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As filed with the Securities and Exchange Commission on April 28, 2000.
Registration No. 333-33351
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3
TO REGISTRATION STATEMENT ON FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT
INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
SEPARATE ACCOUNT B
(Formerly FNAL Variable Life Account I)
(Exact name of trust)
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
(formerly First North American Life Assurance Company)
(Name of depositor)
100 Summit Lake Drive
Second Floor
Valhalla, New York 10595
(Address of depositor's principal executive offices)
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James Gallagher, President Copy to:
The Manufacturers Life Insurance Company of New York J. Sumner Jones
100 Summit Lake Drive Jones & Blouch L.L.P.
Second Floor 1025 Thomas Jefferson St., NW
Valhalla, New York 10595 Suite 401 East
(Name and Address of Agent for Service) Washington, DC 20007-0805
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It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b), or
_X_ on May 1, 2000 pursuant to paragraph (b), or
___ 60 days after filing pursuant to paragraph (a)(1), or
___ on (date) pursuant to paragraph (a)(1) of Rule 485.
If appropriate, check the following box:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK SEPARATE ACCOUNT B
Registration Statement on Form S-6
Cross-Reference Sheet
FORM
N-8B-2
ITEM NO. CAPTION IN PROSPECTUS
1 Cover Page; General Information About Manulife New York, the Separate
Account and the Trust
2 Cover Page; General Information About Manulife New York, the Separate
Account and the Trust
3 *
4 Miscellaneous Matters (Distribution of the Policies)
5 General Information About Manulife New York, the Separate Account and
the Trust
6 General Information About Manulife New York, the Separate Account and
the Trust
7 *
8 *
9 Miscellaneous Matters (Pending Litigation)
10 Detailed Information About The Policies
11 General Information About Manulife New York, the Separate Account and
the Trust
12 General Information About Manulife New York, the Separate Account and
the Trust
13 Detailed Information About The Policies (Charges and Deductions)
14 Detailed Information About the Policies (Premium Provisions -- Policy
Issue and Initial Premium); Miscellaneous Matters (Responsibilities
Assumed By Manulife New York and MSS)
15 Detailed Information About The Policies (Premium Provisions -- Policy
Issue and Initial Premium)
16 **
17 Detailed Information About The Policies (Policy Values -- Partial
Withdrawals and Surrenders); Other Provisions -- Payment of Proceeds)
18 General Information About Manulife New York, the Separate Account and
the Trust
19 Detailed Information About The Policies (Other Provisions - Reports
To Policyowners); Miscellaneous Matters (Responsibilities Assumed By
Manulife New York and MSS)
20 *
21 Detailed Information About The Policies
22 *
23 **
24 Detailed Information About the Policies (Other General Policy
Provisions)
25 General Information About Manulife New York, the Separate Account and
the Trust
26 *
27 **
28 Miscellaneous Matters (Directors And Officers Of Manulife New York)
29 General Information About Manulife New York, the Separate Account and
the Trust
30 *
31 *
32 *
33 *
34 *
35 **
36 *
37 *
38 Miscellaneous Matters (Distribution of the Policies; Responsibilities
Assumed By Manulife New York and MSS)
39 Miscellaneous Matters (Distribution of the Policies)
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40 *
41 Miscellaneous Matters (Distribution of the Policies)
42 Miscellaneous Matters (Distribution of the Policies)
43 *
44 Detailed Information About The Policies (Policy Values - Policy
Value)
45 *
46 Detailed Information About The Policies (Policy Values - Partial
Withdrawals and Surrenders; Other Provisions -- Payment of Proceeds)
47 General Information About Manulife New York, the Separate Account and
the Trust
48 *
49 *
50 General Information About Manulife New York, the Separate Account and
the Trust
51 Detailed Information About The Policies
52 Detailed Information About The Policies (Miscellaneous Matters --
Portfolio Share Substitution)
53 General Information About Manulife New York, the Separate Account and
the Trust; Miscellaneous Matters (Tax Status of the Policy)
54 *
55 *
56 *
57 *
58 *
59 Audited Financial Statements
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* Omitted since answer is negative or item is not applicable.
** Omitted.
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PART I
PROSPECTUS
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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
("Manulife 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 (the "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 SEC 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
100 Summit Lake Drive P.O. Box 633, Niagara Square Station
Second Floor Buffalo, New York 14201-0633
Valhalla, New York 10595 TELEPHONE: 1-888-267-7784
THE DATE OF THIS PROSPECTUS IS MAY 1, 2000.
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PROSPECTUS CONTENTS
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INTRODUCTION TO POLICIES................................................................ 1
GENERAL INFORMATION ABOUT MANULIFE NEW YORK, THE SEPARATE ACCOUNT
AND THE TRUST........................................................................ 6
Manulife New York.................................................................. 6
The Separate Account............................................................... 7
The Trust.......................................................................... 7
Eligible Portfolios................................................................ 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" Provisions........................... 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 Manulife New York and MSS.............................. 34
Voting Rights...................................................................... 35
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Directors and Officers of Manulife New York........................................ 35
State Regulations.................................................................. 37
Pending Litigation................................................................. 37
Year 2000 Issues................................................................... 37
Additional Information............................................................. 37
Independent Auditors............................................................... 37
AUDITED FINANCIAL STATEMENTS............................................................ 39
APPENDICES:
A. Sample Illustrations of Policy Values, Cash Surrender Values and Death Benefits.... 59
B. Definitions........................................................................ 76
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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"
section 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 the entire prospectus in order to fully understand the provisions of the
Policy.
GENERAL
The Policy provides a death benefit in the event of the death of the life
insured to the person you name as the beneficiary.
You may pay premiums at any time and in any amount, subject to certain
limitations.
You may instruct us as to how your premiums, net of certain deductions, will be
allocated. You may choose among the Fixed Account and the sub-accounts of the
Separate Account. The premiums you allocate to the sub-accounts of the Separate
Account are invested in shares of a particular Portfolio of the Trust. You may
change your instructions as to how premiums should be allocated at any time. You
may also transfer amounts among the sub-accounts subject to certain
restrictions. See "Transfers of Policy Value".
The Portfolios currently available to you are set forth beginning on the inside
front cover of this prospectus. In the future we may make available other
sub-accounts and Portfolios.
The Policy has a Policy Value reflecting premiums you have paid, the investment
performance of the accounts to which you have allocated premiums, and certain
charges for expenses and cost of insurance. You may obtain a portion of the
Policy Value by making a policy loan or a partial withdrawal, or by full
surrender of the Policy.
DEATH BENEFIT
DEATH BENEFIT OPTIONS. You choose one of two death benefit options:
- death benefit equal to the face amount of the Policy, or
- 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 "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 "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 "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 "Face Amount
Changes."
PREMIUM PAYMENTS ARE FLEXIBLE
You may pay premiums at any time and in any amount, subject to certain
limitations. See "Policy Issue and Initial Premium" and "Premium Limitations."
You must pay at least the Initial Premium to put the Policy in force. See
"Premium Limitations."
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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 "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 "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 "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 "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 "Policy Loans."
TRANSFERS ARE PERMITTED. You may transfer amounts among the sub-accounts of the
Separate Account and our Fixed Account, subject to certain restrictions.
We permit twelve transfers per policy year at no cost to you. Transfers in
excess of that will cost $25 per transfer. If you request more than one transfer
at the same time, we will treat your requests as a single request.
Certain restrictions may apply to transfer requests. See "Policy Value."
USING THE POLICY VALUE
BORROWING AGAINST THE POLICY VALUE. You may borrow against the Policy Value. The
minimum loan amount is $500.
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Loan interest will be charged on a fixed basis at an effective annual rate of
5.75%. See "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 "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 "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 "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,
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- 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
"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 "Transfers of Policy Value."
INVESTMENT MANAGEMENT FEES AND EXPENSES
Each sub-account of 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 pays investment management fees
that range from 0.25% to 1.15% of the assets of the Portfolios. In addition, the
Portfolios' other expenses range from between 0.039% and 0.270% 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 Trust Annual Expenses table under "Other Charges." These fees and
expenses are described in detail in the accompanying Trust prospectus to which
reference should be made.
We reserve the right to charge or establish a provision for any Federal, state
or local taxes that may be attributable to the Separate Account or our
operations with respect to the Policies. This charge or provision for taxes
would be in addition to the deductions for state, local and Federal taxes
currently being made.
SUPPLEMENTARY BENEFITS
You may choose to add certain supplementary benefits to the Policy. These
supplementary benefits are offered subject to state approval and include:
- an accidental death benefit,
- change of life insured (for corporate owned Policies), and
- a disability benefit to waive the cost of monthly deductions.
The cost of any supplementary benefits will be deducted from the Policy Value
monthly. See "Supplementary Benefits."
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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 "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 age 85. It
is not offered to life insureds whose Issue Age exceeds age 85. See "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 "Policy Reinstatement."
"FREE LOOK" PROVISIONS
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 " 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
"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 "Federal Income Tax Considerations" and "Tax Status of the
Policy."
Under certain circumstances, a Policy may be treated as a Modified Endowment
Contract ("MEC"). If the Policy is a MEC, then all pre-death distributions,
including Policy loans, will be treated first as a distribution of taxable
income and then as a return of investment in the Policy. In addition, prior to
age 59-1/2 any such distributions generally will be subject to a 10% penalty
tax. We have established appropriate procedures for monitoring the compliance of
Policies with Section 7702A of the Code (the "MEC" Rules). See "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
"Federal Income Tax Considerations."
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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 MANULIFE NEW YORK, THE SEPARATE ACCOUNT AND THE TRUST
MANULIFE NEW YORK
We are a stock life insurance company organized under the laws of New York on
February 10, 1992. Our principal office is located at 100 Summit Lake Drive,
Second Floor, Valhalla, NY 10595. We are a wholly-owned subsidiary of The
Manufacturers Life Insurance Company of North America ("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 500
Boylston Street, Boston, Massachusetts 02116.
Our ultimate parent is Manulife Financial Corporation ("MFC") a publicly traded
company based in Toronto, Canada. MFC is the holding company of The
Manufacturers Life Insurance Company and its subsidiaries collectively known as
Manulife Financial.
Manulife New York's financial ratings are as follows:
A++ A.M. Best
Superior in financial strength; 1st category of 15
AAA Duff & Phelps
Highest in claims paying ability; 1st category of 18
AA+ Standard & Poor's
Very strong in financial strength; 2nd category of 21
These ratings, which are current as of the date of this prospectus and are
subject to change, are assigned as a measure of Manulife New York's ability to
honor the death benefit, fixed account guarantees and no lapse 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.
THE SEPARATE ACCOUNT
We established The Manufacturers Life Insurance Company of New York Separate
Account B (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 Separate Account
without regard to our other income, gains or losses.
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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 Manulife New York.
THE TRUST
We invest the assets of each sub-account of the Separate Account in shares of a
particular Portfolio of the Manufacturers Investment Trust (the "Trust"). The
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 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.
Allocating net premiums only to one or a small number of the investment options
(other than the Lifestyle Trusts) should not be considered a balanced investment
strategy. In particular, allocating net premiums to a small number of investment
options that concentrate their investments in a particular business or market
sector will increase the risk that the value of your policy will be more
volatile since these investment options may react similarly to business or
market specific events. Examples of business or market sectors where this risk
historically has been and may continue to be particularly high include: (a)
technology related businesses, including internet related businesses, (b) small
cap securities and (c) foreign securities. The Company does not provide advice
regarding appropriate investment allocations, please discuss this matter with
your financial adviser.
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.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
The investment objectives and certain policies of the Portfolios currently
available to policyowners through corresponding sub-accounts are set forth
below. There is, of course, no assurance that these objectives will be met. A
full description of the Trust, its investment objectives, policies and
restrictions, the risks associated therewith, its expenses, and other aspects
of its operation is contained in the accompanying Trust prospectus, which
should be read together with this prospectus.
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 INTERNET TECHNOLOGIES TRUST seeks long-term capital appreciation by
investing the portfolio's assets primarily in companies engaged in
Internet-related business (such businesses also include Intranet-related
businesses).
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<PAGE> 15
The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital by investing at
least 65% of the portfolio's total assets in common stocks of companies expected
to benefit from the development, advancement, and use of science & technology.
Current income is incidental to the portfolio's objective.
The INTERNATIONAL SMALL CAP TRUST seeks long-term 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 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 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 companies with market capitalizations that
approximately match the range of capitalization of the Russell 2000 Index
("small cap stocks") 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 capitalizations
that approximately match the range of capitalization of the Russell 2000 Index
("small cap stocks") at the time of purchase.
The DYNAMIC GROWTH TRUST seeks long-term growth of capital by investing the
portfolio's assets primarily in equity securities selected for their growth
potential with normally at least 50% of its equity assets in medium-sized
companies.
The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily
in equity securities with significant capital appreciation potential, with
emphasis on medium-sized companies.
The ALL CAP GROWTH TRUST (formerly, the Mid Cap Growth Trust) seeks long-term
capital appreciation by investing the portfolio's assets, under normal market
conditions, principally in common stocks of companies that are likely to benefit
from new or innovative products, services or processes as well as those that
have experienced, above-average, long-term growth in earnings and have excellent
proposals for future growth.
