<PAGE> 1
As filed with the Securities and Exchange Commission on March 17, 1998
Registration No. 333-38081
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM N-4
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1
------------------------------
THE MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA SEPARATE ACCOUNT A
(Exact Name of Registrant as Specified in Charter)
THE MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Name of Depositor)
73 Tremont Street, Suite 1300
Boston, Massachusetts 02108-3915
(Address of Depositor's Principal Executive Offices)
(617) 266-6004
(Depositor's Telephone Number, Including Area Code)
------------------------------
James D. Gallagher, Esq.
Vice President, Secretary and General Counsel
The Manufacturers Life Insurance Company of North America
73 Tremont Street, Suite 1300
Boston, Massachusetts 02108-3915
(Name and Address of Agent for Service)
Copies to:
J. Sumner Jones, Esq.
Jones & Blouch L.L.P.
Suite 405 West
1025 Thomas Jefferson Street, N.W.
Washington, DC 20007
Title of Securities Being Registered: Combination Fixed and Variable Group and
Individual Annuity Contracts.
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
<PAGE> 2
PART A
Information Required in a Prospectus
<PAGE> 3
Annuity Service Office Mailing Address
116 Huntington Avenue Post Office Box 9230
Boston, Massachusetts 02116 Boston, Massachusetts
(617) 266-6008 02205-9230
(800) 344-1029
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA SEPARATE ACCOUNT A
OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
FLEXIBLE PAYMENT DEFERRED COMBINATION
FIXED AND VARIABLE ANNUITY CONTRACTS
NON-PARTICIPATING
This Prospectus describes flexible purchase payment deferred
combination fixed and variable annuity contracts issued by The Manufacturers
Life Insurance Company of North America ("the Company"), a stock life insurance
company, the ultimate parent of which is The Manufacturers Life Insurance
Company ("Manulife").
The Prospectus describes both an individual deferred annuity contract
and a participating interest in a group deferred annuity contract. Both are
designed and offered to provide retirement programs for eligible individuals and
retirement plans. Participation in a group contract will be separately accounted
for by the issuance of a certificate evidencing the owner's interest under the
contract. Ownership of an individual contract is evidenced by the issuance of an
individual annuity contract. An individual contract will usually be issued only
where a group contract may not be used.
The contracts provide for the accumulation of contract values and the
payment of annuity benefits on a variable and/or fixed basis. The contracts
offer thirty-nine investment options: thirty-five variable and four fixed. The
variable portion of the contract value and annuity payments, if selected on a
variable basis will vary according to the investment performance of the
sub-accounts of The Manufacturers Life Insurance Company of North America
Separate Account A (the "Variable Account"). The Variable Account is a separate
account established by the Company. Purchase payments and earnings on those
purchase payments may be allocated to and transferred among one or more of
thirty-five sub-accounts of the Variable Account. The assets of each sub-account
are invested in shares of Manufacturers Investment Trust (the "Trust"), a mutual
fund having an investment portfolio for each sub-account of the Variable Account
(see the accompanying Prospectus of the Trust). Fixed contract values may be
accumulated under one, three, five and seven year fixed account investment
options. Except as specifically noted herein and as set forth under the caption
"FIXED ACCOUNT INVESTMENT OPTIONS" below, this Prospectus describes only the
variable portion of the contract.
Shares of the Trust are not deposits or obligations of, or guaranteed
or endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
Additional information about the variable portion of the contracts and
Variable Account is contained in a Statement of Additional Information, dated
the same date as this Prospectus, which has been filed with the Securities and
Exchange Commission (the "Commission") and is incorporated herein by reference.
The Statement of Additional Information is available without charge upon request
by writing the Company at the above address or telephoning (617) 266-6008. In
addition, the Commission maintains a Web site (http://www.sec.gov) that contains
the Statement of Additional Information, material incorporated by reference, and
other information regarding registrants that file electronically with the
Commission. The table of contents for the Statement of Additional Information is
included on page 38 of this Prospectus.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS INFORMATION ABOUT THE VARIABLE ACCOUNT AND THE VARIABLE PORTION OF THE
CONTRACTS THAT A PROSPECTIVE PURCHASER SHOULD KNOW BEFORE INVESTING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ______, 1998.
<PAGE> 4
TABLE OF CONTENTS
SPECIAL TERMS ......................................................... 3
SUMMARY ............................................................... 5
GENERAL INFORMATION ABOUT THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA, THE MANUFACTURERS LIFE INSURANCE COMPANY OF
NORTH AMERICA SEPARATE ACCOUNT A AND MANUFACTURERS INVESTMENT TRUST ... 10
The Manufacturers Life Insurance Company of North
America ....................................................... 10
The Manufacturers Life Insurance Company of North
America Separate Account A .................................... 11
Manufacturers Investment Trust ................................... 11
DESCRIPTION OF THE CONTRACTS .......................................... 15
ELIGIBLE GROUPS AND INDIVIDUALS .................................... 15
ACCUMULATION PROVISIONS ............................................ 16
Purchase Payments ................................................ 16
Accumulation Units ............................................... 16
Value of Accumulation Units ...................................... 17
Net Investment Factor ............................................ 17
Transfers Among Investment Options ............................... 27
Maximum Number of Investment Options ............................. 18
Telephone Transactions ........................................... 18
Special Transfer Services - Dollar Cost Averaging ................ 18
Asset Rebalancing Program ........................................ 18
Withdrawals ...................................................... 19
Special Withdrawal Services - Income Plan ........................ 19
Loans ............................................................ 20
Death Benefit Before Maturity Date ............................... 20
ANNUITY PROVISIONS ................................................. 21
General .......................................................... 21
Annuity Options .................................................. 22
Determination of Amount of the First Variable
Annuity Payment ............................................... 23
Annuity Units and the Determination of Subsequent
Variable Annuity Payments ..................................... 23
Transfers After Maturity Date .................................... 23
Death Benefit on or After Maturity Date .......................... 24
OTHER CONTRACT PROVISIONS .......................................... 24
Ten Day Right to Review .......................................... 24
Ownership ........................................................ 24
Beneficiary ...................................................... 24
Annuitant ........................................................ 25
Modification ..................................................... 25
Discontinuance of New Owners ..................................... 25
Misstatement and Proof of Age, Sex or Survival ................... 25
FIXED ACCOUNT INVESTMENT OPTIONS ................................... 25
CHARGES AND DEDUCTIONS ................................................ 28
Administration Fees .............................................. 28
Reduction or Elimination of Annual
Administration Fee ............................................ 28
Mortality and Expense Risk Charge ................................ 29
Taxes ............................................................ 29
FEDERAL TAX MATTERS ................................................... 30
INTRODUCTION ........................................................ 30
THE COMPANY'S TAX STATUS ............................................ 30
TAXATION OF ANNUITIES IN GENERAL .................................... 30
Tax Deferral During Accumulation Period .......................... 30
Taxation of Partial and Full Withdrawals ......................... 31
Taxation of Annuity Payments ..................................... 32
Taxation of Death Benefit Proceeds ............................... 32
Penalty Tax on Premature Distributions ........................... 32
Aggregation of Contracts ......................................... 32
Loss of Interest Deduction Where Contracts are
Held by or for the Benefit of Certain
Non-Natural Persons .............................................. 32
QUALIFIED RETIREMENT PLANS .......................................... 33
Qualified Plan Types ............................................. 33
Roth IRAs......................................................... 34
Direct Rollovers ................................................. 35
FEDERAL INCOME TAX WITHHOLDING ...................................... 35
GENERAL MATTERS ....................................................... 35
Tax Deferral ..................................................... 35
Performance Data ................................................. 35
Financial Statements ............................................. 35
Asset Allocation and Timing Services ............................. 35
Restrictions Under the Texas Optional
Retirement Program ............................................... 35
Distribution of Contracts ........................................ 35
Owner Inquiries .................................................. 37
Confirmation Statements .......................................... 37
Legal Proceedings ................................................ 37
Other Information ................................................ 37
Year 2000 Issues ................................................. 37
STATEMENT OF ADDITIONAL INFORMATION-
TABLE OF CONTENTS ................................................... 38
APPENDIX A: STATE PREMIUM TAXES ...................................... 39
APPENDIX B: PENNSYLVANIA MAXIMUM
MATURITY AGE ........................................................ 40
<PAGE> 5
SPECIAL TERMS
The following terms as used in this Prospectus have the indicated
meanings:
Accumulation Unit - A unit of measure that is used to calculate the
value of an owner's variable investment account before the maturity date.
Annuitant - Any natural person or persons whose life is used to
determine the duration of annuity payments involving life contingencies. The
"annuitant" is as designated on the specifications page of the contract or
certificate or in the application, unless changed.
Annuity Option - The method selected by each owner for annuity payments
made by the Company. At the maturity date, the Company will provide an annuity
with payments guaranteed for 10 years and for the lifetime of the annuitant, if
the annuitant lives more than 10 years. This will be the annuity option unless
changed.
Annuity Service Office - The service office of the Company is P.O. Box
9230, Boston, Massachusetts 02205-9230.
Annuity Unit - A unit of measure that is used after the maturity date
to calculate variable annuity payments.
Application - The document signed by each owner that serves as his or
her application for an individual contract or participation under a group
contract.
Beneficiary - The person, persons or entity entitled to the death
benefit under the contract upon the death of an owner or, in certain
circumstances, the annuitant. If there is a surviving owner, that person will be
deemed to be the beneficiary.
Certificate - The document which is issued to and which summarizes the
rights and benefits of the owner of a participating interest in a group
contract.
Contract Anniversary - For an individual contract, the anniversary of
the contract date. For a group contract, the anniversary of the date of issue of
a certificate under the contract.
Contract Application - The document signed by the Group Holder that
evidences the Group Holder's application for a Contract or, where context
requires, the document signed by a prospective owner applying for an individual
contract or a certificate evidencing participation in a group contract.
Contract Date - In the case of an individual contract, the date of
issue of the contract as designated in the contract specifications page. In the
case of a group contract, the effective date of participation under the group
annuity contract as designated in the certificate specifications page.
Contract Value - The total of an owner's investment account values and,
if applicable, any amount in the loan account attributable to that owner.
Contract Year - The period of twelve consecutive months beginning on
the contract date, or any anniversary thereafter.
Contingent Beneficiary - The person, persons or entity to become the
beneficiary if the beneficiary is not alive. The contingent beneficiary is as
specified in the application, unless changed.
Debt - Any amounts in an owner's loan account plus any accrued loan
interest. The loan provision is available only under contracts or certificates
issued in connection with Section 403(b) qualified plans that are not subject to
Title I of ERISA.
Due Proof of Death - Due Proof of Death is required upon the death of
the owner or annuitant, as applicable. One of the following must be received at
the Annuity Service Office within one year of the date of death:
(a) A certified copy of a death certificate;
(b) A certified copy of a decree of a court of competent
jurisdiction as to the finding of death; or
(c) Any other proof satisfactory to us.
Death benefits will be paid within 7 days of receipt of due proof of death and
all required claim forms by the Company's Annuity
2
<PAGE> 6
Service Office.
Fixed Annuity - An annuity option with payments which are predetermined
and guaranteed as to dollar amount.
General Account - All the assets of the Company other than assets in
separate accounts.
Group Holder - The person, persons or entity to whom a group contract
is issued.
Investment Account - An account established by the Company which
represents an owner's interest in an investment option prior to the maturity
date.
Investment Account Value - The value of an owner's investment in an
investment account.
Investment Options - The investment choices available to owners.
Currently, there are thirty-five variable and four fixed investment options
under the contract.
Loan Account - The portion of the general account that is used for
collateral when a loan is taken by an owner.
Market Value Charge - A charge that may be assessed if amounts are
withdrawn or transferred from the three, five or seven year investment options
prior to the end of the interest rate guarantee period.
Maturity Date - The date on which annuity benefits commence. The
maturity date is the date specified in the contract or certificate
specifications page and is generally the first day of the month following the
later of the annuitant's 85th birthday or the tenth contract anniversary, unless
changed.
