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PROSPECTUS
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK SEPARATE ACCOUNT B
VENTURE SURVIVORSHIP VUL
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
This prospectus describes Survivorship VUL, a flexible premium survivorship
variable universal life insurance policy (the "Policy"). The Policy is offered
by The Manufacturers Life Insurance Company of New York (the "Company" or
"Manulife New York"), a stock life insurance company that is an indirect
wholly-owned subsidiary of The Manufacturers Life Insurance Company
("Manufacturers Life") based in Toronto, Canada. Manulife Financial Corporation
("MFC") is the holding company of Manufacturers Life and its subsidiaries,
collectively known as Manulife Financial.
The Policy is 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 the policyowner to pay premiums and to adjust insurance
coverage in light of his or her current financial circumstances and insurance
needs.
The Policy provides for:
(1) a Net Cash Surrender Value that can be obtained by surrendering the Policy;
(2) policy loans and partial withdrawals; and
(3) an insurance benefit payable at the death of the last-to-die of the Lives
Insured.
Unless the No-Lapse Guarantee is in effect, the Policy will remain in force so
long as the Net Cash Surrender Value is sufficient to cover charges assessed
against the Policy. If the No-Lapse Guarantee is in effect, the Policy will
remain in force as long as the No-Lapse Guarantee Cumulative Premium Test has
been met.
Policy Value may accumulate on a fixed basis or may vary with the investment
performance of the sub-accounts of Manufacturer Life of New York's Separate
Account B (the "Separate Account"), to which the policyowner allocates net
premiums. The assets of each sub-account will be used to purchase shares of a
particular investment portfolio (a "Portfolio") of Manufacturers Investment
Trust (the "Trust"). The accompanying prospectus for the Trust, and its
corresponding statement of additional information, describe the investment
objectives of the Portfolios. The Portfolios available for allocation of Net
Premiums are shown in the Policy Summary under "Investment Options and
Investment Advisers." Manulife New York may add other sub-accounts and
Portfolios in the future.
BECAUSE OF THE SUBSTANTIAL NATURE OF THE SURRENDER CHARGES, THE POLICY IS NOT
SUITABLE FOR SHORT-TERM INVESTMENT PURPOSES. ALSO, PROSPECTIVE PURCHASERS SHOULD
NOTE THAT IT MAY NOT BE ADVISABLE TO PURCHASE A POLICY AS A REPLACEMENT FOR
EXISTING INSURANCE.
The Securities and Exchange Commission maintains a web site (http://www.sec.gov)
that contains material incorporated by reference and other information regarding
registrants that file electronically with the Commission.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE TRUST.
THESE POLICIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC. NEITHER THE SEC
NOR ANY STATE HAS DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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Home Office: Service Office Mailing Address:
The Manufacturers Life Insurance Company of New York The Manufacturers Life Insurance Company of New York
100 Summit Lake Drive P.O. Box 633
Second Floor Niagara Square Station
Valhalla, NY 10595 Buffalo, New York 14201--0633
Telephone: 1-888-267-7784
</TABLE>
The date of this Prospectus is June 2, 2000.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Definitions.......................................................................................................4
Policy Summary....................................................................................................6
General........................................................................................................6
Death Benefits.................................................................................................6
Premiums.......................................................................................................6
Policy Value...................................................................................................6
Policy Loans...................................................................................................6
Surrender and Partial Withdrawals..............................................................................6
Lapse and Reinstatement........................................................................................6
Charges and Deductions.........................................................................................7
Investment Options and Investment Advisers.....................................................................7
Table of Investment Management Fees and Expenses...............................................................8
Table of Investment Options and Investment Subadvisers.........................................................9
General Information about Manulife New York, the Separate Account and the Trust..................................11
Manulife New York.............................................................................................11
The Separate Account..........................................................................................11
The Trust.....................................................................................................11
Investment Objectives of the Portfolios.......................................................................12
Issuing A Policy.................................................................................................15
Requirements..................................................................................................15
Temporary Insurance Agreement.................................................................................15
Right to Examine the Policy...................................................................................15
Death Benefits...................................................................................................16
Life Insurance Qualification..................................................................................16
Death Benefit Options.........................................................................................17
Changing the Face Amount......................................................................................17
Premium Payments.................................................................................................18
Initial Premiums..............................................................................................18
Subsequent Premiums...........................................................................................18
Maximum Premium Limitation....................................................................................18
Premium Allocation............................................................................................19
Charges and Deductions...........................................................................................19
Premium Charge................................................................................................19
Surrender Charges.............................................................................................19
Monthly Charges...............................................................................................21
Charges for Transfers.........................................................................................22
Reduction in Charges..........................................................................................22
Special Provisions for Exchanges.................................................................................22
Company Tax Considerations.......................................................................................22
Policy Value.....................................................................................................23
Determination of the Policy Value.............................................................................23
Units and Unit Values.........................................................................................23
Transfers of Policy Value.....................................................................................23
Policy Loans.....................................................................................................24
Effect of Policy Loan.........................................................................................25
Interest Charged on Policy Loans..............................................................................25
Loan Account..................................................................................................25
Policy Surrender and Partial Withdrawals.........................................................................26
Policy Surrender..............................................................................................25
Partial Withdrawals...........................................................................................25
Lapse and Reinstatement..........................................................................................26
Lapse.........................................................................................................26
No-Lapse Guarantee Cumulative Premium Test....................................................................26
Reinstatement.................................................................................................27
The General Account..............................................................................................27
Fixed Account.................................................................................................27
Other Provisions of the Policy...................................................................................28
Policyowner Rights............................................................................................28
Beneficiary...................................................................................................28
</TABLE>
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<TABLE>
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Incontestability..........................................................28
Misstatement of Age or Sex................................................28
Suicide Exclusion.........................................................28
Supplementary Benefits....................................................28
Conversion Privilege......................................................29
Tax Treatment of the Policy..................................................29
Life Insurance Qualification..............................................29
Tax Treatment of Policy Benefits..........................................30
Alternate Minimum Tax.....................................................33
Income Tax Reporting......................................................33
Other Information............................................................33
Payment of Proceeds.......................................................33
Reports to Policyowners...................................................34
Distribution of the Policies..............................................34
Responsibilities of Manufacturers Life....................................34
Voting Rights.............................................................34
Substitution of Portfolio Shares..........................................35
Records and Accounts......................................................35
State Regulations.........................................................35
Litigation................................................................35
Independent Auditors......................................................35
Further Information.......................................................35
Directors and Officers....................................................37
Year 2000 Issues..........................................................37
Illustrations.............................................................37
Appendix A - Sample Illustrations of Policy Values, Cash Surrender Values
And Death Benefits........................................................A-1
Appendix B: Audited Financial Statements..................................B-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUS OF MANUFACTURERS INVESTMENT TRUST, OR THE
STATEMENT OF ADDITIONAL INFORMATION OF MANUFACTURERS INVESTMENT TRUST.
Examine this prospectus carefully. The Policy Summary will briefly describe the
Policy. More detailed information will be found further in the prospectus.
NYSVVL.PROS06/2000
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DEFINITIONS
Additional Rating
is an increase to the Cost of Insurance Rate for any of the Lives Insured who do
not meet, at a minimum, the Company's underwriting requirements for the standard
Risk Classification.
Age
on any date is each of the Lives Insured's age on their birthday closest to the
policy date.
Attained Age
is the Age plus the number of whole years that have elapsed since the Policy
Date.
Business Day
is any day that the New York Stock Exchange is open for trading. The net asset
value of the underlying shares of a Sub-Account will be determined as of the end
of each Business Day, if trading is not restricted. If trading has been
restricted, the Company reserves the right to determine accumulation unit values
for the Sub-Accounts, if practicable. The Company will deem each Business Day to
end at the close of regularly scheduled trading of the New York Stock Exchange
(currently 4:00 p.m. Eastern Time) on that day.
Cash Surrender Value
is the Policy Value less the Surrender Charge and any outstanding Monthly
Deductions due.
Effective Date
is the date the Company becomes obligated under the Policy. It is the date the
underwriters approve issuance of the Policy. If the Company approves the policy
without the initial premium, the Effective Date will be the date we receive at
least the minimum initial premium at our Service Office. In either case, the
Company will take the first Monthly Deduction on the Effective Date.
Gross Withdrawal
is the amount of partial Net Cash Surrender Value the policyowner requests plus
any Surrender Charge applicable to the withdrawal.
Fixed Account
is that part of the Policy Value which reflects the value the policyowner has in
the general account of the Company.
Investment Account
is that part of the Policy Value which reflects the value the policyowner has in
one of the sub-accounts of the Separate Account.
Issue Date
is the date the Company issued the Policy. The Issue Date is also the date from
which the Suicide and Validity provisions of the Policy are measured.
Life Insured
is the last-to-die of the Lives Insured.
Lives Insured
are the persons whose lives are insured under the Policy. References to the
youngest of the Lives Insured mean the youngest person insured under the Policy
when it is first issued.
Loan Account
is that part of the Policy Value which reflects the value transferred from the
Fixed Account or the Investment Accounts as collateral for a policy loan.
Maturity Date
is the Policy Anniversary nearest the date on which the youngest of the Lives
Insured reached Attained Age 100, or the date such person would have reached
Attained Age 100 if living.
Net Cash Surrender Value
is the Cash Surrender Value less the Policy Debt.
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Net Policy Value
is the Policy Value less the value in the Loan Account.
Net Premium
is the gross premium paid less the Premium Load. It is the amount of premium
allocated to the Fixed Account and/or Investment Accounts.
No-Lapse Guarantee
When the Policy is in the No-Lapse Guarantee Period, as long as the No-Lapse
Guarantee Cumulative Premium Test is met, the Policy will not lapse, even when
the Net Cash Surrender Value falls to or below zero.
No-Lapse Guarantee Period
is set at issue and will vary by issue age, as set forth in the Policy.
No-Lapse Guarantee Premium
is set at issue and is recalculated whenever there is a policy change.
No-Lapse Guarantee Cumulative Premium
is the minimum amount due to satisfy the No-Lapse Guarantee Cumulative Premium
Test. This amount will change if any of the following changes occur under the
Policy:
- the face amount of insurance changes.
- a Supplementary Benefit is added, changed or terminated.
- the risk classification of any of the Lives Insured changes because of a
change in smoking status.
- a temporary Additional Rating is added (due to a face amount increase), or
terminated.
- the Death Benefit Option Changes.
No-Lapse Guarantee Cumulative Premium Test
is a test that is satisfied if the sum of all premiums paid, less any gross
partial withdrawals and less any Policy Debt, is greater than or equal to the
sum of the monthly No-Lapse Guarantee Premiums due since the Policy Date.
Policy Date
is the date from which charges for the first monthly deduction are calculated,
and the date from which Policy Years, Policy Months, and Policy Anniversaries
are determined.
Policy Debt
as of any date equals (a) plus (b) plus (c) minus (d), where:
(a) is the total amount of loans borrowed as of such date;
(b) is the total amount of any unpaid loan interest charges which have been
borrowed against the policy on a Policy Anniversary;
(c) is any interest charges accrued from the last Policy Anniversary to the
current date; and
(d) is the total amount of loan repayments as of such date.
Policy Value
is the sum of the values in the Loan Account, the Fixed Account, and the
Investment Accounts.
Service Office Address
is P. O. Box 633, Niagra Square Station Buffalo, New York 14201-0633.
Surrender Charge Period
is the period following the Issue Date or following any increase in Face Amount
during which the Company will assess surrender charges. Surrender charges will
apply during this period if the Policy terminates due to default, if the
policyowner surrenders the Policy or makes a partial withdrawal.
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Written Request
is the policyowner's request to the Company which must be in a form satisfactory
to the Company, signed and dated by the policyowner, and received at the Service
Office.
POLICY SUMMARY
GENERAL
The Policy is a flexible premium survivorship variable universal life insurance
policy. The following summary is intended to provide a general description of
the most important features of the Policy. It is not comprehensive and is
qualified in its entirety by the more detailed information contained in this
prospectus. 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 minimum death benefit percentage.
DEATH BENEFITS
The Policy provides a death benefit in the event of the death of the last-to-die
of the Lives Insured. There are two death benefit options. Under Option 1 the
death benefit is the Face Amount of the Policy at the date of death or, if
greater, the Minimum Death Benefit. Under Option 2 the death benefit is the Face
Amount plus the Policy Value of the Policy at the date of death or, if greater,
the Minimum Death Benefit. The policyowner may change the death benefit option
and increase or decrease the Face Amount.
PREMIUMS
Premium payments may be made at any time and in any amount, subject to certain
limitations as described under "Premium Payments - Subsequent Premiums." Net
Premiums will be allocated, according to the policyowner's instructions, to one
or more of the general account and the sub-accounts of Manulife New York's
Separate Account B. The policyowner may change allocation instructions at any
time and may make transfers among the accounts.
POLICY VALUE
The Policy has a Policy Value reflecting premiums paid, certain charges for
expenses and cost of insurance, and the investment performance of the accounts
to which the policyowner has allocated premiums. The policyowner may obtain a
portion of the Policy Value by taking a policy loan or a partial withdrawal, or
by full surrender of the Policy.