The OVERSEAS TRUST seeks growth of capital by investing, under normal market
conditions, at least 65% of the portfolio's assets in foreign securities
(including American Depositary Receipts (ADRs) and European Depositary Receipts
(EDRs)). The portfolio 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 seeks growth of capital by investing primarily in common
stocks of U.S. issuers and securities convertible into or carrying the right to
buy common stocks.
The SMALL COMPANY VALUE TRUST seeks long-term growth of capital by investing,
under normal circumstances, at least 65% of the portfolio's assets in common
stocks of companies with total market capitalization that approximately match
the range of capitalization of the Russell 2000 Index and 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.
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<PAGE> 16
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 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) by investing at least 65% of the portfolio's
total assets in the common stocks of large and medium-sized blue chip companies.
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 TACTICAL ALLOCATION TRUST seeks total return, consisting of long-term
capital appreciation and current income by allocating the portfolio's assets
between (i) a stock portion that is designed to track the performance of the S&P
500 Composite Stock Price Index, and (ii) a fixed income portion that consists
of either five-year U.S. Treasury notes or U.S. Treasury bills with remaining
maturities of 30 days.
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 S&P 500 Composite Stock Price Index. The Equity Index Trust is available
only for policies issued for applications dated prior to May 1, 2000.
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 VALUE 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 seeks the balanced accomplishment of (a) conservation
of principal and (b) long-term growth of capital and income by investing the
portfolio's assets in both equity and fixed income securities. The subadviser
has full discretion to determine the allocation between equity and fixed income
securities.
The BALANCED TRUST seeks current income and capital appreciation by investing in
a balanced portfolio of common stocks, U.S. and foreign government obligations
and a variety of corporate fixed income securities.
The HIGH YIELD TRUST seeks to realize an above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high yield debt securities, including corporate bonds and
other fixed income securities.
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<PAGE> 17
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 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 the subadviser'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 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 U.S.
entities.
The SMALL CAP INDEX TRUST seeks to approximate the aggregate total return of a
small cap U.S. domestic equity market index by attempting to track the
performance of the Russell 2000 Index. *
The INTERNATIONAL INDEX TRUST seeks to approximate the aggregate total return of
a foreign equity market index by attempting to track the performance of the
Morgan Stanley European Australian Far East Free Index (the "MSCI EAFE Index").
*
The MID CAP INDEX TRUST seeks to approximate the aggregate total return of a mid
cap U.S. domestic equity market index by attempting to track the performance of
the S&P Mid Cap 400 Index. *
The TOTAL STOCK MARKET INDEX seeks to approximate the aggregate total return of
a broad U.S. domestic equity market index by attempting to track the performance
of the Wilshire 5000 Equity Index. *
The 500 INDEX TRUST seeks to approximate the aggregate total return of a broad
U.S. domestic equity market index by attempting to track the performance of the
S&P 500 Composite Stock Price Index. *
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.
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<PAGE> 18
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 current
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.
*"Standard & Poor's(R)," "S&P 500(R)," "Standard & Poor's 500(R)," and "Standard
& Poor's 400(R)"are trademarks of The McGraw-Hill Companies, Inc. "Russell
2000(R)" is a trademark of Frank Russell Company. "Wilshire 5000(R)" is a
trademark of Wilshire Associates. "Morgan Stanley European Australian Far East
Free" and "EAFE(R)" are trademarks of Morgan Stanley & Co. Incorporated. None of
the Index Trusts are sponsored, endorsed, managed, advised, sold or promoted by
any of these companies, and none of these companies make any representation
regarding the advisability of investing in the Trust.
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 accepted by us is not accompanied by a check for the Initial
Premium and no request to backdate the Policy has been made: (i) the policy date
and the effective date will be the date we receive the check at our Service
Office, and (ii) the issue date will be the date we issue the Policy. The
Initial Premium must be received within 60 days after the issue date and the
policyowner must be in good health on the date the initial premium is received
(however, we may require the initial premium within 30 days on Policies issued
with Additional Ratings.) If the Initial Premium is not paid or the application
is rejected, the Policy will be canceled and any partial premium paid will be
returned to the applicant.
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<PAGE> 19
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.
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 be satisfied. See "No Lapse Guarantee".
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.
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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 "Policy Default". Our guarantee applies even if a combination of Policy
loans, adverse investment experience and other factors causes the Policy's Net
Cash Surrender Value to be insufficient to meet the monthly deductions due at
the beginning of a policy month.
The No Lapse Guarantee terminates at the end of the fifth policy year.
The No Lapse Guarantee is not offered to life insureds with an issue age
exceeding 85.
While the No Lapse Guarantee is in effect, we will determine at the beginning of
each policy month whether the No Lapse Guarantee Cumulative Premium Test,
described below, has been satisfied. If it has not been satisfied, we will
notify you of that fact and allow a 61-day grace period in which you may make a
premium payment sufficient to keep the No Lapse Guarantee in effect. This
required payment, as described in the notification to you, will be equal to the
outstanding premium required to meet the No Lapse Guarantee Cumulative Premium
Test as of the date the No Lapse Guarantee was not satisfied plus the Monthly No
Lapse Guarantee Premium due for the next two policy months.
If the required payment is not received by the end of the grace period, the No
Lapse Guarantee will terminate. Thereafter, the Policy may go into default if
the Policy's Net Cash Surrender Value is insufficient to meet the monthly
deductions due at the beginning of a policy month. A death benefit option change
will also terminate the No Lapse Guarantee if it is in effect at the time of the
change as will a decrease in face amount below $250,000. The No Lapse Guarantee
cannot be reinstated after it has been terminated. See "Policy Default" and
"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 "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.
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<PAGE> 21
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
- 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 "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
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<PAGE> 22
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.
<TABLE>
- --------------------------------------------------------------------------------------------
<S> <C>
CHANGE TO OPTION 2 If the change in death benefit is from Option 1 to Option 2, the new
face amount will be equal to the face amount prior to the change minus
NEW FACE AMOUNT = the Policy Value on the effective date of the change. A change to
OLD FACE AMOUNT Option 2 will not be allowed if it would cause the face amount of the
MINUS POLICY VALUE Policy to go below the minimum face amount of $50,000 ($100,000 for
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 POLICY VALUE amount of surrender charges to which a Policy may be subject. The
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 "Charges and Deductions".
16
<PAGE> 23
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 "Charges and
Deductions" and "Surrender Charges."
Any increase in face amount to a level less than the highest face amount
previously in effect will have no effect on the surrender charges to which the
Policy is subject, since surrender charges, if applicable, will have been
assessed in connection with the prior decrease in face amount. The insurance
coverage eliminated by the decrease of the oldest face amount will be deemed to
be restored first. As with the purchase of a Policy, you will have free look
right with respect to any increase resulting in new surrender charges.
No additional premium is required for a face amount increase. However, you may
need to pay an additional premium to keep the Policy from going into default.
This is because new surrender charges resulting from an increase would
automatically reduce the Net Cash Surrender Value of the Policy.
DECREASES. After the Policy has been in force for one year, you may decrease the
face amount of your Policy once per policy year. A decrease in face amount will
become effective at the beginning of the next policy month following the receipt
of a properly executed request. A decrease will not be allowed if it would cause
the face amount to go below the minimum face amount of $50,000 ($100,000 for
preferred risk policies).
Usually, we will deduct surrender charges from the Policy Value whenever a
decrease in face amount is made during the Surrender Charge Period. See "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 "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.
17
<PAGE> 24
We credit sub-account units to a Policy whenever you allocate net premiums or
transfer amounts to that sub-account. Sub-account units are canceled whenever
amounts are deducted, transferred or withdrawn from the sub-account. The number
of units credited or canceled for a specific transaction is based on the dollar
amount of the transaction divided by the value of the unit at the end of the
Business Day on which the transaction occurs. The number of units credited with
respect to a premium payment is based on the applicable unit values at the end
of the Business Day on which the premium is received at our Service Office or
other office or entity so designated by us.
Units are valued at the end of each Business Day. A Business Day is deemed to
end at the time of the determination of the net asset value of the underlying
Portfolio shares. When an order involving the crediting or canceling of units is
received after the end of a Business Day or on a day which is not a Business
Day, the order will be processed on the basis of unit values determined at the
end of the next Business Day. Similarly, any determination of Policy Value,
Investment Account value or death benefit to be made on a day which is not a
Business Day will be made at the end of the next Business Day.
The value of a unit of each sub-account was initially fixed at $10. For each
subsequent Business Day the unit value is determined by multiplying the unit
value for the preceding Business Day by the "net investment factor" for the
particular sub-account for that subsequent Business Day. The net investment
factor for a sub-account for any Business Day is equal to (a) divided by (b),
where:
(a) is the net asset value of the underlying Portfolio shares held by that
sub-account at the end of such Business Day before any policy transactions
are made on that day; and
(b) is the net asset value of the underlying Portfolio shares held by that
sub-account at the end of the immediately preceding Business Day after all
policy transactions have been made for that day.
We reserve the right to adjust the above formula for any taxes determined by us
to be attributable to the operations of the sub-account.
TRANSFERS OF POLICY VALUE
You may change the extent to which your Policy Value is based upon any specific
sub-account of the Separate Account or Manulife New York's general account. You
make those changes by transferring amounts from one or more Investment Accounts
or Manulife New York's general account to other Investment Accounts or to
Manulife New York'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
18
<PAGE> 25
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 reserve the right to
institute a charge on 90 days' written notice.
We reserve the right to cease to offer this program on 90 days' written notice.
POLICY LOANS
While the Policy is in force, you may borrow against your Policy Value. The
Policy serves as the only security for the loan. The minimum amount of any loan
is $500. The maximum loan amount is the amount which would cause the Modified
Policy Debt to equal the loan value of the Policy on the date of the loan. The
loan value is the Policy's Cash Surrender Value less the monthly deductions due
to the next policy anniversary. The Modified Policy Debt as of any date is the
Policy Debt (the aggregate amount of policy loans, including borrowed interest,
less any loan repayments) plus the amount of interest to be charged to the next
policy anniversary, all discounted from the next policy anniversary to such date
at an annual rate of 4%. We transfer an amount equal to the Modified Policy Debt
to the Loan Account to ensure that a sufficient amount will be available to pay
interest on the Policy Debt at the next policy anniversary.
For example, assume a Policy with a loan value of $5,000, no outstanding policy
loans and a loan interest rate of 5.75%. The maximum amount that can be borrowed
is an amount that will cause the Modified Policy Debt to equal $5,000. If the
loan is made on a policy anniversary, the maximum loan will be $4,917. This
amount at 5.75% interest will equal $5,200 one year later; $5,200 discounted to
the date of the loan at 4% (the Modified Policy Debt) equals $5,000. Because the
minimum rate of interest credited to the Loan Account is 4%, $5,000 must be
transferred to the Loan Account to ensure that $5,200 will be available at the
next policy anniversary to cover the interest accrued on the Policy Debt.
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 "No Lapse
Guarantee" and "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 "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.
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<PAGE> 26
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 "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."
INTEREST CHARGED ON POLICY LOANS. Interest on the Policy Debt will accrue daily
and be payable annually on the policy anniversary. We will fix the rate of
interest charged at an effective annual rate of 5.75%. If the interest due on a
policy anniversary is not paid by the policyowner, the interest will be borrowed
against the Policy.
INTEREST CREDITED TO THE LOAN ACCOUNT. We will credit interest to any amount in
the Loan Account at an effective annual rate of at least 4%. The actual rate
credited is:
- On amounts in excess of the Policy's Select Loan Amount, the
rate of interest charged on the policy loan less an interest
rate differential, currently 1.75%.
- On amounts up to the Policy's Select Loan Amount, the rate of
interest charged on the policy loan less an interest rate
differential, currently 0%.
The tax consequences associated with a loan interest credited differential of 0%
are unclear. A tax adviser should be consulted before effecting a loan to
evaluate the tax consequences that may arise in such a situation. If we
determine, in our sole discretion, that there is a substantial risk that a loan
will be treated as a taxable distribution under Federal tax law as a result of
the differential between the credited interest rate and the loan interest rate,
the Company retains the right to increase the loan interest rate to an amount
that would result in the transaction being treated as a loan under Federal tax
law. If this amount is not prescribed by any IRS ruling or regulation or any
court decision, the amount of increase will be that which 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
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<PAGE> 27
Fixed Account. The amount transferred to or from the Loan Account will be such
that the value of the Loan Account after the adjustment will be equal to the
Modified Policy Debt.
The specified events which cause an adjustment to the Loan Account are (i) a
policy anniversary, (ii) a partial or full loan repayment, (iii) a new loan or
(iv) an amount is needed to meet a monthly deduction. A loan repayment may be
implicit in that policy debt is effectively repaid upon termination (i.e., upon
death of the life insured, surrender or lapse of the policy). In each of these
instances, the Loan Account will be adjusted so that any excess of the Loan
Account over the Modified Policy Debt after the repayment will be included in
the termination proceeds.
