly deduction for the
increase.
ASSIGNMENT. We will not be bound by an assignment until we receive a copy of it
at our Service Office. We assume no responsibility for the validity or effects
of any assignment.
CONVERSION PRIVILEGE. You may effectively convert your policy, at any Policy
Anniversary, to a fixed paid-up benefit, without evidence of insurability. The
Policy Value, other values based thereon and the Investment Account values will
be determined as of the Business Day on which we receive the written request for
conversion. The basis for determining the Policy Value will be the Commissioners
1980 Standard Ordinary Smoker or Non-Smoker Mortality Table and an interest rate
of 4% per year. The Flexible Premium Variable Life coverage cannot be reinstated
after the date of conversion.
OTHER PROVISIONS
SUPPLEMENTARY BENEFITS
Subject to certain requirements, you may add one or more supplementary benefits
to a Policy, including those providing accidental death coverage, waiving
monthly deductions upon disability, and, in the case of corporate-owned
Policies, permitting a change of the life insured. You may obtain more detailed
information concerning supplementary benefits from one of our authorized agents.
We will deduct the cost of any supplementary benefits as part of the monthly
deduction. See POLICY VALUES -- "Monthly Deductions."
PAYMENT OF PROCEEDS
As long as the Policy is in force, we will ordinarily pay any policy loans,
partial withdrawals, Net Cash Surrender Value or any insurance benefit within
seven days after receipt at our Service Office of all the documents required for
such a payment.
We may delay the payment of any policy loans, partial withdrawals, Net Cash
Surrender Value or the portion of any insurance benefit that depends on the
Fixed Account value for up to six months; otherwise we may delay payment for any
period during which (i) the New York Stock Exchange is closed for trading
29
<PAGE> 38
(except for normal holiday closings) or trading on the New York Stock Exchange
is otherwise restricted; or (ii) an emergency exists as defined by the SEC or
the SEC requires that trading be restricted; or (iii) the SEC permits a delay
for the protection of policyowners. Also, we may deny transfers in the
circumstances stated in clauses (i), (ii) and (iii) above and in the
circumstances previously set forth. See POLICY VALUES --"Transfers Of Policy
Value."
REPORTS TO POLICYOWNERS
Within 30 days after each policy anniversary, we will send you a statement
showing, among other things, the amount of the death benefit, the Policy Value
and its allocation among the Investment Accounts, the Fixed Account and the Loan
Account, the value of the units in each Investment Account to which the Policy
Value is allocated, any Loan Account balance and any interest charged since the
last statement, the premiums paid and policy transactions made during the period
since the last statement and any other information required by law.
Within 10 days after any transaction involving purchase, sale, or transfer of
units of Investment Accounts, we will send a confirmation statement.
You will also be sent an annual and a semi-annual report for the Trust which
will include a list of the securities held in each Portfolio as required by the
1940 Act.
MISCELLANEOUS MATTERS
PORTFOLIO SHARE SUBSTITUTION
Although we believe it to be highly unlikely, it is possible that in the
judgment of our management, one or more of the Portfolios may become unsuitable
for investment by the Separate Account because of a change in investment policy
or a change in the applicable laws or regulations, because the shares are no
longer available for investment, or for some other reason. In that event, we may
seek to substitute the shares of another Portfolio or of an entirely different
mutual fund. Before this can be done, the approval of the SEC and one or more
state insurance departments may be required.
We also reserve the right to combine other separate accounts with the Separate
Account, to establish additional sub-accounts within the Separate Account, to
operate the Separate Account as a management investment company or other form
permitted by law, to transfer assets from this Separate Account to another
separate account and from another separate account to this Separate Account, and
to de-register the Separate Account under the 1940 Act. We would make the change
only if permissible under applicable Federal and New York state law.
We will not materially change the investment objectives of the Separate Account
without first filing the change with the Insurance Commissioner of the State of
New York. You will be advised of any change at the time it is made.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary provides a general description of the Federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. You
should consult counsel or other competent tax advisers for more complete
information. This discussion is based upon our understanding of the present
Federal income tax laws as they are currently interpreted by the IRS. We make no
representation as to the likelihood of continuation of the present federal
income tax laws or of the current interpretations by the Service. WE DO NOT MAKE
ANY GUARANTEE REGARDING THE TAX STATUS OF ANY POLICY OR ANY TRANSACTION
REGARDING THE POLICIES.
The Policies may be used in various arrangements, including non-qualified
deferred compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and
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<PAGE> 39
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if the use of
such Policies in any such arrangement, the value of which depends in part on its
tax consequences, is contemplated, you should consult a qualified tax adviser
for advice on the tax attributes of the particular arrangement.
TAX STATUS OF THE POLICY
Section 7702 of the Code sets forth a definition of a life insurance contract
for Federal tax purposes. The Secretary of Treasury (the "Treasury") is
authorized to prescribe regulations implementing Section 7702. However, while
proposed regulations and other interim guidance have been issued, final
regulations have not been adopted and guidance as to how Section 7702 is to be
applied is limited. If a Policy were determined not to be a life insurance
contract for purposes of Section 7702, such Policy would not provide the tax
advantages normally provided by a life insurance policy.
With respect to a Policy issued on the basis of a standard rate class, we
believe (largely in reliance on IRS Notice 88-128 and the proposed mortality
charge regulations under Section 7702, issued on July 5, 1991) that such a
Policy should meet the Section 7702 definition of a life insurance contract.
With respect to a Policy that is issued on a substandard basis (i.e., a premium
class involving higher-than-standard mortality risk), there is less guidance, in
particular as to how mortality and other expense requirements of Section 7702
are to be applied in determining whether such a Policy meets the Section 7702
definition of a life insurance contract. Thus, it is not clear whether or not
such a Policy would satisfy Section 7702, particularly if the policyowner pays
the full amount of premiums permitted under the Policy.
If it is subsequently determined that a Policy does not satisfy Section 7702, we
may take whatever steps are appropriate and reasonable to attempt to cause such
a Policy to comply with Section 7702. For these reasons, we reserve the right to
restrict Policy transactions as necessary to attempt to qualify it as a life
insurance contract under Section 7702.
Section 817(h) of the Code requires that the investments of the Separate Account
be "adequately diversified" in accordance with Treasury regulations in order for
the Policy to qualify as a life insurance contract under Section 7702 of the
Code (discussed above). The Separate Account, through the Trust, intends to
comply with the diversification requirements prescribed in Treas. Reg. Sec.
1.817-5, which affect how the Trust's assets are to be invested. We believe that
the Separate Account will thus meet the diversification requirement, and we will
monitor continued compliance with the requirement.
In certain circumstances, owners of variable life insurance Policies may be
considered the owners, for Federal income tax purposes, of the assets of the
separate account used to support their Policies. In those circumstances, income
and gains from the separate account assets would be includible in the variable
policyowner's gross income. The IRS has stated in published rulings that a
variable policyowner will be considered the owner of separate account assets if
the policyowner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury Department
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the policyowner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyowners may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets."
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets.
For example, the Policy has many more Portfolios to which policyowners may
allocate premium payments and Policy Values than were available in the policies
described in the rulings. These differences could
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<PAGE> 40
result in an owner being treated as the owner of a pro rata portion of the
assets of the Separate Account. In addition, we do not know what standards will
be set forth, if any, in the regulations or rulings which the Treasury
Department has stated it expects to issue. We therefore reserve the right to
modify the Policy as necessary to attempt to prevent an owner from being
considered the owner of a pro rata share of the assets of the Separate Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the proceeds and cash value increases of a Policy
should be treated in a manner consistent with a fixed-benefit life insurance
policy for Federal income tax purposes. Thus, the death benefit under the Policy
should be excludable from the gross income of the beneficiary under Section
101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's death benefit option, a Policy loan, a partial withdrawal, a surrender,
a change in ownership, a change of insured, the addition of an accelerated death
benefit rider, or an assignment of the Policy may have Federal income tax
consequences. In addition, Federal, state and local transfer, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each policyowner or beneficiary. Generally, the policyowner
will not be deemed to be in constructive receipt of the Policy Value, including
increments thereof, until there is a distribution. The tax consequences of
distributions from, and loans taken from or secured by, a Policy depend on
whether the Policy is classified as a MEC. Upon a complete surrender or lapse of
a Policy or when benefits are paid at a Policy's maturity date, if the amount
received plus the amount of indebtedness exceeds the total investment in the
Policy, the excess will generally be treated as ordinary income subject to tax,
regardless of whether the Policy is or is not a MEC.
MODIFIED ENDOWMENT CONTRACTS. Section 7702A establishes a class of life
insurance contracts designated as "Modified Endowment Contracts," which applies
to Policies entered into or materially changed after June 20, 1988.
Because of the Policy's flexibility, classification as a MEC will depend on the
individual circumstances of each Policy. In general, a Policy will be a MEC if
the accumulated premiums paid at any time during the first seven policy years
exceed the sum of the net level premiums which would have been paid on or before
such time if the Policy provided for paid-up future benefits after the payment
of seven level annual premiums. The determination of whether a Policy will be a
MEC after a material change generally depends upon the relationship of the death
benefit and Policy Value at the time of such change and the additional premiums
paid in the seven years following the material change. If a premium is received
which would cause the Policy to become a MEC within 23 days of the next policy
anniversary, we will not apply the portion of the premium which would cause MEC
status (excess premium) to the Policy when received. The excess premium will be
placed in a suspense account until the next anniversary date, at which point the
excess premium, along with interest earned on the excess premium at a rate of
3.5% from the date the premium was received, will be applied to the Policy. The
policyowner will be advised of this action and will be offered the opportunity
to have the premium credited as of the original date received or to have the
premium returned. If the policyowner does not respond, the premium and interest
will be applied to the Policy as of the first day of the next anniversary.
If a premium is received which would cause your Policy to become a MEC more than
23 days prior to the next policy anniversary, we will refund any excess premium
to you. The portion of the premium which is not excess will be applied as of the
date received. We will advise you of this action and will offer to return the
premium and have it credited to the account as of the original date received.
If, in connection with the application or issue of the Policy, you acknowledge
that your Policy is or will become a MEC, we will credit excess premiums that
would cause MEC status as of the date received.
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<PAGE> 41
Further, if a transaction occurs which reduces the face amount of your Policy
during the first seven years, we will retest the Policy, retroactive to the date
of purchase, to determine compliance with the seven-pay test based on the lower
face amount. As well, if a reduction of the face amount occurs within seven
years of a material change, we will retest the Policy for compliance retroactive
to the date of the material change. Failure to comply would result in
classification as a MEC regardless of any efforts by us to provide a payment
schedule that will not violate the seven-pay test.
The rules relating to whether a Policy will be treated as a MEC are extremely
complex and cannot be adequately described in the limited confines of this
summary. Therefore, you should consult with a competent adviser to determine
whether a transaction will cause the Policy to be treated as a MEC.
DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. Policies
classified as MECs will be subject to the following tax rules: First, all
partial withdrawals from such a Policy are treated as ordinary income subject to
tax up to the amount equal to the excess (if any) of the Policy Value
immediately before the distribution over the investment in the Policy (described
below) at such time. Second, loans taken from or secured by such a Policy are
treated as partial withdrawals from the Policy and taxed accordingly. Past-due
loan interest that is added to the loan amount is treated as a loan. Third, a
10% additional income tax is imposed on the portion of any distribution
(including distributions upon surrender) from, or loans taken from or secured
by, such a Policy that is included in income except where the distribution or
loan is made on or after the policyowner attains age 59 1/2, is attributable to
the policyowner's becoming disabled, or is part of a series of substantially
equal periodic payments for the life (or life expectancy) of the policyowner or
the joint lives (or joint life expectancies) of the policyowner and the
policyowner's beneficiary.
DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. A
distribution from a Policy that is not a MEC is generally treated as a tax-free
recovery by the policyowner of the investment in the Policy (described below) to
the extent of such investment in the Policy, and as a distribution of taxable
income only to the extent the distribution exceeds the investment in the Policy.
An exception to this general rule occurs in the case of a decrease in the
Policy's death benefit or any other change that reduces benefits under the
Policy in the first 15 years after the Policy is issued and that results in a
cash distribution to the policyowner in order for the Policy to continue
complying with the Section 7702 definitional limits. Such a cash distribution
will be taxed in whole or in part as ordinary income (to the extent of any gain
in the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a MEC are not treated as
distributions. Instead, such loans are treated as indebtedness of the
policyowner. Select Loans may, however, be treated as a distribution.
Finally, neither distributions (including distributions upon surrender) nor
loans from, or secured by, a Policy that is not a MEC are subject to the 10%
additional tax.
POLICY LOAN INTEREST. Generally, personal interest paid on any loan under a
Policy which is owned by an individual is not deductible. In addition, except
for the transition rules described in the paragraph below, interest on any loan
under a Policy owned by a taxpayer and covering the life of any individual who
is an officer or employee of or is financially interested in the business
carried on by the taxpayer will not be tax deductible unless the employee is a
key person within the meaning of Section 264 of the Code. A deduction will not
be permitted for interest on a loan under a policy held on the life of a key
person to the extent the aggregate of such loans with respect to contracts
covering the key person exceeds $50,000. The number of employees who can qualify
as key persons depends in part on the size of the employer but cannot exceed 20
individuals.
Furthermore, if a non-natural person owns a Policy, or is the direct or indirect
beneficiary under a Policy, Section 264(f) of the Code disallows a pro-rata
portion of the taxpayer's interest expense allocable to unborrowed policy cash
values attributable to insurance held on the lives of individuals who are not
20% (or more) owners of the taxpayer-entity, officers, employees, or former
employees of the taxpayer.
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<PAGE> 42
The portion of the interest expense that is allocable to unborrowed policy cash
values is an amount that bears the same ratio to that interest expense as the
taxpayer's average unborrowed policy cash values under such life insurance
policies bears to the average adjusted bases for all assets of the taxpayer.
If the taxpayer is not the owner, but is the direct or indirect beneficiary
under the contract, then the amount of unborrowed cash value of the policy taken
into account in computing the portion of the taxpayer's interest expense
allocable to unborrowed policy cash values cannot exceed the benefit to which
the taxpayer is directly or indirectly entitled under the Policy.
INVESTMENT IN THE POLICY. Investment in the Policy means (i) the aggregate
amount of any premiums or other consideration paid for a Policy, minus (ii) the
aggregate amount received under the Policy which has been excluded from gross
income of the policyowner (except that the amount of any loan from, or secured
by, a Policy that is a MEC, to the extent such amount has been excluded from
gross income, will be disregarded), plus (iii) the amount of any loan from, or
secured by, a Policy that is a MEC to the extent that such amount has been
included in the gross income of the policyowner.
MULTIPLE POLICIES. All MECs that are issued by us (or our affiliates) to the
same policyowner during any calendar year are treated as one MEC for purposes of
determining the amount includible in the gross income under Section 72(e) of the
Code.
OUR TAXES
As a result of the Omnibus Budget Reconciliation Act of 1990, insurance
companies are generally required to capitalize and amortize certain policy
acquisition expenses over a 10-year period rather than currently deducting such
expenses. This treatment applies to the deferred acquisition expenses of a
Policy and results in a significantly higher corporate income tax liability for
us. We reserve the right to make a charge to premiums to compensate us for the
anticipated higher corporate income taxes.
At the present time, we make no charge to the Separate Account for any Federal,
state or local taxes that we incur that may be attributable to the Separate
Account or to the Policies. We, however, reserve the right in the future to make
a charge for any such tax or other economic burden resulting from the
application of the tax laws that we determine to be properly attributable to the
Separate Account or to the Policies.
DISTRIBUTION OF THE POLICY
MSS is a Delaware limited liability company organized on October 1, 1997, with
its principal offices located at 73 Tremont Street, Boston, Massachusetts 02108.
MSS acts as the principal underwriter of, and continuously offers, the Policies
pursuant to a Distribution Agreement with us. MSS is a subsidiary of Manulife
North America, the ultimate parent entity of which is Manulife. MSS is
registered as a broker-dealer under the Securities Exchange Act of 1934, is a
member of the National Association of Securities Dealers and is duly appointed
and licensed as our insurance agent. The Policies will be sold by registered
representatives of broker-dealers having distribution agreements with MSS who
are also licensed by the New York State Insurance Department and appointed with
us. The gross first-year compensation paid by us, consisting of commission,
expense allowance and General Agent Override, if applicable will not exceed 99%
of premiums paid up to the Target Premium and a total of 3% on the excess
thereof. Additionally, we may pay renewal compensation consisting of commissions
and expense allowance, totaling 3% of premiums paid in years two to 15, and 2%
thereafter, plus 0.15% of the Policy Value per annum after the third anniversary
RESPONSIBILITIES ASSUMED BY US AND MSS
We have entered into an agreement with MSS pursuant to which MSS will pay
selling broker dealers maximum commission and expense allowance payments
pursuant to limitations imposed by New York Insurance Law. We will prepare and
maintain all books and records required to be prepared and maintained by MSS
with respect to the Policies, and send all confirmations required to be sent by
MSS with respect to
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<PAGE> 43
the Policies. We will pay MSS for expenses incurred and services performed under
the terms of the agreement in such amounts and at such times as agreed to by the
parties.