POLICY LOANS
The policyowner may borrow against the Cash Surrender Value of the Policy. Loan
interest at a rate of 5.25% is due and payable in arrears on each Policy
Anniversary. All outstanding Policy Debt will be deducted from proceeds payable
at the insured's death, or upon surrender.
SURRENDER AND PARTIAL WITHDRAWALS
The policyowner may make a partial withdrawal of the Policy Value. A partial
withdrawal may result in a reduction in the Face Amount of the Policy and an
assessment of a portion of the surrender charges to which the Policy is subject.
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the Life Insured is living. The Net Cash Surrender Value is equal to the Policy
Value less Surrender Charges and outstanding Monthly Deductions due minus the
Policy Debt.
LAPSE AND REINSTATEMENT
Unless the No-Lapse Guarantee is in effect, a Policy will lapse (and terminate
without value) when the Net Cash Surrender Value is insufficient to pay the next
monthly deduction and a grace period of 61 days expires without an adequate
payment being made by the policyowner. If the No-Lapse Guarantee is in effect,
the Policy will lapse if the No-Lapse Guarantee Cumulative Premium Test (see
definition) has not been met.
The Policies, therefore, differ in two important respects from conventional life
insurance policies. First, the failure to make planned premium payments will not
itself cause a Policy to lapse. Second, a Policy can lapse even if planned
premiums have been paid.
A lapsed Policy may be reinstated by the policyowner at any time within the five
year period following lapse provided none of the Lives Insured dies after the
policy termination and the Policy was not surrendered for its Net Cash Surrender
Value. Evidence of insurability is required, along with a certain amount of
premium as described under "Reinstatement."
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CHARGES AND DEDUCTIONS
The Company assesses certain charges and deductions in connection with the
Policy. These include: (i) charges assessed monthly for mortality and expense
risks, cost of insurance, administration expenses, (ii) charges deducted from
premiums paid (iii) and charges assessed on surrender or lapse. These charges
are summarized in the Table of Charges and Deductions.
In addition, there are charges deducted from each Portfolio of the Trust. These
charges are summarized in the Table of Investment Management Fees and Expenses.
INVESTMENT OPTIONS AND INVESTMENT ADVISERS
The policyowner may allocate Net Premiums to the general account or to one or
more of the sub-accounts of Manulife New York's Separate Account B. Each of the
sub-accounts invests in the shares of one of the Portfolios of the Trust. The
Trust receives investment advisory services from Manufacturers Securities
Services, LLC ("MSS"). MSS is a registered investment adviser under the
Investment Advisers Act of 1940. The Trust also employs subadvisers. The Table
of Investment Options and Investment Advisers shows the subadvisers that provide
investment subadvisory services to the indicated Portfolios.
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.
INVESTMENT MANAGEMENT FEES AND EXPENSES
The Separate Account purchases shares of the Portfolios at net asset value. The
net asset value of those shares reflects investment management fees and certain
expenses. The fees and expenses for each Portfolio for the Trust's last fiscal
year are shown in the Table of Investment Management Fees and Expenses. These
fees and expenses are described in detail in the accompanying Trust prospectus
to which reference should be made.
TABLE OF CHARGES AND DEDUCTIONS
Premium Charge 7.50% of each premium paid.
Surrender Charges A Surrender Charge is applicable during the
first 15 Policy Years. The Surrender Charge
is determined by the following formula:
Surrender Charge = (Surrender Charge Rate) x
(Face Amount Associated with the Surrender
Charge /1000) x (Grading Percentage)
The Grading Percentage is based on the issue
age of the youngest insured and the policy
year in which the transaction causing the
assessment of the charge occurs and is set
forth in the table under "Charges and
Deductions - Surrender Charges."
The Surrender Charge Rate is calculated as
follows:
Surrender Charge Rate = (8.50) +
(82.5%)x(Surrender Charge Premium)
The Surrender Charge Premium is the
Surrender Charge Premium Limit specified in
the Policy divided by 1000.
The maximum Surrender Charge for any Policy
per $1000 of Face Amount is $58.00. A
portion of this charge may be assessed on a
partial withdrawal, as set forth under
"Charges and Deductions - Surrender Charges
on a Partial Withdrawal."
Monthly Deductions An administration charge of $30 plus $0.08
per $1,000 of current face amount per policy
month will be deducted in the first policy
year. In subsequent years, the
administration charge will not exceed $15
plus $0.02 per $1,000 of current Face Amount
per policy month.
The cost of insurance charge.
Any additional charges for supplementary
benefits.
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A mortality and expense risks charge. This
charge varies by Policy Year as follows:
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Current and Equivalent Annual Mortality and Expense
Policy Years Guaranteed Risk Charge
Monthly
Mortality and
Expense Risks
Charge
1-20 0.063% 0.75%
21+ 0.033% 0.40%
</TABLE>
All of the above charges are deducted from
the Net Policy Value.
Loan Charges A fixed loan interest rate of 5.25%.
Interest credited to amounts in the Loan
Account will be equal to the 5.25% rate
charged to the loan less the current (and
maximum loan spread of 1.25%.
Transfer Charge A charge of $25 per transfer for each
transfer in excess of 12 in a Policy Year.
TABLE OF INVESTMENT MANAGEMENT FEES AND EXPENSES
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets for 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(H)................................. 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%
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>
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<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%
International Index ....... 0.550% 0.050%(A,G) 0.600%
Small Cap Index ........... 0.525% 0.075%(A,G) 0.600%
Mid Cap Index ............. 0.525% 0.075%(A,G) 0.600%
Total Stock Market Index .. 0.525% 0.075%(A,G) 0.600%
500 Index ................. 0.525% 0.039%(A,G) 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) 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.
(H) Formerly, the Mid Cap Growth Trust.
TABLE OF INVESTMENT OPTIONS AND INVESTMENT SUBADVISERS
The Trust currently has nineteen subadvisers who manage all of the portfolios,
one of which is Manufacturers Adviser Corporation ("MAC"). Both MSS and MAC are
affiliates of Manulife New York.
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO
---------- ---------
<S> <C>
A I M Capital Management, Inc. Aggressive Growth Trust
</TABLE>
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<TABLE>
<S> <C>
All Cap Growth Trust
AXA Rosenberg Investment Management LLC Small Company Value Trust
Capital Guardian Trust Company Small Company Blend Trust
U.S. Large Cap Value Trust
Income & Value Trust
Diversified Bond Trust
Fidelity Management Trust Company Mid Cap Blend Trust
Large Cap Growth Trust
Overseas Trust
Founders Asset Management LLC International Small Cap Trust
Balanced Trust
Franklin Advisers, Inc. Emerging Small Company Trust
Janus Capital Corporation Dynamic Growth Trust
Manufacturers Adviser Corporation Pacific Rim Emerging Markets Trust
Quantitative Equity Trust
Real Estate Securities Trust
Money Market Trust
Index Trusts
Lifestyle Trusts(A)
Miller Anderson & Sherrerd, LLP Value Trust
High Yield Trust
Mitchell Hutchins Asset Management Inc. Tactical Allocation Trust
Morgan Stanley Asset Management Inc. Global Equity Trust
Munder Capital Management Internet Technologies Trust
Pacific Investment Management Company Global Bond Trust
Total Return Trust
Rowe Price-Fleming International, Inc. International Stock Trust
Salomon Brothers Asset Management Inc U.S. Government Securities Trust
Strategic Bond Trust
State Street Global Advisors Growth Trust
Lifestyle Trusts(A)
T. Rowe Price Associates, Inc. Science & Technology Trust
Blue Chip Growth Trust
Equity-Income Trust
Templeton Investment Counsel, Inc. International Value Trust
Wellington Management Company, LLP Growth & Income Trust
Investment Quality Bond Trust
Mid Cap Stock Trust
</TABLE>
(A) State Street Global Advisors provides subadvisory consulting services to
Manufacturers Adviser Corporation regarding management of the Lifestyle
Trusts.
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<PAGE> 11
GENERAL INFORMATION ABOUT MANULIFE NEW YORK, THE SEPARATE ACCOUNT AND THE TRUST
MANULIFE NEW YORK
The Manufacturers Life Insurance Company of New York ("Manulife New York") is a
stock life insurance company organized under the laws of New York on March 4,
1992. Its principal office is located at 100 Summit Lake Drive, Second Floor,
Valhalla, NY 10595. Manulife New York is 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.
Manulife New York's and Manulife North America's ultimate parent is Manulife
Financial Corporation ("MFC") based in Toronto, Canada. MFC is the holding
company of The Manufacturers Life Insurance Company ("Manufacturers Life") and
its subsidiaries collectively known as Manulife Financial. Neither Manulife New
York, Manufacturers Life, nor MFC guarantees the investment performance of the
Separate Account.
RATINGS
Manulife New York has received the following ratings from independent rating
agencies:
<TABLE>
<S> <C>
Standard and Poor's Insurance Ratings Service: AA+ (for claims paying ability)
A.M.Best Company: A++ (for financial strength)
Duff & Phelps Credit Rating Co.: AAA (for claims paying ability)
</TABLE>
These ratings, which are current as of the date of this prospectus and are
subject to change, are assigned to The Manufacturers Life Insurance Company of
New York as a measure of the Company's ability to honor the death benefit 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
The Company established The Manufacturers Life Insurance Company of New York
Separate Account B ("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 Manulife New York's other assets. The Separate
Account is currently used only to support variable life insurance policies.
ASSETS OF THE SEPARATE ACCOUNT
The Company is the legal owner of the assets in the Separate Account. The
income, gains, and losses of the Separate Account, whether or not realized, are,
in accordance with applicable contracts, credited to or charged against the
Account without regard to the other income, gains, or losses of the Company. The
Company 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 the Company conducts. However, all obligations under the variable life
insurance policies are general corporate obligations of the Company.
REGISTRATION
The Separate Account is registered with the Securities and Exchange Commission
("S.E.C.") under the Investment Company Act of 1940 ("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 S.E.C.
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
Each sub-account of the Separate Account will purchase shares only of a
particular Portfolio. The Trust is registered under the 1940 Act as an open-end
management investment company. The Separate Account will purchase and redeem
shares of the Portfolios at net asset value. Shares will be redeemed to the
extent necessary for Manulife New York to provide benefits under the Policies,
to transfer assets from one sub-account to another or to the general account as
requested by policyowners, and for other purposes not inconsistent with the
Policies. Any dividend or capital gain distribution received from a Portfolio
with respect to the Policies will be reinvested immediately at net asset value
in shares of that Portfolio and retained as assets of the corresponding
sub-account.
The Trust shares are issued to fund benefits under both variable annuity
contracts and variable life insurance policies issued by the Company or life
insurance companies affiliated with the Company. Manulife New York may also
purchase shares through its general account for certain limited purposes
including initial portfolio seed money. For a description of the procedures for
handling potential conflicts of interest arising from the funding of such
benefits see the accompanying Trust prospectus.
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<PAGE> 12
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).
The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital. Current income
is incidental to the portfolio's objective.
The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by investing
primarily in securities issued by foreign companies which have total market
capitalization or annual revenues of $1 billion or less. These securities may
represent companies in both established and emerging economies throughout the
world.
The AGGRESSIVE GROWTH TRUST 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. Normally at least 50% of its equity assets are invested 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, 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
prospects 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 portfolios expects to invest primarily in equity securities.
The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by investing
primarily in common stocks of established, non-U.S. companies.
The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by investing,
under normal market conditions, primarily in equity securities of companies
located outside the U.S., including 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.
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<PAGE> 13
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.
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) and many of the stocks in the portfolio are
expected to pay dividends.
The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of long-term
capital appreciation and satisfactory current income by investing in real estate
related equity and debt securities.
The VALUE TRUST seeks to realize an above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in common and preferred stocks, convertible securities, rights and
warrants to purchase common stocks, ADRs and other equity securities of
companies with equity capitalizations usually greater than $300 million.
The 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 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 U.S. 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.
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.
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<PAGE> 14
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 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.
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 and Poor's 500(R)" and
"Standard and 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.
14
<PAGE> 15
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.
ISSUING A POLICY
REQUIREMENTS
To purchase a Policy, an applicant must submit a completed application. The
Company will not issue a Policy until the underwriting process has been
completed to its satisfaction.
Policies may be issued on a basis which does not distinguish between the
insured's sex and/or smoking status, with prior approval from the Company. A
Policy will generally be issued only on the lives of insureds from ages 0
through 90.
Each Policy is issued with a Policy Date, an Effective Date and an Issue Date
(see Definitions). The Issue Date is the date from which the Suicide and
Validity provisions of the Policy are determined and is the expected date of
actual delivery of the Policy to the policyowner. The Effective Date is the date
on which the first monthly deductions are taken, and is the date on which the
underwriters approve the Policy issuance. The Policy Date is the date coverage
takes effect under the Policy, provided the Company receives the minimum initial
premium at its Service Office, is the date from which charges for the first
monthly deduction are calculated, and is the date from which Policy Years,
Policy Months and Policy Anniversaries are determined.