Except as noted below under "Loan Repayments," we will allocate amounts
transferred from the Loan Account to the Investment Accounts and the Fixed
Account in the same proportion as the value in the corresponding "loan
sub-account" bears to the value of the Loan Account. A "loan sub-account" exists
for each Investment Account and for the Fixed Account. Amounts transferred to
the Loan Account are allocated to the appropriate loan sub-account to reflect
the account from which the transfer was made.
LOAN ACCOUNT ILLUSTRATION. (Dollar amounts in this illustration have been
rounded to the nearest dollar.) The operation of the Loan Account may be
illustrated as follows: assume a Policy with a loan value of $5,000, a loan
interest rate of 5.75%, and a maximum loan amount on a policy anniversary of
$4,917. For purposes of the illustration, assume that the Select Loan Amount is
zero. If a loan in the maximum amount of $4,917 is made, an amount equal to the
Modified Policy Debt, $5,000, is transferred to the Loan Account. At the next
policy anniversary the value of the Loan Account will have increased to $5,200
($5,000 x 1.04) reflecting interest credited at an effective annual rate of
4.0%. At that time the loan will have accrued interest charges of $283 ($4,917 x
.0575), bringing the Policy Debt to $5,200.
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 "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
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<PAGE> 28
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 "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
"Charges and Deductions" and "Surrender Charges."
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:
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<PAGE> 29
TABLE 1: DEFERRED UNDERWRITING CHARGES
<TABLE>
<CAPTION>
Transaction
Occurs After
Monthly Deduction
Taken For Last Percent of Deferred Underwriting Charges by Issue Age*
Month Preceding
End of Month* Age
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Month 0-50 51 52 53 54 55+
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>
* 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, 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:
23
<PAGE> 30
TABLE 2: NUMBER OF TARGET PREMIUMS SUBJECT TO DEFERRED SALES CHARGE
(APPLICABLE TO THE INITIAL FACE AMOUNT AND INCREASES)
<TABLE>
<CAPTION>
Age $250,000 or Under Age $250,000 or Under Age $250,000 or Under
More $250,000 More $250,000 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
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.
24
<PAGE> 31
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.
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 "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.
25
<PAGE> 32
As noted under "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;
(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 "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 $0.01 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:
26
<PAGE> 33
- the life insured's issue age,
- the duration of the coverage,
- sex, and
- risk class.
We determine the rate separately for the initial face amount and for each
increase in face amount. Cost of insurance rates will generally increase with
the life insured's age. Any additional ratings as indicated in the Policy will
be added to the cost of insurance rate.
We use cost of insurance rates that reflect our expectations as to future
mortality experience as based on current experience. We may change the rates
from time to time on a basis which does not unfairly discriminate within the
class of life insureds. In no event will the cost of insurance rate exceed the
guaranteed rate set forth in the Policy except to the extent that an extra rate
is imposed because of an additional rating applicable to the life insured. The
guaranteed rates are based on the 1980 Commissioners Standard Ordinary
Smoker/Nonsmoker Mortality Tables.
The net amount at risk to which the cost of insurance rate is applied is the
difference between the death benefit, divided by 1.0032737 (a factor which
reduces the net amount at risk for cost of insurance charge purposes by taking
into account assumed monthly earnings at an annual rate of 4%), and the Policy
Value. Because different cost of insurance rates may apply to different levels
of insurance coverage, we will calculate the net amount at risk separately for
each level of insurance coverage. When the Option 1 death benefit is in effect,
for purposes of determining the net amount at risk applicable to each level of
insurance coverage, the Policy Value is attributed first to the initial face
amount and then, if the Policy Value is greater than the initial face amount, to
each increase in face amount in the order made.
Because the calculation of the net amount at risk is different under the death
benefit options when more than one level of insurance coverage is in effect, a
change in the death benefit option may result in a different net amount at risk
for each level of insurance coverage than would have occurred had the death
benefit option not been changed. Since the cost of insurance is calculated
separately for each level of insurance coverage, any change in the net amount at
risk for a level of insurance coverage resulting from a change in the death
benefit option may affect the amount of the charge for the cost of insurance.
Partial withdrawals and decreases in face amount will also affect the manner in
which the net amount at risk for each level of insurance coverage is calculated.
MORTALITY AND EXPENSE RISKS CHARGE
We make a monthly charge against your Policy Value for the mortality and expense
risks we assume under the Policies. We make this charge at the beginning of each
policy month at a rate of
- 0.075% through the later of the tenth anniversary of the
Policy and your attained age of 60 and,
- thereafter, 0.0375%.
We assess the charge against the value of your Investment Accounts by canceling
units in the same proportion as the value of each Investment Account bears to
the total value of your Investment Accounts. 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
27
<PAGE> 34
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 "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 as of the fiscal year ended
December 31, 1999)
<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% 0.260% 1.110%
Internet Technologies............... 1.150% 0.136%(A) 1.286%
Science & Technology................ 1.100% 0.060% 1.160%
International Small Cap............. 1.100% 0.270% 1.370%
Aggressive Growth................... 1.000%(F) 0.130% 1.130%
Emerging Small Company.............. 1.050% 0.070% 1.120%
Small Company Blend................. 1.050% 0.250%(A) 1.300%(E)
Dynamic Growth...................... 1.000%(F) 0.132%(A) 1.132%
Mid Cap Stock....................... 0.925% 0.100%(A) 1.025%(E)
All Cap Growth(I)................... 0.950%(F) 0.070% 1.020%
Overseas............................ 0.950% 0.260% 1.210%
International Stock................. 1.050% 0.200% 1.250%
International Value................. 1.000% 0.230%(A) 1.230%(E)
Mid Cap Blend....................... 0.850%(F) 0.060% 0.910%
Small Company Value................. 1.050% 0.170% 1.220%
Global Equity....................... 0.900% 0.160% 1.060%
Growth.............................. 0.850% 0.050% 0.900%
Large Cap Growth.................... 0.875%(F) 0.100% 0.975%
Quantitative Equity................. 0.700% 0.060% 0.760%
Blue Chip Growth.................... 0.875%(F) 0.050% 0.925%
Real Estate Securities.............. 0.700% 0.070% 0.770%
Value............................... 0.800% 0.070% 0.870%
Tactical Allocation................. 0.900% 0.127%(A) 1.027%
Equity Index........................ 0.250% 0.150%G 0.400%G
Growth & Income..................... 0.750% 0.050% 0.800%
U.S. Large Cap Value................ 0.875% 0.070%(A) 0.945%(E)
Equity-Income....................... 0.875%(F) 0.060% 0.935%
Income & Value...................... 0.800%(F) 0.080% 0.880%
Balanced............................ 0.800% 0.070% 0.870%
High Yield.......................... 0.775% 0.065% 0.840%
Strategic Bond...................... 0.775% 0.095% 0.870%
Global Bond......................... 0.800% 0.180% 0.980%
Total Return........................ 0.775% 0.060%(A) 0.835%(E)
Investment Quality Bond............. 0.650% 0.120% 0.770%
Diversified Bond.................... 0.750% 0.090% 0.840%
</TABLE>
28
<PAGE> 35
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
TRUST PORTFOLIO FEES REIMBURSEMENT) ANNUAL EXPENSES
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Securities.......... 0.650% 0.070% 0.720%
Money Market........................ 0.500% 0.050% 0.550%
Small Cap Index..................... 0.525% 0.075%(AH) 0.600%
International Index................. 0.550% 0.050%(AH) 0.600%
Mid Cap Index....................... 0.525% 0.075%(AH) 0.600%
Total Stock Market Index............ 0.525% 0.075%(AH) 0.600%
500 Index........................... 0.525% 0.039%(AH) 0.564%
Lifestyle Aggressive 1000(D)........ 0.075% 1.060%(B) 1.135%(C)
Lifestyle Growth 820(D)............. 0.057% 1.008%(B) 1.065%(C)
Lifestyle Balanced 640(D)........... 0.057% 0.928%(B) 0.985%(C)
Lifestyle Moderate 460(D)........... 0.066% 0.869%(B) 0.935%(C)
Lifestyle Conservative 280(D)....... 0.075% 0.780%(B) 0.855%(C)
</TABLE>
(A) Based on estimates to be made during the current fiscal year.
(B) Reflects expenses of the Underlying Portfolios.
(C) The investment adviser to the Trust, Manufacturers Securities Services,
LLC ("MSS" or the "Adviser") has voluntarily agreed to pay certain
expenses of each Lifestyle Trust as follows:
If total expenses of a Lifestyle Trust (absent reimbursement) exceed
0.075%, the Adviser will reduce the advisory fee or reimburse expenses
of that Lifestyle Trust by an amount such that total expenses of the
Lifestyle Trust, equal 0.075%. If the total expenses of a Lifestyle
Trust (absent reimbursement) are equal to or less than 0.075%, then no
expenses will be reimbursed by the Adviser. (For purposes of the
expense reimbursement, total expenses of a Lifestyle Trust includes the
advisory fee but excludes (a) the expenses of the Underlying
Portfolios, (b) taxes, (c) portfolio brokerage, (d) interest, (e)
litigation and (f) indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Trust's business.)
This voluntary expense reimbursement may be terminated at any time. If
such expense reimbursement was not in effect, Total Trust Annual
Expenses would be higher (based on current advisory fees and the Other
Expenses of the Lifestyle Trusts for the fiscal year ended December 31,
1999) as noted in the chart below:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Lifestyle Aggressive 1000...... 0.075% 1.090% 1.165%
Lifestyle Growth 820........... 0.057% 1.030% 1.087%
Lifestyle Balanced 640......... 0.057% 0.940% 0.997%
Lifestyle Moderate 460......... 0.066% 0.900% 0.966%
Lifestyle Conservative 280..... 0.075% 0.810% 0.885%
</TABLE>
(D) Each Lifestyle Trust will invest in shares of the Underlying
Portfolios. Therefore, each Lifestyle Trust will bear its 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 bear its own expenses. However, the Adviser is currently
paying certain of these expenses as described in footnote (C) above.
(E) Annualized - For the period May 1, 1999 (commencement of operations) to
December 31, 1999.
(F) Management Fees changed effective May 1, 1999. Fees shown are the
current management fees.
(G) The Equity Index Trust is available only for Policies issued for
applications dated prior to May 1, 2000. 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) exceeds an annual rate
of 0.15% of the average annual net assets of the Equity Index Trust.
The expense limitation may be terminated at any time by MSS.
29
<PAGE> 36
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.
(H) MSS has voluntarily agreed to pay expenses of each Index Trust
(excluding the advisory fee) that exceed the following amounts: 0.050%
in the case of the International Index Trust and 500 Index Trust and
0.075% in the case of the Small Cap Index Trust, the Mid Cap Index
Trust and Total Stock Market Index Trust. If such expense reimbursement
were not in effect, it is estimated that "Other Expenses" and "Total
Trust Annual Expenses" would be 0.022% higher for the International
Index Trust, 0.014% higher for the Small Cap Index Trust, 0.060% higher
for the Mid Cap Index Trust and 0.005% higher for the Total Stock
Market Index Trust. It is estimated that the expense reimbursement will
not be effective during the year end December 31, 2000 for the 500
Index Trust. The expense reimbursement may be terminated at any time by
MSS.
(I) Formerly, the Mid Cap Growth Trust.
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 "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:
30
<PAGE> 37
(a) The life insured's risk class is standard or preferred; and
(b) The life insured's attained age is less than 46.
You can reinstate a Policy which has terminated after going into default at any
time within the five-year period following the date of termination subject to
the following conditions:
(a) You must not have been surrendered the Policy for its Net Cash
Surrender Value;
(b) You furnish to us satisfactory evidence of the life insured's
insurability;
(c) You pay us a premium equal to the payment required during the 61-day
grace period following default to keep the Policy in force; and
(d) You repay to us an amount equal to any amounts paid by us in connection
with the termination of the Policy.
If we approve the reinstatement, the date of reinstatement will be the later of
the date of your written request or the date we receive the required payment at
our Service Office.
MISCELLANEOUS POLICY PROVISIONS
BENEFICIARY. You may appoint one or more beneficiaries of the Policy by naming
them in the application. Beneficiaries may be appointed in three classes --
primary, secondary and final. Thereafter you may change the beneficiary during
the life insured's lifetime by giving written notice to us in a form
satisfactory to us unless an irrevocable designation has been elected. If the
life insured dies and there is no surviving beneficiary, you, or your estate if
you are the life insured, will be the beneficiary. If a beneficiary dies before
the seventh day after the death of the life insured, we will pay the insurance
benefit as if the beneficiary had died before the life insured.
INCONTESTABILITY. We will not contest the validity of a Policy after it has been
in force during the life insured's lifetime for two years from the issue date.
We will not contest the validity of an increase in face amount or the addition
of a supplementary benefit after such increase or addition has been in force
during the life insured's lifetime for two years. If a Policy has been
reinstated and been in force for less than two years from the reinstatement
date, we can contest any misrepresentation of a fact material to the
reinstatement.
MISSTATEMENT OF AGE OR SEX. If the life insured's stated age or sex or both in
the Policy are incorrect, we will change the face amount of insurance so that
the death benefit will be that which the most recent monthly charge for the cost
of insurance would have bought for the correct age and sex.