Net Purchase Payment - The purchase payment paid by or on behalf of an
owner less the amount of premium tax, if any.
Non-Qualified Certificates - Certificates issued under non-qualified
contracts.
Non-Qualified Contracts - Contracts which are not issued under
qualified plans.
Owner - In the case of a group contract, the person, persons or entity
named in a certificate and entitled to all of the ownership rights under the
contract not expressly reserved to the group holder. In the case of an
individual contract, the person, persons or entity named in the contract and
entitled to all of the ownership rights under the contract. The owner is
specified in the application, unless changed.
Portfolio or Trust Portfolio - A separate investment portfolio of the
Trust, a mutual fund in which the Variable Account invests, or of any successor
mutual fund.
Purchase Payment - An amount paid by or on behalf of an owner to the
Company as consideration for the benefits provided by the contract.
Qualified Certificates - Certificates issued under Qualified Contracts.
Qualified Contracts - Contracts issued under qualified plans.
Qualified Plans - Retirement plans which receive favorable tax
treatment under Section 401, 403, 408 or 457 of the Internal Revenue Code of
1986, as amended.
Separate Account - A segregated account of the Company that is not
commingled with the Company's general assets and obligations.
Sub-Account(s) - One or more of the sub-accounts of the Variable
Account. Each sub-account is invested in shares of a different Trust portfolio.
Valuation Date - Any date on which the New York Stock Exchange is open
for business and the net asset value of a Trust portfolio is determined.
3
<PAGE> 7
Valuation Period - Any period from one valuation date to the next,
measured from the time on each such date that the net asset value of each
portfolio is determined.
Variable Account - The Variable Account, which is a separate account of
the Company.
Variable Annuity - An annuity option with payments which: (1) are not
predetermined or guaranteed as to dollar amount, and (2) vary in relation to the
investment experience of one or more specified sub-accounts.
SUMMARY
The Contracts. The flexible purchase payment combination fixed and
variable annuity contracts offered by this Prospectus are a group contract,
including an owner's participating interest in the group contract, and an
individual contract. Usually, a group contract certificate will be issued. An
individual contract is intended for use where a group contract is not available.
Specific accounts are maintained under a group contract for each member of an
eligible group participating in the contract as evidenced by the issuance of a
certificate. The contracts provide for the accumulation of contract values and
the payment of annuity benefits on a variable and/or fixed basis. Except as
specifically noted herein and as set forth under the caption "FIXED ACCOUNT
INVESTMENT OPTIONS" below, this Prospectus describes only the variable portion
of the contracts.
The contracts are designed as funding vehicles for amounts that are
"rolled over" from employee benefit plans. The contracts will serve primarily as
Individual Retirement Annuities under Section 408 of the Internal Revenue Code
("IRAs") and will be used for amounts transferred from plans entitled to be
rolled over into an IRA. The contracts may also be used to fund other plans
qualifying for special income tax treatment under the Code (See "QUALIFIED
RETIREMENT PLANS") or plans not entitled to such special income tax treatment
under the code.
Purchase Payments. The minimum initial purchase payment is $3,500 and
the minimum subsequent purchase payment is $30. Purchase payments may be made at
any time, except that if a purchase payment would cause the owner's contract
value to exceed $1,000,000, or the owner's contract value already exceeds
$1,000,000, additional purchase payments will be accepted only with the prior
approval of the Company. The Company may, at its option, cancel a contract or
certificate and an owner's participation under a contract at the end of any two
consecutive contract years in which no purchase payments by or on behalf of the
owner have been made, if both (i) the total purchase payments made for the
contract or certificate, less any withdrawals, are less than $2,000; and (ii)
the contract value for the owner at the end of such two year period is less than
$2,000. The cancellation of contract privileges may vary in certain states in
order to comply with the requirements of insurance laws and regulations in such
state. (See "PURCHASE PAYMENTS")
Investment Options. Purchase payments may be allocated among the
thirty-nine investment options currently available under the contract:
thirty-five variable account investment options and four fixed account
investment options. Due to current administrative capabilities, a contract owner
is limited to a maximum of seventeen investment options (including all fixed
account investment options) during the period prior to the maturity date of the
contract. The thirty-five variable account investment options are the
thirty-five sub-accounts of the Variable Account, a separate account established
by the Company. The sub-accounts invest in corresponding portfolios of the
Trust: the Pacific Rim Emerging Markets Trust, the Science & Technology Trust,
the International Small Cap Trust, the Emerging Growth Trust, the Pilgrim Baxter
Growth Trust, the Small/Mid Cap Trust, the International Stock Trust, the
Worldwide Growth Trust, the Global Equity Trust, the Small Company Value Trust,
the Equity Trust, the Growth Trust, the Quantitative Equity Trust, the Blue Chip
Growth Trust, the Real Estate Securities Trust, the Value Trust, the
International Growth and Income Trust, the Growth and Income Trust, the
Equity-Income Trust, the Balanced Trust, the Aggressive Asset Allocation Trust,
the High Yield Trust, the Moderate Asset Allocation Trust, the Conservative
Asset Allocation Trust, the Strategic Bond Trust, the Global Government Bond
Trust, the Capital Growth Bond Trust, the Investment Quality Bond Trust, the
U.S. Government Securities Trust, the Money Market Trust, the Lifestyle
Aggressive 1000 Trust, the Lifestyle Growth 820 Trust, the Lifestyle Balanced
640 Trust, the Lifestyle Moderate 460 Trust and the Lifestyle Conservative 280
Trust (see the accompanying Prospectus of the Trust). The portion of an owner's
contract value in the Variable Account and monthly annuity payments, if selected
on a variable basis, will reflect the investment performance of the sub-accounts
selected. (See "THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT A") Purchase payments may also be allocated to the four fixed
account investment options: one, three, five and seven year guaranteed
investment accounts. Under the fixed account investment options, the Company
guarantees the principal value of purchase payments and the rate of interest
credited to the investment account for the term of the guarantee period. The
portion of an owner's contract value in the fixed account investment options and
monthly annuity payments, if selected on a fixed basis, will reflect such
interest and principal guarantees. (See "FIXED ACCOUNT INVESTMENT OPTIONS")
Subject to certain regulatory limitations, the Company may elect to add,
subtract or substitute investment options.
4
<PAGE> 8
Transfers. Prior to the maturity date, amounts may be transferred among
an owner's variable account investment options and from the owner's variable
account investment options to his or her fixed account investment options
without charge. In addition, amounts may be transferred prior to the maturity
date among the owner's fixed account investment options and from the owner's
fixed account investment options to his or her variable account investment
options, subject to a one year holding period requirement and a market value
charge which may apply to such a transfer. (See "FIXED ACCOUNT INVESTMENT
OPTIONS") After the maturity date, transfers are not permitted from variable
annuity options to fixed annuity options or from fixed annuity options to
variable annuity options. Transfers from any investment account must be at least
$300 or, if less, the entire balance in the investment account. If, after the
transfer the amount remaining in the investment account from which the transfer
is made is less than $100, then we will transfer the entire amount instead of
the requested amount. The Company may impose certain additional limitations on
transfers. (See "TRANSFERS AMONG INVESTMENT OPTIONS" and "TRANSFERS AFTER
MATURITY DATE") Transfer privileges may also be used under a special service
offered by the Company to dollar cost average an investment in the contract.
(See "SPECIAL TRANSFER SERVICES - DOLLAR COST AVERAGING")
Withdrawals. Prior to the earlier of the maturity date or the death of
an owner, the owner may withdraw all or a portion of his or her contract value.
The amount withdrawn from any investment account must be at least $300 or, if
less, the entire balance of the investment account. If a partial withdrawal
would reduce the owner's contract value to less than $300, the withdrawal
request will be treated as a request to withdraw the owner's entire contract
value. An administration fee may be imposed. (See "WITHDRAWALS") A withdrawal
may be subject to a penalty tax. (See "FEDERAL TAX MATTERS") Withdrawal
privileges may also be exercised pursuant to the Company's income plan service.
(See "SPECIAL WITHDRAWAL SERVICES - INCOME PLAN")
Loans. The Company offers a loan privilege under contracts or
certificates issued in connection with Section 403(b) qualified plans that are
not subject to Title I of ERISA. Where available, owners may obtain loans using
their contract value as the only security for the loan. The effective cost of a
loan is 2% per year of the amount borrowed. (See "LOANS")
Death Benefits. The Company will pay the death benefit described below
(which, as defined, is net of any debt) to the beneficiary if any owner dies
before the maturity date. If there is a surviving owner, that owner will be
deemed to be the beneficiary. No death benefit is payable on the death of any
annuitant, except that if any owner is not a natural person, the death of any
annuitant will be treated as the death of an owner. The death benefit will be
determined as of the date on which written notice and proof of death and all
required claim forms are received at the Company's Annuity Service Office.
The death benefit will be the greater of the contract value or the
minimum death benefit. The minimum death benefit is equal to the sum of all
purchase payments made by or on behalf of the owner minus a reduction for any
partial withdrawals made by or on behalf of the owner. The amount of the
reduction is the greater of (a) or (b), where (a) is the amount of the partial
withdrawal and (b) is the amount obtained by multiplying the minimum death
benefit prior to the withdrawal by the ratio of the partial withdrawal to the
contract value prior to the withdrawal. (See "DEATH BENEFIT BEFORE MATURITY
DATE") If the annuitant dies after the maturity date and annuity payments have
been selected based on an annuity option providing for payments for a guaranteed
period, the Company will make the remaining guaranteed payments to the
beneficiary. (See "DEATH BENEFIT ON OR AFTER MATURITY DATE")
Annuity Payments. The Company offers a variety of fixed and variable
annuity options. Periodic annuity payments will begin on the maturity date. The
owner selects the maturity date, frequency of payment and annuity option. (See
"ANNUITY PROVISIONS")
Ten Day Review. Within 10 days of receipt of his or her contract or
certificate, an owner may cancel the contract or certificate by returning it to
the Company. The ten day right to review may vary in certain states in order to
comply with the requirements of insurance laws and regulations in such states.
(See "TEN DAY RIGHT TO REVIEW")
Modification. The contract or certificate may not be modified by the
Company without the consent of the group holder or owner, as applicable, except
as may be required to make it conform to any law or regulation or ruling issued
by a governmental agency. However, on 60 days' notice to the group holder, the
Company may change the administration fees, mortality and expense risk charges,
annuity purchase rates and the market value charge as to any certificate issued
after the effective date of the modification. (See "MODIFICATION")
Discontinuance of New Owners. In the case of group contracts, on thirty
days' notice to the group holder, the Company may limit or discontinue
acceptance of new applications and the issuance of new certificates. (See
"DISCONTINUANCE OF NEW OWNERS")
5
<PAGE> 9
Charges and Deductions. The following table and Example are designed to
assist group holders and owners in understanding the various costs and expenses
to which they are subject directly and indirectly. The table reflects expenses
of the separate account and the underlying portfolio company. In addition to the
items listed in the following table, premium taxes may be applicable to certain
owners. The items listed under "Separate Account Annual Expenses" are more
completely described in this Prospectus (see "CHARGES AND DEDUCTIONS") The items
listed under "Trust Annual Expenses" are described in detail in the accompanying
Trust Prospectus to which reference should be made.
TRANSACTION EXPENSES
None.
ANNUAL ADMINISTRATION FEE .................................. $30(1)
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and expense risk fees ............................ 0.85%
Administration fee - asset based .......................... 0.15%
Total Separate Account Annual Expenses ..................... 1.00%
- --------
(1)The $30 annual administration fee will not be assessed prior to the
maturity date if at the time of its assessment the sum of all the owner's
investment accounts is greater than $100,000.