Manulife has also entered into a Service Agreement with us pursuant to which
Manulife or its designee will provide to us all issue, administrative, general
services and recordkeeping functions on our behalf with respect to all of our
insurance policies including the Policies.
Finally, we may, from time to time at our sole discretion, enter into one or
more reinsurance agreements with other life insurance companies, under which
policies issued by us may be automatically reinsured, such that our total amount
at risk under a policy would be limited for the life of the insured.
VOTING RIGHTS
As stated above, we will invest all of the assets held in the sub-accounts of
the Separate Account in shares of a particular Portfolio of the Trust. We are
the legal owner of those shares and as such have the right to vote upon matters
that are required by the 1940 Act to be approved or ratified by the shareholders
of a mutual fund and to vote upon any other matters that may be voted upon at a
shareholders' meeting. However, we will vote shares held in the sub-accounts in
accordance with instructions received from policyowners having an interest in
such sub-accounts.
We will vote shares held in each sub-account for which no timely instructions
from policyowners are received, including shares not attributable to Policies,
in the same proportion as those shares in that sub-account for which
instructions are received. Should the applicable Federal securities laws or
regulations change so as to permit us to vote shares held in the Separate
Account in our own right, we may elect to do so.
The number of shares in each sub-account for which instructions may be given by
a policyowner is determined by dividing the portion of the Policy Value derived
from participation in that sub-account, if any, by the value of one share of the
corresponding Portfolio of the Trust. We will determine the number as of a date
chosen by us, but not more than 90 days before the shareholders' meeting.
Fractional votes are counted. Voting instructions will be solicited in writing
at least 14 days prior to the shareholders' meeting.
We may, if required by state insurance officials, disregard voting instructions
if such instructions would require shares to be voted so as to cause a change in
the sub-classification or investment policies of one or more of the Portfolios,
or to approve or disapprove an investment management contract. In addition, we
may disregard voting instructions that would require changes in the investment
policies or investment adviser, provided that we reasonably disapprove such
changes in accordance with applicable Federal regulations. If we disregard
voting instructions, we will advise you of that action and our reasons for such
action in the next communication to policyowners.
DIRECTORS AND OFFICERS OF MANULIFE NEW YORK
Our Directors and Officers, together with their principal occupations during the
past few years, are as follows:
<TABLE>
<CAPTION>
Position with
Name the Company Principal Occupation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bruce Avedon Director* Director, MNY, March 1992 to present; Consultant (self-employed)
Age: 70 September 1983 to present.
Thomas Borshoff Director* Director, MNY, February 1999 to present; Self-employed, Real Estate
Age: 51 Owner/Manager; Chief Executive Officer and Chairman, First Federal
Savings and Loan of Rochester, 1983 to 1997.
John D. DesPrez III Director* Executive Vice President, U.S. Operations, Manulife Financial,
</TABLE>
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<PAGE> 44
<TABLE>
<CAPTION>
Position with
Name the Company Principal Occupation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Age: 42 January 1999 to present; Director, WLA, October 1996 to present;
Director, September 1996 to present and Chairman of the Board,
January 1999 to present, of MNA; President, MNA, September 1996 to
December 1998; President, MIT September 1996 to present; Senior Vice
President, U.S. Annuities, Manulife Financial, September 1996 to
December 1998; Vice President, Mutual Funds, Manulife Financial,
January 1995 to September 1996; Director, MWL, December 1995 to
present; Director, Wood Logan Distributors, March 1993 to present;
President, North American Funds, March 1993 to September 1996;
Director, MNY, March 1992 to present; Vice President, Secretary and
General Counsel, MNA, January 1991 to June 1994.
Ruth Ann Flemming Director* Director, MNY, March 1992 to present; Attorney, consulting services
Age: 40 and pro bono activities.
Tracy A. Kane Secretary and Counsel Secretary and Counsel, MNY, May 1994 to present; Assistant Vice
Age: 37 President and Senior Counsel, MNA, April 1993 to present; Counsel,
Fidelity Investments, prior to April 1993.
Theodore F. Kilkuskie Director* Senior Vice President, U.S. Annuities, Manulife Financial, January
Age: 43 1999 to present; President, MNA, January 1999 to present; Director,
MNY, November 1997 to present; Senior Vice President, U.S. Individual
Insurance, Manulife Financial, August 1998 to December 1998;
Director, The Manufacturers Life Insurance Company of America
("ManAmerica"), May 1996 to present; Director, MWL, April 1996 to
present; Vice President, U.S. Individual Insurance, Manulife
Financial, June 1995 to February 1998; Executive Vice President,
Mutual Fund Sales & Marketing, State Street Research & Management,
March 1994 to June 1995.
David W. Libbey Treasurer Vice President, Treasurer and Chief Financial Officer, MNA, December
Age: 52 1997 to present; Treasurer, MNY, November 1997 to present; Vice
President, Finance, MNA, June 1997 to December 1997; Vice President,
Finance, Annuities, Manulife Financial, June 1997 to present; Vice
President & Actuary, Paul Revere Insurance Group, June 1970 to March
1997.
A. Scott Logan Director* and President Director and President, MNY, February 1998 to present; Director,
Age: 59 MWL, December 1995 to present; Director, Wood Logan Distributors,
July 1990 to present; Director and President, WLA, August 1986
to present.
James O'Malley Director* Senior Vice President, U.S. Pensions, Manulife Financial, January
Age: 52 1999 to present; Director, MNY, November 1998 to present; Director,
ManAmerica, November 1998 to present; Vice President, Systems New
Business Pensions, Manulife Financial, 1984 to December 1998.
Neil M. Merkl, Esq. Director* Director, MNY, December 1995 to present; Attorney (self-employed),
Age: 67 April 1994 to present; Attorney, Wilson Elser, 1979 to 1994.
John Richardson Director and Chairman of the Senior Executive Vice President, Manulife Financial, January 1999
Age: 61 Board of Directors* to present; Executive Vice President, U.S. Operations, Manulife
Financial, November 1997 to December 1998; Chairman of the Board,
MWL, April 1997 to present; Director, March 1997 to present and
Chairman of the Board, March 1997 to December 1998, MNA; Director and
Chairman of the Board, MNY, November 1996 to
</TABLE>
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<PAGE> 45
<TABLE>
<CAPTION>
Position with
Name the Company Principal Occupation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
present; Director, MWL, December 1995 to present; Director and
Chairman of the Board, ManAmerica, January 1995 to present; Senior
Vice President and General Manager, U.S. Operations, Manulife
Financial, January 1995 to October 1997; Senior Vice President and
General Manager, Canadian Operations, Manulife Financial, June 1992
to December 1994.
James K. Robinson Director* Director, MNY, March 1992 to present; Retired; Attorney and
Age: 71 Assistant Secretary, Eastman Kodak Company, 1958 to 1991.
John G. Vrysen Vice President and Chief Chief Financial Officer and Treasurer, MWL, January 1996 to
Age: 43 Actuary present; Vice President and Chief Financial Officer, U.S.
Operations, Manulife Financial, January 1996 to present; Appointed
Actuary, ManAmerica, May 1996 to present; Director, MWL, December
1995 to present; Vice President and Chief Actuary, MNY, March 1992 to
present; Director, MNY, March 1992 to February 1998; Vice President
and Chief Actuary, MNA, January 1986 to present.
</TABLE>
* Each Director is elected to serve until the next annual meeting of
shareholders or until his or her successor is elected and qualified.
STATE REGULATIONS
We are subject to regulation and supervision by the New York Department of
Insurance, which periodically examines our financial condition and operations.
We are also subject to the insurance laws and regulations of all jurisdictions
in which we are authorized to do business. The Policies have been filed with
insurance officials, and meet all standards set by law, in each jurisdiction
where they are sold.
We are required to submit annual statements of our operations, including
financial statements, to the insurance departments of the various jurisdictions
in which we do business for the purposes of determining solvency and compliance
with local insurance laws and regulations.
PENDING LITIGATION
No litigation is pending that would have a material effect upon the Separate
Account or the Trust.
ADDITIONAL INFORMATION
We have filed a registration statement under the Securities Act of 1933 with the
SEC relating to the offering described in this prospectus. This prospectus does
not include all the information set forth in the registration statement. You may
obtain the omitted information from the SEC's principal office in Washington,
D.C. upon payment of the prescribed fee.
For further information you may also contact our Service Office.
INDEPENDENT AUDITORS
The financial statements of The Manufacturers Life Insurance
Company of New York at December 31, 1998 and
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<PAGE> 46
1997, and for each of the three years in the period ended December 31, 1998,
appearing in the Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
IMPACT OF YEAR 2000
The Company makes extensive use of information systems in the operations of its
various businesses, including for the exchange of financial data and other
information with customers, suppliers and other counterparties. The Company also
uses software and information systems provided by third parties in its
accounting, business and investment systems.
The Year 2000 risk, as it is commonly known, is the result of computer programs
being written using two digits, rather than four, to define the applicable year.
Any of the Company's computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in systems failures or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions, send premium billing notices, make claims payments or engage in
other normal business activities.
The systems used by the Company have been assessed as part of a comprehensive
written plan conducted by the Company's ultimate parent company, The
Manufacturers Life Insurance Company (collectively with its subsidiaries
"Manulife Financial"), to ensure that computer systems and processes of Manulife
Financial will continue to perform through the end of this century and into the
next.
In 1996, in order to make Manulife Financial's systems Year 2000 compliant, a
program was instituted to modify or replace both Manulife Financial's
information technology systems ("IT systems") and embedded technology systems
("Non-IT systems"). The phases of this program include (i) an inventory and
assessment of all systems to determine which are critical, (ii) planning and
designing the required modifications and replacements, (iii) making these
modifications and replacements, (iv) testing modified or
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<PAGE> 47
replaced systems, (v) redeploying modified or replaced systems and (vi) final
management review and certification. For most IT and non-IT systems identified
as critical, the Company has completed certification. Of those systems
classified as critical, management believes that over 99% were Year 2000
compliant at the end of 1998. Management continues to focus attention on the
remaining 1% of critical systems. Those that affect the Company are expected to
be compliant by the end of the first quarter in 1999. Management believes that
the Company's non-critical systems will be Year 2000 compliant by the end of the
first quarter 1999.
In addition to efforts directed at Manulife Financial's own systems, Manulife
Financial is presently consulting vendors, customers, and other third parties
with which it deals in an effort to ensure that no material aspect of Manulife
Financial's operations will be hindered by Year 2000 problems of these third
parties. This process includes providing third parties with questionnaires
regarding the state of their Year 2000 readiness and, where possible or where
appropriate, conducting further due diligence activities.
Manulife Financial recognizes the importance of preparing for the change to the
Year 2000 and, in January 1999, commenced preparation of contingency plans, in
the event that Manulife Financial's Year 2000 program has not fully resolved its
Year 2000 issues. The Year 2000 Project Management Office for Manulife
Financial's U.S. Division is coordinating the preparation of the Year 2000
contingency plan on behalf of U.S. Division affiliates and subsidiaries,
including the Company. A contingency plan concerning the Company is targeted for
completion by the end of the first quarter of 1999.
Management currently believes that, with modifications to existing software and
conversions to new software, the Year 2000 risk will not pose significant
operational problems for Manulife Financial's computer systems. As part of the
Year 2000 program, critical systems were "time-shift" tested in the Year 2000
and beyond to confirm that they will continue to function properly before,
during and after the change to the Year 2000. However, there can be no assurance
that Manulife Financial's Year 2000 program, including consulting third parties
and its contingency planning, will avoid any material adverse effect on the
Company's operations, customer relations or financial condition. Manulife
Financial estimates the total cost of its Year 2000 program will be
approximately $59 million, of which $49.5 million has been incurred through
December 31, 1998; however, there can be no assurance that the actual cost
incurred will not be materially higher than such estimate. Most costs will be
expensed as incurred; however, those costs attributed to the purchase of new
software and hardware will generally be capitalized. A proportional amount of
the total cost will be allocated to the Company and is not expected to have a
material effect on the Company's net operating income.
FINANCIAL STATEMENTS
Our financial statements included herein should be distinguished from the
financial statements of the Separate Account and should be considered only as
bearing upon our ability to meet our obligations under the Policies. No
financial statements for the Separate Account are included herein, because, as
of December 31, 1998, the Separate Account had no assets or liabilities.
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<PAGE> 48
FINANCIAL STATEMENTS AND SCHEDULES
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NEW YORK
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................
Audited Financial Statements..........................................
Balance Sheets........................................................
Statements of Income..................................................
Statements of Changes in Shareholders' Equity.........................
Statements of Cash Flows..............................................
Notes to Financial Statements.........................................
</TABLE>
40
<PAGE> 49
Report of Independent Auditors
The Board of Directors and Shareholder
The Manufacturers Life Insurance Company of New York
We have audited the accompanying balance sheets of The Manufacturers Life
Insurance Company of New York (formerly First North American Life Assurance
Company and hereinafter referred to as the Company) as of December 31, 1998 and
1997, and the related statements of income, changes in shareholder's equity, and
cash flows for each of the years in the three year period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Manufacturers Life
Insurance Company of New York at December 31, 1998 and 1997, and the results of
its operations and its cash flows for each of the years in the three year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
Boston, Massachusetts
FEBRUARY 22, 1999 ERNST & YOUNG LLP
41
<PAGE> 50
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
<TABLE>
<CAPTION>
As at December 31
ASSETS ($ thousands) 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENTS
Fixed maturity securities available-for-sale, at fair value (note 3)
(amortized cost: 1998 $120,902; 1997 $126,714) $ 125,088 $ 129,151
Investment in unconsolidated affiliate 175 -
Policy loans 552 398
Short-term investments 10,032 9,998
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 135,847 $ 139,547
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 5,946 $ 1,431
Accrued investment income 3,073 2,401
Deferred acquisition costs (note 4) 36,831 28,364
Other assets 1,834 231
Separate account assets 833,693 597,193
- ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,017,224 $ 769,167
=========================================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY ($ thousands)
- ---------------------------------------------------------------------------------------------------------
LIABILITIES:
Policyholder liabilities and accruals $ 94,492 $ 86,611
Payable to affiliates 4,114 4,345
Deferred income taxes (note 5) 3,615 2,269
Other liabilities 1,943 987
Separate account liabilities 833,693 597,193
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 937,857 $ 691,405
- ---------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY:
Common stock (note 6) $ 2,000 $ 2,000
Additional paid-in capital 72,706 72,531
Retained earnings 3,209 2,136
Accumulated other comprehensive income 1,452 1,095
- ---------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDER'S EQUITY $ 79,367 $ 77,762
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $1,017,224 $ 769,167
=========================================================================================================
</TABLE>
See accompanying notes
42
<PAGE> 51
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
Statements of Income
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Fees from separate accounts and policyholder liabilities $10,961 $ 7,395 $ 4,762
Net investment income (note 3) 9,786 6,717 5,224
Net realized investment gains 713 769 89
- ---------------------------------------------------------------------------------------------------------
TOTAL REVENUE $21,460 $14,881 $10,075
- ---------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 4,603 $ 4,747 $ 4,189
Amortization of deferred acquisition costs (note 4) 4,849 3,393 2,319
Other insurance expenses 10,359 5,845 1,192
- ---------------------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES $19,811 $13,985 $ 7,700
- ---------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES $ 1,649 $ 896 $ 2,375
- ---------------------------------------------------------------------------------------------------------
INCOME TAXES (NOTE 5) $ 576 $ 310 $ 833
- ---------------------------------------------------------------------------------------------------------
NET INCOME $ 1,073 $ 586 $ 1,542
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
43
<PAGE> 52
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON ADDITIONAL RETAINED COMPREHENSIVE SHAREHOLDER'S
($ thousands) STOCK PAID-IN CAPITAL EARNINGS INCOME EQUITY
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $2,000 $ 11,500 $ 8 $ 1,704 $ 15,212
Capital contribution 13,300 13,300
Comprehensive income (note 2) 1,542 (1,285) 257
- -------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $2,000 $ 24,800 $ 1,550 $ 419 $ 28,769
Capital contribution 47,731 47,731
Comprehensive income (note 2) 586 676 1,262
- -------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $2,000 $ 72,531 $ 2,136 $ 1,095 $ 77,762
Capital contribution 175 175
Comprehensive income (note 2) 1,073 357 1,430
- -------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $2,000 $ 72,706 $ 3,209 $ 1,452 $ 79,367
===================================================================================================================
</TABLE>
See accompanying notes.