SUICIDE EXCLUSION. If the life insured dies by suicide within two years from the
issue date, we will pay only the premiums paid less any partial withdrawals of
the Net Cash Surrender Value and any amount in the Policy Debt. If the life
insured should die by suicide within two years after a face amount increase, the
death benefit for the increase will be limited to the monthly deduction for the
increase.
ASSIGNMENT. We will not be bound by an assignment until we receive a copy of it
at our Service Office. We assume no responsibility for the validity or effects
of any assignment.
CONVERSION PRIVILEGE. You may effectively convert your policy, at any Policy
Anniversary, to a fixed paid-up benefit, without evidence of insurability. The
Policy Value, other values based thereon and the Investment Account values will
be determined as of the Business Day on which we receive the written request for
conversion. The basis for determining the Policy Value will be the Commissioners
1980 Standard Ordinary Smoker or Non-Smoker Mortality Table and an interest rate
of 4% per year. The Flexible Premium Variable Life coverage cannot be reinstated
after the date of conversion.
OTHER PROVISIONS
SUPPLEMENTARY BENEFITS
31
<PAGE> 38
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 "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 weekend and 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 "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 the
Superintendent of Insurance of the State of New York may be required.
We also reserve the right to create new separate accounts, combine other
separate accounts with the Separate Account, to establish additional
sub-accounts within the Separate Account, to combine sub-accounts or to transfer
assets in one sub-account to another sub-account, to eliminate existing
sub-accounts and stop accepting new allocations and transfers into the
corresponding fund, 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 Department of the State of
New York. You will be advised of any change at the time it is made.
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<PAGE> 39
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."
33
<PAGE> 40
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,
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.
34
<PAGE> 41
Further, if a transaction occurs which reduces the face amount of your Policy
during the first seven years, we will retest the Policy, retroactive to the date
of purchase, to determine compliance with the seven-pay test based on the lower
face amount. As well, if a reduction of the face amount occurs within seven
years of a material change, we will retest the Policy for compliance retroactive
to the date of the material change. Failure to comply would result in
classification as a MEC regardless of any efforts by us to provide a payment
schedule that will not violate the seven-pay test.
The rules relating to whether a Policy will be treated as a MEC are extremely
complex and cannot be adequately described in the limited confines of this
summary. Therefore, you should consult with a competent adviser to determine
whether a transaction will cause the Policy to be treated as a MEC.
DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. Policies
classified as MECs will be subject to the following tax rules: First, all
partial withdrawals from such a Policy are treated as ordinary income subject to
tax up to the amount equal to the excess (if any) of the Policy Value
immediately before the distribution over the investment in the Policy (described
below) at such time. Second, loans taken from or secured by such a Policy are
treated as partial withdrawals from the Policy and taxed accordingly. Past-due
loan interest that is added to the loan amount is treated as a loan. Third, a
10% additional income tax is imposed on the portion of any distribution
(including distributions upon surrender) from, or loans taken from or secured
by, such a Policy that is included in income except where the distribution or
loan is made on or after the policyowner attains age 59-1/2, is attributable to
the policyowner's becoming disabled, or is part of a series of substantially
equal periodic payments for the life (or life expectancy) of the policyowner or
the joint lives (or joint life expectancies) of the policyowner and the
policyowner's beneficiary.
DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. A
distribution from a Policy that is not a MEC is generally treated as a tax-free
recovery by the policyowner of the investment in the Policy (described below) to
the extent of such investment in the Policy, and as a distribution of taxable
income only to the extent the distribution exceeds the investment in the Policy.
An exception to this general rule occurs in the case of a decrease in the
Policy's death benefit or any other change that reduces benefits under the
Policy in the first 15 years after the Policy is issued and that results in a
cash distribution to the policyowner in order for the Policy to continue
complying with the Section 7702 definitional limits. Such a cash distribution
will be taxed in whole or in part as ordinary income (to the extent of any gain
in the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a MEC are not treated as
distributions. Instead, such loans are treated as indebtedness of the
policyowner. Select Loans may, however, be treated as a distribution.
Finally, neither distributions (including distributions upon surrender) nor
loans from, or secured by, a Policy that is not a MEC are subject to the 10%
additional tax.
POLICY LOAN INTEREST. Generally, personal interest paid on any loan under a
Policy which is owned by an individual is not deductible. In addition, except
for the transition rules described in the paragraph below, interest on any loan
under a Policy owned by a taxpayer and covering the life of any individual who
is an officer or employee of or is financially interested in the business
carried on by the taxpayer will not be tax deductible unless the employee is a
key person within the meaning of Section 264 of the Code. A deduction will not
be permitted for interest on a loan under a policy held on the life of a key
person to the extent the aggregate of such loans with respect to contracts
covering the key person exceeds $50,000. The number of employees who can qualify
as key persons depends in part on the size of the employer but cannot exceed 20
individuals.
Furthermore, if a non-natural person owns a Policy, or is the direct or indirect
beneficiary under a Policy, Section 264(f) of the Code disallows a pro-rata
portion of the taxpayer's interest expense allocable to unborrowed policy cash
values attributable to insurance held on the lives of individuals who are not
20% (or more) owners of the taxpayer-entity, officers, employees, or former
employees of the taxpayer.
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
35
<PAGE> 42
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 of which is MFC. 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 MANULIFE NEW YORK 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.
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<PAGE> 43
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 and Age Manulife New Principal Occupation
York
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Bruce Avedon Director* Consultant (self-employed) August 1983 to present.
Age: 71
Thomas Borshoff Director* Self-employed, Real Estate Owner/Manager; Chief
Age: 53 Executive Officer and Chairman, First Federal Savings
and Loan of Rochester, 1983 to 1997.
James Boyle Director* Senior Vice President, U.S. Annuities, Manulife
Age: 40 Financial, July 1999 to present; President and
Director, Manulife North America, July 1999 to
present; Vice President, Institutional Markets,
Manulife Financial, May 1998 to July 1999; Vice
President, Administration, Manulife North America,
September 1996 to May 1998.
Robert Cook Director* Senior Vice President, US Insurance, Manulife
Age: 45 Financial, January 1999 to present; Vice President,
US Insurance, Manulife Financial, 1995 to December
1998.
</TABLE>
37
<PAGE> 44
<TABLE>
<CAPTION>
Position with
Name and Age Manulife New Principal Occupation
York
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
John DesPrez III Director* and Executive Vice President, U.S. Operations, Manulife
Age: 43 Chairman of the Financial, January 1999 to present; Director,
Board of September 1996 to present and Chairman of the Board,
Directors* January 1999 to present, of Manulife North America;
President, Manulife North America, September 1996 to
December 1998; President, Manufacturers Investment
Trust, September 1996 to October 1999; Senior Vice
President, U.S. Annuities, Manulife Financial,
September 1996 to December 1998.
Ruth Ann Fleming Director* Attorney, consulting services and pro bono
Age: 41 activities.
James Gallagher Director* and Vice President, US Law and Government Relations,
Age: 45 President Manulife Financial, January 1996 to present.
David Libbey Treasurer Vice President, Treasurer and Chief Financial
Age: 53 Officer, Manulife North America, December 1997 to
present; Vice President, Finance, Manulife North
America, 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.
James O'Malley Director* Senior Vice President, U.S. Pensions, Manulife
Age: 54 Financial, January 1999 to present; Vice President,
Systems New Business Pensions, Manulife Financial,
1984 to December 1998.
Neil Merkl, Esq. Director* Attorney (self-employed), April 1994 to present.
Age: 69
James Robinson Director* Retired; Attorney and Assistant Secretary, Eastman
Age: 73 Kodak Company, 1958 to 1991.
Gretchen Swanz Secretary and Secretary and Counsel, Manulife New York, February
Age: 31 Counsel 2000 to present; Counsel, Manulife Financial,
February 1999 to present.
John Vrysen Vice President Vice President and Chief Financial Officer, U.S.
Age: 44 and Chief Operations, Manulife Financial, January 1996 to
Actuary present.
</TABLE>
*Each Director is elected to serve until the next annual meeting of shareholders
or until his or her successor is elected and qualified.
STATE REGULATIONS
We are subject to the laws of the State of New York governing insurance
companies and to the regulation of the New York Insurance Department. Regulation
by the New York Insurance Department includes periodic examination of our
financial position and operations, including contract liabilities and reserves.
Regulation by supervisory agencies includes licensing to transact business,
overseeing trade practices, licensing agents, approving policy forms,
establishing reserve requirements, fixing maximum interest rates on life
insurance policy loans and minimum rates for accumulation of surrender values,
prescribing the form and content of required financial statements and regulation
of the type and amounts of permitted investments. Our books and accounts are
subject to review by the New York Insurance Department and other supervisory
agencies at all times, and we file annual statements with these agencies.
PENDING LITIGATION
No litigation is pending that would have a material effect upon the Separate
Account or the Trust.
YEAR 2000 ISSUES
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect us, including those
related to customers, suppliers, or other third parties, have been fully
resolved.
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<PAGE> 45
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, 1999 and 1998, and for each of the three years ended December
31, 1999 and the financial statements of The Manufacturers Life Insurance
Company of New York Separate Account B for the period from August 26, 1999 to
December 31, 1999, appearing in the Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given on the authority of such firm as experts in accounting and
auditing.
AUDITED 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.
39
<PAGE> 46
Audited Financial Statements
The Manufacturers Life Insurance
Company of New York
Separate Account B
Period from August 26, 1999 to December 31, 1999
with Report of Independent Auditors
<PAGE> 47
The Manufacturers Life Insurance Company of New York
Separate Account B
Audited Financial Statements
Period from August 26, 1999 to December 31, 1999
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................ 1
Audited Financial Statements
Statement of Assets and Contract Owners' Equity....................... 2
Statement of Operations and Changes in Contract Owners' Equity........ 3
Notes to Financial Statements......................................... 4
</TABLE>
<PAGE> 48
Report of Independent Auditors
To the Contract Owners of
The Manufacturers Life Insurance Company of New York
Separate Account B
We have audited the accompanying statement of assets and contract owners' equity
of The Manufacturers Life Insurance Company of New York Separate Account B as of
December 31, 1999, and the related statements of operations and changes in
contract owners' equity for the period from August 26, 1999 to December 31,
1999. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides 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 Separate Account B at December 31, 1999, and the
results of its operations and the changes in its contract owners' equity for
the period from August 26, 1999 to December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 4, 2000
1
<PAGE> 49
The Manufacturers Life Insurance Company of New York
Separate Account B
Statement of Assets and Contract Owners' Equity
December 31, 1999
<TABLE>
<S> <C>
ASSETS
Investments at market value:
Sub-Accounts:
Quantitative Equity Trust -- 9.990 shares (cost $256) $ 281
Growth and Income Trust -- 8.328 shares (cost $257) 272
-----
Total assets $ 553
=====
CONTRACT OWNERS' EQUITY
Variable universal life contracts $ 553
=====
</TABLE>
See accompanying notes.
2
<PAGE> 50
The Manufacturers Life Insurance Company of New York
Separate Account B
Statement of Operations and Changes in Contract Owners' Equity
Period from August 26, 1999 to December 31, 1999
<TABLE>
<CAPTION>
SUB-ACCOUNT
--------------------------------------------------------------------
QUANTITATIVE
EQUITY GROWTH AND INCOME TOTAL
--------------------------------------------------------------------
PERIOD ENDED* PERIOD ENDED* PERIOD ENDED*
DEC. 31/99 DEC. 31/99 DEC. 31/99
--------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Unrealized appreciation during the period ................. $ 25 $ 15 $ 40
----- ------ -----
Net increase in assets from operations ..................... 25 15 40
----- ------ -----
Changes from principal transactions:
Transfer of net premiums ............................... 403 403 806
Transfer on termination ................................ (147) (146) (293)
----- ------ -----
Net increase in assets from principal transactions ......... 256 257 513
----- ------ -----
Total increase in assets ................................... 281 272 553
Assets at beginning of period............................... -- -- --
----- ------ -----
Assets at end of period .................................... $ 281 $ 272 $ 553
===== ===== =====
</TABLE>
* Reflects the period from commencement of operations August 26, 1999 through
December 31, 1999.
See accompanying notes.
3
<PAGE> 51
The Manufacturers Life Insurance Company of New York
Separate Account B
Notes to Financial Statements
December 31, 1999
1. ORGANIZATION
The Manufacturers Life Insurance Company of New York Separate Account B (the
Account) is a separate account established by The Manufacturers Life Insurance
Company of New York (the Company). The Account operates as a Unit Investment
Trust under the Investment Company Act of 1940, as amended, and invests in
thirty-nine sub-accounts of Manufacturers Investment Trust (the Trust). The
Account is a funding vehicle for single premium and variable universal life
policies (the Contracts) issued by the Company. The Company is a wholly-owned
subsidiary of The Manufacturers Life Insurance Company of North America (MNA).
MNA is an indirect, wholly-owned subsidiary of the Manufacturers Life Insurance
Company ("Manulife Financial"), a Canadian life insurance company. Each
investment sub-account invests solely in shares of a particular Manufacturers
Investment Trust. Manufacturers Investment Trust is registered under the
Investment Company Act of 1940 as an open-end management investment company.