If an application accepted by the Company 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 the Company receives
the check at its Service Office, and;
(ii) the Issue Date will be the date the Company issues 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.
If the 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.
MINIMUM INITIAL FACE AMOUNT
Manulife New York will generally issue a Policy only if it has a Face Amount of
at least $250,000.
BACKDATING A POLICY
Under limited circumstances, the Company may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
However, in no event will a Policy 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. Regardless of whether or not a policy is
backdated, Net Premiums received prior to the Effective Date of a Policy will be
credited with interest from the date of receipt at the rate of return then being
earned on amounts allocated to the Money Market portfolio.
TEMPORARY INSURANCE AGREEMENT
In accordance with the Company's underwriting practices, temporary insurance
coverage may be provided under the terms of a Temporary Insurance Agreement.
Generally, temporary life insurance may not exceed $5,000,000 and may not be in
effect for more than 90 days. This temporary insurance coverage will be issued
on a conditional receipt basis. This means that any benefits under such
temporary coverage will only be paid if the Lives Insured meet the Company's
usual and customary underwriting standards for the coverage applied for.
The acceptance of an application is subject to the Company's underwriting rules,
and the Company reserves the right to request additional information or to
reject an application for any reason.
Persons failing to meet standard underwriting classification may be eligible for
a Policy with an additional rating assigned to it.
RIGHT TO EXAMINE THE POLICY
A policyowner may return a Policy for a refund 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 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, the Company will refund in
full the payment made.
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If a policyowner requests an increase in face amount which results in new
surrender charges, he or she will have the same rights as described above to
cancel the increase. If canceled, the Company will recalculate the Policy Value
and the surrender charges to the amounts they would have been had the increase
not taken place. A policyowner may request a refund of all or any portion of
premiums paid during the free look period, and the Company will recalculate the
Policy Value and the surrender charges to the amounts they would have been had
the premiums not been paid.
If the policyowner purchases the Policy in connection with a replacement of an
existing life insurance policy (as defined below), the policyowner may also
cancel the contract by returning it the Service Office or the policyowner's
insurance representative 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 insurance agent or attorney regarding this matter prior to purchasing the
new Policy.
Replacement of an existing life insurance policy generally is defined as the
purchase of a new life insurance policy in connection with (a) the lapse,
surrender or change of, or borrowing from, an existing life insurance policy or
(b) the assignment to a new issuer of an existing life insurance policy. This
description, however, does not necessarily cover all situations which could be
considered a replacement of an existing life insurance policy. Therefore, a
policyowner should consult with his or her insurance agent or attorney regarding
whether the purchase of a new life insurance policy is a replacement of an
existing life insurance policy.
The Company reserves the right to delay the refund of any premium paid by check
until the check has cleared.
DEATH BENEFITS
If the Policy is in force at the time of the death of the last-to-die of the
Lives Insured, the Company will pay an insurance benefit. The amount payable
will be the death benefit under the selected death benefit option, plus any
amounts payable under any supplementary benefits added to the Policy, less the
Policy Debt and less any outstanding monthly deductions due. The insurance
benefit will be paid in one lump sum unless the beneficiary and the Company
agree to another form of settlement option. If the insurance benefit is paid in
one sum, the Company will pay interest from the date of death to the date of
payment. If the Life Insured should die after the Company's receipt of a request
for surrender, no insurance benefit will be payable, and the Company will pay
only the Net Cash Surrender Value.
LIFE INSURANCE QUALIFICATION
This product uses the Guideline Premium Test to qualify as a life insurance
contract for purposes of Section 7702 of the Internal Revenue Code of 1986, as
amended.
GUIDELINE PREMIUM TEST
The Guideline Premium Test restricts the maximum premiums that may be paid into
a life insurance policy for a given death benefit. The policy's death benefit
must also be at least equal to the Minimum Death Benefit (described below).
Changes to the Policy may affect the maximum amount of premiums, such as:
- A change in the policy's Face Amount.
- A change in the death benefit option.
- Partial Withdrawals.
- Addition or deletion of supplementary benefits.
Any of the above changes could cause the total premiums paid to exceed the new
maximum limit. In this situation, the Company will require the policyowner to
take a partial withdrawal. In addition, these changes could reduce the future
premium limitations.
MINIMUM DEATH BENEFIT
The Guideline Premium Test requires a life insurance policy to meet minimum
ratios of life insurance coverage to policy value. This is achieved by ensuring
that the death benefit is at all times at least equal to the Minimum Death
Benefit. The Minimum Death Benefit on any date is defined as the Policy Value on
that date times the applicable Minimum Death Benefit Percentage for the Attained
Age of the youngest of the Lives Insured would have reached if living. The
Minimum Death Benefit Percentages are shown in the Table of Minimum Death
Benefit Percentages.
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<PAGE> 17
TABLE OF MINIMUM DEATH BENEFIT PERCENTAGES
<TABLE>
<CAPTION>
-------------------------------------------------------
Attained Age Applicable Percentage
-------------------------------------------------------
<S> <C>
40 and under 250%
45 215%
50 185%
55 150%
60 130%
65 120%
70 115%
75 105%
90 105%
95 and above 100%
</TABLE>
To determine the Applicable Percentage in the above table, use the Attained Age
of the youngest of the Lives Insured, or the Attained Age such person would have
reached if living. For ages not shown, the Applicable Percentage can be found by
reducing the values proportionately.
DEATH BENEFIT OPTIONS
There are two death benefit options, described below.
DEATH BENEFIT OPTION 1
Under Option 1 the death benefit is the Face Amount of the Policy at the date of
death or, if greater, the Minimum Death Benefit.
DEATH BENEFIT OPTION 2
Under Option 2 the death benefit is the Face Amount plus the Policy Value of the
Policy at the date of death or, if greater, the Minimum Death Benefit.
CHANGING THE DEATH BENEFIT OPTION
The policyowner may change the death benefit option on the first day of any
policy month once each Policy Year after the first Policy Year. The change will
occur on the first day of the next Policy Month after a written request for a
change is received at the Service Office. The Company reserves the right to
limit a request for a change if the change would cause the Policy to fail to
qualify as life insurance for tax purposes.
A change in the death benefit option will result in a change in the Policy's
Face Amount, in order to avoid any change in the amount of the death benefit, as
follows:
CHANGE FROM OPTION 1 TO OPTION 2
The new Face Amount will be equal to the Face Amount prior to the change minus
the Policy Value as of the date of the change. The Policy will not be assessed a
Surrender Charge for a reduction in Face Amount solely due to a change in the
death benefit option.
CHANGE FROM OPTION 2 TO OPTION 1
The new Face Amount will be equal to the Face Amount prior to the change plus
the Policy Value as of the date of the change. No new Surrender Charges will
apply to an increase in Face Amount solely due to a change in the death benefit
option.
CHANGING THE FACE AMOUNT
Subject to the limitations stated in this Prospectus, a policyowner may, upon
Written Request, increase or decrease the Face Amount of the Policy. The Company
reserves the right to limit a change in Face Amount so as to prevent the Policy
from failing to qualify as life insurance for tax purposes.
INCREASE IN FACE AMOUNT
Increases in Face Amount may be made once each Policy Year after the first
Policy Year. Any increase in Face Amount must be at least $50,000. An increase
will become effective at the beginning of the policy month following the date
Manulife New York approves the requested increase. Increases in Face Amount are
subject to satisfactory evidence of insurability. The Company reserves the right
to refuse a requested increase if any of the Lives Insureds' Attained Ages at
the effective date of the increase would be greater than the maximum issue age
for new Policies at that time.
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NEW SURRENDER CHARGES FOR AN INCREASE
An increase in face amount will usually result in the Policy being subject to
new surrender charges. There will be no new surrender charges associated with
restoration of a prior decrease in Face Amount. As with the purchase of a
Policy, a policyowner will have a free look right with respect to any increase
resulting in new surrender charges.
An additional premium may be required for a face amount increase, and a new
No-Lapse Guarantee Premium will be determined, if the No-Lapse Guarantee is in
effect at the time of the face amount increase. See "Lapse and Reinstatement -
No-Lapse Guarantee."
INCREASE WITH PRIOR DECREASES
If, at the time of the increase, there have been prior decreases in Face Amount,
these prior decreases will be restored first. The insurance coverage eliminated
by the decrease of the oldest face amount will be deemed to be restored first.
DECREASE IN FACE AMOUNT
Decreases in Face Amount may be made once each Policy Year after the first
Policy Year. Any decrease in Face Amount must be at least $50,000. A written
request from a policy owner for a decrease in the Face Amount will be effective
at the beginning of the Policy Month following the date Manulife New York
approves the requested decrease. If there have been previous increases in Face
Amount, the decrease will be applied to the most recent increase first and
thereafter to the next most recent increases successively.
PREMIUM PAYMENTS
INITIAL PREMIUMS
No premiums will be accepted prior to receipt of a completed application by the
Company. All premiums received prior to the Effective Date of the Policy will be
held in the general account and credited with interest from the date of receipt
at the rate of return then being earned on amounts allocated to the Money Market
Trust.
The minimum initial premium is one-twelfth of the No-Lapse Guarantee Premium.
On the Effective Date, the Net Premiums paid plus interest credited will be
allocated among the Investment Accounts or the Fixed Account in accordance with
the policyowner's instructions.
SUBSEQUENT PREMIUMS
After the payment of the initial premium, premiums may be paid at any time and
in any amount until the Maturity Date, subject to the limitations on premium
amount described below.
A Policy will be issued with a planned premium, which is based on the amount of
premium the policyowner wishes to pay. Manulife New York will send notices to
the policyowner setting forth the planned premium at the payment interval
selected by the policyowner. However, the policyowner is under no obligation to
make the indicated payment.
The Company may refuse any premium payment that would cause the Policy to fail
to qualify as life insurance under the Internal Revenue Code. The Company also
reserves the right to request evidence of insurability if a premium payment
would result in an increase in the Death Benefit that is greater than the
increase in Policy Value.
Payment of premiums will not guarantee that the Policy will stay in force.
Conversely, failure to pay premiums will not necessarily cause the Policy to
lapse.
All Net Premiums received on or after the Effective Date will be allocated among
Investment Accounts or the Fixed Account as of the Business Day the premiums
were received at the 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.
MAXIMUM PREMIUM LIMITATION
In no event may the total of all premiums paid exceed the then current maximum
premium limitations established by federal income tax law for a Policy to
qualify as life insurance.
If, at any time, a premium is paid which would result in total premiums
exceeding the above maximum premium limitation, the Company will only accept
that portion of the premium which will make the total premiums equal to the
maximum. Any part of the premium in excess of that amount will be returned and
no further premiums will be accepted until allowed by the then current maximum
premium limitation.
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<PAGE> 19
PREMIUM ALLOCATION
Premiums may be allocated to either the Fixed Account for accumulation at a rate
of interest equal to at least 4% or to one or more of the Investment Accounts
for investment in the Portfolio shares held by the corresponding sub-account of
the Separate Account. Allocations among the Investment Accounts and the Fixed
Account are made as a percentage of the premium. The percentage allocation to
any account may be any number between zero and 100, provided the total
allocation equals 100. A policyowner may change the way in which premiums are
allocated at any time without charge. The change will take effect on the date a
written request for change satisfactory to the Company is received at the
Service Office.
CHARGES AND DEDUCTIONS
PREMIUM CHARGE
Manulife New York deducts a premium charge from each premium payment, equal to
7.50% of the premium. The premium charge is designed to cover a portion of the
Company's acquisition and sales expenses and premium taxes, or other related
taxes associated with the sale of life insurance products, including the
Policies, in the state of New York.
SURRENDER CHARGES
The Company will deduct a Surrender Charge if during the first 15 years
following the Policy Date, or the effective date of a Face Amount increase:
- the Policy is surrendered for its Net Cash Surrender Value,
- a partial withdrawal is made in excess of the Withdrawal Tier Amount (see
below for a description of this amount),
- An increase in Face Amount is canceled within two years of the increase
or
- the Policy lapses.
SURRENDER CHARGE CALCULATION
The Surrender Charge for the initial Face Amount or for the amount of any
increase in Face Amount is determined by the following formula (the calculation
is also described in words below):
Surrender Charge = (Surrender Charge Rate) x (Face Amount associated with the
Surrender Charge / 1000) x (Grading Percentage)
Face Amount associated with the Surrender Charge
The Face Amount associated with the Surrender Charge equals the Face Amount for
which the Surrender Charge is being applied.