44
<PAGE> 53
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,073 $ 586 $ 1,542
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Amortization of bond discount and premium 434 333 141
Net realized investment gains (713) (769) (89)
Provision for deferred income tax 1,153 (29) 220
Amortization of deferred acquisition costs 4,849 3,393 2,319
Policy acquisition costs deferred (14,515) (11,684) (7,224)
Return credited to policyholders and other benefits 4,603 4,747 4,189
Changes in assets and liabilities:
Accrued investment income (672) (873) (7)
Other assets (1,603) (80) 196
Payable to affiliates (231) 2,328 865
Other liabilities 956 115 (153)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities $ (4,666) $ (1,933) $ 1,999
- ------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Fixed maturity securities sold, matured or repaid $ 30,591 $ 59,307 $ 31,659
Fixed maturity securities purchased (24,500) (103,383) (41,409)
Net change in short-term investments (34) (6,011) (3,985)
Policy loans advanced, net (154) (215) (116)
- ------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities $ 5,903 $ (50,302) $ (13,851)
- ------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Deposits and interest credited to policyholder funds 14,212 17,212 18,408
Return of policyholder funds (10,934) (15,382) (24,676)
Change in notes payable - - (2,000)
Capital contribution by parent - 47,731 13,300
- ------------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities $ 3,278 $ 49,561 $ 5,032
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the year 4,515 (2,674) (6,820)
Balance, beginning of year 1,431 4,105 10,925
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, END OF YEAR $ 5,946 $ 1,431 $ 4,105
==============================================================================================================================
</TABLE>
See accompanying notes
45
<PAGE> 54
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(IN THOUSANDS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company of New York (First North
American Life Assurance Company prior to October 1, 1997, and
hereinafter referred to as "the Company"), is a stock life insurance
company which was organized on February 10, 1992 under the laws of the
State of New York. The New York Insurance Department ("the Department")
granted the Company a license to operate on July 22, 1992. The Company
is a wholly-owned subsidiary of The Manufacturers Life Insurance
Company of North America (formerly North American Security Life
Insurance Company and hereinafter referred to as "MNA"), which is in
turn a wholly-owned subsidiary of Manulife-Wood Logan Holding Co., Inc.
("MWL"). MWL is 62.5% owned by The Manufacturers Life Insurance Company
(USA) (ManUSA), 22.5% by MRL Holding, LLC, ("MRL") and 15% by minority
interest shareholders. ManUSA and MRL are indirectly wholly-owned
subsidiaries of The Manufacturers Life Insurance Company ("Manulife
Financial"), a Canadian-based mutual life insurance company.
The Company issues individual and group annuity, 401(k) and individual
life insurance contracts (collectively, the contracts) in the State of
New York. Amounts invested in the fixed portion of the contracts are
allocated to the general account or a non-insulated separate account of
the Company. Amounts invested in the variable portion of the contracts
are allocated to the separate accounts of the Company. Each of these
separate accounts invests in shares of the various portfolios of the
Manufacturers Investment Trust (formerly NASL Series Trust and
hereinafter referred to as "MIT"), a no-load, open-end investment
management company organized as a Massachusetts business trust, or in
open-end investment management companies offered and managed by
unaffiliated third parties.
Prior to October 1, 1997, the Company sold and administered only a
combination fixed and variable annuity products. On October 21, 1997,
the Company received approval from the Department for a revised plan of
operations which expanded its product offerings. MNA contributed
$47,731 to the Company in support of the revised plan of operations.
Prior to October 1, 1997, NASL Financial Services Inc. ("NASL
Financial"), an affiliate of the Company, acted as investment adviser
to MIT and as principal underwriter of the annuity contracts issued by
the Company. Effective October 1, 1997, Manufacturers Securities
Services, LLC ("MSS"), the successor to NASL Financial, replaced NASL
Financial as the investment advisor to MIT and as the principal
underwriter for the variable contracts and sole distributor of all
contracts issued by the Company.
46
<PAGE> 55
1. ORGANIZATION (CONTINUED)
Prior to October 1, 1997, Wood Logan Associates Inc. ("WLA"), a
subsidiary of MWL, acted as the promotional agent for the sale of the
Company's contracts. Since October 1, 1997, marketing services for the
sale of all contracts issued by the Company and other services are
provided by certain affiliates of the Company pursuant to an
Administrative Services Agreement and an Investment Services Agreement,
between the Company and Manulife Financial. Currently, services are
provided by Manulife Financial, WLA, MNA, and ManUSA.
On October 31, 1998, the Company received a 10% interest in the
members' equity of MSS from MNA, the managing member of MSS. The
Company treated the receipt of its equity interest as a contribution to
paid-in capital of $175.
2. SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION
The accompanying financial statements of the Company have been prepared
in conformity with generally accepted accounting principles ("GAAP").
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those
estimates.
b) RECENT ACCOUNTING STANDARDS
i) During 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No.
130 establishes standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose annual
financial statements. Comprehensive income includes all changes in
shareholder's equity during a period except those resulting from
investments by and distributions to shareholders. The adoption of SFAS
No. 130 resulted in revised and additional disclosures but had no
effect on the financial position, results of operations, or liquidity
of the Company.
47
<PAGE> 56
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Total comprehensive income was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME $ 1,073 $ 586 $ 1,542
------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gains (losses) arising during the year 820 1,176 (1,227)
Less:
Reclassification adjustment for realized gains included in
net income (463) (500) (58)
------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 357 676 (1,285)
------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 1,430 $ 1,262 $ 257
================================================================================================
</TABLE>
Other comprehensive income (loss) is reported net of taxes of $192,
$364, and ($692) for 1998, 1997, and 1996, respectively.
ii) During 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the disclosure of information about the
Company's operating segments, including disclosures about products and
services, geographic areas, and major customers. The adoption of SFAS
No. 131 did not affect results of operations or financial position,
nor did it affect the manner in which the Company defines its
operating segments. The Company reports three business segments:
Variable Annuities; Savings and Retirement Services; Individual Life
Insurance. The Variable Annuities segment consists of annuity
contracts that provide the customer with the opportunity to invest in
mutual funds managed by independent investment managers and the
Company, with investment returns accumulating on a tax-deferred basis.
The Savings and Retirement Services segment offers 401(k) products to
customers in the State of New York. The Individual Life Insurance
segment offers traditional non-participating life insurance to the New
York market. The Savings and Retirement Services segment was launched
in mid - 1998 and the Individual Life Insurance segment was launched
in late 1997. Both these segments are considered to be in the start-up
phase. No significant assets or revenues have been generated to date
in these two segments. Start-up costs, on a pre-tax basis, reported
for these two segments totaled approximately $534 and $2,399,
respectively in 1998 and $1,551 for the Individual Life Insurance
segment in 1997. The following is a summary of the contribution to net
income of the three business segments:
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
($ thousands) 1998 1997 1996
-------------------------------------------------------------------
<S> <C> <C> <C>
Annuities $ 2,623 $ 1,594 $ 1,542
Savings and Retirement Services (318) -- --
Life Insurance (1,232) (1,008) --
-------------------------------------------------------------------
NET INCOME $ 1,073 $ 586 $ 1,542
===================================================================
</TABLE>
48
<PAGE> 57
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c) INVESTMENTS
The Company classifies all of its fixed maturity securities as
available-for-sale and records these securities at fair value. Realized
gains and losses on sales of securities classified as
available-for-sale are recognized in net income using the specific
identification method. Changes in the fair value of securities
available-for-sale are reflected directly in accumulated other
comprehensive income after adjustments for deferred taxes and deferred
acquisition costs. Discounts and premiums on investments are amortized
using the effective interest method.
The cost of fixed maturity securities is adjusted for the amortization
of premiums and accretion of discounts using the interest method. This
amortization or accretion is included in net investment income.
For the mortgage-backed bond portion of the fixed maturity securities
portfolio, the Company recognizes amortization using a constant
effective yield based on anticipated prepayments and the estimated
economic life of the securities. When actual prepayments differ
significantly from anticipated prepayments, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the security is adjusted to the amount
that would have existed had the new effective yield been applied since
the acquisition of the security. That adjustment is included in net
investment income.
Policy loans are reported at aggregate unpaid balances which
approximate fair value.
Short-term investments which include investments with maturities of
less than one year and greater than 90 days at the date of acquisition,
are reported at amortized cost which approximates fair value.
d) CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
an original maturity date of three months or less to be cash
equivalents. Cash equivalents are stated at cost plus accrued interest,
which approximates fair value.
49
<PAGE> 58
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e) DEFERRED ACQUISITION COSTS (DAC)
Commissions and other expenses which vary with and are primarily
related to the production of new business are deferred to the extent
recoverable and included as an asset. Acquisition costs associated with
variable annuity contracts and investment pension contracts are being
amortized generally in proportion to the present value of expected
gross profits from surrender charges and investment, mortality and
expense margins. The amortization is adjusted retrospectively when
estimates of current or future gross profits are revised. DAC
associated with traditional non-participating individual insurance
policies is charged to expense over the premium paying period of the
related policies. DAC is adjusted for the impact on estimated future
gross profits assuming the unrealized gains or losses on securities had
been realized at year-end. The impact of any such adjustments is
included in net unrealized gains (losses) in accumulated other
comprehensive income. DAC is reviewed annually to determine
recoverability from future income and, if not recoverable, it is
immediately expensed. To date, the DAC balance is primarily
attributable to the variable annuity segment.
f) POLICYHOLDER LIABILITIES AND ACCRUALS
Policyholder liabilities equal the policyholder account value for the
fixed portion of variable annuity contracts and for investment pension
contracts with no substantial mortality risk. Account values are
increased for deposits received and interest credited and are reduced
by withdrawals. For traditional non-participating life insurance
policies, policyholder liabilities are computed using the net level
premium method and are based upon estimates as to future mortality,
persistency, maintenance expenses and interest rate yields that are
applicable in the year of issue. The assumptions include a provision
for the risk of adverse deviation.
g) SEPARATE ACCOUNTS
Separate account assets and liabilities that are reported in the
accompanying balance sheets represent investments in MIT, which are
mutual funds that are separately administered for the exclusive benefit
of the policyholders of the Company and its affiliates, or open-end
investment management companies offered and managed by unaffiliated
third parties, which are mutual funds that are separately administered
for the benefit of the Company's policyholders and other shareholders.
These assets and liabilities are reported at fair value. The
policyholders, rather than the Company, bear the investment risk. The
operations of the separate accounts are not included in the
accompanying financial statements. Fees charged on separate account
policyholder funds are included in revenues.
50
<PAGE> 59
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h) REVENUE RECOGNITION
Fee income from separate accounts, variable annuity contracts and
investment pension contracts consists of charges for mortality,
expenses and surrender and administration charges that have been
assessed against the policyholder account balances. Premiums on
traditional non-participating life insurance policies are recognized as
revenue when due and currently are included in Fees from Separate
Accounts and Policyholder Liabilities in the statements of income.
Investment income is recorded as revenue when due.
i) POLICYHOLDER BENEFITS AND CLAIMS
Benefits for variable annuity contracts and investment pension contracts
include interest credited to policyholder account balances and benefit
claims incurred during the period in excess of policyholder account
balances.
j) INCOME TAXES
Income taxes have been provided using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under this
method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that
likely will be in effect when the differences are expected to reverse.
The measurement of deferred tax assets is reduced by a valuation
allowance if, based upon the available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized.
3. INVESTMENTS AND INVESTMENT INCOME
a) FIXED MATURITY SECURITIES
At December 31, 1998 and 1997, all fixed maturity securities have been
classified as available-for-sale and reported at fair value. The
amortized cost and fair value are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST UNREALIZED UNREALIZED FAIR VALUE
AS AT DECEMBER 31, GAINS LOSSES
($ thousands) 1998 1997 1998 1997 1998 1997 1998 1997
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government $ 11,018 $ 7,422 $ 591 $ 284 ($15) $ -- $ 11,594 $ 7,706
Corporate securities 99,696 108,682 3,321 1,879 (35) (23) 102,982 110,538
Mortgage-backed securities 6,680 5,016 125 69 (21) -- 6,784 5,085
Foreign governments 2,449 -- 111 -- -- -- 2,560 --
States/political subdivisions 1,059 5,594 109 228 -- -- 1,168 5,822
--------------------------------------------------------------------------------------------------------------
Total fixed maturity securities $120,902 $126,714 $4,257 $2,460 ($71) ($23) $125,088 $129,151
--------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 60
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
Proceeds from sales of fixed maturity securities during 1998 were
$17,985 (1997 $45,217; 1996 $6,559). Gross gains of $715 and gross
losses of $2 were realized on those sales (1997 $772 and $3; 1996 $91
and $2 respectively).
The contractual maturities of fixed maturity securities at December 31,
1998 are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. Corporate
requirements and investment strategies may result in the sale of
investments before maturity.
<TABLE>
<CAPTION>
($ thousands) AMORTIZED COST FAIR VALUE
--------------------------------------------------------------
<S> <C> <C>
FIXED MATURITY SECURITIES
One year or less $ 13,083 $ 13,117
Greater than 1; up to 5 years 61,861 63,525
Greater than 5; up to 10 years 21,812 22,807
Due after 10 years 17,466 18,855
Mortgage-backed securities 6,680 6,784
--------------------------------------------------------------
TOTAL FIXED MATURITY SECURITIES $120,902 $125,088
--------------------------------------------------------------
</TABLE>
Fixed maturity securities with a fair value of $410 and $414 at
December 31, 1998 and 1997, respectively, were on deposit with, or in
custody accounts on behalf of, New York State Insurance Department to
satisfy regulatory requirements.
b) INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities $ 8,338 $ 6,343 $ 4,476
Other invested assets 830
Short-term investments 762 477 873
----------------------------------------------------------
Gross investment income 9,930 6,819 5,349
----------------------------------------------------------
Investment expenses (144) (102) (125)
----------------------------------------------------------
NET INVESTMENT INCOME $ 9,786 $ 6,717 $ 5,224
----------------------------------------------------------
</TABLE>
52
<PAGE> 61
4. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
---------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, $ 28,364 $ 20,208 $ 15,919
Capitalization 14,515 11,684 7,224
Amortization (4,849) (3,393) (2,319)
Effect of net unrealized gains
on securities available for sale (1,199) (135) (616)
---------------------------------------------------------------------
BALANCE AT DECEMBER 31 $ 36,831 $ 28,364 $ 20,208
---------------------------------------------------------------------
</TABLE>
5. INCOME TAXES
The components of income tax expense were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
---------------------------------------------------------------------
<S> <C> <C> <C>
Current expense (benefit) $ (577) $ 339 $613
Deferred expense (benefit) 1,153 (29) 220
---------------------------------------------------------------------
TOTAL EXPENSE $ 576 $ 310 $833
---------------------------------------------------------------------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's net deferred tax
liability are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
AS AT DECEMBER 31
($ thousands) 1998 1997
-------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Asset reserves $ 389 $ 92
-------------------------------------------------------------------------
Total deferred tax assets 389 92
-------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs (2,203) (1,135)
Reserves (4)
Unrealized gains on securities available-for-sale (784) (589)
Other (1,017) (633)
-------------------------------------------------------------------------
Total deferred tax liabilities (4,004) (2,361)
-------------------------------------------------------------------------
NET DEFERRED TAX LIABILITY $(3,615) $(2,269)
-------------------------------------------------------------------------
</TABLE>
53
<PAGE> 62
5. INCOME TAXES (CONTINUED)
The Company participates as a member of the MWL affiliated group,
filing a consolidated federal income tax return. The Company files a
separate New York State return.
The method of allocation between the companies is subject to a tax
sharing agreement under which the tax liability is allocated to each
member of the group on a pro-rata basis based on the relationship that
the member's tax liability (computed on a separate return basis) bears
to the tax liability of the consolidated group. The tax charge to the
Company will not be more than the Company would have paid on a separate
return basis. Settlement of taxes are made through an increase or
reduction to the payable to parent, subsidiaries and affiliates which
is settled periodically.
The Company made estimated tax payments of $1,121 in 1998 and $531 and
$0 in 1997 and 1996, respectively.