6
<PAGE> 10
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
<S> <C> <C> <C>
Pacific Rim Emerging Markets........ 0.850% 0.570% 1.420%
Science & Technology................ 1.100% 0.160% 1.260%
International Small Cap............. 1.100% 0.210% 1.310%
Emerging Growth..................... 1.050% 0.060% 1.110%
Pilgrim Baxter Growth............... 1.050% 0.130% 1.180%
Small/Mid Cap....................... 1.000% 0.050% 1.050%
International Stock................. 1.050% 0.330% 1.380%
Worldwide Growth.................... 1.000% 0.320% 1.320%
Global Equity....................... 0.900% 0.110% 1.010%
Small Company Value Trust........... 1.050% 0.100%* 1.150%
Equity.............................. 0.750% 0.050% 0.800%
Growth.............................. 0.850% 0.100% 0.950%
Quantitative Equity................. 0.700% 0.070% 0.770%
Blue Chip Growth.................... 0.925% 0.050% 0.975%
Real Estate Securities.............. 0.700% 0.070% 0.770%
Value............................... 0.800% 0.160% 0.960%
International Growth and Income..... 0.950% 0.170% 1.120%
Growth and Income................... 0.750% 0.040% 0.790%
Equity-Income....................... 0.800% 0.050% 0.850%
Balanced............................ 0.800% 0.080% 0.880%
Aggressive Asset Allocation......... 0.750% 0.150% 0.900%
High Yield.......................... 0.775% 0.110% 0.885%
Moderate Asset Allocation........... 0.750% 0.100% 0.850%
Conservative Asset Allocation....... 0.750% 0.140% 0.890%
Strategic Bond...................... 0.775% 0.100% 0.875%
Global Government Bond.............. 0.800% 0.130% 0.930%
Capital Growth Bond................. 0.650% 0.080% 0.730%
Investment Quality Bond............. 0.650% 0.090% 0.740%
U.S. Government Securities.......... 0.650% 0.070% 0.720%
Money Market........................ 0.500% 0.040% 0.540%
Lifestyle Aggressive 1000#.......... 0% 1.116%** 1.116%
Lifestyle Growth 820#............... 0% 1.048%** 1.048%
Lifestyle Balanced 640#............. 0% 0.944%** 0.944%
Lifestyle Moderate 460#............. 0% 0.850%** 0.850%
Lifestyle Conservative 280#......... 0% 0.708%** 0.708%
</TABLE>
# Each Lifestyle Trust will invest in shares of the Underlying Portfolios.
Therefore, each Lifestyle Trust will, in addition to its own expenses, such as
certain Other Expenses, bear its pro rata share of the fees and expenses
incurred by the Underlying Portfolios and the investment return of each
Lifestyle Trust will be net of the Underlying Portfolio expenses.
* Based on estimates of payments to be made during the current fiscal year.
** Reflects expenses of the Underlying Portfolios. Manufacturers Securities
Services, LLC has voluntarily agreed to pay the expenses of each Lifestyle Trust
(excluding the expenses of the Underlying Portfolios). This voluntary expense
reimbursement may be terminated at any time. If such expense reimbursement was
not in effect, Total Trust Annual Expenses would be .04% higher (based on
expenses of the Lifestyle Trusts for the fiscal year ended December 31, 1997) as
noted in the chart below:
MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
7
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
Lifestyle Aggressive 1000#.......... 0% 1.156% 1.156%
Lifestyle Growth 820#............... 0% 1.088% 1.088%
Lifestyle Balanced 640#............. 0% 0.984% 0.984%
Lifestyle Moderate 460#............. 0% 0.890% 0.890%
Lifestyle Conservative 280#......... 0% 0.748% 0.748%
</TABLE>
EXAMPLE
An owner will have paid the following expenses on a $1,000 investment,
assuming 5% annual return on assets, regardless of whether the contract owner
annuitized as provided in the contract, surrendered the contract or did not
surrender the contract at the end of the applicable time period:
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS* 10 YEARS*
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets........ $26 $80 $136 $289
Science & Technology................ 24 75 128 273
International Small Cap............. 25 76 130 278
Emerging Growth..................... 23 70 120 258
Pilgrim Baxter Growth............... 23 72 124 265
Small/Mid Cap....................... 22 68 117 252
International Stock................. 25 78 134 285
Worldwide Growth.................... 25 77 131 279
Global Equity....................... 22 67 115 248
Small Company Value Trust............ 23 71
Equity.............................. 20 61 104 226
Growth.............................. 21 65 112 242
Quantitative Equity................. 19 60 103 223
Blue Chip Growth.................... 21 66 113 244
Real Estate Securities.............. 19 60 103 223
Value............................... 21 66 113 243
Int'l Growth and Income............. 23 71 121 259
Growth and Income................... 20 60 104 225
Equity-Income....................... 20 62 107 231
Balanced............................ 20 63 109 234
Aggressive Asset Allocation......... 21 64 110 236
High Yield.......................... 21 63 109 235
Moderate Asset Allocation........... 20 62 107 231
Conservative Asset Allocation....... 21 64 109 235
Strategic Bond...................... 20 63 108 234
Global Government Bond.............. 21 65 111 240
Capital Growth Bond................. 19 59 101 219
Investment Quality Bond............. 19 59 101 220
U.S. Government Securities.......... 19 58 100 218
Money Market........................ 17 53 91 198
Lifestyle Aggressive 1000........... 23 70 121 259
Lifestyle Growth 820................ 22 68 117 252
Lifestyle Balanced 640.............. 21 65 112 241
Lifestyle Moderate 460.............. 20 62 107 231
Lifestyle Conservative 280.......... 19 58 100 216
</TABLE>
* The example of expenses for certain Trusts contains only one year and three
year examples since they are newly formed Trusts.
For purposes of presenting the foregoing Example, the Company has made
certain assumptions mandated by the Commission. The Company has assumed that
there are no transfers or other transactions and that the "Other Expenses" line
item under "Trust Annual Expenses" will remain the same. Such assumptions, which
are mandated by the Commission in an attempt to provide prospective investors
with standardized data with which to compare various annuity contracts, do not
take into account certain
8
<PAGE> 12
features of the contract and prospective changes in the size of the Trust which
may operate to change the expenses borne by contract owners. Consequently, the
amounts listed in the Example above should not be considered a representation of
past or future expenses and actual expenses borne by contract owners may be
greater or lesser than those shown.
In addition, for purposes of calculating the values in the above
Example, the Company has translated the $30 annual administration charge listed
under "Annual Administration Fee" to a 0.136% annual asset charge based on the
$22,000 approximate average size of contracts and certificates of a series
issued during 1997 by the Company comparable to the contracts and certificates
offered by this Prospectus. So translated, such charge would be higher for
smaller contract values and lower for larger contract values.
* * * * * * * *
The above summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus and Statement of Additional
Information and the accompanying Prospectus and Statement of Additional
Information for the Trust, to which reference should be made. This Prospectus
generally describes only the variable aspects of the contract, except where
fixed aspects are specifically mentioned.
9
<PAGE> 13
GENERAL INFORMATION ABOUT THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH
AMERICA, THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA SEPARATE
ACCOUNT A AND MANUFACTURERS INVESTMENT TRUST
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
The Manufacturers Life Insurance Company of North America ("the
Company"), formerly North American Security Life Insurance Company, is a stock
life insurance company organized under the laws of Delaware in 1979. The
Company's principal office is located at 116 Huntington Avenue, Boston,
Massachusetts. The ultimate parent of the Company is The Manufacturers Life
Insurance Company ("Manulife"), a Canadian mutual life insurance company based
in Toronto, Canada. Prior to January 1, 1996, the Company was a wholly owned
subsidiary of North American Life Assurance Company ("NAL"), a Canadian mutual
life insurance company. On January 1, 1996 NAL and Manulife merged with the
combined company retaining the Manulife name. On January 19, 1998, the Board of
Directors of Manulife asked the management of Manulife to prepare a plan for
conversion of Manulife from a mutual life insurance company to an
investor-owned, publicly-traded stock company. Any demutualization plan for
Manulife is subject to the approval of the Manulife Board of Directors and
policyholders as well as regulatory approval.
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA SEPARATE ACCOUNT A
The Company established the Variable Account on August 24, 1984 as a
separate account under Delaware law. The income, gains and losses, whether or
not realized, from assets of the Variable Account are, in accordance with the
contracts, credited to or charged against the Variable Account without regard to
other income, gains or losses of the Company. Nevertheless, all obligations
arising under the contracts are general corporate obligations of the Company.
Assets of the Variable Account may not be charged with liabilities arising out
of any other business of the Company.
The Variable Account is registered with the Commission under the
Investment Company Act of 1940, as amended ("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. Registration under the 1940 Act does not involve supervision by the
Commission of the management or investment policies or practices of the Variable
Account. If deemed by the Company to be in the best interests of persons having
voting rights under the contracts, the Variable Account may be operated as a
management company under the 1940 Act or it may be deregistered under such Act
in the event such registration is no longer required.
There are currently thirty-five sub-accounts within the Variable
Account. The Company reserves the right to add other sub-accounts, eliminate
existing sub-accounts, combine sub-accounts or transfer assets in one
sub-account to another sub-account established by the Company or an affiliated
company. The Company will not eliminate existing sub-accounts or combine
sub-accounts without obtaining any necessary approval of the appropriate state
or federal regulatory authorities.
MANUFACTURERS INVESTMENT TRUST
The assets of each available sub-account of the Variable Account are
invested in shares of a corresponding portfolio of the Trust. A description of
each portfolio is set forth below. The Trust is registered under the 1940 Act as
an open-end management investment company. Each of the portfolios is diversified
for purposes of the 1940 Act, except for the Global Government Bond Trust, the
Emerging Growth Trust and the five Lifestyle Trusts which are non-diversified.
The Trust receives investment advisory services from MSS.
The Trust currently has fifteen subadvisers who manage all of the
portfolios:
SUBADVISER SUBADVISER TO
Fidelity Management Trust Company Equity Trust
Conservative Asset Allocation Trust
Moderate Asset Allocation Trust
Aggressive Asset Allocation Trust
Founders Asset Management, Inc. Growth Trust
Worldwide Growth Trust
Balanced Trust
International Small Cap Trust
10
<PAGE> 14
Fred Alger Management, Inc. Small/Mid Cap Trust
J.P. Morgan Investment Management Inc. International Growth and Income Trust
Manufacturers Adviser Corporation Pacific Rim Emerging Markets Trust
Quantitative Equity Trust
Real Estate Securities Trust
Capital Growth Bond Trust
Money Market Trust
Lifestyle Trusts
Miller Anderson & Sherrerd, LLP Value Trust
High Yield Trust
Morgan Stanley Asset Management Inc. Global Equity Trust
Oechsle International Advisors, L.P. Global Government Bond Trust
Rosenberg Institutional Equity Small Company Value Trust
Management
Rowe Price-Fleming International, Inc. International Stock Trust
Pilgrim Baxter & Associates Pilgrim Baxter Growth Trust
Salomon Brothers Asset Management, Inc. U.S. Government Securities Trust
Strategic Bond Trust
T. Rowe Price Associates, Inc. Science & Technology Trust
Blue Chip Growth Trust
Equity-Income Trust
Warburg, Pincus Counsellors, Inc. Emerging Growth Trust
Wellington Management Company, LLP Growth and Income Trust
Investment Quality Bond Trust
The following is a brief description of each portfolio:
The PACIFIC RIM EMERGING MARKETS TRUST seeks long-term growth of
capital by investing in a diversified portfolio that is comprised primarily of
common stocks and equity-related securities of corporations domiciled in
countries in the Pacific Rim region.
The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital.
Current income is incidental to the portfolio's objective.
The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by
investing primarily in securities issued by foreign companies which have total
market capitalization or annual revenues of $1 billion or less. These securities
may represent companies in both established and emerging economies throughout
the world.
The EMERGING GROWTH TRUST seeks maximum capital appreciation by
investing primarily in a portfolio of equity securities of domestic companies.
The Emerging Growth Trust ordinarily will invest at least 65% of its total
assets in common stocks or warrants of emerging growth companies that represent
attractive opportunities for maximum capital appreciation.
The PILGRIM BAXTER GROWTH TRUST seeks capital appreciation by investing
in companies believed by the subadviser to have an outlook for strong earnings
growth and the potential for significant capital appreciation.