The Company is required to maintain assets in the Account with a total market
value at least equal to the reserves and other liabilities relating to the
variable benefits under all contracts participating in the Account. These assets
may not be charged with liabilities which arise from any other business the
Company conducts. However, all obligations under the variable contracts are
general corporate obligations of the Company.
Additional assets are held in the Company's general account to cover the
contingency that the guaranteed minimum death benefit might exceed the death
benefit which would have been payable in the absence of such guarantee.
4
<PAGE> 52
The Manufacturers Life Insurance Company of New York
Separate Account B
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES
Investments are made in the portfolios of the Trust and are valued at the
reported net asset value of such portfolios. Transactions are recorded on the
trade date. Income from dividends is recorded on the ex-dividend date. Realized
gains and losses on the sales of investments are computed on the basis of the
identified cost of the investment sold.
The operations of the Account are included in the federal income tax return of
the Company, which is taxed as a life insurance company under the provisions of
the Internal Revenue Code (the Code). Under the current provisions of the Code,
the Company does not expect to incur federal income taxes on the earnings of
the Account to the extent the earnings are credited under the contracts. Based
on this, no charge is being made currently to the Account for federal income
taxes. The Company will review periodically the status of such decision based
on changes in the tax law. Such a charge may be made in future years for any
federal income taxes that would be attributable to the contract.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions could change
in the future as more information becomes known, which could impact the amounts
reported and disclosed herein.
3. CONTRACT CHARGES
The Company currently makes no deductions from purchase payments for sales
charges at the time of purchase. In the event of a surrender, surrender charges
may be made by the Company to cover sales expenses and administrative expenses
associated with underwriting and policy issue. Each month a deduction
consisting of an administration charge, a charge for cost of insurance, a
charge for mortality and expense risk, and charges for supplementary benefits
is deducted from the policy value.
5
<PAGE> 53
The Manufacturers Life Insurance Company of New York
Separate Account B
Notes to Financial Statements (continued)
4. PURCHASES AND SALES OF INVESTMENTS
The following table shows aggregate cost of shares purchased and proceeds from
sales of each Trust portfolio for the period ended December 31, 1999.
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -----
<S> <C> <C>
Quantitative Equity Trust $ 256 $ --
Growth and Income Trust 257 --
--------- -----
Total $ 513 $ --
========= =====
</TABLE>
5. UNIT VALUES
A summary of the accumulation unit values outstanding at December 31, 1999 and
accumulation units and dollar value outstanding at December 31, 1999 for the
variable life contracts are as follows:
<TABLE>
<CAPTION>
UNIT VALUE UNITS DOLLARS
---------- ----- -------
<S> <C> <C> <C>
Quantitative Equity Trust $ 11.76 23.92 $ 281
Growth and Income Trust 11.40 23.87 272
-------
Total $ 553
=======
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Company has a formal service agreement with its affiliate, The
Manufacturers Life Insurance Company, which can be terminated by either party
upon 30 days' notice. Under this agreement, the Company pays for legal,
actuarial, investment and certain other administrative services. The Company
has an underwriting agreement with its affiliate, Manufacturers Securities
Services LLC (MSS). MSS has an Administrative Services Agreement with Wood
Logan for marketing services for the sale of variable universal life contracts.
6
<PAGE> 54
AUDITED FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NEW YORK
Years ended December 31, 1999, 1998 and 1997
<PAGE> 55
The Manufacturers Life Insurance Company of New York
Audited Financial Statements
Years ended December 31, 1999, 1998 and 1997
CONTENTS
Report of Independent Auditors......................................... 1
Audited Financial Statements
Balance Sheets......................................................... 2
Statements of Income................................................... 3
Statements of Changes in Shareholder's Equity.......................... 4
Statements of Cash Flows............................................... 5
Notes to Financial Statements.......................................... 6
<PAGE> 56
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 (the Company) as of December 31, 1999 and 1998,
and the related statements of income, changes in shareholder's equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 21, 2000
1
<PAGE> 57
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
<TABLE>
<CAPTION>
As at December 31
ASSETS ($ thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available-for-sale, at fair value
(note 3)
(amortized cost: 1999 $125,429; 1998 $120,902) $ 122,301 $ 125,088
Investment in unconsolidated affiliate 175 175
Policy loans 930 552
Short-term investments 41,311 10,032
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 164,717 $ 135,847
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 7,093 5,946
Accrued investment income 3,036 3,073
Deferred acquisition costs (note 5) 50,476 36,831
Other assets 456 1,834
Separate account assets 1,119,103 833,693
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,344,881 $1,017,224
====================================================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY ($ thousands)
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Policyholder liabilities and accruals $ 131,104 $ 94,492
Payable to affiliates 3,825 4,114
Deferred income taxes (note 6) 4,382 3,615
Other liabilities 5,258 1,943
Separate account liabilities 1,119,103 833,693
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $1,263,672 $ 937,857
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY:
Common stock (note 7) $ 2,000 $ 2,000
Additional paid-in capital 72,706 72,706
Retained earnings 8,947 3,209
Accumulated other comprehensive income (loss) (2,444) 1,452
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDER'S EQUITY $ 81,209 $ 79,367
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $1,344,881 $1,017,224
====================================================================================================================
</TABLE>
See accompanying notes.
2
<PAGE> 58
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Fees from separate accounts and policyholder liabilities $14,670 $10,961 $ 7,395
Premiums 175 - -
Net investment income (note 3) 16,944 9,786 6,717
Net realized investment (losses) gains (222) 713 769
- ---------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $31,567 $21,460 $14,881
- ---------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 6,613 $ 4,603 $ 4,747
Amortization of deferred acquisition costs (note 5) 4,287 4,849 3,393
Other insurance expenses 11,834 10,359 5,845
- ---------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES $22,734 $19,811 $13,985
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES $ 8,833 $ 1,649 $ 896
- ---------------------------------------------------------------------------------------------------------------------
INCOME TAXES (NOTE 6) $ 3,095 $ 576 $ 310
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME $ 5,738 $ 1,073 $ 586
=====================================================================================================================
</TABLE>
See accompanying notes.
3
<PAGE> 59
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON ADDITIONAL RETAINED COMPREHENSIVE SHAREHOLDER'S
($ thousands) STOCK PAID-IN CAPITAL EARNINGS INCOME (LOSS) EQUITY
(NOTE 7)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $2,000 $24,800 $1,550 $ 419 $28,769
Capital contribution - 47,731 - - 47,731
Comprehensive income (note 4) - - 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 4) - - 1,073 357 1,430
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 2,000 72,706 3,209 1,452 79,367
Comprehensive income (Loss) (note 4) - - 5,738 (3,896) 1,842
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $2,000 $72,706 $8,947 $ (2,444) $81,209
===================================================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 60
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,738 $ 1,073 $ 586
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Amortization of bond discount and premium 585 434 333
Net realized investment losses (gains) 222 (713) (769)
Provision for deferred income tax 1,857 1,153 (29)
Amortization of deferred acquisition costs 4,287 4,849 3,393
Policy acquisition costs deferred (15,604) $ (14,515) $ (11,684)
Return credited to policyholders and other benefits 6,613 4,603 4,747
Changes in assets and liabilities:
Accrued investment income 37 (672) (873)
Other assets 1,378 (1,603) (80)
Payable to affiliates (289) (231) 2,328
Other liabilities 3,315 956 115
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities $ 8,139 $ (4,666) $ (1,933)
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Fixed maturity securities sold, matured or repaid $ 73,626 $ 30,591 $ 59,307
Fixed maturity securities purchased (78,960) $ (24,500) (103,383)
Net change in short-term investments (31,279) (34) (6,011)
Policy loans advanced, net (378) (154) (215)
- ------------------------------------------------------------------------------------------------------------------------
Cash (used in) provided by investing activities $ (36,991) $ 5,903 $ (50,302)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Deposits to policyholder funds $ 50,351 $ 14,212 17,212
Return of policyholder funds (20,352) (10,934) (15,382)
Capital contribution by parent - - 47,731
- ------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities $ 29,999 $ 3,278 $ 49,561
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the year 1,147 4,515 (2,674)
Balance, beginning of year 5,946 1,431 4,105
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, END OF YEAR $ 7,093 $ 5,946 $ 1,431
========================================================================================================================
</TABLE>
See accompanying notes
5
<PAGE> 61
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(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 ("NASL") and hereinafter referred to as "MNA"), which
is, in turn, a wholly-owned subsidiary of Manulife-Wood Logan Holding
Co., Inc. (hereinafter referred to as "MWLH"). MWLH is an indirect
wholly-owned subsidiary of The Manufacturers Life Insurance Company
("MLI"); prior to June 1, 1999, MLI indirectly owned 85% of MWLH, and
minority shareholders associated with MWLH owned the remaining 15%. MLI
is a wholly-owned subsidiary of Manulife Financial Corporation, a
publicly traded company. Manulife Financial Corporation and its
subsidiaries are known collectively as "Manulife Financial."
The Company issues individual and group annuity 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 noninsulated 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 either the shares of 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
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 and an affiliate
of the Company, replaced NASL
6
<PAGE> 62
1. ORGANIZATION (CONTINUED)
Financial as the investment advisor to MIT and as the principal
underwriter for the variable contracts and exclusive distributor of all
contracts issued by the Company.
Prior to October 1, 1997, Manulife Wood Logan, Inc. (formerly Wood
Logan Associates and hereinafter referred to as "MWL"), a subsidiary of
MWLH, 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 MLI. Currently, services are provided by MLI, MWLH, MNA and
The Manufacturers Life Insurance Company (U.S.A.)
("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") in
the United States.
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) In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging
activities. Contracts that contain embedded derivatives, such as
certain insurance contracts, are also addressed by the Statement. SFAS
No. 133 requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and
measure those instruments at fair value. In July 1999, the FASB issued
Statement 137, which delayed the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. The Company is evaluating
the accounting implications of SFAS No. 133 and has not determined its
impact on the Company's results of operations or its financial
condition.
7
<PAGE> 63
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
b) RECENT ACCOUNTING STANDARDS (CONTINUED)
ii) In December 1997, the American Institute of Certified Public
Accountant's Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments." SOP 97-3 provides
guidance on the recognition and measurement of liabilities for various
assessments related to insurance activities, including those by state
guaranty funds. The Company adopted SOP 97-3 during 1999. Prior to the
adoption of SOP 97-3, the Company expensed and recognized liabilities
for such assessments on a "pay-as-you-go" basis. The effect of adopting
SOP 97-3 did not have a material impact on the results of operations
and financial condition of the Company for the year ended December 31,
1999.
iii) In March 1998, AcSEC issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires the capitalization of certain costs incurred in connection
with developing or obtaining internal-use software. The Company adopted
SOP 98-1 during 1999. Prior to the adoption of SOP 98-1, the Company
expensed internal-use software-related costs as incurred. The effect of
adopting SOP 98-1 did not have a material impact on the results of
operations and financial condition of the Company for the year ended
December 31, 1999.
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.
8
<PAGE> 64
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c) INVESTMENTS (CONTINUED)
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 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.
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
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.
f) POLICYHOLDER LIABILITIES AND ACCRUALS
Policyholder liabilities equal the policyholder account value for the
fixed portion of 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 nonparticipating 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 adverse deviation.
9
<PAGE> 65
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
g) SEPARATE ACCOUNTS
Separate account assets and liabilities that are reported in the
accompanying balance sheets represent investments in either 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.
h) REVENUE RECOGNITION
Fee income from separate accounts, 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
nonparticipating life insurance policies are recognized as revenue when
due. Investment income is recorded as revenue when due.
i) POLICYHOLDER BENEFITS AND CLAIMS
Benefits for 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.
10
<PAGE> 66
3. INVESTMENTS AND INVESTMENT INCOME
a) FIXED-MATURITY SECURITIES
At December 31, 1999 and 1998, 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) 1999 1998 1999 1998 1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government $ 21,147 $ 11,018 $ - $ 591 $ (536) $(15) $ 20,611 $ 11,594
Corporate securities 92,532 99,696 122 3,321 (2,486) (35) 90,168 102,982
Mortgage-backed securities 8,278 6,680 27 125 (184) (21) 8,121 6,784
Foreign governments 2,414 2,449 23 111 - - 2,437 2,560
States/political subdivisions 1,058 1,059 - 109 (94) - 964 1,168
-------------------------------------------------------------------------------------------------------------------
TOTAL FIXED-MATURITY SECURITIES $125,429 $120,902 $172 $4,257 $(3,300) $(71) $122,301 $125,088
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of fixed-maturity securities during 1999 were
$60,595 (1998, $17,985; 1997, $45,217). Gross gains of $301 and gross
losses of $523 were realized on those sales (1998, $715 and $2; 1997,
$772 and $6, respectively).
The contractual maturities of fixed-maturity securities at December 31,
1999 are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. Corporate
requirements and investment strategies may result in the sale of
investments before maturity.