6. SHAREHOLDER'S EQUITY
The Company has one class of common stock:
<TABLE>
<CAPTION>
AS AT DECEMBER 31:
($ thousands) 1998 1997
----------------------------------------------------------------------
<S> <C> <C>
AUTHORIZED, ISSUED AND OUTSTANDING:
2,000,000 Common shares, Par value $1 $2,000 $2,000
----------------------------------------------------------------------
</TABLE>
The net assets of the Company available for the Parent as dividends are
generally limited to and cannot be made except from earned
statutory-basis profits. The maximum amount of dividends that may be
paid by life insurance companies without prior approval of the New York
Insurance Commissioner is subject to restrictions relating to statutory
surplus and net gain from operations on a statutory basis.
The aggregate statutory capital and surplus of the Company at December
31, 1998 was $62,881 (1997 $68,336). The aggregate statutory net income
(loss) of the Company for the year ended 1998 was ($5,678) (1997
($1,562); 1996 $231). State regulatory authorities prescribe statutory
accounting practices that differ in certain respects from generally
accepted accounting principles followed by stock life insurance
companies. The significant differences relate to investments, deferred
acquisition costs, deferred income taxes, non-admitted asset balances
and reserves.
54
<PAGE> 63
7. REINSURANCE
The Company has entered into reinsurance agreements with various
reinsurers to reinsure any face amounts in excess of $100 for its
traditional non-participating insurance product. The Company remains
liable for amounts ceded in the event that reinsurers do not meet their
obligations. To date, there have been no reinsurance recoveries under
these agreements.
8. RELATED-PARTY TRANSACTIONS
The Company utilizes various services administered by Manulife
Financial and affiliates such as legal, personnel, investment
accounting and other corporate services. Prior to October 1, 1997,
Manulife Financial and MNA charged the Company for those services. In
the first nine months of 1997 and for the full year 1996, Manulife
Financial and MNA charged the Company approximately $623 and $661,
respectively. Effective October 1, 1997, pursuant to a new Plan of
Operations, all intercompany expenses were billed through Manulife
Financial. For the year ended December 31, 1998 and for the fourth
quarter of 1997, Manulife Financial billed the Company expenses of
$4,685 and $869, respectively. At December 31, 1998 and 1997, the
Company had a net liability to Manulife Financial of $2,372 and $2,977,
respectively, for those services.
For the nine months ended September 30, 1997 and for the full year
1996, the Company paid underwriting commissions to NASL Financial of
$8,421 and $7,050, respectively. NASL Financial then reimbursed Wood
Logan for promotional agent services. Effective October 1, 1997, MSS
replaced NASL Financial as underwriter. Thereafter, all commissions
were paid to MSS by the Company, and Wood Logan marketing services were
paid by Manulife Financial who was then reimbursed by the Company.
Underwriting commissions and marketing services expense of $17,838 and
$4,431, respectively, were incurred during the year ended December 31,
1998 and the fourth quarter of 1997. At December 31, 1998 and 1997, the
Company had a net liability of $799 and $1,368, respectively, for these
services.
The financial statements have been prepared from the records maintained
by the Company and may not necessarily be indicative of the financial
conditions or results of operations that would have occurred if the
Company had been operated as an unaffiliated corporation (see also
Notes 1, 5 10 and 13 for additional related-party transactions).
9. BORROWED MONEY
The Company has an unsecured line of credit with State Street Bank and
Trust in the amount of $5,000, bearing interest at the bank's money
market rate plus 50 basis points. There were no outstanding
advancements under the line of credit at December 31, 1998 and 1997.
55
<PAGE> 64
10. EMPLOYEE BENEFITS
a) RETIREMENT PLAN
Prior to July 1, 1998, the Company and MNA participated in a
non-contributory defined benefit pension plan (the " Nalaco Plan")
sponsored by Manulife Financial, covering its employees. A similar plan
(the "Manulife Plan") also existed for ManUSA. Both plans provided
pension benefits based on length of service and final average earnings.
Vested benefits are fully funded; current pension costs are funded as
they accrue.
Effective July 1, 1998, the Nalaco Plan was merged into the Manulife
Plan as approved by the Board of Directors of Manulife Financial. The
merged plan was then restated as a cash balance pension plan entitled,
"The Manulife Financial U.S. Cash Balance Pension Plan" ("Cash Balance
Plan"). Participants in the two prior plans ceased accruing benefits
under the old plan effective June 30, 1998, and became participants in
the Cash Balance Plan on July 1, 1998. Also effective July 1, ManUSA
became the sponsor of the Cash Balance Plan. Each participant who was a
participant in one of the prior plans received an opening account
balance equal to the present value of their June 30, 1998 accrued
benefit under the prior plan, using Pension Benefit Guaranty
Corporation rates. Future contribution credits under the Cash Balance
Plan vary by service, and interest credits are a function of interest
rate. Pension benefits are provided to those participants after three
years of vesting service, and the normal retirement benefit is
actuarially equivalent to the cash balance account at normal retirement
date. The normal form of payment under the Cash Balance Plan is a life
annuity with various optional forms available.
Actuarial valuation of accumulated plan benefits are based on projected
salaries and best estimates of investment yields on plan assets,
mortality of participants, employee termination and ages at retirement.
Pension costs relating to current service and amortization of
experience gains and losses are amortized to income over the estimated
average remaining service lives of the participants. No pension expense
was recognized by the sponsor in 1998, 1997, or 1996 because the plan
was subject to the full funding limitation under the Internal Revenue
Code.
At December 31, 1998, the projected benefit obligation based on an
assumed interest rate of 6.5 percent was $51,757; and the fair value of
plan assets invested in ManUSA's general fund deposit administration
insurance contracts and in an investment portfolio of equities and
fixed income securities managed by an affiliate were $52,541 and
$32,145, respectively.
56
<PAGE> 65
10. EMPLOYEE BENEFITS (CONTINUED)
b) 401(K) PLAN
Prior to July 1, 1998, the Company also participated in a defined
contribution plan sponsored by MNA, the North American Security Life
401(k) Savings Plan ("NASL 401(k)"), which was subject to the
provisions of the Employee Retirement Income Security Act of 1974
(ERISA). A similar plan, the Manulife Financial 401k Savings Plan, also
existed for employees of ManUSA. These two plans were effectively
merged on July 1, 1998 into one defined contribution plan, sponsored by
ManUSA, as approved by the Board of Directors on March 26, 1998. The
costs associated with the plan were charged to the Company and were not
material.
c) POSTRETIREMENT BENEFIT PLAN
In addition to the retirement plan, the Company participates in the
postretirement benefit plan of MNA which provides retiree medical and
life insurance benefits to those who have attained age 55 with 10 or
more years of service. The plan provides the medical coverage for
retirees and spouses under age 65. When the retirees or the covered
dependents reach age 65, Medicare provides primary coverage and the
plan provides secondary coverage. There is no contribution for post-age
65 coverage, and no contributions are required for retirees for life
insurance coverage. The plan is unfunded.
The postretirement benefit cost to the Company, which includes the
expected cost of postretirement benefits for newly eligible employees
and for vested employees, interest cost, and gains and losses arising
from differences between actuarial assumptions and actual experience,
is accounted for by the plan sponsor, ManUSA.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of the Company's
financial instruments at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Fixed maturity securities $125,088 $125,088 $129,151 $129,151
Short-term investments 10,032 10,032 9,998 9,998
Policy loans 552 552 398 398
Cash and cash equivalents 5,946 5,946 1,431 1,431
Liabilities:
Policyholder liabilities and accruals 94,492 91,113 86,611 81,715
</TABLE>
57
<PAGE> 66
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used by the Company in
estimating the fair value disclosures for financial instruments:
Fixed Maturity Securities: Fair values for fixed maturity securities
are obtained from an independent pricing service.
Short-Term Investment and Cash and Cash Equivalents: Carrying values
approximate fair values.
Policy Loans: Carrying values approximate fair values.
Policyholder Liabilities and Accruals: Fair values of the Company's
liabilities under contracts not involving significant mortality risk
(deferred annuities) are estimated to be the cash surrender value, or
the cost the Company would incur to extinguish the liability.
12. LEASES
The Company leases office space under an operating lease agreement
which expires in 1999 and is subject to a renewal option at market
rates prevailing at the time of renewal. For the years ended December
31, 1998 and 1997, the Company incurred rent expense of $95 and $84,
respectively. The minimum lease payments associated with the office
space are $61 in 1999.
13. CAPITAL MAINTENANCE AGREEMENT
Pursuant to a capital maintenance agreement and subject to regulatory
approval, Manulife Financial has agreed to maintain the Company's
statutory capital and surplus at a specified level and to ensure that
sufficient funds are available for the timely payment of contractual
obligations.
14. CONTINGENCIES
The Company is subject to various lawsuits that have arisen in the
course of its business. Contingent liabilities arising from litigation,
income taxes and other matters are not considered material in relation
to the financial position of the Company.
58
<PAGE> 67
15. UNCERTAINTY DUE TO THE YEAR 2000 RISK (UNAUDITED)
The Year 2000 risk is the result of computer programs being written
using two digits, rather than four, to define the applicable year. Any
of the Company's computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year
2000. The effects of the Year 2000 risk may be experienced before, on,
or after January 1, 2000 and, if not addressed, could result in systems
failures or miscalculations causing disruptions of normal business
operations. It is not possible to be certain that the Company's Year
2000 program will fully resolve all aspects of the Year 2000 risk,
including those related to third parties.
A full discussion of the Company's Year 2000 program and Year 2000
review will be contained in the Company's Management Discussion and
Analysis Section of the Company's Annual Report on Form 10-K.
<PAGE> 68
APPENDIX A
SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND DEATH BENEFITS
The following tables have been prepared to help show how values under the Policy
change with investment performance. The tables include both Policy Values and
Cash Surrender Values as well as Death Benefits. The Policy Value is the sum of
the values in the Investment Accounts, as the tables assume no values in the
Fixed Account or Loan Account. The Cash Surrender Value is the Policy Value less
any applicable surrender charges. The tables illustrate how Policy Values and
Cash Surrender Values, which reflect all applicable charges and deductions, and
Death Benefits of the Policy on an insured of a given age would vary over time
if the return on the assets of the Portfolio was a uniform, gross, after-tax,
annual rate of 0%, 6% or 12%. The Policy Values, Death Benefits and Cash
Surrender Values would be different from those shown if the returns averaged 0%,
6% or 12%, but fluctuated over and under those averages throughout the years.
The charges reflected in the tables include those for: deferred underwriting and
sales charges, and monthly deductions for administration, cost of insurance and
mortality and expense risks. The amounts shown for the Policy Value, Death
Benefit and Cash Surrender Value as of each policy year reflect the fact that
the net investment return on the assets held in the sub-accounts is lower than
the gross, after-tax return. This is because the expenses and fees borne by the
Portfolios are deducted from the gross return. The illustrations reflect an
average of the Trusts' expenses, which is approximately 0. % on an annual
basis. The gross annual rates of return of 0%, 6% and 12% correspond to
approximate net annual rates of return of -0. %, % and %. The
illustrations reflect the expense limitation in effect for the Equity Index
Trust. In the absence of such expense limitation, the average of the Portfolios
current expenses would have been .896% per annum and the gross annual rates of
return of 0%, 6% and 12% would have corresponded to approximate net annual rates
of return of %, % and %. The expense reimbursements for the
LifeStyle Trusts and the expense limitation for the Equity Index Trust remained
in effect during the fiscal year ended December 31, 1998 and are expected to
remain in effect during the fiscal year ended December 31, 1999. Were the
expense reimbursement and expense limitation to terminate, the average of the
Portfolios' current expenses would be higher and the approximate net annual
rates of return would be lower.
The tables assume that no premiums have been allocated to the Fixed Account,
that planned premiums are paid on the policy anniversary and that no transfers,
partial withdrawals, policy loans, changes in death benefit options or changes
in face amount have been made. The tables reflect the fact that no charges for
Federal, state or local taxes are currently made against the Separate Account.
If such a charge is made in the future, it would take a higher gross rate of
return to produce after-tax returns of 0%, 6% and 12% than it does now.
There are two tables shown for each combination of age and death benefit option
for male non-smokers, one based on current cost of insurance and monthly
administration charges and the other based on the maximum administration
charges, deductions from premiums and cost of insurance charges based on the
1980 Commissioners Standard Ordinary Smoker/Nonsmoker Mortality Tables. The
current waiver of deductions from premiums and current monthly administration
charges and cost of insurance charges are not guaranteed and may be changed.
Upon request, we will furnish a comparable illustration based on the proposed
life insured's age, sex (unless unisex rates are required by law) and risk
class, any additional ratings and the death benefit option, face amount and
planned premium requested. Illustrations for smokers would show less favorable
results than the illustrations shown below.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Portfolios, we may include cash
surrender values and death benefit figures computed using the same methodology
as that used in the following illustrations, but with the average annual total
return of the Portfolios for which performance data is shown in the
advertisement replacing the hypothetical rates of return shown in the following
tables. This information may be shown in the form of graphs, charts, tables and
examples.