The SMALL/MID CAP TRUST seeks long-term capital appreciation by
investing at least 65% of its total assets (except
11
<PAGE> 15
during temporary defensive periods) in small/mid cap equity securities. As used
herein small/mid cap equity securities are equity securities of companies that,
at the time of purchase, have total market capitalization between $500 million
and $5 billion.
The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by
investing primarily in common stocks of established, non-U.S. companies.
The WORLDWIDE GROWTH TRUST seeks long-term growth of capital by
normally investing at least 65% of its total assets in equity securities of
growth companies in a variety of markets throughout the world.
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 SMALL COMPANY VALUE TRUST seeks long term growth of capital by
investing in equity securities of smaller companies which are traded principally
in the markets of the United States.
The EQUITY TRUST seeks growth of capital by investing primarily in
common stocks of United States issuers and securities convertible into or
carrying the right to buy common stocks.
The GROWTH TRUST seeks long-term growth of capital by investing at
least 65% of the portfolio's total assets in the common stocks of
well-established, high-quality growth companies that the subadviser believes
have the potential to increase earnings faster than the rest of the market.
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 INTERNATIONAL GROWTH AND INCOME TRUST seeks long-term growth of
capital and income by investing, under normal circumstances, at least 65% of its
total assets in equity securities of foreign issuers. The portfolio may also
invest in debt securities of corporate or sovereign issuers rated A or higher by
Moody's or S&P or, if unrated, of equivalent credit quality as determined by the
subadviser. Under normal circumstances, the portfolio will be invested
approximately 85% in equity securities and 15% in fixed income securities.
The GROWTH AND INCOME TRUST seeks long-term growth of capital and
income, consistent with prudent investment risk, by investing primarily in a
diversified portfolio of common stocks of United States issuers which the
subadviser believes are of high quality.
The 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.
12
<PAGE> 16
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 AUTOMATIC ASSET ALLOCATION TRUSTS seek the highest potential total
return consistent with a specified level of risk tolerance -- conservative,
moderate or aggressive -- by investing primarily in the kinds of securities in
which the Equity, Investment Quality Bond, U.S. Government Securities and Money
Market Trusts may invest.
* The AGGRESSIVE ASSET ALLOCATION TRUST seeks the highest total return
consistent with an aggressive level of risk tolerance. This Trust attempts to
limit the decline in portfolio value in very adverse market conditions to 15%
over any three year period.
* The MODERATE ASSET ALLOCATION TRUST seeks the highest total return
consistent with a moderate level of risk tolerance. This Trust attempts to limit
the decline in portfolio value in very adverse market conditions to 10% over any
three year period.
* The CONSERVATIVE ASSET ALLOCATION TRUST seeks the highest total
return consistent with a conservative level of risk tolerance. This Trust
attempts to limit the decline in portfolio value in very adverse market
conditions to 5% over any three year period.
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 GOVERNMENT BOND TRUST seeks a high level of total return by
placing primary emphasis on high current income and the preservation of capital
by investing primarily in a global portfolio of high-quality, fixed-income
securities of foreign and United States governmental entities and supranational
issuers.
The CAPITAL GROWTH BOND TRUST seeks to achieve growth of capital by
investing in medium-grade or better debt securities, with income as a secondary
consideration. The Capital Growth Bond Trust differs from most "bond" funds in
that its primary objective is capital appreciation, not income.
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 U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current
income consistent with preservation of capital and maintenance of liquidity, by
investing in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
derivative securities such as collateralized mortgage obligations backed by such
securities.
The MONEY MARKET TRUST seeks maximum current income consistent with
preservation of principal and liquidity by investing in high quality money
market instruments with maturities of 397 days or less issued primarily by
United States entities.
The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth
of capital (current income is not a consideration) by investing 100% of the
Lifestyle Trust's assets in other portfolios of the Trust ("Underlying
Portfolios") which invest primarily in equity securities.
The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of
capital with consideration also given to current income by investing
approximately 20% of the Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and approximately 80% of its assets
in Underlying Portfolios which invest primarily in equity securities.
The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a
high level of current income and growth of capital with a greater emphasis given
to capital growth by investing approximately 40% of the Lifestyle Trust's assets
in
13
<PAGE> 17
Underlying Portfolios which invest primarily in fixed income securities and
approximately 60% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a
high level of current income and growth of capital with a greater emphasis given
to high income by investing approximately 60% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 40% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of
current income with some consideration also given to growth of capital by
investing approximately 80% of the Lifestyle Trust's assets in Underlying
Portfolios which invest primarily in fixed income securities and approximately
20% of its assets in Underlying Portfolios which invest primarily in equity
securities.
In pursuing the Strategic Bond, High Yield and Investment Quality Bond
Trusts' investment objective, each portfolio expects to invest a portion of its
assets in high yield securities, commonly known as "junk bonds" which also
present a high degree of risk. The risks of these securities include price
volatility and risk of default in the payment of interest and principal. See
"Risk Factors Relating to High Yield Securities" contained in the Manufacturers
Investment Trust prospectus before investing in either Trust.
In pursuing the Pacific Rim Emerging Markets, International Stock,
Worldwide Growth, International Small Cap, Global Equity, Strategic Bond,
International Growth and Income, High Yield and Global Government Bond Trusts'
investment objective, each portfolio may invest up to 100% of its assets in
foreign securities which may present additional risks. See "Foreign Securities"
in the Manufacturers Investment Trust prospectus before investing in any of
these Trusts.
If the shares of a Trust portfolio are no longer available for
investment or in the Company's judgment investment in a Trust portfolio becomes
inappropriate in view of the purposes of the Variable Account, the Company may
eliminate the shares of a portfolio and substitute shares of another portfolio
of the Trust or another open-end registered investment company. Substitution may
be made with respect to both existing investments and the investment of future
purchase payments. However, no such substitution will be made without notice to
the contract owner and prior approval of the Commission to the extent required
by the 1940 Act.
The Company will vote shares of the Trust portfolios held in the
Variable Account at meetings of shareholders of the Trust in accordance with
voting instructions received from the persons having the voting interest under
the contracts. The number of portfolio shares for which voting instructions may
be given will be determined by the Company in the manner described below, not
more than 90 days prior to the meeting of the Trust. Trust proxy material will
be distributed to each person having the voting interest under the contract
together with appropriate forms for giving voting instructions. Portfolio shares
held in the Variable Account that are attributable to contract owners and as to
which no timely instructions are received and portfolio shares held in the
Variable Account that are beneficially owned by the Company will be voted by the
Company in proportion to the instructions received.
Prior to the maturity date, the person having the voting interest under
a contract is the contract owner and the number of votes as to each portfolio
for which voting instructions may be given is determined by dividing the value
of the investment account corresponding to the sub-account in which such
portfolio shares are held by the net asset value per share of that portfolio.
After the maturity date, the person having the voting interest under a contract
is the annuitant and the number of votes as to each portfolio for which voting
instructions may be given is determined by dividing the reserve for the contract
allocated to the sub-account in which such portfolio shares are held by the net
asset value per share of that portfolio. Generally, the number of votes tends to
decrease as annuity payments progress since the amount of reserves attributable
to a contract will usually decrease after commencement of annuity payments. The
Company reserves the right to make any changes in the voting rights described
above that may be permitted by the federal securities laws or regulations or
interpretations of these laws or regulations.
A full description of the Trust, including the investment objectives,
policies and restrictions of each of the portfolios, is contained in the
Prospectus for the Trust which accompanies this Prospectus and should be read by
a prospective purchaser before investing.
14
<PAGE> 18
DESCRIPTION OF THE CONTRACTS
ELIGIBLE GROUPS AND INDIVIDUALS
The contracts are designed as funding vehicles for amounts that are
"rolled over" from employee benefit plans. The contracts will serve primarily as
Individual Retirement Annuities under Section 408 of the Internal Revenue Code
("IRAs") and will be used for amounts transferred from plans entitled to be
rolled over into an IRA. The contracts may be used to fund plans qualifying for
special income tax treatment under the Code, such as pension and profit-sharing
plans for corporations and sole proprietorships/partnerships ("H.R. 10" and
"Keogh" plans), tax-sheltered annuities, and state and local government deferred
compensation plans. (See "QUALIFIED RETIREMENT PLANS.") The contracts are also
designed so that they may be used with non-qualified retirement plans, such as
deferred compensation and payroll savings plans and such groups (trusteed or
non-trusteed) as may be eligible under applicable law.
Usually, a group contract certificate will be issued. An individual
contract is intended for use where a group contract is not available. Group
contracts have been issued to the Venture Trust, a trust established with United
Missouri Bank, N.A., Kansas City, Missouri, as group holder for groups comprised
of persons who have brokerage accounts with brokers having selling agreements
with MSS, the principal underwriter of the contracts.
An eligible member of a group to which a group contract has been issued
may become an owner under the contract, or a person may purchase an individual
contract, where available, by submitting a completed application, if required by
the Company, and a minimum purchase payment. A certificate summarizing the
rights and benefits of the owner under the group contract, or an individual
contract defining such rights and benefits, may be issued to an applicant
acceptable to the Company. The Company reserves the right to decline to issue a
certificate or contract to any person in its sole discretion. All rights and
privileges under a group contract may be exercised by each owner as to his or
her interest unless expressly reserved to the group holder. Provisions of any
plan in connection with which the contract was issued may restrict an owner's
ability to exercise contractual rights and privileges.
ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
Purchase payments are paid to the Company at its Annuity Service
Office. The minimum initial purchase payment is $3,500 and the minimum
subsequent purchase payment is $30. Purchase payments may be made at any time.
The Company may provide by separate agreement for purchase payments to be
automatically withdrawn from an owner's bank account on a periodic basis. If a
purchase payment would cause the contract value for an owner to exceed
$1,000,000 or the owner's contract value already exceeds $1,000,000, additional
purchase payments will be accepted only with the prior approval of the Company.
The Company may, at its option, cancel an individual contract or a
certificate and an owner's participation under a group contract at the end of
any two consecutive contract years in which no purchase payments by or on behalf
of the owner have been made, if both (i) the total purchase payments made for
the contract or certificate, less any withdrawals, are less than $2,000; and
(ii) the contract value for the owner at the end of such two year period is less
than $2,000. The cancellation of contract privileges may vary in certain states
in order to comply with the requirements of insurance laws and regulations in
such state. Upon cancellation the Company will pay the owner his or her contract
value computed as of the valuation period during which the cancellation occurs
less any debt and less the annual $30 administration fee. The amount paid will
be treated as a withdrawal for Federal tax purposes and thus may be subject to
income tax and to a 10% penalty tax. (See "FEDERAL TAX MATTERS")
Purchase payments are allocated among the investment options in
accordance with the percentages designated by the owner. In addition, owners
have the option to participate in the Guarantee Plus Program administered by the
Company. Under the Guarantee Plus Program the initial purchase payment is split
between the fixed and variable investment options. A percentage of the initial
purchase payment is allocated to the chosen fixed account, such that at the end
of the guaranteed period the fixed account will have grown to an amount at least
equal to the total initial purchase payment. The percentage depends upon the
current interest rate of the fixed investment option. The balance of the initial
purchase payment is allocated among the variable investment options as indicated
on the contract or certificate specifications page. Owners may elect to
participate in the Guarantee Plus Program and may obtain full information
concerning the program and its restrictions from their securities dealers or the
Annuity Service Office. An owner may change the allocation of subsequent
purchase payments at any time upon written notice to the Company or by telephone
in accordance with the Company's telephone transfer procedures.
ACCUMULATION UNITS
The Company will establish an investment account for each owner for
each variable account investment option to which such
15
<PAGE> 19
owner allocates purchase payments. Purchase payments are credited to such
investment accounts in the form of accumulation units. The following discussion
of accumulation units, the value of accumulation units and the net investment
factor formula pertains only to the accumulations in the variable account
investment options. The parallel discussion regarding accumulations in the fixed
account investment options appears elsewhere in this Prospectus. (See "FIXED
ACCOUNT INVESTMENT OPTIONS")
The number of accumulation units to be credited to each investment
account is determined by dividing the net purchase payment allocated to that
investment account by the value of an accumulation unit for that investment
account for the valuation period during which the purchase payment is received
at the Company's Annuity Service Office complete with all necessary information
or, in the case of the first purchase payment for a certificate or contract,
pursuant to the procedures described below.
