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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 under the sub-heading "Eligible Portfolios." We may add other
sub-accounts and Portfolios in the future.
You should ask one of our sales representatives 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.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
HOME OFFICE: SERVICE OFFICE MAILING ADDRESS:
The Manufacturers Life Insurance The Manufacturers Life Insurance
Company of New York Company of New York
Corporate Center at Rye P.O. Box 633, Niagra Square Station
555 Theodore Fremd Avenue Buffalo, New York 14201-0633
Rye, New York 10580-9966 TELEPHONE: 1-888-267-7784
THE DATE OF THIS PROSPECTUS IS MAY 1, 1999.
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PROSPECTUS CONTENTS
PAGE
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INTRODUCTION TO POLICIES.............................................. 1
GENERAL INFORMATION ABOUT US,
THE SEPARATE ACCOUNT AND THE TRUST ............................... 6
Manulife New York .............................................. 6
Separate Account B .............................................. 7
Manufacturers Investment Trust ................................. 7
DETAILED INFORMATION ABOUT THE POLICIES............................... 11
PREMIUM PROVISIONS ............................................... 11
Policy Issue And Initial Premium ............................... 11
Premium Allocation ............................................. 11
Premium Limitations ............................................ 12
Short-Term Cancellation Right And "Free Look".................... 12
Provisions for Avoiding Lapse ................................... 12
No Lapse Guarantee .............................................. 12
INSURANCE BENEFIT ................................................... 13
The Insurance Benefit .......................................... 13
Death Benefit Options .......................................... 13
Death Benefit Option Changes ................................... 14
Face Amount Changes ............................................. 15
POLICY VALUES ..................................................... 16
Policy Value .................................................... 16
Transfers Of Policy Value ....................................... 17
Policy Loans .................................................... 18
Partial Withdrawals And Surrenders .............................. 20
Charges and Deductions .......................................... 21
Deductions From Premiums ........................................ 21
Surrender Charges................................................ 21
Monthly Deductions .............................................. 25
Administration Charge ........................................... 25
Cost Of Insurance Charge ........................................ 25
Mortality And Expense Risks Charge .............................. 26
Other Charges ................................................... 26
The General Account ............................................. 28
OTHER GENERAL POLICY PROVISIONS ................................... 28
Policy Default................................................... 28
Policy Reinstatement ............................................ 28
Miscellaneous Policy Provisions ................................. 29
OTHER PROVISIONS .................................................. 30
Supplementary Benefits .......................................... 30
Payment Of Proceeds ............................................. 30
Reports To Policyowners ......................................... 30
MISCELLANEOUS MATTERS ............................................... 30
Portfolio Share Substitution .................................... 30
Federal Income Tax Considerations ............................... 31
Tax Status Of The Policy ........................................ 31
Tax Treatment Of Policy Benefits ................................ 32
Our Taxes ....................................................... 34
Distribution Of The Policy ...................................... 34
Responsibilities Assumed By Us and MSS .......................... 34
Voting Rights ................................................... 35
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Directors And Officers Of Manulife New York ..................... 35
State Regulations ............................................... 37
Pending Litigation .............................................. 37
Additional Information .......................................... 37
Independent Auditors ............................................ 37
Year 2000 Issues ................................................ 37
FINANCIAL STATEMENTS ................................................. 39
APPENDICES ........................................................... 59
A. Sample Illustrations Of Policy Values, Cash Surrender
Values And Death Benefits ....................................... 59
B. Definitions ..................................................... 76
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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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 under the
sub-heading "Eligible Portfolios." 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 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."
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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."
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.
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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,
- 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
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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 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 Portfolios' 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 the 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
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- 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."
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."
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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
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.
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:
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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.
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 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, the sub-advisers it employs, and other
aspects of its operation is contained in the accompanying Trust prospectus,
which should be read together with this prospectus.
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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.
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<PAGE> 12
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 & Poor's 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-tem
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.
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<PAGE> 13
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.
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<PAGE> 14
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").
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 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.
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<PAGE> 15
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 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.
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
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<PAGE> 16
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.
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
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<PAGE> 17
- 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 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.
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<PAGE> 18
<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 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").
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."
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<PAGE> 19
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.
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:
16
<PAGE> 20
(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.
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.
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<PAGE> 21
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.
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.
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<PAGE> 22
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 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.
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<PAGE> 23
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.
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> 24
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> <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>
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<PAGE> 25
* 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
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
</TABLE>
22
<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
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.
23
<PAGE> 27
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.
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;
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<PAGE> 28
(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.
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.
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<PAGE> 29
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. 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%
</TABLE>
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<PAGE> 30
<TABLE>
<S> <C> <C> <C>
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%
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:
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%
*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:
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<PAGE> 31
<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.
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
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<PAGE> 32
(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.
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.
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<PAGE> 33
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
(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.
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<PAGE> 34
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 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."
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<PAGE> 35
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 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.
32
<PAGE> 36
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.
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
33
<PAGE> 37
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 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.
34
<PAGE> 38
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,
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 Secretary and Counsel, MNY, May 1994 to present; Assistant Vice
</TABLE>
35
<PAGE> 39
<TABLE>
<S> <C> <C>
Age: 37 Counsel 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 Director and President, MNY, February 1998 to present; Director,
Age: 59 President 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 Senior Executive Vice President, Manulife Financial, January 1999
Age: 61 Chairman of to present; Executive Vice President, U.S. Operations, Manulife
the Board of Financial, November 1997 to December 1998; Chairman of the Board,
Directors* 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 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 Chief Financial Officer and Treasurer, MWL, January 1996 to
Age: 43 President and present; Vice President and Chief Financial Officer, U.S.
Chief Actuary 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>
36
<PAGE> 40
*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 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,
37
<PAGE> 41
(ii) planning and designing the required modifications and replacements, (iii)
making these modifications and replacements, (iv) testing modified or 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.
38
<PAGE> 42
FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NEW YORK
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
Report of Independent Auditors........................................
Audited Financial Statements..........................................
Balance Sheets........................................................
Statements of Income..................................................
Statements of Changes in Shareholder's Equity.........................
Statements of Cash Flows..............................................
Notes to Financial Statements.........................................
39
<PAGE> 43
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
40
<PAGE> 44
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) $ 125,088 $ 129,151
(amortized cost: 1998 $120,902; 1997 $126,714)
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
41
<PAGE> 45
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.
42
<PAGE> 46
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.
43
<PAGE> 47
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
44
<PAGE> 48
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.
45
<PAGE> 49
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 $175.
2. SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION
The accompanying financial statements of the Company have been prepared
in conformity with generally accepted accounting principles ("GAAP").
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those
estimates.
b) RECENT ACCOUNTING STANDARDS
i) During 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No.