<TABLE>
<CAPTION>
($ thousands) AMORTIZED COST FAIR VALUE
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
FIXED-MATURITY SECURITIES
One year or less $ 38,416 $ 38,507
Greater than 1; up to 5 years 46,376 45,790
Greater than 5; up to 10 years 15,922 15,114
Due after 10 years 16,437 14,769
Mortgage-backed securities 8,278 8,121
-----------------------------------------------------------------------------------------------------------
TOTAL FIXED-MATURITY SECURITIES $125,429 $122,301
-----------------------------------------------------------------------------------------------------------
</TABLE>
Fixed-maturity securities with a fair value of $438 and $410 at December
31, 1999 and 1998, respectively, were on deposit with or in custody
accounts on behalf of New York State Insurance Department to satisfy
regulatory requirements.
11
<PAGE> 67
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
b) INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed-maturity securities $ 8,147 $8,338 $6,342
Other invested assets 7,476 830 -
Short-term investments 1,443 762 477
-----------------------------------------------------------------------------------------------------------
Gross investment income 17,066 9,930 6,819
-----------------------------------------------------------------------------------------------------------
Investment expenses
(122) (144) (102)
-----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $16,944 $9,786 $6,717
===========================================================================================================
</TABLE>
The Company includes income earned from its investment in MSS in the
other invested assets category. Income earned from the Company's
investment in MSS was $7,453 and $813 for the years ended December 31,
1999 and 1998, respectively.
4. COMPREHENSIVE INCOME
Total comprehensive income was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME $ 5,738 $1,073 $ 586
-----------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX (BENEFITS):
Unrealized holding (losses) gains arising
during the year (4,038) 820 1,176
Less:
Reclassification adjustment for realized
(losses) gains included in net income (142) 463 500
-----------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income (3,896) 357 676
-----------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 1,842 $1,430 $1,262
===========================================================================================================
</TABLE>
Other comprehensive (loss) income is reported net of income taxes
(benefit) of $(1,088), $192, and $364 for 1999, 1998 and 1997,
respectively.
12
<PAGE> 68
5. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $36,831 $28,364 $20,208
Capitalization 15,604 14,515 11,684
Amortization (4,287) (4,849) (3,393)
Effect of net unrealized losses (gains)
on securities available-for-sale 2,328 (1,199) (135)
----------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31 $50,476 $36,831 $28,364
==========================================================================================================
</TABLE>
6. INCOME TAXES
The components of income tax expense were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current expense (benefit) $1,238 $ (577) $339
Deferred expense (benefit) 1,857 1,153 (29)
----------------------------------------------------------------------------------------------------------
TOTAL EXPENSE $3,095 $ 576 $310
==========================================================================================================
</TABLE>
Components of the Company's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($ thousands) 1999 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Reserves $ 708 $ 389
Unrealized losses on securities available-for-sale 963 -
-----------------------------------------------------------------------------------------------------------
Gross deferred tax assets 1,671 389
Valuation allowance -
(657) -
-----------------------------------------------------------------------------------------------------------
Net deferred tax assets 1,014 389
-----------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs (5,147) (2,203)
Unrealized gains on securities available-for-sale - (784)
Other (249) (1,017)
-----------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (5,396) (4,004)
-----------------------------------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITY $(4,382) $(3,615)
===========================================================================================================
</TABLE>
As of December 31, 1999, the Company had $3,128 of unrealized capital
losses in its available for sale portfolio. Under federal tax law,
utilization of these capital losses, when realized, is limited to use
as an offset against capital gains. The Company believes that it is
more likely than not that it will be unable to realize the benefit of
the full deferred tax asset related to the net unrealized capital
losses. The Company has therefore established a valuation allowance for
13
<PAGE> 69
6. INCOME TAXES (CONTINUED)
the amount in excess of the available capital gains. The Company
believes that it will realize the full benefit of its remaining
deferred tax assets.
The Company participates as a member of the MWLH-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 received a refund of $719 in 1999 and made tax payments of
$1,121 and $531 in 1998 and 1997, respectively.
7. SHAREHOLDER'S EQUITY
The Company has one class of common stock:
<TABLE>
<CAPTION>
AS AT DECEMBER 31:
($ thousands) 1999 1998
-----------------------------------------------------------------------------------------------------------
<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, 1999 was $63,470 (1998, $62,881). The aggregate statutory net
income (loss) of the Company for the year ended 1999 was $932; (1998,
($5,678); 1997, ($1,562)). 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, nonadmitted asset
balances, and reserves.
8. REINSURANCE
The Company has entered into reinsurance agreements with various
reinsurers to reinsure any face amounts in excess of $100 for its
traditional nonparticipating insurance products. 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.
14
<PAGE> 70
9. RELATED-PARTY TRANSACTIONS
The Company utilized various services provided by MLI and affiliates,
such as legal, personnel, investment accounting and other corporate
services. Prior to October 1, 1997, MLI and MNA charged the Company for
those services. In the first nine months of 1997, MLI and MNA charged
the Company approximately $623. Effective October 1, 1997, pursuant to
a revised plan of operations, all intercompany expenses were billed
through MLI. For the years ended December 31, 1999 and 1998, and for
the fourth quarter of 1997, MLI billed the Company expenses of $6,391,
$4,685 and $869, respectively. At December 31, 1999 and 1998, the
Company had a net liability to MLI of $2,664 and $2,372, respectively,
for those services.
For the nine months ended September 30, 1997, the Company paid
underwriting commissions to NASL Financial of $8,421. NASL Financial
then reimbursed MWL 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 MWL marketing services
expenses were paid by MLI, who was then reimbursed by the Company.
Underwriting commissions and marketing services expense of $19,575 and
$17,838 was incurred during the years ended December 31, 1999 and 1998,
respectively, and $4,431 was incurred during the fourth quarter of
1997. At December 31, 1999 and 1998, the Company had a net liability of
$1,161 and $799, 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, 6, 11 and 14 for additional related-party transactions).
10. 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 advances
under the line of credit at December 31, 1999 and 1998.
11. EMPLOYEE BENEFITS
a) RETIREMENT PLAN
Prior to July 1, 1998, the Company and MNA participated in a
noncontributory defined benefit pension plan (the Nalaco Plan)
sponsored by MLI, 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.
15
<PAGE> 71
11. EMPLOYEE BENEFITS (CONTINUED)
a) RETIREMENT PLAN (CONTINUED)
Effective July 1, 1998, the Nalaco Plan was merged into the Manulife
Plan as approved by the Board of Directors of MLI. 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 levels. Pension benefits are provided to 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 plan sponsor in 1999, 1998 or 1997 because the
plan was subject to the full funding limitation under the Internal
Revenue Code.
At December 31, 1999, the projected benefit obligation based on an
assumed interest rate of 7.5% was $47,124. The fair value of plan
assets invested in ManUSA's general fund deposit administration
insurance contracts was $86,777.
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 401k), 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) OTHER POSTRETIREMENT BENEFIT PLAN
In addition to the retirement plan, the Company participates in the
other postretirement benefit plan of MNA which provides retiree medical
and life insurance benefits to those who have attained age 55 with ten
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.
16
<PAGE> 72
11. EMPLOYEE BENEFITS (CONTINUED)
c) OTHER POSTRETIREMENT BENEFIT PLAN (CONTINUED)
The other postretirement benefit cost of the Company, which includes
the expected cost of post-retirement 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.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of the Company's
financial instruments at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Fixed-maturity securities $122,301 $122,301 $125,088 $125,088
Policy loans 930 930 552 552
Short-term investments 41,311 41,311 10,032 10,032
Cash and cash equivalents 7,093 7,093 5,946 5,946
Liabilities:
Policyholder liabilities and
accruals 130,808 126,272 94,492 91,113
</TABLE>
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.
Policy Loans: Carrying values approximate fair values.
Short-Term Investment and Cash and Cash Equivalents: 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.
13. LEASES
The Company leases office space under various operating lease
agreements which will expire between 2000 and 2005. For the years ended
December 31, 1999, 1998 and 1997 the Company incurred rent expense of
$166, $95 and $84, respectively.
17
<PAGE> 73
13. LEASES (CONTINUED)
The minimum lease payments associated with the office space under the
operating lease agreements are as follows:
YEAR ENDED MINIMUM LEASE PAYMENTS
---------------------------------------------
2000 $ 247
2001 231
2002 235
2003 221
2004 and after 346
---------------------------------------------
Total $1,280
---------------------------------------------
14. CAPITAL MAINTENANCE AGREEMENT
Pursuant to a capital maintenance agreement and subject to regulatory
approval, MLI 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.
15. 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.
18
<PAGE> 74
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 Trust's expenses
(excluding the Equity Index Trust), 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 current expense reimbursements in effect for the
Lifestyle Trusts and Index Trusts. In the absence of such expense
reimbursements, 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 Index
Trusts is expected to remain in effect during the fiscal year ended December 31,
2000. Were the expense reimbursements 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.
A-1
<PAGE> 75
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 4,926 272 500,000 5,238 584 500,000
2 12,829 9,408 4,638 500,000 10,325 5,555 500,000 11,280 6,510 500,000
3 19,728 14,071 7,549 500,000 15,900 9,378 500,000 17,881 11,358 500,000
4 26,973 18,600 12,131 500,000 21,655 15,186 500,000 25,092 18,622 500,000
5 34,579 22,988 16,568 500,000 27,585 21,165 500,000 32,965 26,545 500,000
6 42,566 27,260 21,139 500,000 33,724 27,604 500,000 41,594 35,474 500,000
7 50,953 31,379 25,559 500,000 40,042 34,222 500,000 51,018 45,198 500,000
8 59,758 35,351 29,831 500,000 46,549 41,029 500,000 61,322 55,801 500,000
9 69,004 39,167 34,164 500,000 53,245 48,242 500,000 72,587 67,584 500,000
10 78,712 42,833 38,770 500,000 60,141 56,078 500,000 84,919 80,857 500,000
15 135,039 58,654 58,654 500,000 97,678 97,678 500,000 166,713 166,713 500,000
20 206,927 69,555 69,555 500,000 140,525 140,525 500,000 297,491 297,491 500,000
25 298,676 74,597 74,597 500,000 189,682 189,682 500,000 508,663 508,663 681,608
30 415,774 71,081 71,081 500,000 250,225 250,225 500,000 861,588 861,588 1,051,137
35 565,224 56,234 56,234 500,000 324,604 324,604 500,000 1,432,677 1,432,677 1,661,905
40 755,965 9,358 9,358 500,000 416,510 416,510 500,000 2,355,109 2,355,109 2,519,967
45 999,404 0 (4) 0 (4) 0 (4) 540,717 540,717 567,753 3,852,122 3,852,122 4,044,728
50 1,310,100 691,654 691,654 726,237 6,219,464 6,219,464 6,530,438
55 1,706,636 871,306 871,306 914,871 9,968,285 9,968,285 10,466,699
60 2,212,727 1,099,296 1,099,296 1,110,289 16,103,248 16,103,248 16,264,280
65 2,858,642 1,405,429 1,405,429 1,405,429 26,507,445 26,507,445 26,507,445
</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.
A-2
<PAGE> 76
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 4,933 279 500,000
2 12,829 8,864 4,094 500,000 9,735 4,964 500,000 10,642 5,871 500,000
3 19,728 13,262 6,740 500,000 14,996 8,474 500,000 16,874 10,352 500,000
4 26,973 17,530 11,061 500,000 20,423 13,954 500,000 23,680 17,211 500,000
5 34,579 21,663 15,243 500,000 26,014 19,594 500,000 31,108 24,688 500,000
6 42,566 25,658 19,538 500,000 31,773 25,652 500,000 39,220 33,100 500,000
7 50,953 29,506 23,686 500,000 37,694 31,874 500,000 48,074 42,254 500,000
8 59,758 33,210 27,690 500,000 43,787 38,267 500,000 57,749 52,229 500,000
9 69,004 36,760 31,757 500,000 50,048 45,045 500,000 68,319 63,316 500,000
10 78,712 40,160 36,097 500,000 56,487 52,425 500,000 79,881 75,819 500,000
15 135,039 54,587 54,587 500,000 91,283 91,283 500,000 156,315 156,315 500,000
20 206,927 63,733 63,733 500,000 130,266 130,266 500,000 277,926 277,926 500,000
25 298,676 64,702 64,702 500,000 172,275 172,275 500,000 473,934 473,934 635,071
30 415,774 54,076 54,076 500,000 220,935 220,935 500,000 800,978 800,978 977,193
35 565,224 19,297 19,297 500,000 271,505 271,505 500,000 1,323,674 1,323,674 1,535,462
40 755,965 0 (4) 0 (4) 0 (4) 323,239 323,239 500,000 2,163,917 2,163,917 2,315,392
45 999,404 376,770 376,770 500,000 3,530,742 3,530,742 3,707,279
50 1,310,100 447,717 447,717 500,000 5,677,780 5,677,780 5,961,669
55 1,706,636 562,679 562,679 590,813 8,965,160 8,965,160 9,413,418
60 2,212,727 708,438 708,438 715,522 14,245,783 14,245,783 14,388,241
65 2,858,642 916,046 916,046 916,046 23,452,622 23,452,622 23,452,622
</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.