Surrender Charge Rate (the calculation is also described in words
below)
Surrender Charge Rate = (8.50) + (82.5%)x(Surrender Charge Premium)
DEFINITIONS OF THE FORMULA FACTORS ABOVE
The Surrender Charge Premium is the Surrender Charge Premium Limit specified in
the Policy per $1000 of Face Amount:
Grading Percentage
The grading percentage is based on the issue age of the youngest insured and the
policy year in which the transaction causing the assessment of the charge occurs
as set forth in the table below:
<TABLE>
<CAPTION>
SURRENDER CHARGE GRADING PERCENTAGE
ISSUE AGES OF YOUNGER INSURED 0-75 76 77 78 79 80+
------------------------------------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
POLICY YEAR 1 93% 92% 92% 91% 90% 90%
POLICY YEAR 2 86% 85% 84% 83% 81% 80%
POLICY YEAR 3 80% 78% 76% 75% 72% 70%
POLICY YEAR 4 73% 71% 69% 66% 63% 60%
POLICY YEAR 5 66% 64% 61% 58% 54% 50%
POLICY YEAR 6 60% 57% 53% 50% 45% 40%
POLICY YEAR 7 53% 50% 46% 41% 36% 30%
POLICY YEAR 8 46% 42% 38% 33% 27% 20%
POLICY YEAR 9 40% 35% 30% 25% 18% 10%
POLICY YEAR 10 33% 28% 23% 16% 9% 0%
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
ISSUE AGES OF YOUNGER INSURED 0-75 76 77 78 79 80+
------------------------------------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
POLICY YEAR 11 26% 21% 15% 8% 0%
POLICY YEAR 12 20% 14% 7% 0%
POLICY YEAR 13 13% 7% 0%
POLICY YEAR 14 6% 0%
POLICY YEAR 15 0%
</TABLE>
Formulas Described in Words
Surrender Charge
The Surrender Charge is determined by multiplying the Surrender Charge Rate by
the Face Amount associated with the Surrender Charge divided by 1000. The amount
obtained is then multiplied by the Grading Percentage, a percent which starts at
100% and grades down each policy year to zero over a period not to exceed 15
years. The maximum Surrender Charge for any Policy per $1000 of Face Amount is
$58.00.
Surrender Charge Rate
The Surrender Charge Rate is equal to the sum of (a) plus (b) where (a) equals
8.50 and (b) equals 82.5% times the Surrender Charge Premium.
Illustration of Surrender Charge Calculation
Assumptions
- 50 year old male and 40 year old female (standard risks and nonsmoker
status)
- Policy issued 7 years ago
- Surrender Charge Premium for the Policy is $3.18
- Face Amount of the Policy is $250,000
- Policy is surrendered during the last month of the seventh policy year
Surrender Charge
The Surrender Charge to be assessed would be $1,473 determined as follows:
First, the Surrender Charge Rate is determined by applying the Surrender Charge
Rate formula as set forth below.
Surrender Charge Rate = (8.50) + (82.5%) x (Surrender Charge Premium)
$11.12 = (8.50) + (82.5%) x (3.18)
The Surrender Charge Rate is equal to $11.12.
Second, the Surrender Charge Rate is entered into the Surrender Charge formula
and the Surrender Charge is determined as set forth below.
Surrender Charge = (Surrender Charge Rate) x (Face Amount Associated with the
Surrender Charge) x (Grading Percentage)
$1,473 = (11.12) x (250,000 / 1000) x (53%)
The Surrender Charge is equal to $1,473.
Manulife New York may reduce the surrender charge as described above on policies
where the anticipated annual premium is $100,000 or greater and the Policy is
issued as part of an employer sponsored split dollar or keyman arrangement; 80%
of the Surrender Charge will be waived during the first year of the Policy, 60%
during the second year and 40% during the third year. The full Surrender Charge
will be imposed if the surrender takes place in a fourth or subsequent Policy
Year. The Surrender Charge, together with a portion of the premium charge, is
designed to compensate the Company for some of the expenses incurred in selling
and distributing the Policies, including agent commission, advertising, agent
training and the printing of prospectuses and sales literature.
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<PAGE> 21
SURRENDER CHARGES ON A PARTIAL WITHDRAWAL
A partial withdrawal will result in the assessment of a portion of the Surrender
Charges to which the Policy is subject. The portion of the Surrender Charges
assessed will be based on the ratio of the amount of the withdrawal which
exceeds the Withdrawal Tier Amount (as described below) to the Net Cash
Surrender Value of the Policy as at the date of the withdrawal. The Surrender
Charges will be deducted from the Policy Value at the time of the partial
withdrawal on a pro-rata basis from each of the Investment Accounts and the
Fixed Account.
Whenever a portion of the Surrender Charges is deducted as a result of a partial
withdrawal, the Policy's remaining Surrender Charges will be reduced in the same
proportion that the Surrender Charge deducted bears to the total Surrender
Charge immediately before the partial withdrawal.
WITHDRAWAL TIER AMOUNT
The Withdrawal Tier Amount is equal to 10% of the Net Cash Surrender Value as at
the last Policy Anniversary. In determining what, if any, portion of a partial
withdrawal is in excess of the Withdrawal Tier Amount, all previous partial
withdrawals that have occurred in the current Policy Year are included.
MONTHLY CHARGES
On the Policy Date and at the beginning of each Policy Month, a deduction is due
from the Net Policy Value to cover certain charges in connection with the Policy
until the Maturity Date. If there is a Policy Debt under the Policy, loan
interest and principal will continue to be payable at the beginning of each
Policy Month. Monthly deductions due prior to the Effective Date will be taken
on the Effective Date instead of the dates they were due. The charges consist
of:
(i) a monthly administration charge;
(ii) a monthly charge for the cost of insurance;
(iii) a monthly mortality and expense risk charge;
(iv) a monthly charge for any supplementary benefits added to the Policy.
Unless otherwise allowed by the Company and specified by the policyowner, the
Monthly Deduction will be allocated among the Investment Accounts and the Fixed
Account in the same proportion as the Policy value in each bears to the Net
Policy Value.
ADMINISTRATION CHARGE
This charge will be equal to $30 plus $0.08 per $1,000 of current face amount
per Policy Month in the first Policy Year. For all subsequent Policy Years, the
administration charge will not exceed $15 plus $0.02 per $1,000 of current face
amount per Policy 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 changes permitted under the 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 and the net amount at risk are
determined separately for the initial Face Amount and for each increase in Face
Amount. In determining the net amount at risk, if there have been increases in
the Face Amount, the Policy Value shall first be considered a part of the
initial Face Amount. If the Policy Value exceeds the initial Face Amount, it
shall then be considered a part of the additional increases in Face Amount
resulting from the increases, in the order the increases occurred.
The net amount at risk is equal to the greater of zero, or the result of (a)
minus (b) where:
(a) is the death benefit as of the first day of the Policy Month, divided by
1.0032737; and
(b) is the Policy Value as of the first day of the Policy Month prior to
deduction of monthly cost of insurance.
The rates for the cost of insurance are blended and based upon the Attained Age,
sex, and Risk Classification of the Lives Insured.
Cost of insurance rates will generally increase with the age of each of the
Lives Insured. The first year cost of insurance rate is guaranteed.
The cost of insurance rates reflect the Company's expectations as to future
mortality experience. The rates may be re-determined from time to time on a
basis which does not unfairly discriminate within the class of Lives Insured. In
no event will the cost of insurance rates exceed the guaranteed rates set forth
in the Policy except to the extent that an extra charge is imposed because of an
additional rating applicable to the Lives Insured. After the first Policy Year,
the cost of insurance will generally increase on each Policy Anniversary. The
guaranteed rates are based on the 1980 Commissioners Standard Ordinary
Smoker/Non-Smoker Mortality Tables.
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<PAGE> 22
CHARGES FOR SUPPLEMENTARY BENEFITS
If the Policy includes Supplementary Benefits, a charge will be made applicable
to such Supplementary Benefit.
MORTALITY AND EXPENSE RISK CHARGE
A monthly charge is assessed against the Policy Value equal to a percentage of
the Policy Value. This charge is to compensate the Company for the mortality and
expense risks it assumes under the Policy. The mortality risk assumed is that
Lives Insured may live for a shorter period of time than the Company estimated.
The expense risk assumed is that expenses incurred in issuing and administering
the Policy will be greater than the Company estimated. The Company will realize
a gain from this charge to the extent it is not needed to provide benefits and
pay expenses under the Policy.
The charge varies by Policy Year as follows:
<TABLE>
<CAPTION>
Current and Guaranteed Monthly Equivalent Annual
Mortality and Mortality and Expense
Policy Year Expense Risks Charge Risks Charge
----------- ------------------------------ ---------------------
<S> <C> <C>
1-20 0.063% 0.75%
21+ 0.033% 0.40%
</TABLE>
CHARGES FOR TRANSFERS
A charge of $25 will be imposed on each transfer in excess of twelve in a Policy
Year, to cover processing and other administrative costs associated with such
transfers.
REDUCTION IN CHARGES
The Policy is available for purchase by corporations and other groups or
sponsoring organizations. Group or sponsored arrangements may include reduction
or elimination of withdrawal charges and deductions for employees, officers,
directors, agents, immediate family members of the foregoing, and employees or
agents of Manufacturers Life and its subsidiaries. Manulife New York reserves
the right to reduce any of the Policy's loads or charges on certain cases where
it is expected that the amount or nature of such cases will result in savings of
sales, underwriting, administrative, commissions or other costs. Eligibility for
these reductions and the amount of reductions will be determined by a number of
factors, including the number of lives to be insured, the total premiums
expected to be paid, total assets under management for the policyowner, the
nature of the relationship among the insured individuals, the purpose for which
the policies are being purchased, expected persistency of the individual
policies, and any other circumstances which Manulife New York believes to be
relevant to the expected reduction of its expenses. Some of these reductions may
be guaranteed and others may be subject to withdrawal or modification, on a
uniform case basis. Reductions in charges will not be unfairly discriminatory to
any policyowners. Manulife New York may modify from time to time, on a uniform
basis, both the amounts of reductions and the criteria for qualification.
In addition, groups and persons purchasing under a sponsored arrangement may
apply for simplified underwriting. If simplified underwriting is granted, the
cost of insurance charge may increase as a result of higher anticipated
mortality experience.
SPECIAL PROVISIONS FOR EXCHANGES
The Company will permit owners of certain fixed life insurance policies issued
either by the Company or Manufacturers Life Insurance Company (U.S.A.) to
exchange their policies for the Policies described in this prospectus (and
likewise, owners of policies described in this Prospectus may also exchange
their Policies for certain fixed policies issued either by the Company or by
Manufacturers Life Insurance Company (U.S.A)). Policyowners considering an
exchange should consult their tax advisers as to the tax consequences of an
exchange.
COMPANY TAX CONSIDERATIONS
At the present time, the Company makes no charge to the Separate Account for any
federal, state, or local taxes that the Company incurs that may be attributable
to such Account or to the Policies. The Company, however, reserves 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 it determines to be properly
attributable to the Separate Account or to the Policies.
22
<PAGE> 23
POLICY VALUE
DETERMINATION OF THE POLICY VALUE
A Policy has a Policy Value, a portion of which is available to the policyowner
by making a policy loan or partial withdrawal, or upon surrender of the Policy.
The Policy Value may also affect the amount of the death benefit. 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.
INVESTMENT ACCOUNTS
An Investment Account is established under each Policy for each sub-account of
the Separate Account to which net premiums or transfer amounts have been
allocated. Each Investment Account under a Policy measures the interest of the
Policy in the corresponding sub-account. The value of the Investment Account
established 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.
FIXED ACCOUNT
Amounts in the Fixed Account do not vary with the investment performance of any
sub-account. Instead, these amounts are credited with interest at a rate
determined by Manulife New York. For a detailed description of the Fixed
Account, see "The General Account - Fixed Account".
LOAN ACCOUNT
Amounts borrowed from the Policy are transferred to the Loan Account. Amounts in
the Loan Account do not vary with the investment performance of any sub-account.
Instead, these amounts are credited with interest at a rate which is equal to
the amount charged on the outstanding Policy Debt less the Loan Spread. For a
detailed description of the Loan Account, see "Policy Loans - Loan Account".
UNITS AND UNIT VALUES
CREDITING AND CANCELING UNITS
Units of a particular sub-account are credited to a Policy when net premiums are
allocated to that sub-account or amounts are transferred to that sub-account.
Units of a sub-account 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 on the Business Day on which the transaction occurs.
The number of units credited with respect to a premium payment will be based on
the applicable unit values for the Business Day on which the premium is received
at the Service Office, except for any premiums received before the Effective
Date. For premiums received before the Effective Date, the values will be
determined on the Effective Date.
Units are valued at the end of each Business Day. When an order involving the
crediting or cancelling 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 on 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 on the next Business Day.
UNIT VALUES
The value of a unit of each sub-account was initially fixed at $10.00. For each
subsequent Business Day the unit value for that sub-account is determined by
multiplying the unit value for the immediately preceding Business Day by the net
investment factor for the that sub-account on such subsequent Business Day.
The net investment factor for a sub-account on 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 as of 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 as of the end of the immediately preceding Business Day after all
policy transactions were made for that day;
The value of a unit may increase, decrease, or remain the same, depending on the
investment performance of a sub-account from one Business Day to the next.
TRANSFERS OF POLICY VALUE
At any time, a policyowner may transfer Policy Value from one sub-account to
another or to the Fixed Account. Transfer requests must be in writing in a
format satisfactory to the Company.
23
<PAGE> 24
The Company reserves the right to impose limitations on transfers, including the
maximum amount that may be transferred. In addition, transfer privileges are
subject to any restrictions that may be imposed by the Trust.