130 establishes standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose annual
financial statements. Comprehensive income includes all changes in
shareholder's equity during a period except those resulting from
investments by and distributions to shareholders. The adoption of SFAS
No. 130 resulted in revised and additional disclosures but had no
effect on the financial position, results of operations, or liquidity
of the Company.
46
<PAGE> 50
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Total comprehensive income was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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 $1,551 for the Individual Life Insurance
segment in 1997. The following is a summary of the contribution to net
income of the three business segments:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
-------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Annuities $ 2,623 $ 1,594 $ 1,542
Savings and Retirement Services -- -- (318)
Life Insurance (1,008) -- (1,232)
-------------------------------------------------------- ------- ------- -------
NET INCOME $ 1,073 $ 586 $ 1,542
-------------------------------------------------------- ======= ======= =======
</TABLE>
47
<PAGE> 51
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.
48
<PAGE> 52
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.
49
<PAGE> 53
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 $120,902 $126,714 $ 4,257 $ 2,460 $( 71) $( 23) $125,088 $129,151
securities
------------------------------ ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
50
<PAGE> 54
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 $5,224
====================================================================================================
</TABLE>
51
<PAGE> 55
4. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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
<TABLE>
<CAPTION>
The components of income tax expense were as follows:
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>
52
<PAGE> 56
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.
53
<PAGE> 57
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.
54
<PAGE> 58
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.
55
<PAGE> 59
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>
56
<PAGE> 60
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.
57
<PAGE> 61
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.
58
<PAGE> 62
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 0.949% on an annual basis. The gross annual rates of
return of 0%, 6% and 12% correspond to approximate net annual rates of return of
- -0.944%, 4.999% and 10.942%. The illustrations reflect the expense reimbursement
in effect for the Lifestyle Trusts and the expense limitation in effect for the
Equity Index Trust. In the absence of such expense reimbursement and expense
limitation, the average of the Portfolios current expenses would have been .853%
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 0.949%, 4.994 % and
10.938%. 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.
59
<PAGE> 63
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 CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value(3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,258 4,614 0 500,000 4,925 0 500,000 5,238 8 500,000
2 12,829 9,408 2,930 500,000 10,324 3,847 500,000 11,279 4,802 500,000
3 19,728 14,070 7,593 500,000 15,899 9,422 500,000 17,879 11,402 500,000
4 26,973 18,598 12,121 500,000 21,652 15,175 500,000 25,089 18,612 500,000
5 34,579 22,985 16,508 500,000 27,582 21,104 500,000 32,961 26,484 500,000
6 42,566 27,256 21,426 500,000 33,719 27,889 500,000 41,588 35,758 500,000
7 50,953 31,374 26,192 500,000 40,035 34,853 500,000 51,009 45,827 500,000
8 59,758 35,345 30,810 500,000 46,540 42,006 500,000 61,309 56,775 500,000
9 69,004 39,159 35,273 500,000 53,233 49,347 500,000 72,571 68,684 500,000
10 78,712 42,823 39,584 500,000 60,126 56,887 500,000 84,898 81,659 500,000
11 88,906 46,334 43,743 500,000 67,224 64,633 500,000 98,399 95,808 500,000
12 99,609 49,674 47,730 500,000 74,520 72,577 500,000 113,183 111,240 500,000
13 110,848 52,842 51,547 500,000 82,020 80,724 500,000 129,385 128,090 500,000
14 122,648 55,833 55,185 500,000 89,727 89,080 500,000 147,152 146,505 500,000
15 135,039 58,635 58,635 500,000 97,642 97,642 500,000 166,646 166,646 500,000
16 148,049 61,242 61,242 500,000 105,768 105,768 500,000 188,052 188,052 500,000
17 161,709 63,627 63,627 500,000 114,094 114,094 500,000 211,564 211,564 500,000
18 176,052 65,796 65,796 500,000 122,636 122,636 500,000 237,425 237,425 500,000
19 191,113 67,728 67,728 500,000 131,387 131,387 500,000 265,892 265,892 500,000
20 206,927 69,524 69,524 500,000 140,453 140,453 500,000 297,322 297,322 500,000
21 223,531 71,186 71,186 500,000 149,851 149,851 500,000 332,048 332,048 500,000
22 240,966 72,536 72,536 500,000 159,453 159,453 500,000 370,252 370,252 540,567
23 259,272 73,563 73,563 500,000 169,268 169,268 500,000 412,113 412,113 585,200
24 278,494 74,247 74,247 500,000 179,303 179,303 500,000 457,993 457,993 632,030
25 298,676 74,553 74,553 500,000 189,553 189,553 500,000 508,295 508,295 681,115
26 319,868 74,787 74,787 500,000 200,932 200,932 500,000 566,011 566,011 735,815
27 342,119 74,556 74,556 500,000 212,625 212,625 500,000 629,492 629,492 805,750
28 365,483 73,796 73,796 500,000 224,632 224,632 500,000 699,307 699,307 881,127
29 390,016 72,432 72,432 500,000 236,958 236,958 500,000 776,089 776,089 962,351
30 415,774 71,022 71,022 500,000 250,003 250,003 500,000 860,825 860,825 1,050,207
31 442,821 69,550 69,550 500,000 263,803 263,803 500,000 954,362 954,362 1,145,234
32 471,220 67,395 67,395 500,000 278,072 278,072 500,000 1,057,199 1,057,199 1,258,067