60
<PAGE> 69
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY (NY)
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$5,960 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical
Gross Investment 6% Hypothetical 12% Hypothetical
Return Gross Investment Return Gross Investment Return
---------------------------- --------------------------------- ------------------------------------
End of Cash Cash Cash
Policy Accumulated Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year(1) Premiums(2) Value Value(3) Benefit Value Value(3) Benefit Value Value(3) Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,258 4,617 0 500,000 4,928 0 500,000 5,241 11 500,000
2 12,829 9,416 2,938 500,000 10,333 3,856 500,000 11,289 4,812 500,000
3 19,728 14,086 7,608 500,000 15,917 9,440 500,000 17,900 11,422 500,000
4 26,973 18,624 12,147 500,000 21,683 15,206 500,000 25,126 18,648 500,000
5 34,579 23,023 16,546 500,000 27,629 21,152 500,000 33,019 26,542 500,000
6 42,566 27,308 21,479 500,000 33,787 27,957 500,000 41,675 35,846 500,000
7 50,953 31,443 26,261 500,000 40,128 34,946 500,000 51,133 45,951 500,000
8 59,758 35,432 30,898 500,000 46,662 42,128 500,000 61,479 56,945 500,000
9 69,004 39,267 35,381 500,000 53,390 49,504 500,000 72,798 68,912 500,000
10 78,712 42,952 39,714 500,000 60,323 57,084 500,000 85,195 81,956 500,000
11 88,906 46,487 43,896 500,000 67,467 64,876 500,000 98,781 96,190 500,000
12 99,609 49,852 47,909 500,000 74,814 72,870 500,000 113,666 111,723 500,000
13 110,848 53,047 51,751 500,000 82,372 81,076 500,000 129,988 128,693 500,000
14 122,648 56,066 55,418 500,000 90,144 89,496 500,000 147,899 147,251 500,000
15 135,039 58,896 58,896 500,000 98,131 98,131 500,000 167,562 167,562 500,000
16 148,049 61,534 61,534 500,000 106,338 106,338 500,000 189,166 189,166 500,000
17 161,709 63,950 63,950 500,000 114,752 114,752 500,000 212,911 212,911 500,000
18 176,052 66,152 66,152 500,000 123,392 123,392 500,000 239,044 239,044 500,000
19 191,113 68,116 68,116 500,000 132,251 132,251 500,000 267,828 267,828 500,000
20 206,927 69,946 69,946 500,000 141,435 141,435 500,000 299,626 299,626 500,000
21 223,531 71,643 71,643 500,000 150,962 150,962 500,000 334,780 334,780 502,170
22 240,966 73,028 73,028 500,000 160,705 160,705 500,000 373,450 373,450 545,238
23 259,272 74,091 74,091 500,000 170,674 170,674 500,000 415,842 415,842 590,496
24 278,494 74,812 74,812 500,000 180,878 180,878 500,000 462,329 462,329 638,014
25 298,676 75,154 75,154 500,000 191,313 191,313 500,000 513,323 513,323 687,853
26 319,868 75,428 75,428 500,000 202,902 202,902 500,000 571,856 571,856 743,413
27 342,119 75,238 75,238 500,000 214,826 214,826 500,000 636,269 636,269 814,424
28 365,483 74,519 74,519 500,000 227,088 227,088 500,000 707,148 707,148 891,006
29 390,016 73,197 73,197 500,000 239,693 239,693 500,000 785,142 785,142 973,576
30 415,774 71,829 71,829 500,000 253,042 253,042 500,000 871,261 871,261 1,062,939
31 442,821 70,397 70,397 500,000 267,174 267,174 500,000 966,375 966,375 1,159,650
32 471,220 68,282 68,282 500,000 281,808 281,808 500,000 1,071,004 1,071,004 1,274,494
33 501,039 65,424 65,424 500,000 296,998 296,998 500,000 1,186,090 1,186,090 1,399,587
34 532,349 61,751 61,751 500,000 312,809 312,809 500,000 1,312,678 1,312,678 1,535,833
35 565,224 57,172 57,172 500,000 329,312 329,312 500,000 1,451,909 1,451,909 1,684,215
36 599,744 51,392 51,392 500,000 346,524 346,524 500,000 1,604,948 1,604,948 1,845,691
37 635,989 44,021 44,021 500,000 364,478 364,478 500,000 1,773,532 1,773,532 2,004,092
38 674,046 35,112 35,112 500,000 383,392 383,392 500,000 1,959,574 1,959,574 2,175,127
39 714,007 23,924 23,924 500,000 403,313 403,313 500,000 2,164,924 2,164,924 2,359,767
40 755,965 10,489 10,489 500,000 424,546 424,546 500,000 2,392,131 2,392,131 2,559,580
41 800,021 0(4) 0(4) 0(4) 447,185 447,185 500,000 2,643,632 2,643,632 2,775,814
42 846,280 471,679 471,679 500,000 2,919,693 2,919,693 3,065,677
43 894,852 497,892 497,892 522,787 3,223,007 3,223,007 3,384,158
44 945,853 525,071 525,071 551,325 3,556,130 3,556,130 3,733,937
45 999,404 553,231 553,231 580,893 3,921,812 3,921,812 4,117,902
46 1,055,632 582,379 582,379 611,498 4,322,975 4,322,975 4,539,124
47 1,114,671 612,510 612,510 643,136 4,762,723 4,762,723 5,000,860
48 1,176,663 643,613 643,613 675,793 5,244,320 5,244,320 5,506,536
49 1,241,754 675,662 675,662 709,445 5,771,202 5,771,202 6,059,762
50 1,310,100 708,637 708,637 744,069 6,347,083 6,347,083 6,664,437
51 1,381,863 742,921 742,921 780,067 6,979,750 6,979,750 7,328,738
52 1,457,214 778,544 778,544 817,471 7,674,583 7,674,583 8,058,312
53 1,536,333 815,581 815,581 856,360 8,437,916 8,437,916 8,859,812
54 1,619,407 854,080 854,080 896,784 9,276,422 9,276,422 9,740,244
</TABLE>
61
<PAGE> 70
<TABLE>
<CAPTION>
0% Hypothetical
Gross Investment 6% Hypothetical 12% Hypothetical
Return Gross Investment Return Gross Investment Return
---------------------------- --------------------------------- ------------------------------------
End of Cash Cash Cash
Policy Accumulated Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year(1) Premiums(2) Value Value(3) Benefit Value Value(3) Benefit Value Value(3) Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 1,706,636 894,095 894,095 938,800 10,197,445 10,197,445 10,707,317
56 1,798,225 935,509 935,509 982,284 11,206,983 11,206,983 11,767,332
57 1,894,395 979,408 979,408 1,018,584 12,326,504 12,326,504 12,819,564
58 1,995,372 1,026,126 1,026,126 1,056,909 13,571,023 13,571,023 13,978,153
59 2,101,399 1,076,170 1,076,170 1,097,693 14,959,840 14,959,840 15,259,037
60 2,212,727 1,129,972 1,129,972 1,141,272 16,513,725 16,513,725 16,678,863
61 2,329,621 1,187,879 1,187,879 1,187,879 18,254,768 18,254,768 18,254,768
62 2,452,360 1,248,441 1,248,441 1,248,441 20,178,687 20,178,687 20,178,687
63 2,581,236 1,311,778 1,311,778 1,311,778 22,304,693 22,304,693 22,304,693
64 2,716,556 1,378,019 1,378,019 1,378,019 24,654,012 24,654,012 24,654,012
65 2,858,642 1,447,296 1,447,296 1,447,296 27,250,100 27,250,100 27,250,100
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan has
been made, (c) no partial withdrawal of the Cash Surrender Value has been made
and (d) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force until
the end of the first 5 Policy Years. Provided the Cumulative Premium Test or the
Fund Value Test has been and continues to be met, the Death Benefit Guarantee
will keep the Policy in force on all policies for the first three years and
until age 100 on Policies issued and maintained with a minimum face amount of
$250,000 and Death Benefit Option 1; to age 85 on policies issued and maintained
with a face amount of at least $250,000 and if Death Benefit Option 2 is
selected at any time.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
62
<PAGE> 71
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$5,960 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical
Gross Investment Gross Investment 12% Hypothetical
Return Return Gross Investment Return
---------------- ---------------- -----------------------
End of Cash Cash Cash
Policy Accumulated Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year(1) Premiums(2) Value Value(3) Benefit Value Value(3) Benefit Value Value(3) Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,258 4,341 0 500,000 4,638 0 500,000 4,936 0 500,000
2 12,829 8,871 2,394 500,000 9,743 3,265 500,000 10,651 4,173 500,000
3 19,728 13,276 6,799 500,000 15,012 8,535 500,000 16,892 10,415 500,000
4 26,973 17,553 11,076 500,000 20,450 13,973 500,000 23,712 17,234 500,000
5 34,579 21,696 15,219 500,000 26,056 19,578 500,000 31,159 24,682 500,000
6 42,566 25,704 19,875 500,000 31,832 26,003 500,000 39,296 33,467 500,000
7 50,953 29,567 24,385 500,000 37,775 32,594 500,000 48,183 43,001 500,000
8 59,758 33,287 28,752 500,000 43,894 39,360 500,000 57,898 53,364 500,000
9 69,004 36,854 32,968 500,000 50,186 46,299 500,000 68,518 64,632 500,000
10 78,712 40,273 37,034 500,000 56,659 53,421 500,000 80,142 76,903 500,000
11 88,906 43,529 40,938 500,000 63,308 60,718 500,000 92,859 90,268 500,000
12 99,609 46,616 44,673 500,000 70,136 68,192 500,000 106,783 104,840 500,000
13 110,848 49,531 48,236 500,000 77,143 75,848 500,000 122,038 120,743 500,000
14 122,648 52,268 51,621 500,000 84,336 83,689 500,000 138,765 138,118 500,000
15 135,039 54,814 54,814 500,000 91,710 91,710 500,000 157,115 157,115 500,000
16 148,049 57,165 57,165 500,000 99,270 99,270 500,000 177,264 177,264 500,000
17 161,709 59,293 59,293 500,000 107,003 107,003 500,000 199,395 199,395 500,000
18 176,052 61,175 61,175 500,000 114,896 114,896 500,000 223,717 223,717 500,000
19 191,113 62,788 62,788 500,000 122,941 122,941 500,000 250,474 250,474 500,000
20 206,927 64,099 64,099 500,000 131,121 131,121 500,000 279,937 279,937 500,000
21 223,531 65,082 65,082 500,000 139,428 139,428 500,000 312,423 312,423 500,000
22 240,966 65,709 65,709 500,000 147,851 147,851 500,000 348,293 348,293 508,507
23 259,272 65,962 65,962 500,000 156,393 156,393 500,000 387,730 387,730 550,576
24 278,494 65,815 65,815 500,000 165,051 165,051 500,000 430,953 430,953 594,715
25 298,676 65,218 65,218 500,000 173,806 173,806 500,000 478,342 478,342 640,978
26 319,868 64,428 64,428 500,000 183,485 183,485 500,000 532,721 532,721 692,537
27 342,119 63,077 63,077 500,000 193,322 193,322 500,000 592,519 592,519 758,425
28 365,483 61,082 61,082 500,000 203,300 203,300 500,000 658,271 658,271 829,422
29 390,016 58,346 58,346 500,000 213,395 213,395 500,000 730,568 730,568 905,905
30 415,774 54,759 54,759 500,000 223,586 223,586 500,000 810,068 810,068 988,284
31 442,821 50,212 50,212 500,000 233,863 233,863 500,000 897,515 897,515 1,077,018
32 471,220 44,608 44,608 500,000 244,236 244,236 500,000 993,522 993,522 1,182,291
33 501,039 37,823 37,823 500,000 254,711 254,711 500,000 1,098,912 1,098,912 1,296,716
34 532,349 29,723 29,723 500,000 265,305 265,305 500,000 1,214,601 1,214,601 1,421,084
35 565,224 20,132 20,132 500,000 276,028 276,028 500,000 1,341,589 1,341,589 1,556,243
36 599,744 8,786 8,786 500,000 286,871 286,871 500,000 1,480,955 1,480,955 1,703,098
37 635,989 0(4) 0(4) 0(4) 297,827 297,827 500,000 1,634,512 1,634,512 1,846,999
38 674,046 308,873 308,873 500,000 1,803,895 1,803,895 2,002,323
39 714,007 319,995 319,995 500,000 1,991,015 1,991,015 2,170,206
40 755,965 331,208 331,208 500,000 2,198,150 2,198,150 2,352,021
41 800,021 342,581 342,581 500,000 2,428,052 2,428,052 2,549,455
42 846,280 354,214 354,214 500,000 2,680,518 2,680,518 2,814,544
43 894,852 366,246 366,246 500,000 2,957,623 2,957,623 3,105,504
44 945,853 378,861 378,861 500,000 3,261,627 3,261,627 3,424,708
45 999,404 392,271 392,271 500,000 3,594,945 3,594,945 3,774,692
46 1,055,632 406,723 406,723 500,000 3,960,125 3,960,125 4,158,132
47 1,114,671 422,540 422,540 500,000 4,359,850 4,359,850 4,577,842
48 1,176,663 440,163 440,163 500,000 4,796,905 4,796,905 5,036,750
49 1,241,754 460,224 460,224 500,000 5,274,187 5,274,187 5,537,896
50 1,310,100 483,408 483,408 507,578 5,794,780 5,794,780 6,084,519
51 1,381,863 507,591 507,591 532,971 6,361,993 6,361,993 6,680,092
52 1,457,214 532,333 532,333 558,949 6,979,383 6,979,383 7,328,352
53 1,536,333 557,609 557,609 585,489 7,650,744 7,650,744 8,033,281
</TABLE>
63
<PAGE> 72
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical
Gross Investment Gross Investment 12% Hypothetical
Return Return Gross Investment Return
---------------- ---------------- -----------------------
End of Cash Cash Cash
Policy Accumulated Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year(1) Premiums(2) Value Value(3) Benefit Value Value(3) Benefit Value Value(3) Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
54.. 1,619,407 583,400 583,400 612,570 8,380,192 8,380,192 8,799,202
55.. 1,706,636 609,678 609,678 640,162 9,172,006 9,172,006 9,630,606
56.. 1,798,225 636,407 636,407 668,227 10,030,590 10,030,590 10,532,120
57.. 1,894,395 665,101 665,101 691,705 10,986,261 10,986,261 11,425,711
58.. 1,995,372 696,115 696,115 716,999 12,054,681 12,054,681 12,416,321
59.. 2,101,399 729,873 729,873 744,471 13,254,861 13,254,861 13,519,958
60.. 2,212,727 766,884 766,884 774,552 14,610,042 14,610,042 14,756,143
61.. 2,329,621 807,861 807,861 807,861 16,150,823 16,150,823 16,150,823
62.. 2,452,360 850,717 850,717 850,717 17,853,446 17,853,446 17,853,446
63.. 2,581,236 895,537 895,537 895,537 19,734,911 19,734,911 19,734,911
64.. 2,716,556 942,412 942,412 942,412 21,814,002 21,814,002 21,814,002
65.. 2,858,642 991,435 991,435 991,435 24,111,479 24,111,479 24,111,479
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan has
been made, (c) no partial withdrawal of the Cash Surrender Value has been made
and (d) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force until
the end of the first 5 Policy Years. Provided the Cumulative Premium Test or the
Fund Value Test has been and continues to be met, the Death Benefit Guarantee
will keep the Policy in force on all policies for the first three years and
until age 100 on Policies issued and maintained with a minimum face amount of
$250,000 and Death Benefit Option 1; to age 85 on policies issued and maintained
with a face amount of at least $250,000 and if Death Benefit Option 2 is
selected at any time.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
64
<PAGE> 73
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$7,450 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical
Gross Investment 6% Hypothetical 12% Hypothetical
Return Gross Investment Return Gross Investment Return
---------------- ----------------------- -----------------------
End of Policy Cash Cash Cash
Policy Accumulated Value Surrender Death Policy Surrender Death Policy Surrender Death
Year(1) Premiums(2) ------ Value(3) Benefit Value Value(3) Benefit Value Value(3) Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,823 6,071 96 506,071 6,470 495 506,470 6,870 895 506,870
2 16,036 12,291 5,813 512,291 13,471 6,994 513,471 14,700 8,223 514,700
3 24,660 18,346 11,868 518,346 20,705 14,227 520,705 23,257 16,779 523,257
4 33,716 24,234 17,757 524,234 28,175 21,697 528,175 32,606 26,129 532,606
5 43,224 29,946 23,469 529,946 35,879 29,401 535,879 42,816 36,339 542,816
6 53,208 35,509 29,680 535,509 43,851 38,021 543,851 53,997 48,168 553,997
7 63,691 40,885 35,703 540,885 52,059 46,877 552,059 66,203 61,021 566,203
8 74,698 46,076 41,541 546,076 60,513 55,979 560,513 79,535 75,001 579,535
9 86,255 51,073 47,187 551,073 69,211 65,324 569,211 94,095 90,209 594,095
10 98,391 55,881 52,643 555,881 78,163 74,924 578,163 110,004 106,766 610,004
11 111,133 60,497 57,906 560,497 87,373 84,782 587,373 127,393 124,802 627,393
12 124,512 64,900 62,957 564,900 96,827 94,884 596,827 146,382 144,439 646,382
13 138,560 69,089 67,793 569,089 106,529 105,234 606,529 167,127 165,831 667,127
14 153,310 73,055 72,407 573,055 116,478 115,830 616,478 189,790 189,142 689,790
15 168,798 76,784 76,784 576,784 126,665 126,665 626,665 214,545 214,545 714,545