While the Policy is in force, the policyowner may transfer the Policy Value from
any of the Investment Accounts to the Fixed Account without incurring transfer
charges:
(a) within eighteen months after the Issue Date; or
(b) within 60 days of the effective date of a material change in the investment
objectives of any of the sub-accounts or within 60 days of the date of
notification of such change, whichever is later.
Such transfers will not count against the 12 transfers that may be made free of
charge in any Policy Year, as described below.
TRANSFER CHARGES
A policyowner may make up to twelve transfers each Policy Year free of charge.
Additional transfers in each Policy Year may be made at a cost of $25 per
transfer. This charge will be deducted from the Investment Account or the Fixed
Account to which the transfer is being made. All transfer requests received by
the Company on the same Business Day are treated as a single transfer request.
TRANSFERS INVOLVING FIXED ACCOUNT
The maximum amount that may be transferred 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.
TELEPHONE TRANSFERS
Although failure to follow reasonable procedures may result in the Company being
liable for any losses resulting from unauthorized or fraudulent telephone
transfers, Manufacturers Life of America will not be liable for following
instructions communicated by telephone that the Company reasonably believes to
be genuine. The Company will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures shall
consist of confirming that a valid telephone authorization form is on file, tape
recording of all telephone transactions and providing written confirmation
thereof.
DOLLAR COST AVERAGING
The Company will offer policyowners a Dollar Cost Averaging program. Under the
Dollar Cost Averaging program the policyowner will designate an amount which
will be transferred at predetermined intervals from one Investment Account into
any other Investment Account(s) or the Fixed Account. Currently, no charge will
be made for this program. If insufficient funds exist to effect a Dollar Cost
Averaging transfer, the transfer will not be effected and the policyowner will
be so notified.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
ASSET ALLOCATION BALANCER TRANSFERS
Under the Asset Allocation Balancer program the policyowner will designate an
allocation of Policy Value among Investment Accounts. At six-month intervals
beginning six months after the Policy Date, the Company will move amounts among
the Investment Accounts as necessary to maintain the policyowner's chosen
allocation. A change to the policyowner premium allocation instructions will
automatically result in a change in Asset Allocation Balancer instructions so
that the two are identical unless the policyowner either instructs Manulife New
York otherwise or has elected the Dollar Cost Averaging program. Currently,
there is no charge for this program; however, the Company reserves the right to
institute a charge on 90 days' written notice to the policyowner.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
POLICY LOANS
At any time while this Policy is in force, a policyowner may borrow against the
Policy Value of the Policy. The amount of any loan cannot exceed 90% of the
Policy's Net Cash Surrender Value. The Policy serves as the only security for
the loan. Policy loans may have tax consequences, see "Policy Loan Interest" and
"Surrender or Lapse" under the heading "Tax Treatment of Policy Benefits."
LOAN VALUE
The Loan Value is equal to the Policy's Net Cash Surrender Value less the
monthly deductions due to the next Policy Anniversary.
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<PAGE> 25
EFFECT OF POLICY LOAN
A policy loan will have an effect on 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 or increasing in value at the rate of interest credited for amounts
allocated to the Fixed Account. 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 "Lapse and Reinstatement." In addition, a policy
loan may result in a Policy's failing to satisfy the No-Lapse Guarantee
Cumulative Premium Test since the Policy Debt is subtracted from the sum of the
premiums paid in determining whether this test is satisfied. Finally, a policy
loan will affect the amount payable on the death of the last-to-die of the Lives
Insured, since the death benefit is reduced by the Policy Debt at the date of
death in arriving at the insurance benefit.
INTEREST CHARGED ON POLICY LOANS
Interest on the Policy Debt will accrue daily and be payable annually on the
Policy Anniversary. The rate of interest charged will be an effective annual
rate of 5.25%. If the interest due on a Policy Anniversary is not paid by the
policyowner, the interest will be borrowed against the Policy.
The Policy will go into default at any time the Policy Debt exceeds the Policy
Value. At least 61 days prior to termination, the Company will send the
policyowner a notice of the pending termination. Payment of interest on the
Policy Debt during the 61 day grace period will bring the policy out of default.
LOAN ACCOUNT
When a loan is made, an amount equal to the loan will be deducted from the
Investment Accounts or the Fixed Account and transferred to the Loan Account.
The policyowner 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, the amount to be transferred will be allocated
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.
INTEREST CREDITED TO THE LOAN ACCOUNT
Interest will be credited to amounts in the Loan Account at an effective annual
rate of at least 4.00%. The actual rate credited is equal to the rate of
interest charged on the policy loan less the Loan Interest Credited
Differential, which is currently 1.25% and guaranteed not to exceed this
percentage. We may change the differential as of 90 days after we send you
written notice of such change.
LOAN REPAYMENTS
Policy Debt may be repaid in whole or in part at any time prior to the death of
the last-to-die of the Lives Insured, provided that the Policy is in force. When
a repayment is made, the amount is credited to the Loan Account and transferred
to the Fixed Account or the Investment Accounts. Loan repayments will be
allocated first to the Fixed Account, until the value that was transferred from
it is fully restored, and then to each Investment Account in the same proportion
that the value that was transferred from it bears to the value of the Loan
Account.
Amounts paid to the Company not specifically designated in writing as loan
repayments will be treated as premiums.
POLICY SURRENDER AND PARTIAL WITHDRAWALS
POLICY SURRENDER
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the Life Insured is living. The Net Cash Surrender Value is equal to the Policy
Value less any surrender charges and outstanding monthly deductions due (the
"Cash Surrender Value") minus the Policy Debt. If there have been any prior Face
Amount increases, the Surrender Charge will be the sum of the Surrender Charge
for the Initial Face Amount plus the Surrender Charge for each increase. The Net
Cash Surrender Value will be determined as of the end of the Business Day on
which Manulife New York receives the Policy and a written request for surrender
at its Service Office. After a Policy is surrendered, the insurance coverage and
all other benefits under the Policy will terminate.
PARTIAL WITHDRAWALS
A policyowner may make a partial withdrawal of the Net Cash Surrender Value once
each Policy Month after the first Policy Anniversary. The policyowner may
specify the portion of the withdrawal to be taken from each Investment Account
and the Fixed Account. In the absence of instructions, the withdrawal will be
allocated among such accounts in the same proportion as the Policy Value in each
account bears to the Net Policy Value. For information on Surrender Charges on a
Partial Withdrawal see "Charges and Deductions - Surrender Charges."
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<PAGE> 26
REDUCTION IN FACE AMOUNT DUE TO A PARTIAL WITHDRAWAL
If Death Benefit Option 1 is in effect when a partial withdrawal is made, the
Face Amount of the Policy will be reduced by the amount of the withdrawal plus
any applicable Surrender Charges.
If the death benefit is based upon the Policy Value times the minimum death
benefit percentage set forth under "Death Benefit - Minimum Death Benefit," the
Face Amount will be reduced only to the extent that the amount of the withdrawal
plus the portion of the Surrender Charge assessed exceeds the difference between
the death benefit and the Face Amount. 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.
LAPSE AND REINSTATEMENT
LAPSE
Unless the No-Lapse Guarantee is in effect, a Policy will go into default if at
the beginning of any Policy Month the Policy's Net Cash Surrender Value would be
zero or below after deducting the monthly deduction then due. Therefore, a
Policy could lapse eventually if increases in Policy Value (prior to deduction
of Policy charges) are not sufficient to cover Policy charges. A lapse could
have adverse tax consequences as described under "Tax Treatment of the Policy -
Tax Treatment of Policy Benefits - Surrender or Lapse." Manulife New York will
notify the policyowner of the default and will allow a 61 day grace period in
which the policyowner may make a premium payment sufficient to bring the Policy
out of default. The required payment will be equal to the amount necessary to
bring the Net Cash Surrender Value to zero, if it was less than zero on the date
of default, plus the monthly deductions due at the date of default and payable
at the beginning of each of the two Policy Months thereafter, plus any
applicable premium load. If the required payment is not received by the end of
the grace period, the Policy will terminate with no value.
NO-LAPSE GUARANTEE
As long as the No-Lapse Guarantee Cumulative Premium Test is satisfied during
the No-Lapse Guarantee Period, as described below, the Company will guarantee
that the Policy will not go into default, even if adverse investment experience
or 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 Monthly No-Lapse Guarantee Premium is one-twelfth of the No-Lapse Guarantee
Premium.
The No-Lapse Guarantee Premium is set at issue and reflects any Additional
Rating and Supplementary Benefits, if applicable. It is subject to change if the
face amount of the Policy is changed, if there is a Death Benefit Option change,
or if there is any change in the supplementary benefits added to the Policy or
in the risk classification of any Lives Insured because of a change in smoking
status.
The No-Lapse Guarantee Period is set at issue and will vary by issue age, as set
forth in the Policy.
While the No-Lapse Guarantee is in effect, the Company will determine at the
beginning of the Policy Month that your policy would otherwise be in default,
whether the No-Lapse Guarantee Cumulative Premium Test, described below, has
been met. If it has not been satisfied, the Company will notify the policyowner
of that fact and allow a 61-day grace period in which the policyowner may make a
premium payment sufficient to keep the policy from going into default. This
required payment, as described in the notification to the policyowner, will be
equal to the lesser of:
(i) the outstanding premium requirement to satisfy the No-Lapse Guarantee
Cumulative Premium Test at the date of default, plus the Monthly
No-Lapse Guarantee Premium due for the next two Policy Months, or
(ii) the amount necessary to bring the Net Cash Surrender Value to zero plus
the monthly deductions due, plus the next two monthly deductions plus
the applicable premium load.
If the required payment is not received by the end of the grace period, the
No-Lapse Guarantee and the Policy will terminate.
NO-LAPSE GUARANTEE CUMULATIVE PREMIUM TEST
The No-Lapse Guarantee Cumulative Premium Test is satisfied if, as of the
beginning of the Policy Month that your policy would otherwise be in default,
the sum of all premiums paid to date less any gross withdrawals and less any
policy debt, is at least equal to the sum of the Monthly No-Lapse Guarantee
Premiums due from the Policy Date to the date of the test.
DEATH DURING GRACE PERIOD
If the Life Insured should die during the grace period, 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 will be reduced by any outstanding Monthly
Deductions due at the time of death.
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REINSTATEMENT
A policyowner can reinstate a Policy which has terminated after going into
default at any time within 21 days following the date of termination without
furnishing evidence of insurability, subject to the following conditions:
(a) All Lives Insured's risk classifications are standard or preferred, and
(b) All Lives Insured's Attained Ages are less than 46.
A policyowner 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) Evidence of all Lives Insured's insurability, or on the survivor(s) who
were insured at the end of the grace period, satisfactory to the Company is
provided to the Company;
(b) A premium equal to the amount that was required to bring the Policy out of
default immediately prior to termination, plus the next two monthly
deductions;
(c) The Policy cannot be reinstated if any of the Lives Insured die after the
Policy has terminated.
If the reinstatement is approved, the date of reinstatement will be the later of
the date the Company approves the policyowner's request or the date the required
payment is received at the Company's Service Office. In addition, any surrender
charges will be reinstated to the amount they were at the date of default. The
Policy Value on the date of reinstatement, prior to the crediting of any Net
Premium paid on the reinstatement, will be equal to the Policy Value on the date
the Policy terminated.
THE GENERAL ACCOUNT
The general account of Manulife New York consists of all assets owned by the
Company other than those in the Separate Account and other separate accounts of
the Company. Subject to applicable law, Manulife New York has sole discretion
over the investment of the assets of the general account.
By virtue of exclusionary provisions, interests in the general account of
Manulife New York have not been registered under the Securities Act of 1933 and
the general account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the general account nor any
interests therein are subject to the provisions of these acts, and as a result
the staff of the S.E.C. 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.
FIXED ACCOUNT
A policyowner may elect to allocate net premiums to the Fixed Account or to
transfer all or a portion of the Policy Value to the Fixed Account from the
Investment Accounts. Manulife New York will hold the reserves required for any
portion of the Policy Value allocated to the Fixed Account in its general
account. Transfers from the Fixed Account to the Investment Accounts are subject
to restrictions.
POLICY VALUE IN THE FIXED ACCOUNT The Policy Value in the Fixed Account is equal
to:
(a) the portion of the net premiums allocated to it; plus
(b) any amounts transferred to it; plus
(c) interest credited to it; less
(d) any charges deducted from it; less
(e) any partial withdrawals from it; less
(f) any amounts transferred from it.
INTEREST ON THE FIXED ACCOUNT
An allocation of Policy Value to the Fixed Account does not entitle the
policyowner to share in the investment experience of the general account.
Instead, Manulife New York guarantees that the 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 the general account. Consequently,
if a policyowner pays the planned premiums, allocates all net premiums only to
the general account and makes no transfers, partial withdrawals, or policy
loans, the minimum amount and duration of the death benefit of the Policy will
be determinable and guaranteed.
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OTHER PROVISIONS OF THE POLICY
POLICYOWNER RIGHTS
Unless otherwise restricted by a separate agreement, the policyowner may:
- Vary the premiums paid under the Policy.