33 501,039 64,495 64,495 500,000 292,860 292,860 500,000 1,170,254 1,170,254 1,380,899
34 532,349 60,781 60,781 500,000 308,225 308,225 500,000 1,294,538 1,294,538 1,514,609
35 565,224 56,160 56,160 500,000 324,233 324,233 500,000 1,431,162 1,431,162 1,660,148
36 599,744 50,339 50,339 500,000 340,893 340,893 500,000 1,581,253 1,581,253 1,818,441
37 635,989 42,926 42,926 500,000 358,225 358,225 500,000 1,746,500 1,746,500 1,973,545
38 674,046 33,975 33,975 500,000 376,438 376,438 500,000 1,928,764 1,928,764 2,140,928
39 714,007 22,745 22,745 500,000 395,558 395,558 500,000 2,129,837 2,129,837 2,321,522
40 755,965 9,269 9,269 500,000 415,878 415,878 500,000 2,352,196 2,352,196 2,516,850
41 800,021 0 (4) 0 (4) 0 (4) 437,439 437,439 500,000 2,598,204 2,598,204 2,728,114
42 846,280 460,650 460,650 500,000 2,868,083 2,868,083 3,011,488
</TABLE>
60
<PAGE> 64
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
43 894,852 485,983 485,983 510,283 3,164,442 3,164,442 3,322,665
44 945,853 512,382 512,382 538,001 3,489,746 3,489,746 3,664,233
45 999,404 539,717 539,717 566,703 3,846,645 3,846,645 4,038,977
46 1,055,632 567,994 567,994 596,394 4,237,955 4,237,955 4,449,853
47 1,114,671 597,210 597,210 627,070 4,666,663 4,666,663 4,899,996
48 1,176,663 627,348 627,348 658,716 5,135,904 5,135,904 5,392,700
49 1,241,754 658,386 658,386 691,305 5,648,978 5,648,978 5,931,427
50 1,310,100 690,301 690,301 724,816 6,209,448 6,209,448 6,519,920
51 1,381,863 723,464 723,464 759,637 6,824,851 6,824,851 7,166,094
52 1,457,214 757,904 757,904 795,799 7,500,358 7,500,358 7,875,376
53 1,536,333 793,691 793,691 833,376 8,242,060 8,242,060 8,654,163
54 1,619,407 830,872 830,872 872,416 9,056,365 9,056,365 9,509,183
55 1,706,636 869,495 869,495 912,970 9,950,321 9,950,321 10,447,837
56 1,798,225 909,446 909,446 954,918 10,929,651 10,929,651 11,476,133
57 1,894,395 951,777 951,777 989,848 12,015,143 12,015,143 12,495,748
58 1,995,372 996,811 996,811 1,026,715 13,221,252 13,221,252 13,617,890
59 2,101,399 1,045,035 1,045,035 1,065,936 14,566,579 14,566,579 14,857,911
60 2,212,727 1,096,865 1,096,865 1,107,834 16,071,112 16,071,112 16,231,823
61 2,329,621 1,152,633 1,152,633 1,152,633 17,756,080 17,756,080 17,756,080
62 2,452,360 1,210,925 1,210,925 1,210,925 19,617,031 19,617,031 19,617,031
63 2,581,236 1,271,856 1,271,856 1,271,856 21,672,344 21,672,344 21,672,344
64 2,716,556 1,335,546 1,335,546 1,335,546 23,942,320 23,942,320 23,942,320
65 2,858,642 1,402,119 1,402,119 1,402,119 26,449,379 26,449,379 26,449,379
</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.
61
<PAGE> 65
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 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,258 4,339 0 500,000 4,636 0 500,000 4,933 0 500,000
2 12,829 8,864 2,386 500,000 9,734 3,257 500,000 10,641 4,164 500,000
3 19,728 13,261 6,784 500,000 14,995 8,518 500,000 16,873 10,395 500,000
4 26,973 17,529 11,051 500,000 20,421 13,944 500,000 23,677 17,200 500,000
5 34,579 21,660 15,183 500,000 26,011 19,533 500,000 31,104 24,626 500,000
6 42,566 25,655 19,825 500,000 31,768 25,938 500,000 39,214 33,384 500,000
7 50,953 29,501 24,320 500,000 37,687 32,506 500,000 48,065 42,883 500,000
8 59,758 33,204 28,670 500,000 43,779 39,244 500,000 57,737 53,203 500,000
9 69,004 36,752 32,866 500,000 50,037 46,151 500,000 68,304 64,417 500,000
10 78,712 40,151 36,912 500,000 56,473 53,235 500,000 79,861 76,622 500,000
11 88,906 43,384 40,794 500,000 63,080 60,489 500,000 92,499 89,908 500,000
12 99,609 46,449 44,506 500,000 69,858 67,915 500,000 106,327 104,384 500,000
13 110,848 49,339 48,043 500,000 76,812 75,516 500,000 121,469 120,173 500,000
14 122,648 52,050 51,402 500,000 83,944 83,296 500,000 138,061 137,414 500,000
15 135,039 54,569 54,569 500,000 91,249 91,249 500,000 156,252 156,252 500,000
16 148,049 56,891 56,891 500,000 98,735 98,735 500,000 176,214 176,214 500,000
17 161,709 58,991 58,991 500,000 106,384 106,384 500,000 198,126 198,126 500,000
18 176,052 60,842 60,842 500,000 114,185 114,185 500,000 222,193 222,193 500,000
19 191,113 62,424 62,424 500,000 122,129 122,129 500,000 248,652 248,652 500,000
20 206,927 63,704 63,704 500,000 130,199 130,199 500,000 277,767 277,767 500,000
21 223,531 64,656 64,656 500,000 138,385 138,385 500,000 309,849 309,849 500,000
22 240,966 65,250 65,250 500,000 146,675 146,675 500,000 345,253 345,253 504,069
23 259,272 65,470 65,470 500,000 155,072 155,072 500,000 384,192 384,192 545,552
24 278,494 65,290 65,290 500,000 163,572 163,572 500,000 426,845 426,845 589,046
25 298,676 64,661 64,661 500,000 172,154 172,154 500,000 473,585 473,585 634,604
26 319,868 63,835 63,835 500,000 181,635 181,635 500,000 527,200 527,200 685,360
27 342,119 62,448 62,448 500,000 191,256 191,256 500,000 586,126 586,126 750,241
28 365,483 60,417 60,417 500,000 200,995 200,995 500,000 650,883 650,883 820,113
29 390,016 57,645 57,645 500,000 210,826 210,826 500,000 722,048 722,048 895,339
30 415,774 54,022 54,022 500,000 220,726 220,726 500,000 800,260 800,260 976,318
31 442,821 49,441 49,441 500,000 230,681 230,681 500,000 886,244 886,244 1,063,493
32 471,220 43,802 43,802 500,000 240,697 240,697 500,000 980,593 980,593 1,166,905
33 501,039 36,984 36,984 500,000 250,774 250,774 500,000 1,084,106 1,084,106 1,279,246
34 532,349 28,852 28,852 500,000 260,923 260,923 500,000 1,197,673 1,197,673 1,401,277
35 565,224 19,231 19,231 500,000 271,148 271,148 500,000 1,322,262 1,322,262 1,533,824
36 599,744 7,857 7,857 500,000 281,431 281,431 500,000 1,458,922 1,458,922 1,677,760
37 635,989 0 (4) 0 (4) 0 (4) 291,753 291,753 500,000 1,609,417 1,609,417 1,818,641
38 674,046 302,075 302,075 500,000 1,775,335 1,775,335 1,970,621
39 714,007 312,365 312,365 500,000 1,958,532 1,958,532 2,134,800
40 755,965 322,612 322,612 500,000 2,161,222 2,161,222 2,312,508