A-3
<PAGE> 77
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 6,068 931 506,068 6,467 1,330 506,467 6,866 1,729 506,866
2 16,036 12,281 7,144 512,281 13,460 8,323 513,460 14,688 9,551 514,688
3 24,660 18,327 11,805 518,327 20,683 14,161 520,683 23,232 16,710 523,232
4 33,716 24,203 17,734 524,203 28,138 21,669 528,138 32,563 26,094 532,563
5 43,224 29,901 23,480 529,901 35,822 29,402 535,822 42,746 36,326 542,746
6 53,208 35,447 29,326 535,447 43,770 37,649 543,770 53,893 47,773 553,893
7 63,691 40,802 34,982 540,802 51,948 46,128 551,948 66,055 60,235 566,055
8 74,698 45,971 40,451 545,971 60,367 54,847 560,367 79,333 73,813 579,333
9 86,255 50,945 45,942 550,945 69,024 64,021 569,024 93,825 88,822 593,825
10 98,391 55,727 51,665 555,727 77,929 73,866 577,929 109,652 105,590 609,652
15 168,798 76,475 76,475 576,475 126,090 126,090 626,090 213,473 213,473 713,473
20 258,658 91,036 91,036 591,036 179,839 179,839 679,839 374,542 374,542 874,542
25 373,345 98,283 98,283 598,283 238,542 238,542 738,542 625,527 625,527 1,125,527
30 519,718 95,526 95,526 595,526 303,669 303,669 803,669 1,036,656 1,036,656 1,536,656
35 706,531 80,244 80,244 580,244 370,427 370,427 870,427 1,695,810 1,695,810 2,195,810
40 944,956 33,279 33,279 533,279 416,388 416,388 916,388 2,736,588 2,736,588 3,236,588
45 1,249,254 0 (4) 0 (4) 0 (4) 393,908 393,908 893,908 4,355,552 4,355,552 4,855,552
50 1,637,625 265,640 265,640 765,640 6,901,236 6,901,236 7,401,236
55 2,133,294 48,047 48,047 548,047 11,012,605 11,012,605 11,563,235
60 2,765,909 0 (4) 0 (4) 0 (4) 17,698,215 17,698,215 18,198,215
65 3,573,302 28,352,377 28,352,377 28,852,377
</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.
A-4
<PAGE> 78
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 5,741 603 505,741 6,122 984 506,122 6,503 1,366 506,503
2 16,036 11,634 6,497 511,634 12,758 7,620 512,758 13,928 8,790 513,928
3 24,660 17,365 10,843 517,365 19,608 13,085 519,608 22,034 15,512 522,034
4 33,716 22,933 16,464 522,933 26,675 20,206 526,675 30,883 24,414 530,883
5 43,224 28,329 21,909 528,329 33,957 27,537 533,957 40,540 34,120 540,540
6 53,208 33,553 27,432 533,553 41,459 35,339 541,459 51,079 44,959 551,079
7 63,691 38,592 32,772 538,592 49,174 43,354 549,174 62,573 56,752 562,573
8 74,698 43,450 37,930 543,450 57,111 51,590 557,111 75,115 69,595 575,115
9 86,255 48,116 43,112 548,116 65,262 60,259 565,262 88,796 83,793 588,796
10 98,391 52,592 48,530 552,592 73,639 69,576 573,639 103,728 99,665 603,728
15 168,798 71,766 71,766 571,766 118,670 118,670 618,670 201,380 201,380 701,380
20 258,658 84,410 84,410 584,410 168,078 168,078 668,078 351,970 351,970 851,970
25 373,345 87,249 87,249 587,249 218,397 218,397 718,397 582,540 582,540 1,082,540
30 519,718 77,236 77,236 577,236 269,369 269,369 769,369 955,522 955,522 1,455,522
35 706,531 42,738 42,738 542,738 304,071 304,071 804,071 1,535,375 1,535,375 2,035,375
40 944,956 0 (4) 0 (4) 0 (4) 300,022 300,022 800,022 2,434,218 2,434,218 2,934,218
45 1,249,254 215,081 215,081 715,081 3,819,699 3,819,699 4,319,699
50 1,637,625 0 (4) 0 (4) 0 (4) 5,963,914 5,963,914 6,463,914
55 2,133,294 9,285,265 9,285,265 9,785,265
60 2,765,909 14,493,491 14,493,491 14,993,491
65 3,573,302 22,121,194 22,121,194 22,621,194
</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.
A-5
<PAGE> 79
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$15,095 ANNUAL PLANNED PREMIUM
ASSUMING 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 10,719 3,338 500,000 11,479 4,099 500,000 12,242 4,861 500,000
2 32,492 21,326 12,809 500,000 23,522 15,004 500,000 25,812 17,294 500,000
3 49,966 31,488 15,573 500,000 35,810 19,896 500,000 40,502 24,587 500,000
4 68,314 41,484 25,898 500,000 48,642 33,057 500,000 56,726 41,141 500,000
5 87,580 51,334 36,095 500,000 62,064 46,825 500,000 74,676 59,437 500,000
6 107,809 61,016 47,276 500,000 76,084 62,344 500,000 94,518 80,778 500,000
7 129,049 70,373 60,067 500,000 90,575 80,269 500,000 116,313 106,007 500,000
8 151,351 79,338 72,467 500,000 105,502 98,631 500,000 140,227 133,356 500,000
9 174,768 87,962 84,526 500,000 120,942 117,507 500,000 166,565 163,130 500,000
10 199,356 96,244 96,244 500,000 136,930 136,930 500,000 195,625 195,625 500,000
15 342,015 137,090 137,090 500,000 233,281 233,281 500,000 405,562 405,562 500,000
20 524,087 158,118 158,118 500,000 349,603 349,603 500,000 758,990 758,990 812,120
25 756,463 116,302 116,302 500,000 497,599 497,599 522,479 1,329,629 1,329,629 1,396,111
30 1,053,039 0 (4) 0 (4) 0 (4) 690,578 690,578 725,107 2,233,527 2,233,527 2,345,203
35 1,431,554 921,344 921,344 967,411 3,665,818 3,665,818 3,849,109
40 1,914,646 1,212,282 1,212,282 1,224,405 6,008,325 6,008,325 6,068,409
45 2,531,208 1,598,716 1,598,716 1,598,716 9,977,343 9,977,343 9,977,343
</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.
A-6
<PAGE> 80
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 10,043 2,662 500,000 10,767 3,386 500,000 11,493 4,112 500,000
2 32,492 19,894 11,376 500,000 21,971 13,454 500,000 24,140 15,622 500,000
3 49,966 29,249 13,334 500,000 33,323 17,408 500,000 37,747 21,832 500,000
4 68,314 38,097 22,511 500,000 44,815 29,230 500,000 52,411 36,826 500,000
5 87,580 46,404 31,165 500,000 56,424 41,185 500,000 68,224 52,985 500,000
6 107,809 54,139 40,399 500,000 68,127 54,386 500,000 85,296 71,555 500,000
7 129,049 61,267 50,961 500,000 79,901 69,595 500,000 103,757 93,451 500,000
8 151,351 67,732 60,861 500,000 91,707 84,836 500,000 123,747 116,876 500,000
9 174,768 73,467 70,031 500,000 103,497 100,061 500,000 145,425 141,990 500,000
10 199,356 78,400 78,400 500,000 115,223 115,223 500,000 168,992 168,992 500,000
15 342,015 91,045 91,045 500,000 176,116 176,116 500,000 334,336 334,336 500,000
20 524,087 68,272 68,272 500,000 233,653 233,653 500,000 627,378 627,378 671,294
25 756,463 0 (4) 0 (4) 0 (4) 280,489 280,489 500,000 1,109,446 1,109,446 1,164,919
30 1,053,039 309,027 309,027 500,000 1,868,383 1,868,383 1,961,802
35 1,431,554 279,796 279,796 500,000 3,033,023 3,033,023 3,184,675
40 1,914,646 0 (4) 0 (4) 0 (4) 4,902,888 4,902,888 4,951,917
45 2,531,208 8,156,332 8,156,332 8,156,332
</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.
A-7
<PAGE> 81
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$17,920 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 18,816 13,396 5,020 513,396 14,317 5,941 514,317 15,240 6,864 515,240
2 38,573 26,536 15,597 526,536 29,203 18,265 529,203 31,984 21,046 531,984
3 59,317 39,074 23,159 539,074 44,322 28,407 544,322 50,011 34,097 550,011
4 81,099 51,306 35,721 551,306 59,975 44,390 559,975 69,750 54,165 569,750
5 103,970 63,255 48,017 563,255 76,203 60,964 576,203 91,391 76,152 591,391
6 127,985 74,897 61,157 574,897 92,998 79,258 592,998 115,090 101,350 615,090
7 153,200 86,047 75,741 586,047 110,188 99,882 610,188 140,852 130,546 640,852
8 179,676 96,620 89,749 596,620 127,691 120,820 627,691 168,782 161,911 668,782
9 207,476 106,668 103,233 606,668 145,563 142,127 645,563 199,137 195,702 699,137
10 236,666 116,183 116,183 616,183 163,799 163,799 663,799 232,142 232,142 732,142
15 406,022 160,965 160,965 660,965 268,509 268,509 768,509 459,141 459,141 959,141
20 622,169 174,384 174,384 674,384 367,485 367,485 867,485 796,773 796,773 1,296,773
25 898,033 101,857 101,857 601,857 392,786 392,786 892,786 1,238,460 1,238,460 1,738,460
30 1,250,113 0 (4) 0 (4) 0 (4) 324,152 324,152 824,152 1,849,142 1,849,142 2,349,142
35 1,699,467 180,985 180,985 680,985 2,783,113 2,783,113 3,283,113
40 2,272,969 0 (4) 0 (4) 0 (4) 4,259,498 4,259,498 4,759,498
45 3,004,918 6,335,418 6,335,418 6,835,418
</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.
A-8
<PAGE> 82
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 4,246 512,622 13,501 5,125 513,501 14,381 6,005 514,381
2 38,573 24,911 13,973 524,911 27,444 16,505 527,444 30,085 19,146 530,085
3 59,317 36,551 20,636 536,551 41,515 25,600 541,515 46,899 30,984 546,899
4 81,099 47,518 31,933 547,518 55,683 40,098 555,683 64,898 49,313 564,898
5 103,970 57,766 42,528 557,766 69,892 54,653 569,892 84,137 68,899 584,137
6 127,985 67,249 53,509 567,249 84,082 70,342 584,082 104,677 90,937 604,677
7 153,200 75,917 65,611 575,917 98,186 87,880 598,186 126,578 116,272 626,578
8 179,676 83,696 76,825 583,696 112,108 105,237 612,108 149,881 143,010 649,881
9 207,476 90,498 87,062 590,498 125,734 122,299 625,734 174,615 171,180 674,615
10 236,666 96,232 96,232 596,232 138,941 138,941 638,941 200,808 200,808 700,808
15 406,022 108,860 108,860 608,860 199,042 199,042 699,042 363,578 363,578 863,578
20 622,169 79,310 79,310 579,310 226,694 226,694 726,694 576,892 576,892 1,076,892
25 898,033 0 (4) 0 (4) 0 (4) 181,317 181,317 681,317 835,624 835,624 1,335,624
30 1,250,113 8,829 8,829 508,829 1,127,886 1,127,886 1,627,886
35 1,699,467 0 (4) 0 (4) 0 (4) 1,405,324 1,405,324 1,905,324
40 2,272,969 1,610,654 1,610,654 2,110,654
45 3,004,918 1,015,329 1,015,329 1,515,329
</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.
A-9
<PAGE> 83
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 day-time
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.
B-1
<PAGE> 84
NO LAPSE GUARANTEE PERIOD - is the first 5 policy years for life insureds with
an issue age up to and including age 85. It is not offered to life insureds
whose Issue Age exceeds age 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%.
B-2
<PAGE> 85
PART II
OTHER INFORMATION
UNDERTAKINGS
Undertaking to File Reports.
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
Representation of Insurer Pursuant to Section 26 of the Investment Company Act
of 1940, as amended.
The Manufacturers Life Insurance Company of New York (the "Company") hereby
represents that the fees and charges deducted under the contracts issued
pursuant to this registration statement, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by the Company.
Rule 484 Undertaking.
Article 10 of the Charter of the Company provides as follows:
TENTH: No director of the Corporation shall be personally liable to the
Corporation or any of its shareholders for damages for any breach of duty as a
director; provided, however, the foregoing provision shall not eliminate or
limit (i) the liability of a director if a judgment or other final adjudication
adverse to such director established his or her such acts or omissions were in
bad faith or involved intentional misconduct or were acts or omissions (a) which
he or she knew or reasonably should have known violated the New York Insurance
Law or (b) which violated a specific standard of care imposed on directors
directly, and not by reference, by a provision of the New York Insurance Law (or
any regulations promulgated thereunder) or (c) which constituted a knowing
violation of any other law, or establishes that the director personally gained
in fact a financial profit or other advantage to which the director was not
legally entitled or (ii) the liability of a director for any act or omission
prior to the adoption of this Article by the shareholders of the Corporation.