Initial purchase payments for a certificate or contract received by
mail will usually be credited in the valuation period during which received at
the Annuity Service Office, and in any event not later than two business days
after receipt of all information necessary for processing issuance of the
certificate or contract. The applicant will be informed of any deficiencies
preventing processing if the certificate or contract cannot be issued and the
purchase payment credited within two business days after receipt. If the
deficiencies are not remedied within five business days after receipt, the
purchase payment will be returned promptly to the applicant, unless the
applicant specifically consents to the Company's retaining the purchase payment
until all necessary information is received. Initial purchase payments received
by wire transfer from broker-dealers will be credited in the valuation period
during which received where such broker-dealers have made special arrangements
with the Company.
VALUE OF ACCUMULATION UNITS
The value of accumulation units will vary from one valuation period to
the next depending upon the investment results of the particular sub-accounts to
which purchase payments are allocated. The value of an accumulation unit for
each sub-account was arbitrarily set at $10 or $12.50 for the first valuation
period under contracts similar to the contracts described in this Prospectus.
The value of an accumulation unit for any subsequent valuation period is
determined by multiplying the value of an accumulation unit for the immediately
preceding valuation period by the net investment factor for such sub-account
(described below) for the valuation period for which the value is being
determined.
NET INVESTMENT FACTOR
The net investment factor is an index used to measure the investment
performance of a sub-account from one valuation period to the next. The net
investment factor for each sub-account for any valuation period is determined by
dividing (a) by (b) and subtracting (c) from the result:
Where (a) is:
(1) the net asset value per share of a portfolio share held in
the sub-account determined at the end of the current valuation period,
plus
(2) the per share amount of any dividend or capital gain
distributions made by the portfolio on shares held in the sub-account
if the "ex-dividend" date occurs during the current valuation period.
Where (b) is:
the net asset value per share of a portfolio share held in the
sub-account determined as of the end of the immediately preceding
valuation period.
Where (c) is:
a factor representing the charges deducted from the
sub-account on a daily basis for administrative expenses and mortality
and expense risks. Currently, such factor is equal on an annual basis
to 1.00% (0.15% for administrative expenses and 0.85% for mortality and
expense risks). The charges deducted from the sub-account reduce the
value of the accumulation units for the sub-account.
The net investment factor may be greater or less than or equal to one;
therefore, the value of an accumulation unit may increase, decrease or remain
the same.
TRANSFERS AMONG INVESTMENT OPTIONS
16
<PAGE> 20
Before the maturity date an owner may transfer amounts among his or her
variable account investment options and from such investment options to his or
her fixed account investment options at any time and without charge upon written
notice to the Company or by telephone if the owner authorizes the Company in
writing to accept telephone transfer requests. Accumulation units will be
canceled from the investment account from which amounts are transferred and
credited to the investment account to which amounts are transferred. The Company
will effect such transfers so that the contract value on the date of the
transfer will not be affected by the transfer. The owner must transfer at least
$300 or, if less, the entire value of the investment account. If after the
transfer the amount remaining in the investment account is less than $100, then
the Company will transfer the entire amount instead of the requested amount. The
Company reserves the right to limit, upon notice, the maximum number of
transfers an owner may make to one per month or six at any time within a
contract year. In addition, the Company reserves the right to defer the transfer
privilege at any time that the Company is unable to purchase or redeem shares of
the Trust portfolios. The Company also reserves the right to modify or terminate
the transfer privilege at any time in accordance with applicable law.
MAXIMUM NUMBER OF INVESTMENT OPTIONS
Due to current administrative capabilities, a contract owner is limited
to a maximum of 17 investment options (including all fixed account investment
options) during the period prior to the maturity date of the contract (the
"Contract Period"). In calculating this limit for each contract owner,
investment options to which the contract owner has allocated purchased payments
at any time during the Contract Period will be counted toward the 17 maximum
even if the contract owner no longer has contract value allocated to these
investment options.
TELEPHONE TRANSACTIONS
Owners are permitted to request transfers/redemptions by telephone. The
Company will not be liable for following instructions communicated by telephone
that it reasonably believes to be genuine. To be permitted to request a
transfer/redemption by telephone, an owner must elect the option. The Company
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine and may only be liable for any losses due to unauthorized
or fraudulent instructions where it fails to employ its procedures properly.
Such procedures include the following. Upon telephoning a request, owners will
be asked to provide their account number, and if not available, their social
security number. For the owner's and Company's protection, all conversations
with owners will be tape recorded. All telephone transactions will be followed
by a confirmation statement of the transaction.
SPECIAL TRANSFER SERVICES - DOLLAR COST AVERAGING
The Company administers a Dollar Cost Averaging ("DCA") program which
enables an owner to pre-authorize a periodic exercise of the contractual
transfer rights described above. Owners entering into a DCA agreement instruct
the Company to transfer monthly a predetermined dollar amount from any
sub-account or the one year fixed account investment option to other
sub-accounts until the amount in the sub-account from which the transfer is made
or one year fixed account investment option is exhausted. In states where
approved by the state insurance department, a special one year fixed account
investment option (the "One Year DCA Account") may be established under the DCA
program to make automatic monthly transfers. In the first eleven months the
amount transferred is equal to one eleventh of the amount allocated to the One
Year DCA Account and in the twelfth month the remaining balance of the One Year
DCA Account is transferred. Only initial and subsequent net payments may be
allocated to the One Year DCA Account.
The DCA program is generally suitable for owners making a substantial
deposit and who desire to control the risk of investing at the top of a market
cycle. The DCA program allows such investments to be made in equal installments
over time in an effort to reduce such risk. Owners interested in the DCA program
may elect to participate in the program on the application or by separate
application. Owners may obtain a separate application and full information
concerning the program and its restrictions from their securities dealer or the
Annuity Service Office. There is no charge for participating in the program.
17
<PAGE> 21
ASSET REBALANCING PROGRAM
The Company administers an Asset Rebalancing Program which enables an
owner to indicate to the Company the percentage levels he or she would like to
maintain in particular portfolios. The contract value will be automatically
rebalanced pursuant to the schedule described below to maintain the indicated
percentages by transfers among the portfolios. The entire contract value must be
included in the Asset Rebalancing Program. Other investment programs, such as
the DCA program, or other transfers or withdrawals may not work in concert with
the Asset Rebalancing Program. Therefore, owners should monitor their use of
these other programs and any other transfers or withdrawals while the Asset
Rebalancing Program is being used. Owners interested in the Asset Rebalancing
Program may obtain a separate application and full information concerning the
program and its restrictions from their securities dealer or the Annuity Service
Office. There is no charge for participating in the program.
Asset rebalancing will only be permitted on the following time
schedules:
(i) quarterly on the 25th day of the last month of the quarter (or the
next business day if the 25th is not a business day);
(ii) semi-annually on June 25th or December 26th (or the next business
day if these dates are not business days); or
(iii) annually on December 26th (or the next business day if December
26th is not a business day).
WITHDRAWALS
Prior to the earlier of the maturity date or the death of an owner, an
owner may withdraw all or a portion of his or her contract value upon written
request complete with all necessary information to the Company's Annuity Service
Office. For certain qualified contracts, exercise of the withdrawal right may
require the consent of the qualified plan participant's spouse under the
Internal Revenue Code and regulations promulgated by the Treasury Department. In
the case of a total withdrawal, the Company will pay the contract value as of
the date of receipt of the request at its Annuity Service Office, less the
annual $30 administration fee if applicable and any debt, and the owner's
contract or certificate, as applicable, will be canceled. In the case of a
partial withdrawal, the Company will pay the amount requested and cancel that
number of accumulation units credited to each investment account necessary to
equal the amount withdrawn from each investment account. (See "CHARGES AND
DEDUCTIONS")
When making a partial withdrawal, the owner should specify the
investment options from which the withdrawal is to be made. The amount requested
from an investment option may not exceed the value of that investment option. If
the owner does not specify the investment options from which a partial
withdrawal is to be taken, a partial withdrawal will be taken from the variable
account investment options until exhausted and then from the fixed account
investment options, beginning with the shortest guarantee period first and
ending with the longest guarantee period last. If the partial withdrawal is less
than the total value in the variable account investment options, the withdrawal
will be taken pro rata from the variable account investment options: taking from
each such variable account investment option an amount which bears the same
relationship to the total amount withdrawn as the value of such variable account
investment option bears to the total value of all the owner's investments in
variable account investment options.
For the rules governing the order and manner of withdrawals from the
fixed account investment options, see "FIXED ACCOUNT INVESTMENT OPTIONS."
There is no limit on the frequency of partial withdrawals; however, the
amount withdrawn must be at least $300 or, if less, the entire balance in the
investment option. If after the withdrawal the amount remaining in the
investment option is less than $100, the Company will treat the partial
withdrawal as a withdrawal of the entire amount held in the investment option.
If a partial withdrawal would reduce the contract value to less than $300, the
Company will treat the partial withdrawal as a total withdrawal of the contract
value.
The amount of any withdrawal from the variable account investment
options will be paid promptly, and in any event within seven days of receipt of
the request, complete with all necessary information at the Company's Annuity
Service Office, except that the Company reserves the right to defer the right of
withdrawal or postpone payments for any period when: (1) the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (2)
trading on the New York Stock Exchange is restricted, (3) an emergency exists as
a result of which disposal of securities held in the Variable Account is not
reasonably practicable or it is not reasonably practicable to determine the
value of the Variable Account's net assets, or (4) the Commission, by order, so
permits for the protection of security holders; provided that applicable rules
and regulations of the Commission shall govern as to whether the conditions
described in (2) and (3) exist.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax. Withdrawals are permitted from con-
18
<PAGE> 22
tracts or certificates issued in connection with Section 403(b) qualified plans
only under limited circumstances. (See "FEDERAL TAX MATTERS")
TELEPHONE REDEMPTIONS. The owner may request the option to withdraw a
portion of his or her contract value by telephone by completing a separate
application. The Company reserves the right to impose maximum withdrawal amounts
and procedural requirements regarding this privilege. For additional information
on Telephone Redemptions see "Telephone Transactions" above.
SPECIAL WITHDRAWAL SERVICES - INCOME PLAN
The Company administers an Income Plan ("IP") which enables an owner to
pre-authorize a periodic exercise of the contractual withdrawal rights described
above. Owners entering into an IP agreement instruct the Company to withdraw a
level dollar amount from specified investment options on a periodic basis. The
total of IP withdrawals in a contract year is limited to not more than 20% of
the purchase payments made by or on behalf of the owner. If an additional
withdrawal is made by an owner participating in an IP, the IP will terminate
automatically and may be reinstated only on or after the next contract
anniversary. The IP is not available to owners participating in the dollar cost
averaging program or for which purchase payments are being automatically
deducted from a bank account on a periodic basis. IP withdrawals will be free of
withdrawal and market value charges. IP withdrawals may, however, be subject to
income tax and a 10% penalty tax. (See "FEDERAL TAX MATTERS") Owners interested
in an IP may elect to participate in this program may obtain a separate
application and full information concerning the program and its restrictions
from their securities dealer or the Annuity Service Office.
LOANS
The Company offers a loan privilege only under contracts or
certificates issued in connection with Section 403(b) qualified plans that are
not subject to Title I of ERISA. Where available, owners may obtain loans using
their contract value as the only security for the loan. Loans are subject to
provisions of the Code and to applicable retirement program rules (collectively,
"loan rules"). Tax advisers and retirement plan fiduciaries should be consulted
prior to exercising loan privileges.