41 800,021 332,858 332,858 500,000 2,386,077 2,386,077 2,505,381
42 846,280 343,167 343,167 500,000 2,632,863 2,632,863 2,764,506
</TABLE>
62
<PAGE> 66
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
43 894,852 353,631 353,631 500,000 2,903,584 2,903,584 3,048,763
44 945,853 364,381 364,381 500,000 3,200,418 3,200,418 3,360,439
45 999,404 375,553 375,553 500,000 3,525,693 3,525,693 3,701,978
46 1,055,632 387,293 387,293 500,000 3,881,862 3,881,862 4,075,955
47 1,114,671 399,787 399,787 500,000 4,271,502 4,271,502 4,485,077
48 1,176,663 413,281 413,281 500,000 4,697,290 4,697,290 4,932,154
49 1,241,754 428,136 428,136 500,000 5,162,002 5,162,002 5,420,102
50 1,310,100 444,902 444,902 500,000 5,668,592 5,668,592 5,952,022
51 1,381,863 464,382 464,382 500,000 6,220,229 6,220,229 6,531,240
52 1,457,214 487,066 487,066 511,420 6,820,317 6,820,317 7,161,333
53 1,536,333 510,408 510,408 535,929 7,472,484 7,472,484 7,846,108
54 1,619,407 534,216 534,216 560,927 8,180,663 8,180,663 8,589,696
55 1,706,636 558,464 558,464 586,387 8,948,939 8,948,939 9,396,386
56 1,798,225 583,116 583,116 612,272 9,781,511 9,781,511 10,270,587
57 1,894,395 609,561 609,561 633,944 10,707,823 10,707,823 11,136,136
58 1,995,372 638,124 638,124 657,268 11,742,982 11,742,982 12,095,271
59 2,101,399 669,191 669,191 682,575 12,905,322 12,905,322 13,163,429
60 2,212,727 703,227 703,227 710,260 14,217,255 14,217,255 14,359,428
61 2,329,621 740,887 740,887 740,887 15,708,301 15,708,301 15,708,301
62 2,452,360 780,252 780,252 780,252 17,355,075 17,355,075 17,355,075
63 2,581,236 821,398 821,398 821,398 19,173,843 19,173,843 19,173,843
64 2,716,556 864,408 864,408 864,408 21,182,568 21,182,568 21,182,568
65 2,858,642 909,365 909,365 909,365 23,401,091 23,401,091 23,401,091
</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.
63
<PAGE> 67
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 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,823 6,068 93 506,068 6,467 492 506,467 6,866 891 506,866
2 16,036 12,280 5,803 512,280 13,460 6,982 513,460 14,687 8,210 514,687
3 24,660 18,325 11,848 518,325 20,681 14,204 520,681 23,230 16,753 523,230
4 33,716 24,201 17,723 524,201 28,135 21,658 528,135 32,559 26,082 532,559
5 43,224 29,897 23,420 529,897 35,818 29,340 535,818 42,741 36,264 542,741
6 53,208 35,442 29,612 535,442 43,763 37,934 543,763 53,885 48,056 553,885
7 63,691 40,796 35,614 540,796 51,939 46,758 551,939 66,044 60,862 566,044
8 74,698 45,963 41,429 545,963 60,356 55,822 560,356 79,317 74,783 579,317
9 86,255 50,935 47,049 550,935 69,010 65,123 569,010 93,804 89,917 593,804
10 98,391 55,715 52,476 555,715 77,911 74,672 577,911 109,624 106,386 609,624
11 111,133 60,301 57,710 560,301 87,063 84,472 587,063 126,905 124,314 626,905
12 124,512 64,672 62,729 564,672 96,452 94,509 596,452 145,767 143,824 645,767
13 138,560 68,827 67,531 568,827 106,081 104,786 606,081 166,360 165,064 666,360
14 153,310 72,758 72,110 572,758 115,948 115,300 615,948 188,844 188,196 688,844
15 168,798 76,450 76,450 576,450 126,045 126,045 626,045 213,388 213,388 713,388
16 185,061 79,898 79,898 579,898 136,367 136,367 636,367 240,185 240,185 740,185
17 202,136 83,069 83,069 583,069 146,888 146,888 646,888 269,421 269,421 769,421
18 220,066 85,968 85,968 585,968 157,616 157,616 657,616 301,338 301,338 801,338
19 238,891 88,571 88,571 588,571 168,529 168,529 668,529 336,172 336,172 836,172
20 258,658 90,997 90,997 590,997 179,750 179,750 679,750 374,333 374,333 874,333
21 279,414 93,247 93,247 593,247 191,292 191,292 691,292 416,151 416,151 916,151
22 301,207 95,113 95,113 595,113 202,947 202,947 702,947 461,764 461,764 961,764
23 324,090 96,583 96,583 596,583 214,702 214,702 714,702 511,530 511,530 1,011,530
24 348,117 97,635 97,635 597,635 226,531 226,531 726,531 565,831 565,831 1,065,831
25 373,345 98,229 98,229 598,229 238,387 238,387 738,387 625,067 625,067 1,125,067
26 399,835 98,778 98,778 598,778 251,359 251,359 751,359 692,800 692,800 1,192,800
27 427,649 98,772 98,772 598,772 264,355 264,355 764,355 767,025 767,025 1,267,025
28 456,854 98,144 98,144 598,144 277,296 277,296 777,296 848,340 848,340 1,348,340
29 487,519 96,817 96,817 596,817 290,093 290,093 790,093 937,396 937,396 1,437,396
30 519,718 95,455 95,455 595,455 303,415 303,415 803,415 1,035,696 1,035,696 1,535,696
31 553,526 94,042 94,042 594,042 317,266 317,266 817,266 1,144,187 1,144,187 1,644,187
32 589,025 91,858 91,858 591,858 330,929 330,929 830,929 1,263,169 1,263,169 1,763,169
33 626,299 88,855 88,855 588,855 344,334 344,334 844,334 1,393,675 1,393,675 1,893,675
34 665,436 84,980 84,980 584,980 357,403 357,403 857,403 1,536,838 1,536,838 2,036,838
35 706,531 80,161 80,161 580,161 370,034 370,034 870,034 1,693,893 1,693,893 2,193,893
36 749,680 74,114 74,114 574,114 381,900 381,900 881,900 1,865,974 1,865,974 2,365,974
37 794,986 66,477 66,477 566,477 392,576 392,576 892,576 2,054,247 2,054,247 2,554,247
38 842,558 57,409 57,409 557,409 402,147 402,147 902,147 2,260,547 2,260,547 2,760,547
39 892,508 46,240 46,240 546,240 409,854 409,854 909,854 2,486,026 2,486,026 2,986,026
40 944,956 33,189 33,189 533,189 415,808 415,808 915,808 2,732,888 2,732,888 3,232,888
41 1,000,027 16,680 16,680 516,680 418,275 418,275 918,275 3,001,661 3,001,661 3,501,661
42 1,057,850 0 (4) 0 (4) 0 (4) 416,637 416,637 916,637 3,294,160 3,294,160 3,794,160
</TABLE>
64
<PAGE> 68
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
43 1,118,565 412,069 412,069 912,069 3,614,265 3,614,265 4,114,265
44 1,182,316 404,328 404,328 904,328 3,964,747 3,964,747 4,464,747
45 1,249,254 393,093 393,093 893,093 4,348,593 4,348,593 4,848,593
46 1,319,540 377,898 377,898 877,898 4,768,973 4,768,973 5,268,973
47 1,393,339 358,174 358,174 858,174 5,229,299 5,229,299 5,729,299
48 1,470,829 333,211 333,211 833,211 5,733,225 5,733,225 6,233,225