- Change the death benefit option.
- Change the premium allocation for future premiums.
- Transfer amounts between sub-accounts.
- Take loans and/or partial withdrawals.
- Surrender the contract.
- Transfer ownership to a new owner.
- Name a contingent owner that will automatically become owner if the
policyowner dies before the insured. o Change or revoke a contingent owner.
- Change or revoke a beneficiary.
ASSIGNMENT OF RIGHTS
Manulife New York will not be bound by an assignment until it receives a copy of
the assignment at its Service Office. Manulife New York assumes no
responsibility for the validity or effects of any assignment.
BENEFICIARY
One or more beneficiaries of the Policy may be appointed by the policyowner by
naming them in the application. Beneficiaries may be appointed in three classes
- primary, secondary, and final. Beneficiaries may also be revocable or
irrevocable. Unless an irrevocable designation has been elected, the beneficiary
may be changed by the policyowner during the Lives Insured lifetime by giving
written notice to Manulife New York in a form satisfactory to the Company. The
change will take effect as of the date such notice is signed. If the Life
Insured dies and there is no surviving beneficiary, the policyowner, or the
policyowner's estate if the policyowner is the Life Insured, will be the
beneficiary. If a beneficiary dies before the seventh day after the death of the
Life Insured, the Company will pay the insurance benefit as if the beneficiary
had died before the Life Insured.
INCONTESTABILITY
Manulife New York will not contest the validity of a Policy after it has been in
force during any Lives Insured's lifetime for two years from the Issue Date. It
will not contest the validity of an increase in Face Amount or the addition of a
Supplementary Benefit, after such increase or addition which requires evidence
of insurability has been in force during the lifetime of the Lives Insured for
two years. If a Policy has been reinstated and been in force during the lifetime
of the Lives Insured for less than two years from the reinstatement date, the
Company can contest any misrepresentation of a fact material to the
reinstatement.
MISSTATEMENT OF AGE OR SEX
If the stated age or sex or both of any of the Lives Insured in the Policy are
incorrect, Manulife New York will change the Face Amount so that the death
benefit will be that which the most recent monthly charge for the cost of
insurance would have purchased for the correct age and sex.
SUICIDE EXCLUSION
If any of the Lives Insured dies by suicide within two years after the Issue
Date, the Policy will terminate and the Company will pay only the premiums paid
less any partial Net Cash Surrender Value withdrawal and less any Policy Debt.
If any of the Lives Insured dies by suicide within two years after the effective
date of an applied for increase in Face Amount, the Company will credit the
amount of any Monthly Deductions taken for the increase and reduce the Face
Amount to what it was prior to the increase. If the last death is by suicide,
the Death Benefit for that increase will be limited to the Monthly Deductions
taken for the increase.
The Company reserve the right to obtain evidence of the manner and cause of
death of the Lives Insured.
SUPPLEMENTARY BENEFITS
Subject to certain requirements, one or more supplementary benefits may be added
to a Policy, including the Estate Preservation Rider which provides additional
term insurance at no extra charge during the first four Policy Years to protect
against application of the "three year contemplation of death" rule and an
option to split the Policy into two individual policies upon divorce, or certain
federal tax law changes without evidence of insurability (the "Policy Split
Option"). More detailed information concerning these
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supplementary benefits may be obtained from an authorized agent of the Company.
The cost of any supplementary benefits will be deducted as part of the monthly
deduction.
CONVERSION PRIVILEGE
The Policy may be converted to a fixed paid-up benefit at any Policy
Anniversary, without evidence of insurability. This conversion privilege is
subject to the following conditions:
(a) no further Monthly Deductions will be taken from the Policy Value after the
date of conversion,
(b) the Investment Account values as well as the Death Benefit, Policy Value
and any other values based on Policy Value will be determined as of the
Business Day on which the Company receives a written request for conversion
of the Policy,
(c) the basis for determining the amount of paid-up life insurance will be the
Commissioners 1980 Standard Ordinary Smoker or Non-Smoker Mortality Table
and an interest rate of 4% per year,
(d) the Policy may not be reinstated after the date of the conversion.
The Company currently imposes no charge with respect to this privilege.
TAX TREATMENT OF THE POLICY
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. Counsel
or other competent tax advisers should be consulted for more complete
information. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "Service"). No representation is made as to the
likelihood of continuation of the present federal income tax laws nor of the
current interpretations by the Service. MANULIFE NEW YORK DOES 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 continuation 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 the tax
consequences, is contemplated, a qualified tax adviser should be consulted for
advice on the tax attributes of the particular arrangement.
LIFE INSURANCE QUALIFICATION
There are several requirements that must be met for a Policy to be considered a
Life Insurance Contract under the Internal Revenue Code, and thereby to enjoy
the tax benefits of such a contract:
1. The Policy must satisfy the definition of life insurance under Section 7702
of the Internal Revenue Code of 1986 (the "Code").
2. The investments of the Separate Account must be "adequately diversified" in
accordance with Section 817(h) of the Code and Treasury Regulations.
3. The Policy must be a valid life insurance contract under applicable state
law.
4. The Policyowner must not possess "incidents of ownership" in the assets of
the Separate Account.
These four items are discussed in detail below.
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal tax purposes. For a Policy to be a life insurance contract, it must
satisfy either the Cash Value Accumulation Test or the Guideline Premium Test.
The Cash Value Accumulation Test requires a minimum death benefit for a given
Policy Value. The Guideline Premium Test also requires a minimum death benefit,
but in addition limits the total premiums that can be paid into a Policy for a
given amount of death benefit.
With respect to a Policy which is issued on the basis of a standard rate class,
the Company believes (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 rate
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.
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The Secretary of the 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 a Policy would not provide the tax advantages normally provided by a
life insurance policy.
If it is subsequently determined that a Policy does not satisfy Section 7702,
the Company may take whatever steps are appropriate and reasonable to attempt to
cause such a Policy to comply with Section 7702. For these reasons, the Company
reserves the right to restrict Policy transactions as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
DIVERSIFICATION
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. The Company
believes that the Separate Account will thus meet the diversification
requirement, and the Company will monitor continued compliance with the
requirement.
STATE LAW
State regulations require that the policyowner have appropriate insurable
interest in the Life Insured. Failure to establish an insurable interest may
result in the Policy not qualifying as a life insurance contract for federal tax
purposes.
INVESTOR CONTROL
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". As of the date of this prospectus, no such guidance has been
issued.
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
policyowner has additional flexibility in allocating premium payments and Policy
Values. 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, the
Company does 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. The Company therefore reserves 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.
TAX TREATMENT OF POLICY BENEFITS
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes. The Company believes 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.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's death benefit option, a Policy loan, partial withdrawal, 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.
DEATH BENEFIT
The death benefit under the Policy should be excludible from the gross income of
the beneficiary under Section 101(a)(1) of the Code.
CASH VALUES
Generally, the policyowner will not be deemed to be in constructive receipt of
the Policy Value until there is a distribution. This includes additions
attributable to interest, dividends, appreciation or gains realized on transfers
among sub-accounts.
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INVESTMENT IN THE POLICY
Investment in the Policy means:
(a) the aggregate amount of any premiums or other consideration paid for a
Policy; minus
(b) the aggregate amount, other than loan amounts, received under the Policy
which has been excluded from the 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
(c) 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.
The repayment of a policy loan, or the payment of interest on a loan, does not
affect the Investment in the Policy.
SURRENDER OR LAPSE
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 Policy Debt
exceeds the total investment in the Policy, the excess will generally be treated
as ordinary income subject to tax.
If, at the time of lapse, a Policy has a loan, the loan is extinguished and the
amount of the loan is a deemed payment to the policyholder. If the amount of
this deemed payment exceeds the investment in the contract, the excess is
taxable income and is subject to Internal Revenue Service reporting
requirements."
DISTRIBUTIONS
The tax consequences of distributions from, and loans taken from or secured by,
a Policy depend on whether the Policy is classified as a "Modified Endowment
Contract" or "MEC".
DISTRIBUTIONS FROM NON-MEC'S
A distribution from a non-MEC is generally treated as a tax-free recovery by the
policyowner of the Investment in the Policy 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. Loans from, or secured by, a
non-MEC are not treated as distributions. Instead, such loans are treated as
indebtedness of the policyowner.
Force Outs
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 to
comply 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. Changes include partial
withdrawals and death benefit option changes.
DISTRIBUTIONS FROM MEC'S
Policies classified as MEC's will be subject to the following tax rules:
(a) 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 at such time.
(b) 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.
(c) Third, a 10% additional income tax is imposed on the portion of any
distribution (including distributions on surrender) from, or loan taken
from or secured by, such a policy that is included in income except where
the distribution or loan:
(i) is made on or after the policyowner attains age 59 1/2;
(ii) is attributable to the policyowner becoming disabled; or
(iii) 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.
These exceptions are not likely to apply in situations where the Policy is not
owned by an individual.
Definition of 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.
In general, a Policy will be a Modified Endowment Contract if the accumulated
premiums paid at any time during the first seven Policy Years exceed the
"seven-pay premium limit". The seven-pay premium limit on any date is equal to
the sum of the net level
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premiums that would have been paid on or before such date if the policy provided
for paid-up future benefits after the payment of seven level annual premiums
(the "seven-pay premium").
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, a current or prospective policyowner should consult with a
competent adviser to determine whether a transaction will cause the Policy to be
treated as a MEC.
Material Changes
A policy that is not a MEC may become a MEC if it is "materially changed". If
there is a material change to the policy, the seven year testing period for MEC
status is restarted. The material change rules for determining whether a Policy
is a MEC are complex. In general, however, the determination of whether a Policy
will be a MEC after a material change generally depends upon the relationship
among the death benefit of the Policy at the time of such change, the Policy
Value at the time of the change, and the additional premiums paid into the
Policy during the seven years starting with the date on which the material
change occurs.
Reductions in Face Amount
If there is a reduction in benefits during any Policy Year, the seven-pay
premium limit is recalculated as if the policy had been originally issued at the
reduced benefit level. Failure to comply would result in classification as a MEC
regardless of any efforts by the Company to provide a payment schedule that will
not violate the seven pay test.
Exchanges
A life insurance contract received in exchange for a MEC will also be treated as
a MEC.
Processing of Premiums
If a premium is received which would cause the Policy to become a MEC within 23
days of the next Policy Anniversary, the Company 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 the Policy to become a MEC more than
23 days prior to the next Policy Anniversary, the Company will refund any excess
premium to the policyowner. The portion of the premium which is not excess will
be applied as of the date received. The policyowner will be advised of this
action and will be offered the opportunity to return the premium and have it
credited to the account as of the original date received.
Multiple Policies
All MEC's that are issued by a Company (or its affiliates) to the same
policyowner during any calendar year are treated as one MEC for purposes of
determining the amount includible in gross income under Section 72(e) of the
Code.
Policy Split Options
This option permits a Policy to be split into two other individual Policies upon
the occurrence of a divorce of the lives insured or certain changes in federal
estate tax law. The purchase and exercise of the policy split option could have
adverse tax consequences. For example, it is not clear whether a policy split
will be treated as a nontaxable exchange under Sections 1031 through 1043 of the
Code. If a policy split is not treated as a nontaxable exchange, a split could
result in the recognition of taxable income in an amount up to any gain in the
Policy at the time of the split. It is also not clear whether the cost of the
policy split option, which is deducted monthly from Policy Value, will be
treated as a taxable distribution. Before purchasing the policy split option or
exercising rights provided by the policy split option, please consult with a
competent tax adviser regarding the possible consequences.
POLICY LOAN INTEREST
Generally, personal interest paid on any loan under a Policy which is owned by
an individual is not deductible. For policies purchased on or after January 1,
1996, 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 exceed $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
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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 bear to the average adjusted bases for all assets of the taxpayer.
If the taxpayer is not the Policyowner, but is the direct or indirect
beneficiary under the Policy, then the amount of unborrowed cash value of the
Policy taken into account in computing the portion of the taxpayer's interest
expense allocable to unborrowed Policy cash values cannot exceed the benefit to
which the taxpayer is directly or indirectly entitled under the Policy.
POLICY EXCHANGES
A policyowner generally will not recognize gain upon the exchange of a Policy
for another life insurance policy issued by the Company or another insurance
company, except to the extent that the policyowner receives cash in the exchange
or is relieved of Policy indebtedness as a result of the exchange. In no event
will the gain recognized exceed the amount by which the Policy Value (including
any unpaid loans) exceeds the policyowner's Investment in the Policy.
OTHER TRANSACTIONS
A transfer of the Policy, a change in the owner, a change in the beneficiary,
and certain other changes to the Policy, as well as particular uses of the
Policy (including use in a so called "split-dollar" arrangement) may have tax
consequences depending upon the particular circumstances and should not be
undertaken prior to consulting with a qualified tax adviser. For instance, if
the owner transfers the Policy or designates a new owner in return for valuable
consideration (or, in some cases, if the transferor is relieved of a liability
as a result of the transfer), then the Death Benefit payable upon the death of
the Insured may in certain circumstances be includible in taxable income to the
extent that the Death Benefit exceeds the prior consideration paid for the
transfer and any premiums or other amounts subsequently paid by the transferee.