16 185,061 80,269 80,269 580,269 137,087 137,087 637,087 241,588 241,588 741,588
17 202,136 83,479 83,479 583,479 147,718 147,718 647,718 271,110 271,110 771,110
18 220,066 86,418 86,418 586,418 158,566 158,566 658,566 303,360 303,360 803,360
19 238,891 89,062 89,062 589,062 169,609 169,609 669,609 338,578 338,578 838,578
20 258,658 91,529 91,529 591,529 180,972 180,972 680,972 377,183 377,183 877,183
21 279,414 93,821 93,821 593,821 192,669 192,669 692,669 419,512 419,512 919,512
22 301,207 95,729 95,729 595,729 204,491 204,491 704,491 465,711 465,711 965,711
23 324,090 97,241 97,241 597,241 216,427 216,427 716,427 516,149 516,149 1,016,149
24 348,117 98,335 98,335 598,335 228,450 228,450 728,450 571,219 571,219 1,071,219
25 373,345 98,971 98,971 598,971 240,515 240,515 740,515 631,333 631,333 1,131,333
26 399,835 99,564 99,564 599,564 253,721 253,721 753,721 700,099 700,099 1,200,099
27 427,649 99,603 99,603 599,603 266,970 266,970 766,970 775,506 775,506 1,275,506
28 456,854 99,018 99,018 599,018 280,182 280,182 780,182 858,171 858,171 1,358,171
29 487,519 97,734 97,734 597,734 293,270 293,270 793,270 948,768 948,768 1,448,768
30 519,718 96,413 96,413 596,413 306,903 306,903 806,903 1,048,823 1,048,823 1,548,823
31 553,526 95,039 95,039 595,039 321,087 321,087 821,087 1,159,312 1,159,312 1,659,312
32 589,025 92,894 92,894 592,894 335,106 335,106 835,106 1,280,567 1,280,567 1,780,567
33 626,299 89,927 89,927 589,927 348,891 348,891 848,891 1,413,655 1,413,655 1,913,655
34 665,436 86,086 86,086 586,086 362,364 362,364 862,364 1,559,749 1,559,749 2,059,749
35 706,531 81,298 81,298 581,298 375,425 375,425 875,425 1,720,128 1,720,128 2,220,128
36 749,680 75,280 75,280 575,280 387,748 387,748 887,748 1,895,975 1,895,975 2,395,975
37 794,986 67,667 67,667 567,667 398,907 398,907 898,907 2,088,511 2,088,511 2,588,511
38 842,558 58,617 58,617 558,617 408,989 408,989 908,989 2,299,634 2,299,634 2,799,634
39 892,508 47,461 47,461 547,461 417,236 417,236 917,236 2,530,565 2,530,565 3,030,565
40 944,956 34,417 34,417 534,417 423,757 423,757 923,757 2,783,585 2,783,585 3,283,585
41 1,000,027 17,907 17,907 517,907 426,820 426,820 926,820 3,059,310 3,059,310 3,559,310
42 1,057,850 0(4) 0(4) 0(4) 425,806 425,806 925,806 3,359,649 3,359,649 3,859,649
43 1,118,565 421,888 421,888 921,888 3,688,592 3,688,592 4,188,592
44 1,182,316 414,824 414,824 914,824 4,049,029 4,049,029 4,549,029
45 1,249,254 404,291 404,291 904,291 4,444,084 4,444,084 4,944,084
46 1,319,540 389,824 389,824 889,824 4,877,079 4,877,079 5,377,079
47 1,393,339 370,850 370,850 870,850 5,351,593 5,351,593 5,851,593
48 1,470,829 346,661 346,661 846,661 5,871,471 5,871,471 6,371,471
49 1,552,193 316,470 316,470 816,470 6,440,914 6,440,914 6,940,914
50 1,637,625 279,599 279,599 779,599 7,064,713 7,064,713 7,564,713
51 1,727,328 240,983 240,983 740,983 7,753,977 7,753,977 8,253,977
52 1,821,517 200,253 200,253 700,253 8,515,288 8,515,288 9,015,288
53 1,920,416 157,620 157,620 657,620 9,356,528 9,356,528 9,856,528
</TABLE>
65
<PAGE> 74
<TABLE>
<CAPTION>
0% Hypothetical
Gross Investment 6% Hypothetical 12% Hypothetical
Return Gross Investment Return Gross Investment Return
---------------- ----------------------- -----------------------
End of Policy Cash Cash Cash
Policy Accumulated Value Surrender Death Policy Surrender Death Policy Surrender Death
Year(1) Premiums(2) ------ Value(3) Benefit Value Value(3) Benefit Value Value(3) Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
54 2,024,259 112,910 112,910 612,910 10,285,782 10,285,782 10,800,071
55 2,133,294 65,978 65,978 565,978 11,307,958 11,307,958 11,873,356
56 2,247,782 14,805 14,805 514,805 12,428,373 12,428,373 13,049,792
57 2,367,993 0(4) 0(4) 0(4) 13,670,828 13,670,828 14,217,661
58 2,494,215 15,041,716 15,041,716 15,541,716
59 2,626,749 16,553,997 16,553,997 17,053,997
60 2,765,909 18,224,647 18,224,647 18,724,647
61 2,912,027 20,068,878 20,068,878 20,568,878
62 3,065,450 22,093,893 22,093,893 22,593,893
63 3,226,545 24,308,950 24,308,950 24,808,950
64 3,395,695 26,714,554 26,714,554 27,214,554
65 3,573,302 29,291,812 29,291,812 29,791,812
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan has
been made, (c) no partial withdrawal of the Cash Surrender Value has been made
and (d) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force until
the end of the first 5 Policy Years. Provided the Cumulative Premium Test or the
Fund Value Test has been and continues to be met, the Death Benefit Guarantee
will keep the Policy in force on all policies for the first three years and
until age 100 on Policies issued and maintained with a minimum face amount of
$250,000 and Death Benefit Option 1; to age 85 on policies issued and maintained
with a face amount of at least $250,000 and if Death Benefit Option 2 is
selected at any time.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
66
<PAGE> 75
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$7,450 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End of Cash Cash Cash
Policy Accumulated Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year(1) Premiums(2) Value Value(3) Benefit Value Value(3) Benefit Value Value(3) Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,823 5,744 0 505,744 6,125 150 506,125 6,507 532 506,507
2 16,036 11,643 5,166 511,643 12,768 6,290 512,768 13,939 7,461 513,939
3 24,660 17,383 10,906 517,383 19,628 13,151 519,628 22,057 15,580 522,057
4 33,716 22,962 16,485 522,962 26,710 20,232 526,710 30,925 24,448 530,925
5 43,224 28,372 21,895 528,372 34,011 27,534 534,011 40,606 34,129 540,606
6 53,208 33,612 27,783 533,612 41,536 35,706 541,536 51,178 45,348 551,178
7 63,691 38,670 33,488 538,670 49,279 44,097 549,279 62,713 57,531 562,713
8 74,698 43,549 39,015 543,549 57,249 52,715 557,249 75,308 70,773 575,308
9 86,255 48,237 44,351 548,237 65,439 61,553 565,439 89,052 85,166 589,052
10 98,391 52,738 49,500 552,738 73,860 70,621 573,860 104,062 100,824 604,062
11 111,133 57,036 54,445 557,036 82,500 79,909 582,500 120,443 117,852 620,443
12 124,512 61,124 59,181 561,124 91,357 89,414 591,357 138,321 136,378 638,321
13 138,560 64,996 63,701 564,996 100,431 99,136 600,431 157,836 156,541 657,836
14 153,310 68,646 67,998 568,646 109,720 109,073 609,720 179,142 178,494 679,142
15 168,798 72,058 72,058 572,058 119,213 119,213 619,213 202,395 202,395 702,395
16 185,061 75,227 75,227 575,227 128,908 128,908 628,908 227,781 227,781 727,781
17 202,136 78,122 78,122 578,122 138,778 138,778 638,778 255,476 255,476 755,476
18 220,066 80,713 80,713 580,713 148,793 148,793 648,793 285,675 285,675 785,675
19 238,891 82,977 82,977 582,977 158,930 158,930 658,930 318,597 318,597 818,597
20 258,658 84,874 84,874 584,874 169,147 169,147 669,147 354,466 354,466 854,466
21 279,414 86,377 86,377 586,377 179,413 179,413 679,413 393,542 393,542 893,542
22 301,207 87,454 87,454 587,454 189,688 189,688 689,688 436,102 436,102 936,102
23 324,090 88,086 88,086 588,086 199,948 199,948 699,948 482,470 482,470 982,470
24 348,117 88,248 88,248 588,248 210,155 210,155 710,155 532,990 532,990 1,032,990
25 373,345 87,888 87,888 587,888 220,247 220,247 720,247 588,013 588,013 1,088,013
26 399,835 87,365 87,365 587,365 231,213 231,213 731,213 650,869 650,869 1,150,869
27 427,649 86,206 86,206 586,206 242,017 242,017 742,017 719,643 719,643 1,219,643
28 456,854 84,330 84,330 584,330 252,560 252,560 752,560 794,861 794,861 1,294,861
29 487,519 81,642 81,642 581,642 262,723 262,723 762,723 877,090 877,090 1,377,090
30 519,718 78,044 78,044 578,044 272,376 272,376 772,376 966,951 966,951 1,466,951
31 553,526 73,451 73,451 573,451 281,394 281,394 781,394 1,065,140 1,065,140 1,565,140
32 589,025 67,795 67,795 567,795 289,665 289,665 789,665 1,172,447 1,172,447 1,672,447
33 626,299 60,997 60,997 560,997 297,059 297,059 797,059 1,289,731 1,289,731 1,789,731
34 665,436 52,983 52,983 552,983 303,444 303,444 803,444 1,417,944 1,417,944 1,917,944
35 706,531 43,651 43,651 543,651 308,649 308,649 808,649 1,558,108 1,558,108 2,058,108
36 749,680 32,836 32,836 532,836 312,433 312,433 812,433 1,711,284 1,711,284 2,211,284
37 794,986 20,343 20,343 520,343 314,511 314,511 814,511 1,878,611 1,878,611 2,378,611
38 842,558 5,914 5,914 505,914 314,513 314,513 814,513 2,061,278 2,061,278 2,561,278
39 892,508 0(4) 0(4) 0(4) 312,022 312,022 812,022 2,260,561 2,260,561 2,760,561
40 944,956 306,617 306,617 806,617 2,477,893 2,477,893 2,977,893
41 1,000,027 297,960 297,960 797,960 2,714,956 2,714,956 3,214,956
42 1,057,850 285,710 285,710 785,710 2,973,625 2,973,625 3,473,625
43 1,118,565 269,536 269,536 769,536 3,256,000 3,256,000 3,756,000
44 1,182,316 249,131 249,131 749,131 3,564,439 3,564,439 4,064,439
45 1,249,254 224,088 224,088 724,088 3,901,459 3,901,459 4,401,459
46 1,319,540 193,835 193,835 693,835 4,269,694 4,269,694 4,769,694
47 1,393,339 157,675 157,675 657,675 4,671,949 4,671,949 5,171,949
48 1,470,829 114,749 114,749 614,749 5,111,191 5,111,191 5,611,191
49 1,552,193 64,097 64,097 564,097 5,590,637 5,590,637 6,090,637
50 1,637,625 4,830 4,830 504,830 6,113,957 6,113,957 6,613,957
51 1,727,328 0(4) 0(4) 0(4) 6,685,354 6,685,354 7,185,354
52 1,821,517 7,309,610 7,309,610 7,809,610
</TABLE>
67
<PAGE> 76
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End of Cash Cash Cash
Policy Accumulated Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year(1) Premiums(2) Value Value(3) Benefit Value Value(3) Benefit Value Value(3) Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
53 1,920,416 7,992,072 7,992,072 8,492,072
54 2,024,259 8,738,794 8,738,794 9,238,794
55 2,133,294 9,556,371 9,556,371 10,056,371
56 2,247,782 10,450,835 10,450,835 10,973,377
57 2,367,993 11,432,158 11,432,158 11,932,158
58 2,494,215 12,507,655 12,507,655 13,007,655
59 2,626,749 13,686,181 13,686,181 14,186,181
60 2,765,909 14,975,852 14,975,852 15,475,852
61 2,912,027 16,382,925 16,382,925 16,882,925
62 3,065,450 17,909,054 17,909,054 18,409,054
63 3,226,545 19,545,127 19,545,127 20,045,127
64 3,395,695 21,259,453 21,259,453 21,759,453
65 3,573,302 22,973,780 22,973,780 23,473,780
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan has
been made, (c) no partial withdrawal of the Cash Surrender Value has been made
and (d) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force until
the end of the first 5 Policy Years. Provided the Cumulative Premium Test or the
Fund Value Test has been and continues to be met, the Death Benefit Guarantee
will keep the Policy in force on all policies for the first three years and
until age 100 on Policies issued and maintained with a minimum face amount of
$250,000 and Death Benefit Option 1; to age 85 on policies issued and maintained
with a face amount of at least $250,000 and if Death Benefit Option 2 is
selected at any time.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
68
<PAGE> 77
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$15,095 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical
Gross Investment 6% Hypothetical 12% Hypothetical
Return Gross Investment Return Gross Investment Return
---------------- ----------------------- -----------------------
End of Cash Cash Cash
Policy Accumulated Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year(1) Premiums(2) Value Value(3) Benefit Value Value(3) Benefit Value Value(3) Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,850 10,725 928 500,000 11,486 1,689 500,000 12,249 2,452 500,000
2 32,492 21,344 6,539 500,000 23,541 8,736 500,000 25,834 11,028 500,000
3 49,966 31,523 16,717 500,000 35,850 21,044 500,000 40,547 25,742 500,000
4 68,314 41,540 26,734 500,000 48,709 33,903 500,000 56,806 42,001 500,000
5 87,580 51,416 36,610 500,000 62,167 47,361 500,000 74,803 59,998 500,000
6 107,809 61,129 49,285 500,000 76,231 64,386 500,000 94,708 82,864 500,000
7 129,049 70,522 61,638 500,000 90,776 81,893 500,000 116,583 107,700 500,000
8 151,351 79,527 73,604 500,000 105,768 99,845 500,000 140,599 134,677 500,000
9 174,768 88,194 85,233 500,000 121,284 118,323 500,000 167,064 164,103 500,000
10 199,356 96,525 96,525 500,000 137,361 137,361 500,000 196,280 196,280 500,000
11 225,174 105,183 105,183 500,000 154,913 154,913 500,000 229,776 229,776 500,000
12 252,282 113,764 113,764 500,000 173,440 173,440 500,000 267,207 267,207 500,000
13 280,746 122,230 122,230 500,000 192,970 192,970 500,000 309,035 309,035 500,000
14 310,633 130,211 130,211 500,000 213,269 213,269 500,000 355,631 355,631 500,000
15 342,015 137,683 137,683 500,000 234,405 234,405 500,000 407,690 407,690 500,000
16 374,965 144,360 144,360 500,000 256,269 256,269 500,000 465,764 465,764 535,629
17 409,563 150,273 150,273 500,000 279,017 279,017 500,000 529,841 529,841 598,721
18 445,891 155,318 155,318 500,000 302,739 302,739 500,000 600,529 600,529 666,587
19 484,036 158,730 158,730 500,000 327,206 327,206 500,000 678,451 678,451 739,511
20 524,087 159,157 159,157 500,000 352,086 352,086 500,000 764,284 764,284 817,784
21 566,141 156,214 156,214 500,000 377,760 377,760 500,000 859,094 859,094 902,049
22 610,298 150,325 150,325 500,000 405,033 405,033 500,000 963,220 963,220 1,011,381
23 656,663 142,208 142,208 500,000 434,753 434,753 500,000 1,077,664 1,077,664 1,131,547
24 705,346 131,581 131,581 500,000 467,539 467,539 500,000 1,203,394 1,203,394 1,263,564
25 756,463 118,045 118,045 500,000 502,800 502,800 527,940 1,341,457 1,341,457 1,408,530
26 810,135 101,009 101,009 500,000 539,361 539,361 566,329 1,492,962 1,492,962 1,567,610
27 866,492 79,669 79,669 500,000 577,228 577,228 606,090 1,659,092 1,659,092 1,742,047
28 925,666 52,919 52,919 500,000 616,397 616,397 647,217 1,841,091 1,841,091 1,933,146
29 987,799 19,296 19,296 500,000 656,852 656,852 689,695 2,040,272 2,040,272 2,142,285
30 1,053,039 0(4) 0(4) 0(4) 698,577 698,577 733,506 2,258,048 2,258,048 2,370,951
31 1,121,541 741,959 741,959 779,057 2,497,300 2,497,300 2,622,165
32 1,193,468 787,042 787,042 826,394 2,760,066 2,760,066 2,898,069
33 1,268,991 833,915 833,915 875,611 3,048,737 3,048,737 3,201,174
34 1,348,290 882,642 882,642 926,774 3,365,838 3,365,838 3,534,130
35 1,431,554 933,290 933,290 979,954 3,714,147 3,714,147 3,899,855
36 1,518,982 985,749 985,749 1,035,036 4,095,960 4,095,960 4,300,758
37 1,610,781 1,041,183 1,041,183 1,082,831 4,519,245 4,519,245 4,700,015
38 1,707,169 1,099,978 1,099,978 1,132,977 4,989,647 4,989,647 5,139,336
39 1,808,378 1,162,711 1,162,711 1,185,966 5,514,410 5,514,410 5,624,699
40 1,914,646 1,229,890 1,229,890 1,242,189 6,101,347 6,101,347 6,162,360
41 2,026,228 1,301,931 1,301,931 1,301,931 6,758,779 6,758,779 6,758,779
42 2,143,389 1,377,274 1,377,274 1,377,274 7,485,268 7,485,268 7,485,268
43 2,266,409 1,456,071 1,456,071 1,456,071 8,288,065 8,288,065 8,288,065
44 2,395,579 1,538,479 1,538,479 1,538,479 9,175,188 9,175,188 9,175,188
45 2,531,208 1,624,665 1,624,665 1,624,665 10,155,493 10,155,493 10,155,493
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan has
been made, (c) no partial withdrawal of the Cash Surrender Value has been made
and (d) no premiums have been allocated to the Fixed Account.