49 1,552,193 302,228 302,228 802,228 6,284,741 6,284,741 6,784,741
50 1,637,625 264,546 264,546 764,546 6,888,403 6,888,403 7,388,403
51 1,727,328 225,104 225,104 725,104 7,555,056 7,555,056 8,055,056
52 1,821,517 183,533 183,533 683,533 8,290,983 8,290,983 8,790,983
53 1,920,416 140,043 140,043 640,043 9,103,734 9,103,734 9,603,734
54 2,024,259 94,461 94,461 594,461 10,001,244 10,001,244 10,501,306
55 2,133,294 46,645 46,645 546,645 10,989,435 10,989,435 11,538,907
56 2,247,782 0 (4) 0 (4) 0 (4) 12,072,002 12,072,002 12,675,602
57 2,367,993 13,271,447 13,271,447 13,802,305
58 2,494,215 14,592,491 14,592,491 15,092,491
59 2,626,749 16,048,906 16,048,906 16,548,906
60 2,765,909 17,656,954 17,656,954 18,156,954
61 2,912,027 19,431,049 19,431,049 19,931,049
62 3,065,450 21,377,508 21,377,508 21,877,508
63 3,226,545 23,504,604 23,504,604 24,004,604
64 3,395,695 25,811,751 25,811,751 26,311,751
65 3,573,302 28,278,861 28,278,861 28,778,861
</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.
65
<PAGE> 69
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 Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,823 5,740 0 505,740 6,121 146 506,121 6,503 528 506,503
2 16,036 11,633 5,156 511,633 12,757 6,279 512,757 13,927 7,449 513,927
3 24,660 17,364 10,887 517,364 19,606 13,129 519,606 22,032 15,555 522,032
4 33,716 22,930 16,453 522,930 26,672 20,195 526,672 30,880 24,403 530,880
5 43,224 28,326 21,848 528,326 33,953 27,476 533,953 40,535 34,058 540,535
6 53,208 33,548 27,718 533,548 41,453 35,623 541,453 51,071 45,242 551,071
7 63,691 38,586 33,404 538,586 49,166 43,984 549,166 62,561 57,380 562,561
8 74,698 43,442 38,908 543,442 57,100 52,565 557,100 75,100 70,566 575,100
9 86,255 48,106 44,220 548,106 65,248 61,362 565,248 88,776 84,889 588,776
10 98,391 52,581 49,342 552,581 73,621 70,382 573,621 103,702 100,463 603,702
11 111,133 56,850 54,259 556,850 82,206 79,615 582,206 119,981 117,390 619,981
12 124,512 60,908 58,965 560,908 91,002 89,059 591,002 137,738 135,795 637,738
13 138,560 64,748 63,453 564,748 100,006 98,711 600,006 157,110 155,814 657,110
14 153,310 68,365 67,718 568,365 109,219 108,571 609,219 178,245 177,598 678,245
15 168,798 71,743 71,743 571,743 118,626 118,626 618,626 201,300 201,300 701,300
16 185,061 74,876 74,876 574,876 128,227 128,227 628,227 226,453 226,453 726,453
17 202,136 77,735 77,735 577,735 137,994 137,994 637,994 253,878 253,878 753,878
18 220,066 80,289 80,289 580,289 147,896 147,896 647,896 283,763 283,763 783,763
19 238,891 82,515 82,515 582,515 157,910 157,910 657,910 316,322 316,322 816,322
20 258,658 84,374 84,374 584,374 167,994 167,994 667,994 351,773 351,773 851,773
21 279,414 85,839 85,839 585,839 178,115 178,115 678,115 390,367 390,367 890,367
22 301,207 86,877 86,877 586,877 188,234 188,234 688,234 432,375 432,375 932,375
23 324,090 87,471 87,471 587,471 198,325 198,325 698,325 478,111 478,111 978,111
24 348,117 87,595 87,595 587,595 208,352 208,352 708,352 527,908 527,908 1,027,908
25 373,345 87,199 87,199 587,199 218,251 218,251 718,251 582,107 582,107 1,082,107
26 399,835 86,636 86,636 586,636 228,999 228,999 728,999 643,993 643,993 1,143,993
27 427,649 85,439 85,439 585,439 239,571 239,571 739,571 711,659 711,659 1,211,659
28 456,854 83,526 83,526 583,526 249,865 249,865 749,865 785,612 785,612 1,285,612
29 487,519 80,803 80,803 580,803 259,762 259,762 759,762 866,400 866,400 1,366,400
30 519,718 77,173 77,173 577,173 269,132 269,132 769,132 954,621 954,621 1,454,621
31 553,526 72,549 72,549 572,549 277,848 277,848 777,848 1,050,945 1,050,945 1,550,945
32 589,025 66,866 66,866 566,866 285,800 285,800 785,800 1,156,134 1,156,134 1,656,134
33 626,299 60,045 60,045 560,045 292,855 292,855 792,855 1,271,015 1,271,015 1,771,015
34 665,436 52,012 52,012 552,012 298,882 298,882 798,882 1,396,504 1,396,504 1,896,504
35 706,531 42,666 42,666 542,666 303,710 303,710 803,710 1,533,584 1,533,584 2,033,584
36 749,680 31,842 31,842 531,842 307,098 307,098 807,098 1,683,271 1,683,271 2,183,271
37 794,986 19,348 19,348 519,348 308,760 308,760 808,760 1,846,655 1,846,655 2,346,655
38 842,558 4,924 4,924 504,924 308,326 308,326 808,326 2,024,866 2,024,866 2,524,866
39 892,508 0 (4) 0 (4) 0 (4) 305,381 305,381 805,381 2,219,122 2,219,122 2,719,122
40 944,956 299,503 299,503 799,503 2,430,782 2,430,782 2,930,782
41 1,000,027 290,356 290,356 790,356 2,661,453 2,661,453 3,161,453
42 1,057,850 277,599 277,599 777,599 2,912,921 2,912,921 3,412,921
</TABLE>
66
<PAGE> 70
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
43 1,118,565 260,903 260,903 760,903 3,187,190 3,187,190 3,687,190
44 1,182,316 239,964 239,964 739,964 3,486,510 3,486,510 3,986,510
45 1,249,254 214,374 214,374 714,374 3,813,276 3,813,276 4,313,276
46 1,319,540 183,565 183,565 683,565 4,169,986 4,169,986 4,669,986
47 1,393,339 146,842 146,842 646,842 4,559,293 4,559,293 5,059,293
48 1,470,829 103,349 103,349 603,349 4,983,998 4,983,998 5,483,998
49 1,552,193 52,131 52,131 552,131 5,447,128 5,447,128 5,947,128
50 1,637,625 0 (4) 0 (4) 0 (4) 5,952,144 5,952,144 6,452,144
51 1,727,328 6,503,016 6,503,016 7,003,016
52 1,821,517 7,104,264 7,104,264 7,604,264
53 1,920,416 7,760,945 7,760,945 8,260,945
54 2,024,259 8,478,790 8,478,790 8,978,790
55 2,133,294 9,264,030 9,264,030 9,764,030
56 2,247,782 10,123,377 10,123,377 10,629,546
57 2,367,993 11,064,302 11,064,302 11,564,302
58 2,494,215 12,094,600 12,094,600 12,594,600
59 2,626,749 13,222,569 13,222,569 13,722,569
60 2,765,909 14,455,702 14,455,702 14,955,702
61 2,912,027 15,799,570 15,799,570 16,299,570
62 3,065,450 17,255,062 17,255,062 17,755,062
63 3,226,545 18,812,227 18,812,227 19,312,227
64 3,395,695 20,438,455 20,438,455 20,938,455
65 3,573,302 22,054,514 22,054,514 22,554,514
</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.