Under the terms of the contract, the maximum loan value is equal to 80%
of an owner's contract value, although loan rules may serve to reduce such
maximum loan value in some cases. The amount available for a loan at any given
time is the loan value less any outstanding debt. Debt equals the amount of any
loans taken by the owner plus accrued interest. Loans will be made only upon
written request from the owner. The Company will make loans within seven days of
receiving a properly completed loan application (applications are available from
the Annuity Service Office), subject to postponement under the same
circumstances that payment of withdrawals may be postponed. (See "WITHDRAWALS")
When an owner requests a loan, the Company will reduce the owner's
investment in the investment accounts and transfer the amount of the loan to the
owner's loan account, a part of the Company's general account. The owner may
designate the investment accounts from which the loan is to be withdrawn. Absent
such a designation, the amount of the loan will be withdrawn from the owner's
investment accounts in accordance with the rules for making partial withdrawals.
(See "WITHDRAWALS") The contract provides that owners may repay contract debt at
any time. Under applicable loan rules, loans generally must be repaid within
five years, repayments must be made at least quarterly and repayments must be
made in substantially equal amounts. When a loan is repaid, the amount of the
repayment will be transferred from the owner's loan account to the investment
accounts. The owner may designate the investment accounts to which a repayment
is to be allocated. Otherwise, the repayment will be allocated in the same
manner as the owner's most recent purchase payment. On each contract
anniversary, the Company will transfer from the owner's investment accounts to
his or her loan account the amount by which the owner's debt exceeds the balance
in his or her loan account.
The Company charges interest of 6% per year on contract loans. Loan
interest is payable in arrears and, unless paid in cash, the accrued loan
interest is added to the amount of the owner's debt and bears interest at 6% as
well. The Company credits interest with respect to amounts held in the owner's
loan account at a rate of 4% per year. Consequently, the net cost of loans under
the contract is 2%. If on any date an owner's debt exceeds his or her contract
value, there will be a default as to the owner. In such case the owner will
receive a notice indicating the payment needed to cure the default and will have
a thirty-one day grace period within which to pay the default amount. If the
required payment is not made within the grace period, the contract may be
foreclosed as to that owner (terminated without value) and the contract or
certificate, as applicable, canceled.
The amount of an owner's debt will be deducted from the death benefit
otherwise payable to the beneficiary. (See "DEATH BENEFIT BEFORE MATURITY DATE")
In addition, debt, whether or not repaid, will have a permanent effect on an
owner's contract value because the investment results of the investment accounts
will apply only to the unborrowed portion of the contract value. The longer debt
is outstanding, the greater the effect is likely to be. The effect could be
favorable or unfavorable. If the investment results are greater than the rate
being credited on amounts held in the loan account while the debt is
outstanding, the owner's contract
19
<PAGE> 23
value will not increase as rapidly as it would have if no debt were outstanding.
If investment results are below that rate, the contract value will be higher
than it would have been had no debt been outstanding.
DEATH BENEFIT BEFORE MATURITY DATE
In General. The following discussion applies principally to contracts
and certificates that are issued in connection with IRAs. Similar requirements
apply to contracts issued in connection with other types of qualified plans.
Somewhat different rules apply to contracts not issued in connection with
qualified plans (i.e., to "non-qualified contracts"). The requirements of the
tax law applicable to IRAs and other qualified contracts, and to the tax
treatment of amounts held and distributed under such contracts, are quite
complex. Accordingly, a prospective purchaser of a contract or certificate
should seek competent legal and tax advice regarding the suitability of the
contract or certificate for the situation involved and the requirements
governing the distribution of benefits, including death benefits, from a
contract or certificate.
Amount of Death Benefit. If the owner dies before the maturity date,
the death benefit will be the greater of the contract value or the minimum death
benefit. The minimum death benefit is equal to the sum of all purchase payments
made by or on behalf of the owner minus a reduction for any partial withdrawals
made by or on behalf of the owner. The amount of the reduction is the greater of
(a) or (b), where (a) is the amount of the partial withdrawal and (b) is the
amount obtained by multiplying the minimum death benefit prior to the withdrawal
by the ratio of the partial withdrawal to the contract value prior to the
withdrawal. Partial withdrawals include amounts applied under an annuity option
under the contract. If the owner has any debt under the contract, the death
benefit otherwise payable is reduced by such debt. (Loans are not available
under IRAs.)
The determination of the death benefit will be made on the date written
notice and proof of death, as well as all required claims forms, are received at
the Company's Annuity Service Office. No person is entitled to the death benefit
until this time.
Payment of Death Benefit. The Company will pay the death benefit to the
beneficiary if the owner dies before the maturity date.
The death benefit may be taken in the form of a lump sum immediately.
If not taken immediately, the contract or certificate will continue subject to
the following:
(1) The beneficiary will become the owner.
(2) Any excess of the death benefit over the owner's contract
value will be allocated to the owner's investment accounts in
proportion to their relative values on the date of the
Company's receipt at its Annuity Service Office of written
notice and proof of death and all required claim forms.
(3) No additional purchase payments may be made.
(4) If the beneficiary is not the deceased's owner's spouse,
distribution of the owner's entire interest in the contract or
certificate must be made by December 31 of the calendar year
containing the fifth anniversary of the owner's death, or
alternatively, distribution may be made as an annuity, under
one of the annuity options described below, which begins on or
before December 31 of the calendar year immediately following
the calendar year of the owner's death and is payable over the
life of the beneficiary or over a period not extending beyond
the life expectancy of the beneficiary.
(5) If the beneficiary is the deceased owner's spouse, the
surviving spouse may elect to receive the entire interest over
the life of the surviving spouse or over a period not
extending beyond the life expectancy of the surviving spouse,
commencing at any date on or before the later of (i) December
31 of the calendar year immediately following the calendar
year in which the owner died, and (ii) December 31 of the
calendar year in which the owner would have attained age
70-1/2. An irrevocable election of the method of distribution
by a beneficiary who is the surviving spouse must be made no
later than the earlier of December 31 of the calendar year
containing the fifth anniversary of the owner's death or the
date distributions are required to begin pursuant to this
provision.
(6) If the beneficiary is the deceased owner's spouse, the
surviving spouse may irrevocably elect to treat the owner's
interest in the Contract as his or her own IRA. This election
will be deemed to have been made if such surviving spouse (i)
fails to elect that his or her interest will be distributed in
accordance with one of the preceding provisions, (ii) makes a
regular IRA contribution under the Contract or (iii) makes a
rollover to or from the Contract.
20
<PAGE> 24
If the annuitant is changed and the contract owner is not a natural
person, the entire interest in the contract must be distributed to the contract
owner within five years. The amount distributed will be reduced by charges which
would otherwise apply upon withdrawal.
A substitution or addition of any owner may result in resetting the
death benefit to an amount equal to the contract value as of the date of the
change and treating such value as a payment made on that date for purposes of
computing the amount of the death benefit. In addition, all purchase payments
made and all amounts deducted in connection with partial withdrawals prior to
the date of the change of owner will not be considered in the determination of
the death benefit. No such change in death benefit will be made if the
individual whose death will cause the death benefit to be paid is the same after
the change in ownership or if ownership is transferred to the owner's spouse.
Death benefits are payable within seven days of the date the amount of
the death benefit is determined, as described above, subject to postponement
under the same circumstances that payment of withdrawals may be postponed. (See
"WITHDRAWALS")
ANNUITY PROVISIONS
GENERAL
Proceeds payable on death, withdrawal or the maturity date may be
applied to the annuity options described below, subject to the distribution of
death benefits provisions. (See "DEATH BENEFIT BEFORE MATURITY DATE")
Generally, annuity benefits under the contract will begin on the
maturity date. The maturity date is the date specified on the contract or
certificate specifications page. If no date is specified, the maturity date is
the maximum maturity date described below. The maximum maturity date is the
first day of the month following the later of the 85th birthday of the annuitant
or the tenth contract anniversary. An owner may specify a different maturity
date at any time by written request at least one month before both the
previously specified and the new maturity date. The new maturity date may not be
later than the maximum maturity date unless the Company consents. Maturity dates
which occur at advanced ages, e.g., past age 85, may in some circumstances have
adverse income tax consequences. (See "FEDERAL TAX MATTERS.")
Distributions from IRAs and other qualified contracts may be required
before the maturity date. In the case of IRAs, the owner's entire interest must
be distributed no later than the "required beginning date" or begin to be
distributed by that date over (a) the life of the owner or the joint lives of
the owner and the owner's designated beneficiary, or (b) a period not extending
beyond the life expectancy of the owner, or the joint life and last survivor
life expectancy of the owner and the owner's designated beneficiary. The
"required beginning date" generally is April 1 of the calendar year following
the calendar year in which the owner attains age 70 [FOLDER].
An owner may select the frequency of annuity payments. However, if the
owner's contract value at the maturity date is such that a monthly payment would
be less than $20, the Company may pay the contract value, less any debt, in one
lump sum to the annuitant on the maturity date.
ANNUITY OPTIONS
Annuity benefits are available under the contract on a fixed or
variable basis, or any combination of fixed and variable bases. On or before the
maturity date, an owner may select one or more of the annuity options described
below on a fixed and/or variable basis (except Option 5 which is available on a
fixed basis only) or choose an alternate form of settlement acceptable to the
Company. If an annuity option is not selected, the Company will provide as a
default option annuity payments on a fixed, variable or combined fixed and
variable basis in proportion to the Investment Account Value of each investment
option at the maturity date. Annuity payments will continue for 10 years or the
life of the annuitant, if longer. Treasury Department regulations may preclude
the availability of certain annuity options in connection with certain qualified
contracts. Thus, for example, in the case of contracts or certificates issued as
IRAs, the co-annuitant referred to in options 2(a) and 2(b) must be the owner's
spouse, the life expectancy of the annuitant in option 1(b) and of the joint
annuitants in option 2(b) must be at least ten years, and options 3, 4, and 5
are available only with the consent of the Company.
The following annuity options are guaranteed in the contract:
Option 1(a): Non-Refund Life Annuity - An annuity with payments during
the lifetime of the annuitant. No payments are due after the death of the
annuitant. Since there is no guarantee that any minimum number of payments will
be made, an annuitant
21
<PAGE> 25
may receive only one payment if the annuitant dies prior to the date the second
payment is due.
Option 1(b): Life Annuity with Payments Guaranteed for 10 Years - An
annuity with payments guaranteed for 10 years and continuing thereafter during
the lifetime of the annuitant. Since payments are guaranteed for 10 years,
annuity payments will be made to the end of such period if the annuitant dies
prior to the end of the tenth year.
Option 2(a): Joint & Survivor Non-Refund Life Annuity - An annuity with
payments during the lifetimes of the annuitant and a designated co-annuitant. No
payments are due after the death of the last survivor of the annuitant and
co-annuitant. Since there is no guarantee that any minimum number of payments
will be made, an annuitant or co-annuitant may receive only one payment if the
annuitant and co-annuitant die prior to the date the second payment is due.
Option 2(b): Joint & Survivor Life Annuity with Payments Guaranteed for
10 Years - An annuity with payments guaranteed for 10 years and continuing
thereafter during the lifetimes of the annuitant and a designated co-annuitant.
Since payments are guaranteed for 10 years, annuity payments will be made to the
end of such period if both the annuitant and the co-annuitant die prior to the
end of the tenth year.
In addition to the foregoing annuity options which the Company is
contractually obligated to offer at all times, the Company currently offers the
following annuity options. The Company may cease offering the following annuity
options at any time and may offer other annuity options in the future.
Option 3: Life annuity with Payments Guaranteed for 5, 10, 15 or 20
Years - An annuity with payments guaranteed for 5, 10, 15 or 20 years and
continuing thereafter during the lifetime of the annuitant. Since payments are
guaranteed for the specific number of years, annuity payments will be made to
the end of the last year of the 5, 10, 15 or 20 year period.
Option 4: Joint & Two-Thirds Survivor Non-Refund Life Annuity - An
annuity with full payments during the joint lifetime of the annuitant and a
designated co-annuitant and two-thirds payments during the lifetime of the
survivor. Since there is no guarantee that any minimum number of payments will
be made, an annuitant or co-annuitant may receive only one payment if the
annuitant and co-annuitant die prior to the date the second payment is due.
Option 5: Period Certain Only Annuity for 5, 10, 15 or 20 years - An
annuity with payments for a 5, 10, 15 or 20 year period and no payments
thereafter.