69
<PAGE> 78
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force until
the end of the first 5 Policy Years. Provided the Cumulative Premium Test or the
Fund Value Test has been and continues to be met, the Death Benefit Guarantee
will keep the Policy in force on all policies for the first three years and
until age 100 on Policies issued and maintained with a minimum face amount of
$250,000 and Death Benefit Option 1; to age 85 on policies issued and maintained
with a face amount of at least $250,000 and if Death Benefit Option 2 is
selected at any time.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
70
<PAGE> 79
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$15,095 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical
Gross Investment 6% Hypothetical 12% Hypothetical
Return Gross Investment Return Gross Investment Return
---------------------------- ----------------------------- -----------------------------------------
End of Cash Cash Cash
Policy Accumulated Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year(1) Premiums(2) Value Value(3) Benefit Value Value(3) Benefit Value Value(3) Benefit
- ------- ----------- ------ --------- ------- ------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,850 10,049 251 500,000 10,773 975 500,000 11,500 1,702 500,000
2 32,492 19,911 5,105 500,000 21,990 7,184 500,000 24,161 9,355 500,000
3 49,966 29,281 14,476 500,000 33,360 18,554 500,000 37,790 22,984 500,000
4 68,314 38,149 23,344 500,000 44,878 30,072 500,000 52,487 37,681 500,000
5 87,580 46,481 31,675 500,000 56,520 41,714 500,000 68,343 53,537 500,000
6 107,809 54,244 42,399 500,000 68,263 56,419 500,000 85,473 73,628 500,000
7 129,049 61,404 52,520 500,000 80,087 71,204 500,000 104,009 95,125 500,000
8 151,351 67,904 61,981 500,000 91,951 86,029 500,000 124,091 118,169 500,000
9 174,768 73,677 70,716 500,000 103,809 100,848 500,000 145,886 142,924 500,000
10 199,356 78,652 78,652 500,000 115,615 115,615 500,000 169,595 169,595 500,000
11 225,174 83,165 83,165 500,000 127,937 127,937 500,000 196,391 196,391 500,000
12 252,282 86,785 86,785 500,000 140,257 140,257 500,000 225,952 225,952 500,000
13 280,746 89,444 89,444 500,000 152,565 152,565 500,000 258,732 258,732 500,000
14 310,633 91,069 91,069 500,000 164,860 164,860 500,000 295,294 295,294 500,000
15 342,015 91,556 91,556 500,000 177,129 177,129 500,000 336,317 336,317 500,000
16 374,965 90,737 90,737 500,000 189,324 189,324 500,000 382,628 382,628 500,000
17 409,563 88,403 88,403 500,000 201,388 201,388 500,000 435,271 435,271 500,000
18 445,891 84,264 84,264 500,000 213,231 213,231 500,000 494,561 494,561 548,963
19 484,036 77,965 77,965 500,000 224,759 224,759 500,000 560,003 560,003 610,403
20 524,087 69,111 69,111 500,000 235,892 235,892 500,000 632,368 632,368 676,634
21 566,141 57,323 57,323 500,000 246,612 246,612 500,000 712,583 712,583 748,212
22 610,298 42,148 42,148 500,000 256,911 256,911 500,000 800,713 800,713 840,749
23 656,663 23,054 23,054 500,000 266,797 266,797 500,000 897,489 897,489 942,363
24 705,346 0(4) 0(4) 0(4) 276,298 276,298 500,000 1,003,704 1,003,704 1,053,890
25 756,463 285,408 285,408 500,000 1,120,211 1,120,211 1,176,222
26 810,135 294,060 294,060 500,000 1,247,909 1,247,909 1,310,305
27 866,492 302,143 302,143 500,000 1,387,748 1,387,748 1,457,135
28 925,666 309,489 309,489 500,000 1,540,714 1,540,714 1,617,750
29 987,799 315,881 315,881 500,000 1,707,838 1,707,838 1,793,230
30 1,053,039 321,097 321,097 500,000 1,890,212 1,890,212 1,984,723
31 1,121,541 324,899 324,899 500,000 2,089,010 2,089,010 2,193,460
32 1,193,468 326,997 326,997 500,000 2,305,490 2,305,490 2,420,764
33 1,268,991 326,982 326,982 500,000 2,540,992 2,540,992 2,668,042
34 1,348,290 324,302 324,302 500,000 2,796,972 2,796,972 2,936,820
35 1,431,554 318,092 318,092 500,000 3,074,940 3,074,940 3,228,687
36 1,518,982 307,024 307,024 500,000 3,376,456 3,376,456 3,545,279
37 1,610,781 289,044 289,044 500,000 3,711,836 3,711,836 3,860,310
38 1,707,169 260,889 260,889 500,000 4,086,519 4,086,519 4,209,114
39 1,808,378 217,243 217,243 500,000 4,507,105 4,507,105 4,597,247
40 1,914,646 148,326 148,326 500,000 4,981,668 4,981,668 5,031,484
41 2,026,228 34,568 34,568 500,000 5,520,826 5,520,826 5,520,826
42 2,143,389 0(4) 0(4) 0(4) 6,116,618 6,116,618 6,116,618
43 2,266,409 6,774,990 6,774,990 6,774,990
44 2,395,579 7,502,517 7,502,517 7,502,517
45 2,531,208 8,306,463 8,306,463 8,306,463
</TABLE>
- ---------------
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan has
been made, (c) no partial withdrawal of the Cash Surrender Value has been made
and (d) no premiums have been allocated to the Fixed Account.
71
<PAGE> 80
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force until
the end of the first 5 Policy Years. Provided the Cumulative Premium Test or the
Fund Value Test has been and continues to be met, the Death Benefit Guarantee
will keep the Policy in force on all policies for the first three years and
until age 100 on Policies issued and maintained with a minimum face amount of
$250,000 and Death Benefit Option 1; to age 85 on policies issued and maintained
with a face amount of at least $250,000 and if Death Benefit Option 2 is
selected at any time.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
72
<PAGE> 81
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$17,920 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End of Cash Cash Cash
Policy Accumulated Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year(1) Premiums(2) Value Value(3) Benefit Value Value(3) Benefit Value Value(3) Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 18,816 13,403 2,193 513,403 14,325 3,115 514,325 15,248 4,038 515,248
2 38,573 26,558 11,752 526,558 29,228 14,422 529,228 32,011 17,205 532,011
3 59,317 39,116 24,310 539,116 44,370 29,565 544,370 50,067 35,261 550,067
4 81,099 51,374 36,568 551,374 60,056 45,251 560,056 69,847 55,041 569,847
5 103,970 63,355 48,549 563,355 76,327 61,521 576,327 91,544 76,738 591,544
6 127,985 75,033 63,188 575,033 93,175 81,330 593,175 115,318 103,473 615,318
7 153,200 86,225 77,342 586,225 110,428 101,545 610,428 141,174 132,291 641,174
8 179,676 96,845 90,922 596,845 128,006 122,084 628,006 169,221 163,299 669,221
9 207,476 106,943 103,982 606,943 145,965 143,004 645,965 199,722 196,761 699,722
10 236,666 116,513 116,513 616,513 164,301 164,301 664,301 232,903 232,903 732,903
11 267,315 126,352 126,352 626,352 184,088 184,088 684,088 270,484 270,484 770,484
12 299,497 135,972 135,972 635,972 204,690 204,690 704,690 311,918 311,918 811,918
13 333,287 145,320 145,320 645,320 226,089 226,089 726,089 357,553 357,553 857,553
14 368,768 153,890 153,890 653,890 247,794 247,794 747,794 407,286 407,286 907,286
15 406,022 161,632 161,632 661,632 269,759 269,759 769,759 461,485 461,485 961,485
16 445,139 168,125 168,125 668,125 291,548 291,548 791,548 520,158 520,158 1,020,158
17 486,212 173,391 173,391 673,391 313,158 313,158 813,158 583,781 583,781 1,083,781
18 529,339 177,262 177,262 677,262 334,392 334,392 834,392 652,677 652,677 1,152,677
19 574,622 178,604 178,604 678,604 354,043 354,043 854,043 726,176 726,176 1,226,176
20 622,169 175,445 175,445 675,445 369,967 369,967 869,967 802,625 802,625 1,302,625
21 672,093 167,380 167,380 667,380 381,514 381,514 881,514 881,841 881,841 1,381,841
22 724,514 155,337 155,337 655,337 389,372 389,372 889,372 965,032 965,032 1,465,032
23 779,556 140,687 140,687 640,687 394,734 394,734 894,734 1,054,016 1,054,016 1,554,016
24 837,350 123,359 123,359 623,359 397,375 397,375 897,375 1,149,290 1,149,290 1,649,290
25 898,033 103,214 103,214 603,214 396,993 396,993 896,993 1,251,330 1,251,330 1,751,330
26 961,751 79,996 79,996 579,996 393,141 393,141 893,141 1,360,531 1,360,531 1,860,531
27 1,028,654 53,363 53,363 553,363 385,269 385,269 885,269 1,477,241 1,477,241 1,977,241
28 1,098,903 22,875 22,875 522,875 372,691 372,691 872,691 1,601,731 1,601,731 2,101,731
29 1,172,664 0(4) 0(4) 0(4) 354,643 354,643 854,643 1,734,255 1,734,255 2,234,255
30 1,250,113 330,472 330,472 830,472 1,875,241 1,875,241 2,375,241
31 1,331,435 305,138 305,138 805,138 2,030,979 2,030,979 2,530,979
32 1,416,823 278,299 278,299 778,299 2,202,722 2,202,722 2,702,722
33 1,506,480 250,193 250,193 750,193 2,392,467 2,392,467 2,892,467
34 1,600,620 220,676 220,676 720,676 2,602,016 2,602,016 3,102,016
35 1,699,467 189,635 189,635 689,635 2,833,399 2,833,399 3,333,399
36 1,803,256 155,080 155,080 655,080 3,086,932 3,086,932 3,586,932
37 1,912,235 114,546 114,546 614,546 3,362,565 3,362,565 3,862,565
38 2,026,663 67,402 67,402 567,402 3,662,255 3,662,255 4,162,255
39 2,146,812 15,573 15,573 515,573 3,990,820 3,990,820 4,490,820
40 2,272,969 0(4) 0(4) 0(4) 4,353,418 4,353,418 4,853,418
41 2,405,433 4,752,200 4,752,200 5,252,200
42 2,544,521 5,179,938 5,179,938 5,679,938
43 2,690,563 5,629,943 5,629,943 6,129,943
44 2,843,907 6,085,094 6,085,094 6,585,094
45 3,004,918 6,507,028 6,507,028 7,007,028
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan has
been made, (c) no partial withdrawal of the Cash Surrender Value has been made
and (d) no premiums have been allocated to the Fixed Account.
73
<PAGE> 82
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force until
the end of the first 5 Policy Years. Provided the Cumulative Premium Test or the
Fund Value Test has been and continues to be met, the Death Benefit Guarantee
will keep the Policy in force on all policies for the first three years and
until age 100 on Policies issued and maintained with a minimum face amount of
$250,000 and Death Benefit Option 1; to age 85 on policies issued and maintained
with a face amount of at least $250,000 and if Death Benefit Option 2 is
selected at any time.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
74
<PAGE> 83
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$17,920 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End of Cash Cash Cash
Policy Accumulated Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year(1) Premiums(2) Value Value(3) Benefit Value Value(3) Benefit Value Value(3) Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 18,816 12,630 1,420 512,630 13,508 2,298 513,508 14,390 3,180 514,390
2 38,573 24,932 10,126 524,932 27,467 12,661 527,467 30,110 15,304 530,110
3 59,317 36,590 21,784 536,590 41,560 26,755 541,560 46,951 32,145 546,951
4 81,099 47,582 32,776 547,582 55,760 40,954 555,760 64,989 50,184 564,989
5 103,970 57,859 43,053 557,859 70,008 55,202 570,008 84,281 69,475 584,281
6 127,985 67,376 55,531 567,376 84,246 72,402 584,246 104,889 93,044 604,889
7 153,200 76,081 67,198 576,081 98,408 89,524 598,408 126,876 117,993 626,876
8 179,676 83,900 77,978 583,900 112,397 106,474 612,397 150,286 144,363 650,286
9 207,476 90,746 87,785 590,746 126,100 123,139 626,100 175,150 172,189 675,150
10 236,666 96,526 96,526 596,526 139,393 139,393 639,393 201,500 201,500 701,500
11 267,315 101,644 101,644 601,644 152,871 152,871 652,871 230,440 230,440 730,440
12 299,497 105,569 105,569 605,569 165,807 165,807 665,807 261,224 261,224 761,224
13 333,287 108,225 108,225 608,225 178,079 178,079 678,079 293,947 293,947 793,947
14 368,768 109,539 109,539 609,539 189,565 189,565 689,565 328,717 328,717 828,717
15 406,022 109,409 109,409 609,409 200,106 200,106 700,106 365,623 365,623 865,623
16 445,139 107,673 107,673 607,673 209,471 209,471 709,471 404,695 404,695 904,695
17 486,212 104,139 104,139 604,139 217,384 217,384 717,384 445,933 445,933 945,933
18 529,339 98,548 98,548 598,548 223,490 223,490 723,490 489,266 489,266 989,266
19 574,622 90,617 90,617 590,617 227,382 227,382 727,382 534,581 534,581 1,034,581
20 622,169 80,080 80,080 580,080 228,653 228,653 728,653 581,770 581,770 1,081,770
21 672,093 66,773 66,773 566,773 226,978 226,978 726,978 630,821 630,821 1,130,821
22 724,514 50,545 50,545 550,545 222,030 222,030 722,030 681,728 681,728 1,181,728
23 779,556 31,278 31,278 531,278 213,492 213,492 713,492 734,517 734,517 1,234,517
24 837,350 8,888 8,888 508,888 201,075 201,075 701,075 789,256 789,256 1,289,256
25 898,033 0(4) 0(4) 0(4) 184,384 184,384 684,384 845,928 845,928 1,345,928
26 961,751 162,867 162,867 662,867 904,366 904,366 1,404,366
27 1,028,654 135,843 135,843 635,843 964,284 964,284 1,464,284
28 1,098,903 102,472 102,472 602,472 1,025,230 1,025,230 1,525,230
29 1,172,664 61,814 61,814 561,814 1,086,645 1,086,645 1,586,645
30 1,250,113 12,998 12,998 512,998 1,148,023 1,148,023 1,648,023
31 1,331,435 0(4) 0(4) 0(4) 1,208,958 1,208,958 1,708,958
32 1,416,823 1,269,133 1,269,133 1,769,133
33 1,506,480 1,328,263 1,328,263 1,828,263
34 1,600,620 1,386,180 1,386,180 1,886,180
35 1,699,467 1,442,599 1,442,599 1,942,599
36 1,803,256 1,497,100 1,497,100 1,997,100
37 1,912,235 1,549,086 1,549,086 2,049,086
38 2,026,663 1,597,629 1,597,629 2,097,629
39 2,146,812 1,641,332 1,641,332 2,141,332
40 2,272,969 1,676,978 1,676,978 2,176,978
41 2,405,433 1,698,306 1,698,306 2,198,306
42 2,544,521 1,693,132 1,693,132 2,193,132
43 2,690,563 1,637,057 1,637,057 2,137,057
44 2,843,907 1,481,492 1,481,492 1,981,492
45 3,004,918 1,129,518 1,129,518 1,629,518
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan has
been made, (c) no partial withdrawal of the Cash Surrender Value has been made
and (d) no premiums have been allocated to the Fixed Account.
75
<PAGE> 84
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force until
the end of the first 5 Policy Years. Provided the Cumulative Premium Test or the
Fund Value Test has been and continues to be met, the Death Benefit Guarantee
will keep the Policy in force on all policies for the first three years and
until age 100 on Policies issued and maintained with a minimum face amount of
$250,000 and Death Benefit Option 1; to age 85 on policies issued and maintained
with a face amount of at least $250,000 and if Death Benefit Option 2 is
selected at any time.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
76
<PAGE> 85
APPENDIX B
DEFINITIONS
The following terms have the following meanings when used in this Prospectus:
ADDITIONAL RATING -- an addition to the cost of insurance rate for insureds who
do not meet at least the underwriting requirements of the standard risk class.
BUSINESS DAY -- any day that the New York Stock Exchange is open for trading.
The net asset value of the underlying shares of a sub-account of the Separate
Account will be determined at the end of each Business Day.
CASH SURRENDER VALUE -- the Policy Value less the deferred sales charge, the
deferred underwriting charge and any outstanding monthly deductions due.
EFFECTIVE DATE -- the date that we become obligated under the Policy and when
the first monthly deductions are taken.
FIXED ACCOUNT -- that part of the Policy Value which reflects the value the
policyowner has in our general account.
GUIDELINE ANNUAL PREMIUM (GAP) -- used to determine the proportion of premiums
and the Policy Value attributable to an increase in Face Amount for the purpose
of calculating the new Deferred Sales Charge after such increase.
INITIAL PREMIUM -- at least 1/12 of the Target Premium. The Initial Premium must
be received within 60 days after the policy date.
INVESTMENT ACCOUNT -- that part of the Policy Value which reflects the value the
policyowner has in one of the sub-accounts of the Separate Account.
ISSUE AGE -- the age on the nearest birthday, at policy date, as shown in the
Policy.
LOAN ACCOUNT -- that part of the Policy Value which reflects the value the
policyowner has transferred from the Fixed Account or the Investment Accounts as
collateral for a policy loan.
MATURITY DATE -- the Policy anniversary nearest the life insured's attained age
100.