67
<PAGE> 71
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 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,850 10,718 921 500,000 11,479 1,681 500,000 12,242 2,444 500,000
2 32,492 21,325 6,519 500,000 23,520 8,714 500,000 25,810 11,005 500,000
3 49,966 31,485 16,680 500,000 35,807 21,001 500,000 40,498 25,692 500,000
4 68,314 41,479 26,673 500,000 48,636 33,831 500,000 56,720 41,914 500,000
5 87,580 51,327 36,521 500,000 62,056 47,250 500,000 74,666 59,860 500,000
6 107,809 61,007 49,162 500,000 76,072 64,227 500,000 94,503 82,659 500,000
7 129,049 70,361 61,478 500,000 90,559 81,676 500,000 116,291 107,408 500,000
8 151,351 79,323 73,401 500,000 105,481 99,558 500,000 140,197 134,275 500,000
9 174,768 87,943 84,982 500,000 120,915 117,954 500,000 166,525 163,564 500,000
10 199,356 96,221 96,221 500,000 136,896 136,896 500,000 195,573 195,573 500,000
11 225,174 104,822 104,822 500,000 154,336 154,336 500,000 228,860 228,860 500,000
12 252,282 113,340 113,340 500,000 172,734 172,734 500,000 266,037 266,037 500,000
13 280,746 121,739 121,739 500,000 192,117 192,117 500,000 307,557 307,557 500,000
14 310,633 129,648 129,648 500,000 212,248 212,248 500,000 353,782 353,782 500,000
15 342,015 137,043 137,043 500,000 233,192 233,192 500,000 405,394 405,394 500,000
16 374,965 143,637 143,637 500,000 254,837 254,837 500,000 462,966 462,966 532,411
17 409,563 149,462 149,462 500,000 277,337 277,337 500,000 526,473 526,473 594,914
18 445,891 154,413 154,413 500,000 300,775 300,775 500,000 596,494 596,494 662,109
19 484,036 157,723 157,723 500,000 324,915 324,915 500,000 673,640 673,640 734,268
20 524,087 158,036 158,036 500,000 349,406 349,406 500,000 758,572 758,572 811,672
21 566,141 154,965 154,965 500,000 374,614 374,614 500,000 852,337 852,337 894,954
22 610,298 148,935 148,935 500,000 401,331 401,331 500,000 955,258 955,258 1,003,021
23 656,663 140,667 140,667 500,000 430,398 430,398 500,000 1,068,316 1,068,316 1,121,732
24 705,346 129,877 129,877 500,000 462,411 462,411 500,000 1,192,456 1,192,456 1,252,078
25 756,463 116,164 116,164 500,000 497,188 497,188 522,047 1,328,696 1,328,696 1,395,130
26 810,135 98,935 98,935 500,000 533,227 533,227 559,888 1,478,119 1,478,119 1,552,025
27 866,492 77,383 77,383 500,000 570,533 570,533 599,060 1,641,875 1,641,875 1,723,969
28 925,666 50,397 50,397 500,000 609,100 609,100 639,555 1,821,173 1,821,173 1,912,232
29 987,799 16,508 16,508 500,000 648,910 648,910 681,356 2,017,288 2,017,288 2,118,153
30 1,053,039 0 (4) 0 (4) 0 (4) 689,947 689,947 724,444 2,231,593 2,231,593 2,343,173
31 1,121,541 732,590 732,590 769,219 2,466,903 2,466,903 2,590,249
32 1,193,468 776,881 776,881 815,725 2,725,200 2,725,200 2,861,460
33 1,268,991 822,905 822,905 864,050 3,008,809 3,008,809 3,159,249
34 1,348,290 870,724 870,724 914,260 3,320,180 3,320,180 3,486,189
35 1,431,554 920,401 920,401 966,422 3,662,011 3,662,011 3,845,112
36 1,518,982 971,827 971,827 1,020,418 4,036,517 4,036,517 4,238,343
37 1,610,781 1,026,144 1,026,144 1,067,190 4,451,496 4,451,496 4,629,555
38 1,707,169 1,083,730 1,083,730 1,116,242 4,912,442 4,912,442 5,059,815
39 1,808,378 1,145,149 1,145,149 1,168,052 5,426,412 5,426,412 5,534,940
40 1,914,646 1,210,896 1,210,896 1,223,005 6,001,007 6,001,007 6,061,017
41 2,026,228 1,281,374 1,281,374 1,281,374 6,644,314 6,644,314 6,644,314
</TABLE>
68
<PAGE> 72
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
42 2,143,389 1,355,044 1,355,044 1,355,044 7,354,810 7,354,810 7,354,810
43 2,266,409 1,432,048 1,432,048 1,432,048 8,139,512 8,139,512 8,139,512
44 2,395,579 1,512,539 1,512,539 1,512,539 9,006,170 9,006,170 9,006,170
45 2,531,208 1,596,675 1,596,675 1,596,675 9,963,344 9,963,344 9,963,344
</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.