22
<PAGE> 26
DETERMINATION OF AMOUNT OF THE FIRST VARIABLE ANNUITY PAYMENT
The first variable annuity payment is determined by applying that
portion of the contract value used to purchase a variable annuity, measured as
of a date not more than ten business days prior to the maturity date (minus any
applicable premium taxes), to the annuity tables contained in the contract and
the certificate. The rates contained in such tables depend upon the annuitant's
age (as adjusted depending on the annuitant's year of birth) and the annuity
option selected. Under such tables, the longer the life expectancy of the
annuitant under any life annuity option or the duration of any period for which
payments are guaranteed under the option, the smaller will be the amount of the
first monthly variable annuity payment. The rates are based on the 1983 Table A
projected at Scale G, assume births in year 1942 and reflect an assumed interest
rate of 3% per year
ANNUITY UNITS AND THE DETERMINATION OF SUBSEQUENT VARIABLE ANNUITY PAYMENTS
Variable annuity payments subsequent to the first will be based on the
investment performance of the sub-accounts selected by the owner. The amount of
such subsequent payments is determined by dividing the amount of the first
annuity payment from each sub-account by the annuity unit value of such
sub-account (as of the same date the contract value used to effect annuity
payments under a certificate was determined) to establish the number of annuity
units which will thereafter be used to determine payments. This number of
annuity units for each sub-account is then multiplied by the appropriate annuity
unit value as of a uniformly applied date not more than ten business days before
the annuity payment is due, and the resulting amounts for each sub-account
selected by the owner are then totaled to arrive at the amount of the payment to
be made. The number of annuity units remains constant during the annuity payment
period. A pro-rata portion of the administration fee will be deducted from each
annuity payment.
The value of an annuity unit for each sub-account for any valuation
period is determined by multiplying the annuity unit value for the immediately
preceding valuation period by the net investment factor for that sub-account
(see "NET INVESTMENT FACTOR") for the valuation period for which the annuity
unit value is being calculated and by a factor to neutralize the assumed
interest rate.
A 3% assumed interest rate is built into the annuity tables in the
contract used to determine the first variable annuity payment. A higher
assumption would mean a larger first annuity payment, but more slowly rising
subsequent payments when actual investment performance exceeds the assumed rate,
and more rapidly falling subsequent payments when actual investment performance
is less than the assumed rate. A lower assumption would have the opposite
effect. If the actual net investment performance is 3% annually, annuity
payments will be level.
TRANSFERS AFTER MATURITY DATE
Once variable annuity payments have begun, an owner may transfer all or
part of the investment upon which such payments are based from one sub-account
to another. Transfers will be made upon notice to the Company at least 30 days
before the due date of the first annuity payment to which the change will apply.
Transfers after the maturity date will be made by converting the number of
annuity units being transferred by the owner to the number of annuity units of
the sub-account to which the transfer is made, so that the next annuity payment
if it were made at that time would be the same amount that it would have been
without the transfer. Thereafter, annuity payments will reflect changes in the
value of the new annuity units. Once annuity payments have commenced, no
transfers may be made from a fixed annuity option to a variable annuity option
or from a variable annuity option to a fixed annuity option. The Company
reserves the right to limit, upon notice, the maximum number of transfers an
owner may make per contract year to four. In addition, the Company reserves the
right to defer the transfer privilege at any time that the Company is unable to
purchase or redeem shares of the Trust portfolios. The Company also reserves the
right to modify or terminate the transfer privilege at any time in accordance
with applicable law.
DEATH BENEFIT ON OR AFTER MATURITY DATE
If annuity payments have been selected based on an annuity option
providing for payments for a guaranteed period, and the annuitant dies on or
after the maturity date, the Company will make the remaining guaranteed payments
to the beneficiary. Any remaining payments will be made as rapidly as under the
method of distribution being used as of the date of the annuitant's death. If no
beneficiary is living, the Company will commute any unpaid guaranteed payments
to a single sum (on the basis of the interest rate used in determining the
payments) and pay that single sum to the estate of the last to die of the
annuitant and the beneficiary.
23
<PAGE> 27
OTHER CONTRACT PROVISIONS
TEN DAY RIGHT TO REVIEW
An owner may return his or her contract or certificate to the Company's
Annuity Service Office or agent at any time within 10 days after receipt of the
contract or certificate. Within 7 days of receipt of the contract or certificate
by the Company, the Company will pay the owner's contract value, less any debt,
computed at the end of the valuation period during which the contract or
certificate is received by the Company, to the owner.
No charge is imposed upon return of the contract or certificate within
the ten day right to review period. The ten day right to review may vary in
certain states in order to comply with the requirements of insurance laws and
regulations in such states. When the contract or certificate is issued as an
individual retirement annuity under Internal Revenue Code section 408, during
the first 7 days of the 10 day period, the Company will return all purchase
payments if this is greater than the amount otherwise payable.
OWNERSHIP
In the case of an individual annuity contract, the owner is the person
entitled to exercise all rights under the contract. In the case of a group
annuity contract, the contract is owned by the group holder; however, all
contract rights and privileges not expressly reserved to the group holder may be
exercised by each owner as to his or her interest as specified in his or her
certificate. Prior to the maturity date, an owner is the person designated on
the specifications page of the contract or certificate or as subsequently named.
On and after the maturity date, the annuitant is the owner. If amounts become
payable under the contract to any beneficiary, the beneficiary is the owner.
In the case of non-qualified contracts, an owner's interest in a
contract may be changed, or a certificate or individual contract may be
collaterally assigned, at any time prior to the maturity date, subject to the
rights of any irrevocable beneficiary. Ownership of a group contract may be
assigned at any time by the group holder. Assigning a contract or interest
therein, or changing the ownership of a contract, may be treated as a
distribution of the contract value for Federal tax purposes. A change of any
owner may result in resetting the death benefit to an amount equal to the
contract value as of the date of the change and treating such value as a
purchase payment made on that date for purposes of computing the amount of the
death benefit. See "DEATH BENEFIT BEFORE MATURITY DATE"
Any change of ownership or assignment must be made in writing. Any
change must be approved by the Company. Any assignment and any change, if
approved, will be effective as of the date the Company receives the request at
its Annuity Service Office. The Company assumes no liability for any payments
made or actions taken before a change is approved or an assignment is accepted
or responsibility for the validity or sufficiency of any assignment. An absolute
assignment will revoke the interest of any revocable beneficiary.
In the case of qualified contracts, ownership of the contract or an
owner's interest in the contract generally may not be transferred except to the
trustee of an exempt employees' trust which is part of a retirement plan
qualified under Section 401 of the Internal Revenue Code or as otherwise
permitted by applicable IRS regulations. Subject to the foregoing, an owner's
interest in a qualified contract may not be sold, assigned, transferred,
discounted or pledged as collateral for a loan or as security for the
performance of an obligation or for any other purpose to any person other than
the Company.
BENEFICIARY
The beneficiary is the person, persons or entity designated on the
contract or certificate specifications page or as subsequently named. However,
if there is a surviving owner, that person will be treated as the beneficiary.
The beneficiary may be changed subject to the rights of any irrevocable
beneficiary. Any change must be made in writing, approved by the Company and if
approved, will be effective as of the date on which written. The Company assumes
no liability for any payments made or actions taken before the change is
approved. If no beneficiary is living, the contingent beneficiary will be the
beneficiary. The interest of any beneficiary is subject to that of any assignee.
If no beneficiary or contingent beneficiary is living, the beneficiary is the
estate of the deceased owner. In the case of certain qualified contracts or
certificates, regulations promulgated by the Treasury Department prescribe
certain limitations on the designation of a beneficiary.
24
<PAGE> 28
ANNUITANT
The annuitant is any natural person or persons whose life is used to
determine the duration of annuity payments involving life contingencies. If the
owner names more than one person as an "annuitant," the second person named
shall be referred to as "co-annuitant." The annuitant is as designated on the
contract or certificate specifications page, unless changed.
On the death of the annuitant, the co-annuitant, if living, becomes the
annuitant. If there is no living co-annuitant, the owner becomes the annuitant.
In the case of certain qualified contracts, there are limitations on the ability
to designate and change the annuitant and the co-annuitant. Thus, in the case of
an IRA, the owner and annuitant must be the same person and the annuitant cannot
be changed.
MODIFICATION
The contract or certificate may not be modified by the Company without
the consent of the group holder or the owner, as applicable, except as may be
required to make it conform to any law or regulation or ruling issued by a
governmental agency. However, in the case of group contracts, on 60 days' notice
to the group holder, the Company may change the administration fees, mortality
and expense risk charges, annuity purchase rates and the market value charge as
to any certificates issued after the effective date of the modification. The
provisions of the contract shall be interpreted so as to comply with the
requirements of Section 72(s) of the Internal Revenue Code.
DISCONTINUANCE OF NEW OWNERS
In the case of group contracts, on thirty days' notice to the group
holder, the Company may limit or discontinue acceptance of new applications and
the issuance of new certificates.
MISSTATEMENT AND PROOF OF AGE, SEX OR SURVIVAL
The Company may require proof of age, sex or survival of any person
upon whose age, sex or survival any payment depends. If the age or sex of the
annuitant has been misstated, the benefits will be those that would have been
provided for the annuitant's correct age and sex. If the Company has made
incorrect annuity payments, the amount of any underpayment will be paid
immediately and the amount of any overpayment will be deducted from future
annuity payments.
FIXED ACCOUNT INVESTMENT OPTIONS
Due to certain exemptive and exclusionary provisions, interests in the
fixed account investment options are not registered under the Securities Act of
1933, as amended ("1933 Act") and the Company's general account is not
registered as an investment company under the 1940 Act. Accordingly, neither
interests in the fixed account investment options nor the general account are
subject to the provisions or restrictions of the 1933 Act or the 1940 Act and
the staff of the Commission has not reviewed the disclosures in this Prospectus
relating thereto. Disclosures relating to interests in the fixed account
investment options and the general account, however, may be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy of statements made in a registration statement.
Pursuant to a Guarantee Agreement dated March 31, 1996, Manulife, the
ultimate parent of the Company, unconditionally guarantees to the Company on
behalf of and for the benefit of the Company and owners and groupholders of
fixed annuity contracts issued by the Company that it will, on demand, make
funds available to the Company for the timely payment of contractual claims
under fixed annuity contracts issued after June 27,1984. This Guarantee covers
the fixed portion of the contracts described by this Prospectus. This Guarantee
may be terminated by Manulife on notice to the Company. Termination will not
affect Manulife's continuing liability with respect to all fixed annuity
contracts issued prior to the termination of the Guarantee except if: (i) the
liability to pay contractual claims under the contracts is assumed by another
insurer or (ii) the Company is sold and the buyer's guarantee is substituted for
the Manulife guarantee.
Effective June 30, 1995, the Company entered into a Reinsurance
Agreement with Peoples Security Life Insurance Company ("Peoples") pursuant to
which Peoples reinsures certain amounts with respect to the fixed account
portion of the contracts described in this Prospectus. Under this Reinsurance
Agreement, the Company remains liable for the contractual obligations of the
contracts' fixed account and Peoples agrees to reimburse the Company for certain
amounts and obligations in connection with the fixed account. Peoples
contractual liability runs solely to the Company, and no contract owner shall
have any right of action against Peoples. Peoples is a wholly-owned subsidiary
of Louisville, Kentucky based Providian Corporation, a diversified financial
services corporation.
25
<PAGE> 29
Investment Options. Currently, there are four fixed account investment
options under the contract: one, three, five and seven year investment accounts
and a one year DCA fixed investment account which may be established under the
DCA program to make automatic monthly transfers from a one year fixed account to
one or more variable investment options. (See"SPECIAL TRANSFER SERVICES --
DOLLAR COST AVERAGING" for details.) The Company may offer additional fixed
account investment options for any yearly period from two to ten years. Fixed
investment accounts provide for the accumulation of interest on purchase
payments at guaranteed rates for the duration of the guarantee period. The
guaranteed interest rates on new amounts allocated or transferred to a fixed
investment account are determined from time-to-time by the Company in accordance
with market conditions. In no event will the guaranteed rate of interest be less
than 3%. Once an interest rate is guaranteed for a fixed investment account, it
is guaranteed for the duration of the guarantee period and may not be changed by
the Company.