Further, in such a case, if the consideration received exceeds the transferor's
Investment in the Policy, the difference will be taxed to the transferor as
ordinary income.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the individual
circumstances of each policyowner and beneficiary.
ALTERNATE MINIMUM TAX
Corporate owners may be subject to Alternate Minimum Tax on the annual increases
in Cash Surrender Values and on the Death Benefit proceeds.
INCOME TAX REPORTING
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following:
(a) the value each year of the life insurance protection provided;
(b) an amount equal to any employer-paid premiums; or
(c) some or all of the amount by which the current value exceeds the employer's
interest in the Policy.
Participants should consult with their tax adviser to determine the tax
consequences of these arrangements.
OTHER INFORMATION
PAYMENT OF PROCEEDS
As long as the Policy is in force, Manulife New York will ordinarily pay any
policy loans, surrenders, partial withdrawals or insurance benefit within seven
days after receipt at its Service Office of all the documents required for such
a payment. The Company may delay for up to six months the payment from the Fixed
Account of any policy loans, surrenders, partial withdrawals, or insurance
benefit. In the case of any such payments from any Investment Account, the
Company may delay payment during any period during which (i) the New York Stock
Exchange is closed for trading (except for normal weekend and holiday closings),
(ii) trading on the New York Stock Exchange is restricted, (iii) an emergency
exists as a result of which disposal of securities held in the Separate Account
is not reasonably practicable or it is not reasonably practicable to determine
the value of the Separate Account's net assets or (iv) the SEC, by order, so
permits for the protection of security holders; provided that applicable rules
and regulations of the SEC shall govern as to whether the conditions described
in (ii) and (iii) exist.
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REPORTS TO POLICYOWNERS
Within 30 days after each Policy Anniversary, Manulife New York will send the
policyowner a statement showing, among other things:
- the amount of 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;
- the Policy Debt and any loan interest charged since the last report;
- the premiums paid and other Policy transactions made during the period
since the last report; and
- any other information required by law.
Each policyowner 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.
DISTRIBUTION OF THE POLICIES
MSS, a Delaware limited liability company organized on October 1, 1997, whose
principal offices are located at 73 Tremont Street, Boston, Massachusetts 02108,
will act as the principal underwriter of, and continuously offer, the Policies
pursuant to an Underwriting and Distribution Agreement with Manulife New York.
MSS is a subsidiary of Manulife North America, the ultimate parent of which is
Manulife Financial Corporation, a Canadian mutual holding company (as defined in
the beginning of the document). 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 an insurance agent of
Manulife New York. MSS is a Delaware limited liability company, the managing
member of which is Manulife North America. Manulife North America in its
capacity as managing member is authorized to act on behalf of MSS. 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 Manulife New York.
A registered representative will receive commissions not to exceed 105% of
premiums in the first year, 2% of all premiums paid in the second year and
after, and after the second anniversary 0.15% of the Policy Value per year.
Representatives who meet certain productivity standards with regard to the sale
of the Policies and certain other policies issued by Manulife New York or
Manufacturers Life will be eligible for additional compensation.
RESPONSIBILITIES OF MANUFACTURERS LIFE
Manulife New York has 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. Manulife New
York will prepare and maintain all books and records required to be prepared and
maintained by MSS with respect to the Policies and such other policies, and send
all confirmations required to be sent by MSS with respect to the Policies and
such other policies. Manulife New York will pay MSS for expenses incurred and
services performed by MSS under the terms of the agreement in such amounts and
at such times as agreed to by the parties.
Manufacturers Life has also entered into a Service Agreement with Manulife New
York pursuant to which Manufacturers Life or its designee will provide to
Manulife New York all issue, administrative, general services and recordkeeping
functions on behalf of Manulife New York with respect to all of its insurance
policies including the Policies.
VOTING RIGHTS
As stated previously, all of the assets held in the sub-accounts of the Separate
Account will be invested in shares of a particular Portfolio of the Trust.
Manulife New York is the legal owner of those shares and as such has the right
to vote upon certain 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, Manulife New York
will vote shares held in the sub-accounts in accordance with instructions
received from policyowners having an interest in such sub-accounts. Shares held
in each sub-account for which no timely instructions from policyowners are
received, including shares not attributable to the Policies, will be voted by
Manulife New York 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 Manulife New York to vote shares held in
the Separate Account in its own right, it 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. The number will be determined as of a date chosen by
Manulife New York, 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 meeting.
Manulife New York may, if required by state 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
34
<PAGE> 35
disapprove an investment management contract. In addition, the Company itself
may disregard voting instructions that would require changes in the investment
policies or investment adviser, provided that Manulife New York reasonably
disapproves such changes in accordance with applicable federal regulations. If
Manulife New York does disregard voting instructions, it will advise
policyowners of that action and its reasons for such action in the next
communication to policyowners.
SUBSTITUTION OF PORTFOLIO SHARES
It is possible that in the judgment of the management of Manulife New York, 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 regulation, because the shares are no longer available for investment,
or for some other reason. In that event, Manulife New York 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 S.E.C. and the New York State
insurance department may be required.
Manulife New York also reserves the right (i) to combine other separate accounts
with the Separate Account, (ii) to create new separate accounts, (iii) to
establish additional sub-accounts within the Separate Account to invest in
additional portfolios of the Trust or another management investment company,
(iv) to eliminate existing sub-accounts and to stop accepting new allocations
and transfers into the corresponding portfolio, (v) to combine sub-accounts or
to transfer assets in one sub-account to another sub-account or (vi) to transfer
assets from the Separate Account to another separate account and from another
separate account to the Separate Account. The Company also reserves the right to
operate the Separate Account as a management investment company or other form
permitted by law, and to de-register the Separate Account under the 1940 Act.
Any such change would be made only if permissible under applicable federal and
state law.
RECORDS AND ACCOUNTS
The Service Office will perform administrative functions, such as decreases,
increases, surrenders and partial withdrawals, and fund transfers on behalf of
the Company.
All records and accounts relating to the Separate Account and the Portfolios
will be maintained by the Company. All financial transactions will be handled by
the Company. All reports required to be made and information required to be
given will be provided by the Company.
STATE REGULATIONS
Manulife New York is subject to the regulation and supervision by the New York
Department of Insurance, which periodically examines its financial condition and
operations. It is also subject to the insurance laws and regulations of all
jurisdictions in which it is authorized to do business. The Policies have been
filed with insurance officials, and meet all standards set by law, in each
jurisdiction where they are sold.
Manulife New York is required to submit annual statements of its operations,
including financial statements, to the insurance departments of the various
jurisdictions in which it does business for the purposes of determining solvency
and compliance with local insurance laws and regulations.
LITIGATION
No litigation is pending that would have a material effect upon the Separate
Account or the Trust.
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 Separate Account B of the Manufacturers
Life Insurance Company of New York for the period August 26, 1999 to December
31, 1999, appearing in this 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.
FURTHER INFORMATION
A registration statement under the Securities Act of 1933 has been filed with
the S.E.C. relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. The omitted information may be obtained from the SEC's principal
office in Washington D.C. upon payment of the prescribed fee. The Commission
also maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission which is located at http://www.sec.gov.
For further information you may also contact Manulife New York's Home Office,
the address and telephone number of which are on the first page of the
prospectus.
35
<PAGE> 36
DIRECTORS AND OFFICERS
Our Directors and Officers, together with their principal occupations during the
past five years, are as follows:
<TABLE>
<CAPTION>
Name, Age and Principal Position with the
Business Address Company Principal Occupation
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bruce Avedon Director* Director, Manulife New York, March 1992 to present; Consultant (self-employed)
Age: 71 September 1983 to present.
6601 Hitching Post Lane
Cincinnati, OH 45230
Thomas Borshoff Director* Director, Manulife New York, February 1999 to present; Self-employed, Real
Age: 53 Estate Owner/Manager; Chief Executive Officer and Chairman, First Federal
3 Robin Drive Savings and Loan of Rochester, 1983 to 1997.
Rochester, NY 14618
James R. Boyle Director* Director, Manulife New York, August 1999 to present; Senior Vice President, U.S.
Age: 40 Annuities, Manulife Financial, July 1999 to present; President, Manulife North
500 Boylston Street America, July 1999 to present; Treasurer, Manufacturers Investment Trust, June
Boston, MA 02116 1998 to present; Vice President, Institutional Markets, Manulife Financial, May
1998 to July 1999; Vice President, Administration and Chief Administrative
Officer, Manulife North America, September 1996 to May 1998; Vice President,
Chief Financial Officer and Chief Administrative Officer, Manulife North
America, August 1994 to September 1996.
Robert A. Cook Director* Director, ManEquity, Inc., April 1999 to present; Director, Manulife New York,
Age: 45 February 1999 to present; Senior Vice President, U.S. Insurance, Manulife
73 Tremont Street Financial, January 1999 to present; Vice President, U.S. Insurance, Manulife
Boston, MA 02108 Financial, 1995 to December 1998.
John D. DesPrez III Director* and Executive Vice President, U.S. Operations, Manulife Financial, January 1999 to
Age: 43 Chairman of the present; Director, Manulife Wood Logan, October 1996 to present; Director,
73 Tremont Street Board of Directors September 1996 to present and Chairman of the Board, January 1999 to present, of
Boston, MA 02108 Manulife North America; President, Manulife North America, September 1996 to
December 1998; President, MIT September 1996 to present; Senior Vice President,
U.S. Annuities, Manulife Financial, September 1996 to December 1998; Vice
President, Mutual Funds, Manulife Financial, January 1995 to September 1996;
Director, MWL, December 1995 to present; Director, Wood Logan Distributors,
March 1993 to present; President, North American Funds, March 1993 to September
1996; Director, Manulife New York, March 1992 to present;
Ruth Ann Fleming Director* Director, Manulife New York, March 1992 to present; Attorney, consulting
Age: 41 services and pro bono activities.
205 Highland Avenue
Short Hills, NJ 07078
James D. Gallagher Director* and Director and President, Manulife New York, August 1999 to present; Director,
Age: 45 President Secretary and General Counsel, The Manufacturers Life Insurance Company of
73 Tremont Street America, May 1996 to present; Vice President, U.S. Law & Government Relations,
Boston, MA 02108 U.S. Operations, Manulife Financial, January 1996 to present; Secretary and
General Counsel, MWL, January 1996 to present; Vice President, Secretary and
General Counsel, Manulife North America, June 1994 to present; Secretary,
Manufacturers Investment Trust, June 1994 to present.
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
Name, Age and Principal Position with the
Business Address Company Principal Occupation
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
David W. Libbey Treasurer Vice President, Treasurer and Chief Financial Officer, Manulife North America,
Age: 53 December 1997 to present; Treasurer, Manulife New York, November 1997 to
500 Boylston Street present; Vice President, Finance, Manulife North America, June 1997 to December
Boston, MA 02116 1997; Vice President, Finance, Annuities, Manulife Financial, June 1997 to
present; Vice President & Actuary, Paul Revere Insurance Group, June 1970 to
March 1997
.
Neil M. Merkl, Esq. Director* Director, Manulife New York, December 1995 to present; Attorney
Age: 69 (self-employed), April 1994 to present; Attorney, Wilson Elser, 1979 to 1994.
35-35 161st Street
Flushing, NY 11358
James P. O'Malley Director* Senior Vice President, U.S. Pensions, Manulife Financial, January 1999 to
Age:54 present; Director, Manulife New York, November 1998 to present; Director,
200 Bloor Street East ManAmerica, November 1998 to present; Vice President, Systems New Business
Toronto, Ontario Pensions, Manulife Financial, 1984 to December 1998.
Canada M4W 1E5
James K. Robinson Director* Director, Manulife New York, March 1992 to present; Retired; Attorney and
Age:73 Assistant Secretary, Eastman Kodak Company, 1958 to 1991.
7 Summit Drive
Rochester, NY 14620
Gretchen Swanz Secretary and Secretary and Counsel, Manulife New York, February 2000 to present; Counsel,
Age: 31 Counsel Manulife Financial, February 1999 to present.
73 Tremont Street
Boston, MA 02108
John G. Vrysen Vice President Chief Financial Officer and Treasurer, MWL, January 1996 to present; Vice
Age: 44 and Chief Actuary President and Chief Financial Officer, U.S. Operations, Manulife Financial,
73 Tremont Street January 1996 to present; Appointed Actuary, ManAmerica, May 1996 to present;
Boston, MA 02108 Director, MWL, December 1995 to present; Vice President and Chief Actuary,
Manulife New York, March 1992 to present; Director, Manulife New York, March
1992 to February 1998; Vice President and Chief Actuary, Manulife North America,
January 1986 to present.
</TABLE>
*Each Director is elected to serve until the next annual meeting of shareholders
or until his or her successor is elected and qualified.
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.
ILLUSTRATIONS
The tables set forth in Appendix A illustrate the way in which a Policy's Death
Benefit, Policy Value, and Cash Surrender Value could vary over an extended
period of time.