69
<PAGE> 73
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 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,850 10,042 245 500,000 10,766 969 500,000 11,492 1,695 500,000
2 32,492 19,892 5,087 500,000 21,970 7,164 500,000 24,138 9,333 500,000
3 49,966 29,246 14,441 500,000 33,320 18,514 500,000 37,744 22,938 500,000
4 68,314 38,093 23,287 500,000 44,810 30,004 500,000 52,405 37,600 500,000
5 87,580 46,398 31,592 500,000 56,416 41,610 500,000 68,214 53,408 500,000
6 107,809 54,130 42,286 500,000 68,116 56,271 500,000 85,281 73,437 500,000
7 129,049 61,256 52,372 500,000 79,886 71,003 500,000 103,737 94,854 500,000
8 151,351 67,718 61,796 500,000 91,688 85,765 500,000 123,719 117,797 500,000
9 174,768 73,450 70,489 500,000 103,472 100,511 500,000 145,389 142,428 500,000
10 199,356 78,380 78,380 500,000 115,192 115,192 500,000 168,944 168,944 500,000
11 225,174 82,843 82,843 500,000 127,414 127,414 500,000 195,548 195,548 500,000
12 252,282 86,411 86,411 500,000 139,619 139,619 500,000 224,874 224,874 500,000
13 280,746 89,013 89,013 500,000 151,795 151,795 500,000 257,367 257,367 500,000
14 310,633 90,579 90,579 500,000 163,939 163,939 500,000 293,580 293,580 500,000
15 342,015 91,004 91,004 500,000 176,036 176,036 500,000 334,178 334,178 500,000
16 374,965 90,121 90,121 500,000 188,035 188,035 500,000 379,971 379,971 500,000
17 409,563 87,719 87,719 500,000 199,874 199,874 500,000 431,983 431,983 500,000
18 445,891 83,509 83,509 500,000 211,459 211,459 500,000 490,667 490,667 544,640
19 484,036 77,136 77,136 500,000 222,689 222,689 500,000 555,419 555,419 605,406
20 524,087 68,205 68,205 500,000 233,476 233,476 500,000 626,982 626,982 670,871
21 566,141 56,338 56,338 500,000 243,793 243,793 500,000 706,268 706,268 741,581
22 610,298 41,079 41,079 500,000 253,619 253,619 500,000 793,329 793,329 832,996
23 656,663 21,900 21,900 500,000 262,946 262,946 500,000 888,878 888,878 933,322
24 705,346 0 (4) 0 (4) 0 (4) 271,785 271,785 500,000 993,691 993,691 1,043,375
25 756,463 280,101 280,101 500,000 1,108,595 1,108,595 1,164,024
26 810,135 287,794 287,794 500,000 1,234,466 1,234,466 1,296,190
27 866,492 294,708 294,708 500,000 1,372,228 1,372,228 1,440,839
28 925,666 300,605 300,605 500,000 1,522,838 1,522,838 1,598,980
29 987,799 305,177 305,177 500,000 1,687,295 1,687,295 1,771,660
30 1,053,039 308,076 308,076 500,000 1,866,659 1,866,659 1,959,991
31 1,121,541 308,889 308,889 500,000 2,062,063 2,062,063 2,165,166
32 1,193,468 307,083 307,083 500,000 2,274,725 2,274,725 2,388,462
33 1,268,991 301,908 301,908 500,000 2,505,943 2,505,943 2,631,241
34 1,348,290 292,331 292,331 500,000 2,757,121 2,757,121 2,894,977
35 1,431,554 276,786 276,786 500,000 3,029,717 3,029,717 3,181,203
36 1,518,982 252,907 252,907 500,000 3,325,236 3,325,236 3,491,497
37 1,610,781 217,076 217,076 500,000 3,653,795 3,653,795 3,799,947
38 1,707,169 163,593 163,593 500,000 4,020,695 4,020,695 4,141,316
39 1,808,378 83,228 83,228 500,000 4,432,370 4,432,370 4,521,017
40 1,914,646 0 (4) 0 (4) 0 (4) 4,896,683 4,896,683 4,945,650
41 2,026,228 5,423,988 5,423,988 5,423,988
42 2,143,389 6,006,365 6,006,365 6,006,365
</TABLE>
70
<PAGE> 74
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
43 2,266,409 6,649,568 6,649,568 6,649,568
44 2,395,579 7,359,949 7,359,949 7,359,949
45 2,531,208 8,144,524 8,144,524 8,144,524
</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.
71
<PAGE> 75
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 Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 18,816 13,395 2,185 513,395 14,316 3,106 514,316 15,239 4,029 515,239
2 38,573 26,534 11,728 526,534 29,202 14,396 529,202 31,982 17,177 531,982
3 59,317 39,071 24,265 539,071 44,318 29,512 544,318 50,007 35,201 550,007
4 81,099 51,301 36,495 551,301 59,969 45,163 559,969 69,743 54,937 569,743
5 103,970 63,247 48,441 563,247 76,193 61,387 576,193 91,379 76,573 591,379
6 127,985 74,886 63,041 574,886 92,984 81,140 592,984 115,072 103,228 615,072
7 153,200 86,033 77,149 586,033 110,169 101,286 610,169 140,827 131,944 640,827
8 179,676 96,602 90,680 596,602 127,666 121,744 627,666 168,747 162,825 668,747
9 207,476 106,646 103,685 606,646 145,531 142,569 645,531 199,091 196,130 699,091
10 236,666 116,157 116,157 616,157 163,759 163,759 663,759 232,082 232,082 732,082
11 267,315 125,932 125,932 625,932 183,420 183,420 683,420 269,430 269,430 769,430
12 299,497 135,482 135,482 635,482 203,880 203,880 703,880 310,584 310,584 810,584
13 333,287 144,757 144,757 644,757 225,119 225,119 725,119 355,885 355,885 855,885
14 368,768 153,249 153,249 653,249 246,645 246,645 746,645 405,223 405,223 905,223
15 406,022 160,912 160,912 660,912 268,410 268,410 768,410 458,955 458,955 958,955
16 445,139 167,322 167,322 667,322 289,978 289,978 789,978 517,081 517,081 1,017,081
17 486,212 172,503 172,503 672,503 311,346 311,346 811,346 580,064 580,064 1,080,064
18 529,339 176,288 176,288 676,288 332,314 332,314 832,314 648,218 648,218 1,148,218
19 574,622 177,544 177,544 677,544 351,677 351,677 851,677 720,855 720,855 1,220,855
20 622,169 174,300 174,300 674,300 367,289 367,289 867,289 796,311 796,311 1,296,311
21 672,093 166,155 166,155 666,155 378,503 378,503 878,503 874,386 874,386 1,374,386