Any repeal or modification of this Article by the shareholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
Article VII of the By-laws of the Company provides as follows:
Section VII.1. Indemnification of Directors and Officers. The Corporation may
indemnify any person made, or threatened to be made, a party to an action by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he or she, his or her testator, testatrix or intestate, is or was
a director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of any other corporation of any type or
kind, domestic or foreign, of any partnership, joint venture, trust, employee
benefit plan or other enterprise, against amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him or her in connection with the defense or settlement of such
action, or in connection with an appeal therein, if such director or officer
acted, in good faith, for a purpose which he or she reasonably believed to be
in, or, in the case of service for any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise, not opposed to,
the best interests of the Corporation, except that no indemnification under this
Section shall be made in respect of (1) a threatened action, or a pending action
which is settled or is otherwise disposed of, or (2) any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
Corporation, unless and only to the extent that the court in which the action
was brought, or , if no action was brought, any court of competent jurisdiction,
determines upon application that, in view of all the
<PAGE> 86
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such portion of the settlement amount and expenses as the court
deems proper.
The Corporation may indemnify any person made, or threatened to be made, a party
to an action or proceeding (other than one by or in the right of the Corporation
to procure a judgment in its favor), whether civil or criminal, including an
action by or in the right of any other corporation of any type or kind, domestic
or foreign, or any partnership, joint venture, trust, employee benefit plan or
other enterprise, which any director or officer of the Corporation served in any
capacity at the request of the Corporation, by reason of the fact that he or
she, his or her testator, testatrix or intestate, was a director or officer of
the Corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he or she reasonably believed to be in, or, in the
case of service for any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise, not opposed to, the best
interests of the Corporation and, in criminal actions or proceedings, in
addition, had no reasonable cause to believe that his or her conduct was
unlawful.
The termination of any such civil or criminal action or proceeding by judgment,
settlement, conviction or upon a plea of nolo contendere, of its equivalent,
shall not in itself create a presumption that any such director or officer did
not act, in good faith, for a purpose which he or she reasonably believed to be
in, or, in the case of service for any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise, not opposed to,
the best interest of the Corporation or that he or she had reasonable cause to
believe that his or her conduct was unlawful.
Notwithstanding the foregoing, Registrant hereby makes the following undertaking
pursuant to Rule 484 under the Securities Act of 1933:
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet;
The Prospectus, consisting of 77 pages;
Undertaking to file reports;
Representation pursuant to Section 26 of the Investment Company Act of
1940;
Rule 484 Undertaking;
The signatures;
Written consents of the following persons:
A. Opinion and Consent of Actuary
B. Ernst & Young LLP
<PAGE> 87
The following exhibits are filed as part of this Registration Statement:
1. Copies of all exhibits required by paragraph A of the instructions as
to exhibits in Form N-8B-2 are set forth below under designations based
on such instructions:
A(1) Resolutions of Board of Directors of First North
American Life Assurance Company establishing FNAL
Variable Life Account I were previously filed in the
Registrant's initial registration statement on Form
S-6 (File No. 333-33351) as filed with the Commission
on August 8, 1997.
A(2) Not applicable.
A(3)(a) Underwriting and Distribution Agreement between The
Manufacturers Life Insurance Company of New York
(Depositor) and Manufacturers Securities Services, LLC
(Underwriter) is incorporated by reference to Exhibit
(b)(3)(a) to post-effective amendment No. 7 to the
Registration Statement on Form N-4, file number
33-46217, filed February 25, 1998 on behalf of The
Manufacturers Life Insurance Company of New York
Separate Account A.
A(3)(b) Selling Agreement between The Manufacturers Life
Insurance Company of New York, Manufactures Securities
Services, LLC (Underwriter), Selling Broker Dealers,
and General Agent is incorporated by reference to
Exhibit (b)(3)(b) to post-effective amendment No. 7 to
the Registration Statement on Form N-4, file number
33-46217, filed February 25, 1998 on behalf of The
Manufacturers Life Insurance Company of New York
Separate Account A.
A(3)(c) Not applicable.
A(4) Not applicable.
A(5) Form of Flexible Premium Variable Life Insurance
Policy is incorporated by reference to Exhibit A(8)(a)
to pre-effective amendment No. 1 to a Registration
Statement on Form S-6, file number 333-33351, filed on
March 16, 1998 on behalf of The Manufacturers Life
Insurance Company of New York Separate Account B.
A(6)(a)(i) Declaration of Intention and Charter of First North
American Life Assurance Company is incorporated by
reference to Exhibit (b)(6)(i) to post-effective
amendment No. 7 to the Registration Statement on Form
N-4, file number 33-46217, filed February 25, 1998 on
behalf of The Manufacturers Life Insurance Company of
New York Separate Account A.
A(6)(a)(ii) Certificate of amendment of the Declaration of
Intention and Charter of First North American Life
Assurance Company is incorporated by reference to
Exhibit (b)(6)(i) to post-effective amendment No. 7 to
the Registration Statement on Form N-4, file number
33-46217, filed February 25, 1998 on behalf of The
Manufacturers Life Insurance Company of New York
Separate Account A.
A(6)(a)(iii) Certificate of amendment of the Declaration of
Intention and Charter of The Manufacturers Life
Insurance Company of New York is incorporated by
reference to Exhibit (b)(6)(i) to post-effective
amendment No. 7 to the Registration Statement on Form
N-4, file number 33-46217, filed February 25, 1998 on
behalf of The Manufacturers Life Insurance Company of
New York Separate Account A.
<PAGE> 88
(A)(6)(b) By-laws of The Manufacturers Life Insurance Company of
New York are incorporated by reference to Exhibit
(b)(6)(i) to post-effective amendment No. 7 to the
Registration Statement on Form N-4, file number
33-46217, filed February 25, 1998 on behalf of The
Manufacturers Life Insurance Company of New York
Separate Account A.
A(7) Not applicable.
A(8)(a) Form of Reinsurance Agreement between The
Manufacturers Life Insurance Company of New York and
The Manufacturers Life Insurance Company (USA) is
incorporated by reference to Exhibit A(8)(a) to
pre-effective amendment No. 1 to a Registration
Statement on Form S-6, file number 333-33351, filed on
March 16, 1998 on behalf of The Manufacturers Life
Insurance Company of New York Separate Account B.
A(8)(b) Administrative Services Agreement between The
Manufacturers Life Insurance Company and The
Manufacturers Life Insurance Company of New York is
incorporated by reference to Exhibit (b)(8)(a) to
post-effective amendment No. 7 to the Registration
Statement on Form N-4, file number 33-46217, filed
February 25, 1998 on behalf of The Manufacturers Life
Insurance Company of New York Separate Account A.
A(8)(c) Investment Services Agreement between The
Manufacturers Life Insurance Company of New York and
The Manufacturers Life Insurance Company is
incorporated by reference to Exhibit A(8)(a) to
pre-effective amendment No. 1 to a Registration
Statement on Form S-6, file number 333-33351, filed on
March 16, 1998 on behalf of The Manufacturers Life
Insurance Company of New York Separate Account B.
A(9) Not applicable.
A(10)(a) Form of Application for Flexible Premium Variable Life
Insurance Policy is incorporated by reference to
Exhibit A(8)(a) to pre-effective amendment No. 1 to a
Registration Statement on Form S-6, file number
333-33351, filed on March 16, 1998 on behalf of The
Manufacturers Life Insurance Company of New York
Separate Account B.
A(10)(b) Form of supplement to the Application for Flexible
Premium Variable Life Insurance Policy is incorporated
by reference to Exhibit A(8)(a) to pre-effective
amendment No. 1 to a Registration Statement on Form
S-6, file number 333-33351, filed on March 16, 1998 on
behalf of The Manufacturers Life Insurance Company of
New York Separate Account B.
2. Consents of the following:
A Opinion and consent of Tracy A. Kane, Esq., Secretary
and Counsel of The Manufacturers Life Insurance
Company of New York (incorporated by reference to
Exhibit 2 to pre-effective amendment No. 1 to a
Registration Statement on Form S-6, file number
333-33351, filed on March 16, 1998 on behalf of The
Manufacturers Life Insurance Company of New York
Separate Account B).
B Consent of Brian Koop, Actuary, of The Manufacturers
Life Insurance Company of New York (filed herewith)
C Consents of Ernst & Young LLP (filed herewith)
<PAGE> 89
3. No financial statements are omitted from the prospectus pursuant to
instruction 1(b) or (c) of Part I.
4. Not applicable.
5. Not applicable.
6. Memorandum Regarding Issuance, Face Amount Increase, Redemption and
Transfer Procedures for the Policies is incorporated by reference to
the Registrant's registration statement on Form S-6 (File No.
333-33351) as filed with the Commission on August 8, 1997.
7. (a) Powers of Attorney are incorporated by reference to Exhibit
A(8)(a) to pre-effective amendment No. 1 to a Registration
Statement on Form S-6, file number 333-33351, filed on March 16,
1998 on behalf of The Manufacturers Life Insurance Company of
New York Separate Account B.
(b) Power of Attorney, James O'Malley and Thomas Borshoff -
previously filed as Exhibit (b)(14)(b) to post-effective
amendment no. 6 to Registration Statement on Form N-4, File, No.
33-79112, filed March 2, 1999.
(c) Power of Attorney, James D. Gallagher and James R. Boyle -
incorporated by reference to Exhibit (7)(iii) to pre-effective
amendment no. 1 to the Registration Statement on Form S-6, File
No. 333-83023, filed November 1, 1999.
(d) Power of Attorney, Robert Cook - previously filed as Exhibit
(b)(14)(d) to post-effective amendment no. 8 to Registration
Statement on Form N-4, File, No. 33-79112, filed February 25,
2000.
<PAGE> 90
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2B Consent of Brian Koop, Actuary of The Manufacturers Life Insurance
Company of New York
2C Consents of Ernst & Young LLP
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the
registrant, THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK SEPARATE
ACCOUNT B, and the depositor, THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW
YORK, certify that the registrant meets all of the requirements for
effectiveness of this amended registration statement pursuant to Rule 485(b)
under the Securities Act of 1933 and have duly caused this registration
statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the city of Boston, and Commonwealth of Massachusetts, on the
27th day of April, 2000.
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NEW YORK SEPARATE
ACCOUNT B
(Registrant)
By: THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NEW YORK
(Depositor)
By: /s/ JAMES D. GALLAGHER
---------------------------
James D. Gallagher
President
Attest
/s/ GRETCHEN SWANZ
- ------------------------
Gretchen Swanz
Secretary
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of l933, this registration
statement has been signed by the following persons in the capacities indicated
on this 27th day of April, 2000.
SIGNATURE TITLE
/s/ JAMES D. GALLAGHER Director and President
- ------------------------------- (Principal Executive Officer)
James D. Gallagher
* Chairman of the Board
- ------------------------------- of Directors
John D. DesPrez, III
* Director
- -------------------------------
Ruth Ann Fleming
* Director
- -------------------------------
Neil M. Merkl
* Director
- -------------------------------
Thomas Borshoff
* Director
- -------------------------------
James K. Robinson
* Director
- -------------------------------
James Boyle
* Director
- -------------------------------
Bruce Avedon
* Director
- -------------------------------
James O'Malley
* Director
- -------------------------------
Robert Cook
/s/ DAVID W. LIBBEY Treasurer (Principal Financial and
- ------------------------------- Accounting Officer)
David W. Libbey
*By: /s/ DAVID W. LIBBEY
-------------------------------
David W. Libbey
Attorney-in-Fact Pursuant
to Powers of Attorney
<PAGE> 1
Exhibit 99.2(B)
April 26, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Actuarial Opinion on Illustrations Contained in Post-Effective Amendment
No. 3 to a Registration Statement on Form S-6 (File No. 333-33351).
Dear Sirs:
This opinion is furnished in connection with the above-referenced registration
statement under the Securities Act of 1933, as amended, describing a flexible
premium variable universal life insurance policy (the "Policy") that will be
offered and sold by The Manufacturers Life Insurance Company of New York (the
"Company").
The hypothetical illustrations of death benefits, Policy values and surrender
values used in this registration statement are consistent with the provisions
of the Policy and the Company's administrative procedures. The rate structure
of the Policy has not been designed so as to make the relationship between
premiums and benefits, as shown in the illustrations, appear disproportionately
more favorable to a prospective purchaser of the Policy for the age and risk
class illustrated than for any other prospective purchaser. The particular
illustrations shown are for a commonly used risk class and for premium amounts
and ages appropriate to the markets in which the Policy is sold.
I hereby consent to the use of this opinion as an exhibit to the Securities Act
Registration Statement on Form S-6.
Sincerely,
/s/ BRIAN KOOP
Brian Koop, FSA, MAAA, FCIA
AVP & Pricing Actuary
<PAGE> 1
Exhibit 99.2(C)(1)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our report dated February 4, 2000 accompanying the financial
statements of Separate Account B of The Manufacturers Life Insurance Company of
New York in Post-Effective Amendment No. 3 to the Registration Statement No.
333-33351 on Form S-6 and related prospectus of Separate Account B of The
Manufacturers Life Insurance Company of New York.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
April 24, 2000
<PAGE> 1
Exhibit 99.2(C)(2)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Auditors" and to the use of our report dated February 21, 2000 in
Post-Effective Amendment No. 3 to the Registration Statement (Form S-6 No.
333-33351) and related Prospectus of The Manufacturers Life Insurance Company
of New York.
ERNST & YOUNG LLP
Boston, Massachusetts
April 24, 2000