MODIFIED POLICY DEBT -- as of any date, the Policy Debt plus the amount of
interest to be charged to the next policy anniversary, all discounted from the
next policy anniversary to such date at an annual rate of 4%.
MONTHLY NO LAPSE GUARANTEE PREMIUM -- 1/12 of the No Lapse Guarantee Premium.
NET CASH SURRENDER VALUE -- the Cash Surrender Value less Policy Debt.
NET POLICY VALUE -- the Policy Value less the value in the Loan Account.
NET PREMIUM -- amount of premium allocated to the Investment Accounts or Fixed
Account. It equals gross premiums less the deduction for state, local and
Federal taxes.
NO LAPSE GUARANTEE -- Our guarantee that the Policy will not go into default
even if a combination of Policy loans, adverse investment experience and other
factors should cause the Policy's Net Cash
77
<PAGE> 86
Surrender Value to be insufficient to meet the monthly deductions due at the
beginning of a policy month.
NO LAPSE GUARANTEE CUMULATIVE PREMIUM TEST -- a test that, if satisfied in the
No Lapse Guarantee Period, will maintain the No Lapse Guarantee. To satisfy the
No Lapse Guarantee Cumulative Premium Test, the sum of premiums paid, less
withdrawals, and less Policy loans must equal or exceed the sum of No Lapse
Guarantee Premiums since issue as at the beginning of each policy month.
NO LAPSE GUARANTEE PERIOD -- is the first 5 policy years for life insureds with
an issue age up to and including 85. It is not offered to life insureds whose
Issue Age exceeds 85.
NO LAPSE GUARANTEE PREMIUM -- is a measure of premium used in determining
compliance with the No Lapse Guarantee Cumulative Premium Test. The No Lapse
Guarantee premium for each policyowner is set forth in the Policy.
PLANNED PREMIUM -- The premium the policyowner plans to pay periodically.
Subject to certain requirements of law, the Planned Premium may be changed at
any time.
POLICY DATE -- The date from which policy years, policy months and policy
anniversaries are determined. Monthly deductions are due on the policy date. If
a check for at least the Initial Premium accompanies the application, the policy
date is the date the application and check are received at the Service Office.
If an application accepted by us is not accompanied by a check for the Initial
Premium, the policy will be issued with a policy date which is 7 days after
issuance of the policy.
POLICY DEBT -- as of any date, the aggregate amount of policy loans, including
borrowed interest, less any loan repayments.
POLICY VALUE -- the sum of the values in the Loan Account, the Fixed Account and
the Investment Accounts.
SELECT LOAN -- A loan on which the differential between the interest credited
and the interest charged is currently 0%; provided, however, if at some time in
the future it is determined that the current differential could cause the loan
to be treated as a taxable distribution under any applicable ruling, regulation
or court decision, we have the right to increase the differential on all
subsequent Select Loans either (i) to an amount that may be presented in such
ruling, regulation or court decision that would result in the transaction being
treated as a loan under Federal tax law or (ii) if no amount is prescribed, to
an amount that we feel would be more likely to result in the transaction being
treated as a loan under Federal tax law.
SELECT LOAN AMOUNT -- the amount of any Select Loan.
SERVICE OFFICE -- the office designated to service the Policies, which is shown
on the cover page of this prospectus.
SURRENDER CHARGE PERIOD -- the period (usually 15 years) following issuance of
the Policy or any increase in face amount during which surrender charges may be
assessed if the Policy is surrendered or lapsed, the face amount is decreased or
a partial withdrawal takes place.
TARGET PREMIUM -- a premium amount used to measure the maximum deferred sales
charge under a Policy. The Target Premium for the initial face amount is set
forth in the Policy. The policyowner will be advised of the Target Premium for
any increase in face amount.
WITHDRAWAL TIER AMOUNT -- as of any date, the net Cash Surrender Value at the
previous anniversary multiplied by 10%.
78
<PAGE> 87
PART II
OTHER INFORMATION
UNDERTAKINGS
Undertaking to File Reports.
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
Representation of Insurer Pursuant to Section 26 of the Investment Company Act
of 1940, as amended.
The Manufacturers Life Insurance Company of New York (the "Company") hereby
represents that the fees and charges deducted under the contracts issued
pursuant to this registration statement, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by the Company.
Rule 484 Undertaking.
Article 10 of the Charter of the Company provides as follows:
TENTH: No director of the Corporation shall be personally liable to the
Corporation or any of its shareholders for damages for any breach of duty as a
director; provided, however, the foregoing provision shall not eliminate or
limit (i) the liability of a director if a judgment or other final adjudication
adverse to such director established his or her such acts or omissions were in
bad faith or involved intentional misconduct or were acts or omissions (a) which
he or she knew or reasonably should have known violated the New York Insurance
Law or (b) which violated a specific standard of care imposed on directors
directly, and not by reference, by a provision of the New York Insurance Law (or
any regulations promulgated thereunder) or (c) which constituted a knowing
violation of any other law, or establishes that the director personally gained
in fact a financial profit or other advantage to which the director was not
legally entitled or (ii) the liability of a director for any act or omission
prior to the adoption of this Article by the shareholders of the Corporation.
Any repeal or modification of this Article by the shareholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
Article VII of the By-laws of the Company provides as follows:
Section VII.1. Indemnification of Directors and Officers. The Corporation may
indemnify any person made, or threatened to be made, a party to an action by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he or she, his or her testator, testatrix or intestate, is or was
a director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of any other corporation of any type or
kind, domestic or foreign, of any partnership, joint venture, trust, employee
benefit plan or other enterprise, against amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him or her in connection with the defense or settlement of such
action, or in connection with an appeal therein, if such director or officer
acted, in good faith, for a purpose which he or she reasonably believed to be
in, or, in the case of service for any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise,
<PAGE> 88
not opposed to, the best interests of the Corporation, except that no
indemnification under this Section shall be made in respect of (1) a threatened
action, or a pending action which is settled or is otherwise disposed of, or (2)
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 in
which the action was brought, or , if no action was brought, any court of
competent jurisdiction, determines upon application that, in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such portion of the settlement amount and expenses as the court
deems proper.
The Corporation may indemnify any person made, or threatened to be made, a party
to an action or proceeding (other than one by or in the right of the Corporation
to procure a judgment in its favor), whether civil or criminal, including an
action by or in the right of any other corporation of any type or kind, domestic
or foreign, or any partnership, joint venture, trust, employee benefit plan or
other enterprise, which any director or officer of the Corporation served in any
capacity at the request of the Corporation, by reason of the fact that he or
she, his or her testator, testatrix or intestate, was a director or officer of
the Corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he or she reasonably believed to be in, or, in the
case of service for any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise, not opposed to, the best
interests of the Corporation and, in criminal actions or proceedings, in
addition, had no reasonable cause to believe that his or her conduct was
unlawful.
The termination of any such civil or criminal action or proceeding by judgment,
settlement, conviction or upon a plea of nolo contendere, of its equivalent,
shall not in itself create a presumption that any such director or officer did
not act, in good faith, for a purpose which he or she reasonably believed to be
in, or, in the case of service for any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise, not opposed to,
the best interest of the Corporation or that he or she had reasonable cause to
believe that his or her conduct was unlawful.
Notwithstanding the foregoing, Registrant hereby makes the following undertaking
pursuant to Rule 484 under the Securities Act of 1933:
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event 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.
<PAGE> 89
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet;
The Prospectus, consisting of __ pages;
Undertaking to file reports;
Representation pursuant to Section 26 of the Investment Company Act of
1940;
Rule 484 Undertaking;
The signatures;
Written consents of the following persons:
Ernst & Young, LLP
The following exhibits are filed as part of this Registration Statement:
1. Copies of all exhibits required by paragraph A of the instructions as
to exhibits in Form N-8B-2 are set forth below under designations based
on such instructions:
A(1) Resolutions of Board of Directors of First North American
Life Assurance Company establishing FNAL Variable Life
Account I were previously filed in the Registrant's initial
registration statement on Form S-6 (File No. 333-33351) as
filed with the Commission on August 8, 1997.
A(2) Not applicable.
A(3)(a) Underwriting and Distribution Agreement between The
Manufacturers Life Insurance Company of New York (Depositor)
and Manufacturers Securities Services, LLC (Underwriter) is
incorporated by reference to Exhibit (b)(3)(a) to
post-effective amendment No. 7 to the Registration Statement
on Form N-4, file number 33-46217, filed February 25, 1998 on
behalf of The Manufacturers Life Insurance Company of New
York Separate Account A.
A(3)(b) Selling Agreement between The Manufacturers Life Insurance
Company of New York, Manufactures Securities Services, LLC
(Underwriter), Selling Broker Dealers, and General Agent is
incorporated by reference to Exhibit (b)(3)(b) to
post-effective amendment No. 7 to the Registration Statement
on Form N-4, file number 33-46217, filed February 25, 1998 on
behalf of The Manufacturers Life Insurance Company of New
York Separate Account A.
A(3)(c) Not applicable.
A(4) Not applicable.
A(5) Form of Flexible Premium Variable Life Insurance Policy is
incorporated by reference to Exhibit A(8)(a) to pre-effective
amendment No. 1 to a Registration Statement on Form S-6, file
number 333-33351, filed on March 16, 1998 on behalf of The
Manufacturers Life Insurance Company of New York Separate
Account B.
<PAGE> 90
A(6)(a)(i) Declaration of Intention and Charter of First North
American Life Assurance Company is incorporated by
reference to Exhibit (b)(6)(i) to post-effective
amendment No. 7 to the Registration Statement on Form
N-4, file number 33-46217, filed February 25, 1998 on
behalf of The Manufacturers Life Insurance Company of
New York Separate Account A.
A(6)(a)(ii) Certificate of amendment of the Declaration of Intention
and Charter of First North American Life Assurance
Company is incorporated by reference to Exhibit
(b)(6)(i) to post-effective amendment No. 7 to the
Registration Statement on Form N-4, file number
33-46217, filed February 25, 1998 on behalf of The
Manufacturers Life Insurance Company of New York
Separate Account A.
A(6)(a)(iii) Certificate of amendment of the Declaration of Intention
and Charter of The Manufacturers Life Insurance Company
of New York is incorporated by reference to Exhibit
(b)(6)(i) to post-effective amendment No. 7 to the
Registration Statement on Form N-4, file number
33-46217, filed February 25, 1998 on behalf of The
Manufacturers Life Insurance Company of New York
Separate Account A.
(A)(6)(b) By-laws of The Manufacturers Life Insurance Company of
New York are incorporated by reference to Exhibit
(b)(6)(i) to post-effective amendment No. 7 to the
Registration Statement on Form N-4, file number
33-46217, filed February 25, 1998 on behalf of The
Manufacturers Life Insurance Company of New York
Separate Account A.
A(7) Not applicable.
A(8)(a) Form of Reinsurance Agreement between The Manufacturers
Life Insurance Company of New York and The Manufacturers
Life Insurance Company (USA) is incorporated by
reference to Exhibit A(8)(a) to pre-effective amendment
No. 1 to a Registration Statement on Form S-6, file
number 333-33351, filed on March 16, 1998 on behalf of
The Manufacturers Life Insurance Company of New York
Separate Account B.
A(8)(b) Administrative Services Agreement between The
Manufacturers Life Insurance Company and The
Manufacturers Life Insurance Company of New York is
incorporated by reference to Exhibit (b)(8)(a) to
post-effective amendment No. 7 to the Registration
Statement on Form N-4, file number 33-46217, filed
February 25, 1998 on behalf of The Manufacturers Life
Insurance Company of New York Separate Account A.
A(8)(c) Investment Services Agreement between The Manufacturers
Life Insurance Company of New York and The Manufacturers
Life Insurance Company is incorporated by reference to
Exhibit A(8)(a) to pre-effective amendment No. 1 to a
Registration Statement on Form S-6, file number
333-33351, filed on March 16, 1998 on behalf of The
Manufacturers Life Insurance Company of New York
Separate Account B.
A(9) Not applicable.
<PAGE> 91
A(10)(a) Form of Application for Flexible Premium Variable Life
Insurance Policy is incorporated by reference to Exhibit
A(8)(a) to pre-effective amendment No. 1 to a Registration
Statement on Form S-6, file number 333-33351, filed on March
16, 1998 on behalf of The Manufacturers Life Insurance
Company of New York Separate Account B.
A(10)(b) Form of supplement to the Application for Flexible Premium
Variable Life Insurance Policy is incorporated by reference
to Exhibit A(8)(a) to pre-effective amendment No. 1 to a
Registration Statement on Form S-6, file number 333-33351,
filed on March 16, 1998 on behalf of The Manufacturers Life
Insurance Company of New York Separate Account B.
2. Consents of the following:
A Opinion and consent of Tracy A. Kane, Esq., Secretary and
Counsel of The Manufacturers Life Insurance Company of New
York (incorporated by reference to Exhibit 2 to pre-effective
amendment No. 1 to a Registration Statement on Form S-6, file
number 333-33351, filed on March 16, 1998 on behalf of The
Manufacturers Life Insurance Company of New York Separate
Account B).
B Consent of John G. Vrysen, Chief Actuary of The Manufacturers
Life Insurance Company of New York (incorporated by reference
to Exhibit 2 to pre-effective amendment No. 1 to a
Registration Statement on Form S-6, file number 333-33351,
filed on March 16, 1998 on behalf of The Manufacturers Life
Insurance Company of New York Separate Account B).
C Consent of Ernst & Young LLP (filed herewith)
3. No financial statements are omitted from the prospectus pursuant to
instruction 1(b) or (c) of Part I.
4. Not applicable.
5. Not applicable.
6. Memorandum Regarding Issuance, Face Amount Increase, Redemption and
Transfer Procedures for the Policies is incorporated by reference to
the Registrant's registration statement on Form S-6 (File No.
333-33351) as filed with the Commission on August 8, 1997.
7. Powers of Attorney are incorporated by reference to Exhibit A(8)(a) to
pre-effective amendment No. 1 to a Registration Statement on Form S-6,
file number 333-33351, filed on March 16, 1998 on behalf of The
Manufacturers Life Insurance Company of New York Separate Account B.
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the
registrant, THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK SEPARATE
ACCOUNT B, and the depositor, THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW
YORK, certify that the registrant meets all of the requirements for
effectiveness of this amended registration statement pursuant to Rule 485(b)
under the Securities Act of 1933 and have duly caused this registration
statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the city of
Boston, and Commonwealth of Massachusetts, on the 12th day of April, 1999.
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NEW YORK SEPARATE
ACCOUNT B
(Registrant)
By: THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NEW YORK
(Depositor)
By: /s/ A. SCOTT LOGAN
-------------------------------
A. Scott Logan
President
Attest
/s/ TRACY A. KANE
- -----------------------------
Tracy A. Kane
Secretary
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on this 12th day of April, 1999.
SIGNATURE TITLE DATE
/s/ A. SCOTT LOGAN Director and President April 12, 1999
- ---------------------- (Principal Executive --------------
A. Scott Logan Officer) (Date)
* Chairman of the Board April 12, 1999
--------------------- of Directors --------------
John D. Richardson (Date)
* Director April 12, 1999
--------------------- --------------
John D. DesPrez, III (Date)
* Director April 12, 1999
--------------------- --------------
Ruth Ann Flemming (Date)
* Director April 12, 1999
--------------------- --------------
Neil M. Merkl (Date)
* Director April 12, 1999
--------------------- --------------
Thomas Borshoff (Date)
* Director April 12, 1999
--------------------- --------------
James K. Robinson (Date)
* Director April 12, 1999
--------------------- --------------
Theodore Kilkuskie (Date)
* Director April 12, 1999
--------------------- --------------
Bruce Avedon (Date)
* Director April 12, 1999
--------------------- --------------
James O'Malley (Date)
* Director April __, 1999
--------------------- --------------
Robert Cook (Date)
//s/ David W. LIBBEY Treasurer (Principal April 12, 1999
- ---------------------- Financial and Accounting --------------
David W. Libbey Officer) (Date)
*By: /s/ TRACY A. KANE April 12, 1999
------------------------- --------------
Tracy A. Kane (Date)
Attorney-in-Fact Pursuant
to Powers of Attorney
<PAGE> 94
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2C Consent of Ernst & Young LLP
<PAGE> 1
CONSENT OF ERNST & YOUNG INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our report dated February 22, 1999 with respect to the
financial statements of The Manufacturers Life Insurance Company of New York in
Post-Effective Amendment No. 2 to the Registration Statement (Form S-6 file
No. 333-33351) and related prospectus of Separate Account B of The Manufacturers
Life Insurance Company of New York.
Boston, Massachusetts
April 19, 1999