22 724,514 154,038 154,038 654,038 386,008 386,008 886,008 956,270 956,270 1,456,270
23 779,556 139,323 139,323 639,323 390,998 390,998 890,998 1,043,764 1,043,764 1,543,764
24 837,350 121,938 121,938 621,938 393,247 393,247 893,247 1,137,338 1,137,338 1,637,338
25 898,033 101,749 101,749 601,749 392,454 392,454 892,454 1,237,445 1,237,445 1,737,445
26 961,751 78,498 78,498 578,498 388,174 388,174 888,174 1,344,452 1,344,452 1,844,452
27 1,028,654 51,847 51,847 551,847 379,859 379,859 879,859 1,458,675 1,458,675 1,958,675
28 1,098,903 21,356 21,356 521,356 366,822 366,822 866,822 1,580,349 1,580,349 2,080,349
29 1,172,664 0 (4) 0 (4) 0 (4) 348,305 348,305 848,305 1,709,692 1,709,692 2,209,692
30 1,250,113 323,654 323,654 823,654 1,847,086 1,847,086 2,347,086
31 1,331,435 297,831 297,831 797,831 1,998,773 1,998,773 2,498,773
32 1,416,823 270,497 270,497 770,497 2,165,949 2,165,949 2,665,949
33 1,506,480 241,888 241,888 741,888 2,350,548 2,350,548 2,850,548
34 1,600,620 211,862 211,862 711,862 2,554,300 2,554,300 3,054,300
35 1,699,467 180,304 180,304 680,304 2,779,156 2,779,156 3,279,156
36 1,803,256 145,228 145,228 645,228 3,025,343 3,025,343 3,525,343
37 1,912,235 104,170 104,170 604,170 3,292,714 3,292,714 3,792,714
38 2,026,663 56,503 56,503 556,503 3,583,115 3,583,115 4,083,115
39 2,146,812 4,153 4,153 504,153 3,901,243 3,901,243 4,401,243
40 2,272,969 0 (4) 0 (4) 0 (4) 4,252,119 4,252,119 4,752,119
41 2,405,433 4,637,739 4,637,739 5,137,739
42 2,544,521 5,050,706 5,050,706 5,550,706
</TABLE>
72
<PAGE> 76
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
43 2,690,563 5,484,149 5,484,149 5,984,149
44 2,843,907 5,920,753 5,920,753 6,420,753
45 3,004,918 6,321,954 6,321,954 6,821,954
</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.
73
<PAGE> 77
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 Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 18,816 12,622 1,412 512,622 13,500 2,290 513,500 14,381 3,171 514,381
2 38,573 24,910 10,104 524,910 27,442 12,636 527,442 30,083 15,277 530,083
3 59,317 36,547 21,742 536,547 41,511 26,705 541,511 46,895 32,089 546,895
4 81,099 47,513 32,707 547,513 55,677 40,871 555,677 64,891 50,085 564,891
5 103,970 57,759 42,953 557,759 69,883 55,077 569,883 84,126 69,320 584,126
6 127,985 67,239 55,395 567,239 84,069 72,224 584,069 104,660 92,815 604,660
7 153,200 75,904 67,021 575,904 98,168 89,285 598,168 126,554 117,671 626,554
8 179,676 83,680 77,757 583,680 112,085 106,163 612,085 149,849 143,926 649,849
9 207,476 90,478 87,517 590,478 125,705 122,744 625,705 174,573 171,612 674,573
10 236,666 96,209 96,209 596,209 138,905 138,905 638,905 200,754 200,754 700,754
11 267,315 101,273 101,273 601,273 152,275 152,275 652,275 229,489 229,489 729,489
12 299,497 105,144 105,144 605,144 165,092 165,092 665,092 260,030 260,030 760,030
13 333,287 107,744 107,744 607,744 177,232 177,232 677,232 292,466 292,466 792,466
14 368,768 109,002 109,002 609,002 188,574 188,574 688,574 326,901 326,901 826,901
15 406,022 108,817 108,817 608,817 198,958 198,958 698,958 363,416 363,416 863,416
16 445,139 107,027 107,027 607,027 208,153 208,153 708,153 402,035 402,035 902,035
17 486,212 103,440 103,440 603,440 215,885 215,885 715,885 442,750 442,750 942,750
18 529,339 97,801 97,801 597,801 221,797 221,797 721,797 485,480 485,480 985,480
19 574,622 89,826 89,826 589,826 225,484 225,484 725,484 530,105 530,105 1,030,105
20 622,169 79,249 79,249 579,249 226,539 226,539 726,539 576,506 576,506 1,076,506
21 672,093 65,911 65,911 565,911 224,639 224,639 724,639 624,659 624,659 1,124,659
22 724,514 49,660 49,660 549,660 219,456 219,456 719,456 674,547 674,547 1,174,547
23 779,556 30,379 30,379 530,379 210,678 210,678 710,678 726,181 726,181 1,226,181
24 837,350 7,987 7,987 507,987 198,015 198,015 698,015 779,613 779,613 1,279,613
25 898,033 0 (4) 0 (4) 0 (4) 181,075 181,075 681,075 834,810 834,810 1,334,810
26 961,751 159,309 159,309 659,309 891,588 891,588 1,391,588
27 1,028,654 132,038 132,038 632,038 949,637 949,637 1,449,637
28 1,098,903 98,425 98,425 598,425 1,008,487 1,008,487 1,508,487
29 1,172,664 57,534 57,534 557,534 1,067,550 1,067,550 1,567,550
30 1,250,113 8,500 8,500 508,500 1,126,298 1,126,298 1,626,298
31 1,331,435 0 (4) 0 (4) 0 (4) 1,184,292 1,184,292 1,684,292
32 1,416,823 1,241,186 1,241,186 1,741,186
33 1,506,480 1,296,657 1,296,657 1,796,657
34 1,600,620 1,350,501 1,350,501 1,850,501
35 1,699,467 1,402,390 1,402,390 1,902,390
36 1,803,256 1,451,856 1,451,856 1,951,856
37 1,912,235 1,498,250 1,498,250 1,998,250
38 2,026,663 1,540,590 1,540,590 2,040,590
39 2,146,812 1,577,416 1,577,416 2,077,416
40 2,272,969 1,605,444 1,605,444 2,105,444
41 2,405,433 1,618,342 1,618,342 2,118,342
42 2,544,521 1,603,854 1,603,854 2,103,854
</TABLE>
74
<PAGE> 78
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
43 2,690,563 1,537,510 1,537,510 2,037,510
44 2,843,907 1,370,665 1,370,665 1,870,665
45 3,004,918 1,006,378 1,006,378 1,506,378
</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.
75
<PAGE> 79
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 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.
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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%.
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