37
<PAGE> 38
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38
<PAGE> 39
APPENDIX A - SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND
DEATH BENEFITS
The following tables have been prepared to help show how values under the Policy
change with investment performance. The tables include both Policy Values and
Cash Surrender Values as well as Death Benefits. The Policy Value is the sum of
the values in the Investment Accounts, as the tables assume no values in the
Fixed Account or Loan Account. The Cash Surrender Value is the Policy Value less
any applicable surrender charges. The tables illustrate how Policy Values and
Cash Surrender Values, which reflect all applicable charges and deductions, and
Death Benefits of the Policy on an insured of a given age would vary over time
if the return on the assets of the Portfolio was a uniform, gross, after-tax,
annual rate of 0%, 6% or 12%. The Policy Values, Death Benefits and Cash
Surrender Values would be different from those shown if the returns averaged 0%,
6% or 12%, but fluctuated over and under those averages throughout the years.
The charges reflected in the tables include those for: deferred underwriting and
sales charges, and monthly deductions for administration, cost of insurance and
mortality and expense risks.
The amounts shown for the Policy Value, Death Benefit and Cash Surrender Value
as of each policy year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because the expenses and fees borne by the Portfolios are deducted from the
gross return. The illustrations reflect an average of the Trusts' expenses,
which is approximately 0.945% on an annual basis. The gross annual rates of
return of 0%, 6% and 12% correspond to approximate net annual rates of return of
-0.941%, 5.003% and 10.947%. The illustrations reflect the expense reimbursement
in effect for the Lifestyle Trusts and for the Index Trusts. In the absence of
such expense reimbursement and expense limitation, the average of the Portfolios
current expenses would have been 0.950% 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 -0.946%, 4.998 % and 10.941%. The expense reimbursements for the
Lifestyle Trusts remained in effect during the fiscal year ended December 31,
1999 and is expected to remain in effect during the fiscal year ended December
31, 2000. Were the expense reimbursement and expense limitation to terminate,
the average of the Portfolios' current expenses would be higher and the
approximate net annual rates of return would be lower.
The tables assume that no premiums have been allocated to the Fixed Account,
that planned premiums are paid on the policy anniversary and that no transfers,
partial withdrawals, policy loans, changes in death benefit options or changes
in face amount have been made. The tables reflect the fact that no charges for
Federal, state or local taxes are currently made against the Separate Account.
If such a charge is made in the future, it would take a higher gross rate of
return to produce after-tax returns of 0%, 6% and 12% than it does now.
There are two tables shown for each 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> 40
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,500 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 7,875 5,972 231 500,000 6,354 613 500,000 6,736 996 500,000
2 16,144 12,341 7,033 500,000 13,490 8,181 500,000 14,684 9,376 500,000
3 24,826 18,564 13,626 500,000 20,885 15,947 500,000 23,393 18,455 500,000
4 33,942 24,656 20,150 500,000 28,567 24,061 500,000 32,958 28,452 500,000
5 43,514 30,610 26,537 500,000 36,537 32,463 500,000 43,454 39,380 500,000
6 53,565 36,430 32,727 500,000 44,809 41,105 500,000 54,978 51,274 500,000
7 64,118 42,116 38,844 500,000 53,394 50,123 500,000 67,634 64,362 500,000
8 75,199 47,673 44,834 500,000 62,309 59,470 500,000 81,541 78,701 500,000
9 86,834 53,116 50,647 500,000 71,583 69,114 500,000 96,840 94,371 500,000
10 99,051 58,457 56,420 500,000 81,239 79,202 500,000 113,683 111,646 500,000
15 169,931 82,843 82,843 500,000 135,035 135,035 500,000 226,433 226,433 500,000
20 260,394 102,294 102,294 500,000 198,686 198,686 500,000 408,191 408,191 500,000
25 375,851 115,564 115,564 500,000 277,677 277,677 500,000 715,686 715,686 765,784
30 523,206 113,577 113,577 500,000 372,227 372,227 500,000 1,220,495 1,220,495 1,281,520
35 711,272 78,715 78,715 500,000 493,085 493,085 517,739 2,041,137 2,041,137 2,143,194
40 951,298 0 (4) 0 (4) 0 (4) 645,945 645,945 678,242 3,360,628 3,360,628 3,528,659
45 1,257,639 835,248 835,248 843,600 5,508,678 5,508,678 5,563,765
50 1,648,615 1,083,345 1,083,345 1,083,345 9,124,007 9,124,007 9,124,007
</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.
(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> 41
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,500 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 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 7,875 5,972 231 500,000 6,354 613 500,000 6,736 996 500,000
2 16,144 12,341 7,033 500,000 13,490 8,181 500,000 14,684 9,376 500,000
3 24,826 18,559 13,621 500,000 20,881 15,943 500,000 23,389 18,450 500,000
4 33,942 24,617 20,111 500,000 28,527 24,021 500,000 32,917 28,411 500,000
5 43,514 30,508 26,434 500,000 36,430 32,356 500,000 43,342 39,268 500,000
6 53,565 36,221 32,518 500,000 44,587 40,884 500,000 54,743 51,040 500,000
7 64,118 41,745 38,474 500,000 52,996 49,724 500,000 67,207 63,936 500,000
8 75,199 47,067 44,227 500,000 61,652 58,812 500,000 80,830 77,991 500,000
9 86,834 52,171 49,702 500,000 70,550 68,081 500,000 95,718 93,249 500,000
10 99,051 57,040 55,003 500,000 79,683 77,646 500,000 111,986 109,950 500,000
15 169,931 76,823 76,823 500,000 128,243 128,243 500,000 218,998 218,998 500,000
20 260,394 84,136 84,136 500,000 178,487 178,487 500,000 388,366 388,366 500,000
25 375,851 68,184 68,184 500,000 227,938 227,938 500,000 677,631 677,631 725,065
30 523,206 0 (4) 0 (4) 0 (4) 261,145 261,145 500,000 1,149,204 1,149,204 1,206,664
35 711,272 251,142 251,142 500,000 1,897,800 1,897,800 1,992,690
40 951,298 94,337 94,337 500,000 3,055,624 3,055,624 3,208,405
45 1,257,639 0 (4) 0 (4) 0 (4) 4,909,575 4,909,575 4,958,671
50 1,648,615 8,136,644 8,136,644 8,136,644
</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.
(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> 42
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$8,200 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 8,610 6,608 98 506,608 7,028 519 507,028 7,449 939 507,449
2 17,651 13,602 7,582 513,602 14,866 8,846 514,866 16,180 10,160 516,180
3 27,143 20,436 14,836 520,436 22,990 17,391 522,990 25,749 20,149 525,749
4 37,110 27,127 22,017 527,127 31,428 26,318 531,428 36,256 31,146 536,256
5 47,576 33,666 29,047 533,666 40,182 35,562 540,182 47,785 43,165 547,785
6 58,564 40,056 35,856 540,056 49,263 45,063 549,263 60,437 56,237 560,437
7 70,103 46,296 42,587 546,296 58,684 54,974 558,684 74,324 70,614 574,324
8 82,218 52,392 49,172 552,392 68,461 65,241 568,461 89,573 86,354 589,573
9 94,939 58,359 55,559 558,359 78,624 75,824 578,624 106,337 103,538 606,337
10 108,296 64,209 61,899 564,209 89,197 86,887 589,197 124,779 122,469 624,779
15 185,791 90,774 90,774 590,774 147,760 147,760 647,760 247,502 247,502 747,502
20 284,698 111,354 111,354 611,354 215,388 215,388 715,388 441,192 441,192 941,192
25 410,930 123,594 123,594 623,594 293,638 293,638 793,638 756,695 756,695 1,256,695
30 572,038 115,892 115,892 615,892 369,701 369,701 869,701 1,251,725 1,251,725 1,751,725
35 777,658 68,962 68,962 568,962 419,451 419,451 919,451 2,015,651 2,015,651 2,515,651
40 1,040,086 0 (4) 0 (4) 0 (4) 406,671 406,671 906,671 3,188,259 3,188,259 3,688,259
45 1,375,018 282,258 282,258 782,258 4,996,031 4,996,031 5,496,031
50 1,802,486 0 (4) 0 (4) 0 (4) 7,767,828 7,767,828 8,267,828
</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.
(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> 43
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$8,200 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 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 8,610 6,608 98 506,608 7,028 519 507,028 7,449 939 507,449
2 17,651 13,602 7,582 513,602 14,866 8,846 514,866 16,180 10,160 516,180
3 27,143 20,431 14,831 520,431 22,985 17,386 522,985 25,744 20,144 525,744
4 37,110 27,087 21,977 527,087 31,386 26,276 531,386 36,213 31,103 536,213
5 47,576 33,558 28,938 533,558 40,067 35,447 540,067 47,664 43,044 547,664
6 58,564 39,832 35,633 539,832 49,023 44,823 549,023 60,179 55,979 560,179
7 70,103 45,896 42,186 545,896 58,247 54,537 558,247 73,848 70,138 573,848
8 82,218 51,731 48,511 551,731 67,730 64,510 567,730 88,765 85,545 588,765
9 94,939 57,319 54,519 557,319 77,459 74,659 577,459 105,032 102,232 605,032
10 108,296 62,636 60,326 562,636 87,415 85,105 587,415 122,756 120,446 622,756
15 185,791 83,828 83,828 583,828 139,339 139,339 639,339 237,175 237,175 737,175
20 284,698 89,919 89,919 589,919 187,919 187,919 687,919 405,028 405,028 905,028
25 410,930 68,480 68,480 568,480 219,273 219,273 719,273 651,532 651,532 1,151,532
30 572,038 0 (4) 0 (4) 0 (4) 191,257 191,257 691,257 980,882 980,882 1,480,882
35 777,658 39,765 39,765 539,765 1,390,103 1,390,103 1,890,103
40 1,040,086 0 (4) 0 (4) 0 (4) 1,858,324 1,858,324 2,358,324
45 1,375,018 2,329,265 2,329,265 2,829,265
50 1,802,486 2,158,992 2,158,992 2,658,992
</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.
(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> 44
(this page intentionally left blank)
A-6
<PAGE> 45
APPENDIX B: AUDITED FINANCIAL STATEMENTS
B-1
<PAGE> 46
(this page intentionally left blank)
B-2
<PAGE> 47
AUDITED FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE COMPANY OF
NEW YORK
Years ended December 31, 1999, 1998 and 1997
<PAGE> 48
The Manufacturers Life Insurance Company of New York
Audited Financial Statements
Years ended December 31, 1999, 1998 and 1997
CONTENTS
<TABLE>
<S> <C>
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
</TABLE>
<PAGE> 49
Report of Independent Auditors
The Board of Directors and Shareholder
The Manufacturers Life Insurance Company of New York
We have audited the accompanying balance sheets of The Manufacturers Life
Insurance Company of New York, (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.
February 21, 2000
1
<PAGE> 50
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 $1,017,224
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY ($ thousands)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 $1,017,224
====================================================================================================================
</TABLE>
See accompanying notes.
2
<PAGE> 51
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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> 52
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON ADDITIONAL RETAINED COMPREHENSIVE SHAREHOLDER'S
($ thousands) STOCK PAID-IN CAPITAL EARNINGS INCOME (LOSS) EQUITY
-------------------------------------------------------------------------------------------------------------------
<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 (note 4) -- -- 5,738 (3,896) 1,842
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $2,000 $72,706 $8,947 $(2,444) $81,209
===================================================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 53
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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 $410 at December
31, 1999 and 1998, respectively, were on deposit with or in custody
accounts on behalf of New York State Insurance Department to satisfy
regulatory requirements.
11
<PAGE> 60
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
b) INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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:
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 $364 for 1999, 1998 and 1997,
respectively.
12
<PAGE> 61
5. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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>
To date, the DAC balance is primarily attributable to the Annuities
segment.
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>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's net deferred tax
liability are as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($ thousands) 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>
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.
13
<PAGE> 62
6. INCOME TAXES (CONTINUED)
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 $531 in 1998 and 1997, respectively.
7. SHAREHOLDER'S EQUITY
The Company has one class of common stock:
AS AT DECEMBER 31:
<TABLE>
<CAPTION>
($ 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> 63
9. RELATED-PARTY TRANSACTIONS
The Company utilizes various services administered 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> 64
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
16
<PAGE> 65
contribution for post-age 65 coverage, and no contributions are
required for retirees for life insurance coverage. The plan is
unfunded.
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 131,104 126,568 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
17
<PAGE> 66
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.
13. LEASES (CONTINUED)
The minimum lease payments associated with the office space under the
operating lease agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MINIMUM LEASE PAYMENTS
---------- ----------------------
<S> <C>
2000 $ 247
2001 231
2002 235
2003 221
2004 and after 346
------ ------
Total $1,280
===== ======
</TABLE>
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> 67
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> 68
The Manufacturers Life Insurance Company of New York
Separate Account B
Audited Financial Statements
Period from August 26, 1999 to December 31, 1999
CONTENTS
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
<PAGE> 69
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
February 4, 2000
1
<PAGE> 70
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> 71
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> 72
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> 73
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> 74
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