Investment Accounts. Owners may allocate purchase payments, or make
transfers from their variable investment options, to fixed account investment
options at any time prior to the maturity date. The Company establishes a
separate investment account each time an owner allocates or transfers amounts to
a fixed account investment option, except that amounts allocated or transferred
to the same fixed account investment option on the same day will establish a
single investment account. Amounts may not be allocated to a fixed account
investment option that would extend the guarantee period beyond the maturity
date.
Renewals. At the end of a guarantee period, an owner may establish a
new investment account with the same guarantee period at the then current
interest rate, select a different fixed account investment option or transfer
the amounts to a variable account investment option, all without the imposition
of any charge. An owner may not select a guarantee period that would extend
beyond the maturity date. In the case of renewals within one year of the
maturity date, the only fixed account investment option available is to have
interest accrued up to the maturity date at the then current interest rate for
one year guarantee periods.
If an owner does not specify the renewal option desired, the Company
will select the same guarantee period as has just expired, so long as such
period does not extend beyond the maturity date. In the event a renewal would
extend beyond the maturity date, the Company will select the longest period that
will not extend beyond such date, except in the case of a renewal within one
year of the maturity date in which case the Company will credit interest up to
the maturity date at the then current interest rate for one year guarantee
periods.
Market Value Charge. Any amount withdrawn, transferred or borrowed from
an investment account prior to the end of the guarantee period may be subject to
a market value charge. A market value charge will be calculated separately for
each investment account affected by a transaction to which a market value charge
may apply. The market value charge for an investment account will be calculated
by multiplying the amount withdrawn or transferred from the investment account
by the adjustment factor described below. In the case of group contracts the
Company reserves the right to modify the market value charge as to any
certificates issued after the effective date of a charge specified in written
notice to the group holder.
The adjustment factor is determined by the following formula:
0.75x(B-A)xC/12 where:
A- The guaranteed interest rate on the investment account.
B- The guaranteed interest rate available, on the date the
request is processed, for amounts allocated to a new
investment account with the same length of guarantee period as
the investment account from which the amounts are being
withdrawn.
C- The number of complete months remaining to the end of the
guarantee period.
For purposes of applying this calculation, the maximum difference
between "B" and "A" will be 3%. The adjustment factor may never be less than
zero.
The total market value charge will be the sum of the market value
charges for each investment account being withdrawn. Where the guaranteed rate
available on the date of the request is less than the rate guaranteed on the
investment account from which the amounts are being withdrawn (B-A in the
adjustment factor is negative), there is no market value charge. There is only a
market value charge when interest rates have increased (B-A in the adjustment
factor is positive).
26
<PAGE> 30
There will be no market value charge on withdrawals from the fixed
account investment options in the following situations: (a) death of the owner:
(b) amounts withdrawn to pay fees or charges; (c) amounts applied at the
maturity date to purchase an annuity at the guaranteed rates provided in the
contract; (d) amounts withdrawn from investment accounts within one month prior
to the end of the guarantee period; (e) amounts withdrawn from a one-year fixed
investment account; and (f) amounts withdrawn in any contract year that do not
exceed 10% of (i) total purchase payments less (ii) any prior partial
withdrawals in that contract year.
Notwithstanding application of the foregoing formula, in no event will
the market value charge (i) be greater than the amount by which the earnings
attributable to the amount withdrawn or transferred from an investment account
exceed an annual rate of 3%, (ii) be greater than 10% of the amount transferred
or withdrawn, or (iii) reduce the amount payable on withdrawal or transfer below
the amount required under the non-forfeiture laws of the state with jurisdiction
over the contract.
Transfers. Prior to the maturity date, an owner may transfer amounts
among his or her fixed account investment options and from the fixed account
investment options to his or her variable account investment options, subject to
the following conditions. An amount in a fixed investment account may not be
transferred until held in such account for at least one year, except transfers
may be made pursuant to the Dollar Cost Averaging program. Consequently, except
as noted above, amounts in one year investment accounts effectively may not be
transferred prior to the end of the guarantee period. Amounts in any other
investment accounts may be transferred after the one year holding period has
been satisfied, but the market value charge described above may apply to such a
transfer. The market value charge, if applicable, will be deducted from the
amount transferred.
An owner must specify the fixed account investment option from or to
which a transfer is to be made. Where there are multiple investment accounts
within a fixed account investment option, amounts must be withdrawn from the
fixed account investment option on a first-in-first-out basis.
Withdrawals. An owner may make total and partial withdrawals of amounts
held in his or her fixed account investment options at any time prior to the
earlier of the death of an owner or the maturity date. Withdrawals from fixed
account investment options will be made in the same manner and be subject to the
same limitations as set forth under "WITHDRAWALS" plus the following provisions
also apply to withdrawals from fixed account investment options: (1) the Company
reserves the right to defer payment of amounts withdrawn from fixed account
investment options for up to six months from the date it receives the written
withdrawal request and contract or certificate if required (if a withdrawal is
deferred for more than 30 days pursuant to this right, the Company will pay
interest on the amount deferred at a rate not less than 3% per year); (2) if
there are multiple investment accounts under a fixed account investment option,
amounts must be withdrawn from such accounts on a first-in-first-out basis; and
(3) the market value charge described above may apply to withdrawals from any
investment option except for a one year investment option. In the event a market
value charge applies to a withdrawal from a fixed investment account, it will be
calculated with respect to the full amount in the investment account and
deducted from the amount payable in the case of a total withdrawal. In the case
of a partial withdrawal, the market value charge will be calculated on the
amount requested and deducted, if applicable, from the remaining investment
account value.
Where an owner requests a partial withdrawal in excess of his or her
amounts in the variable account investment options and does not specify the
fixed account investment options from which the withdrawal is to be made, such
withdrawal will be made from his or her investment options beginning with the
shortest guarantee period. Within such sequence, where there are multiple
investment accounts within a fixed account investment option, withdrawals will
be made on a first-in-first-out basis.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax, and withdrawals are permitted from contracts and certificates
issued in connection with Section 403(b) qualified plans only under limited
circumstances. (See "FEDERAL TAX MATTERS")
Loans. The Company offers a loan privilege only under contracts or
certificates issued in connection with Section 403(b) qualified plans that are
not subject to Title I of ERISA. Where available, owners may obtain loans using
their contract value as the only security for the loan. Owners may borrow
amounts allocated to their fixed investment accounts in the same manner and
subject to the same limitations as set forth under "LOANS." The market value
charge described above may apply to amounts transferred from the fixed
investment accounts to the loan account in connection with such loans and, if
applicable, will be deducted from the amount so transferred.
Fixed Annuity Options. Subject to the distribution of death benefits
provisions (see "DEATH BENEFIT BEFORE MATURITY DATE)", on death, withdrawal or
the maturity date, the proceeds may be applied to a fixed annuity option. (See
"ANNUITY OPTIONS") The amount of each fixed annuity payment is determined by
applying the portion of the proceeds (less any applicable premium taxes) applied
to purchase the fixed annuity to the appropriate table in the contract. If the
table in use by the Company is more favorable to the owner, the Company will
substitute that table. The Company guarantees the dollar amount of fixed
27
<PAGE> 31
annuity payments.
CHARGES AND DEDUCTIONS
Charges and deductions are assessed against purchase payments, contract
values or annuity payments. Currently, there are no deductions made from
purchase payments, except for premium taxes in certain states. In addition,
there are deductions from and expenses paid out of the assets of the Trust
portfolios that are described in the accompanying Prospectus of the Trust.
ADMINISTRATION FEES
Except as noted below, the Company will deduct each year an annual
administration fee of $30 from each owner's contract value as partial
compensation for the cost of providing all administrative services attributable
to the contracts and certificates and the operations of the Variable Account and
the Company in connection with the contracts and certificates. However, if prior
to the maturity date the contract value is greater than or equal to $100,000 at
the time of the fee's assessment, the fee will be waived. Prior to the maturity
date, this administration fee is deducted on the last day of each contract year.
It is withdrawn from each investment option in the same proportion that the
value of such investment option bears to the sum of the investments options. If
an owner's entire contract value is withdrawn on other than the last day of any
contract year, the $30 administration fee will be deducted from the amount paid.
During the annuity period, the fee is deducted on a pro-rata basis from each
annuity payment.
A daily charge in an amount equal to 0.15% of the value of each
variable investment account on an annual basis is also deducted from each
sub-account to reimburse the Company for administrative expenses. This
asset-based administrative charge will not be deducted from the fixed account
investment options. The charge will be reflected in the contract value as a
proportionate reduction in the value of each variable investment account.
Because this portion of the administrative fee is a percentage of assets rather
than a flat amount, larger contract values will in effect pay a higher
proportion of this portion of the administrative expense than smaller contract
values.
The Company does not expect to recover from such fees any amount in
excess of its accumulated administrative expenses. Even though administrative
expenses may increase, the Company guarantees that it will not increase the
amount of the administration fees as to any outstanding individual contracts or
any certificates under group contracts issued prior to the effective date of the
Company's modification of such fees. There is no necessary relationship between
the amount of the administrative charge imposed on a given certificate and the
amount of the expense that may be attributed to that contract or certificate.
REDUCTION OR ELIMINATION OF ANNUAL ADMINISTRATION FEE
The amount of the annual administration fee on a contract or
certificate may be reduced or eliminated when some or all of the contracts or
certificates are to be sold to a group of individuals in such a manner that
results in savings of administration expenses. The entitlement to such a
reduction or elimination of the administration charges will be determined by the
Company in the following manner:
1. The size and type of group to which administrative services are to
be provided will be considered.
2. The total amount of purchase payments to be received will be
considered.
3. There may be other circumstances of which the Company is not
presently aware, which could result in reduced administrative expense.
If, after consideration of the foregoing factors, it is determined that
there will be a reduction or elimination of administration expenses, the Company
will provide a reduction in the annual administration fee. In no event will
reduction or elimination of the administration fees be permitted where such
reduction or elimination will be unfairly discriminatory to any person. The
Company may waive all or a portion of the administration fee when a contract or
certificate is issued to an officer, director or employee, or relative thereof,
of the Company, Manulife, the Trust or any of their affiliates.
MORTALITY AND EXPENSE RISK CHARGE
The mortality risk assumed by the Company is the risk that annuitants
may live for a longer period of time than estimated. The Company assumes this
mortality risk by virtue of annuity rates incorporated into the contract which
cannot be changed in the case of individual contracts or with respect to
existing certificates in the case of group contracts. This assures each
annuitant that his or her longevity will not have an adverse effect on the
amount of annuity payments. Also, the Company guarantees that if an owner dies
28
<PAGE> 32
before the maturity date, it will pay a death benefit. (See "DEATH BENEFIT
BEFORE MATURITY DATE") The expense risk assumed by the Company is the risk that
the administration charges may be insufficient to cover actual expenses.
To compensate it for assuming these risks, the Company currently
deducts from each of the sub-accounts a daily charge in an amount equal to 0.85%
of the value of the variable investment accounts on an annual basis, consisting
of 0.55% for the mortality risk and 0.30% for the expense risk. The charge will
be reflected in each owner's contract value as a proportionate reduction in the
value of each variable investment account. The rate of the mortality and expense
risk charge cannot be increased under an individual contract. The rate can be
increased under a group contract, but only as to certificates issued after the
effective date of the increase and upon 60 days' prior written notice to the
group holder. The Company may issue contracts and certificates with a mortality
or expense risk charge at rates less than those set out above, if it concludes
that the mortality or expense risks of the groups involved are less than the
risks it has determined for persons for whom the contracts have been generally
designed. If the charge is insufficient to cover the actual cost of the
mortality and expense risks undertaken, the Company will bear the loss.
Conversely, if the charge proves more than sufficient, the excess will be profit
to the Company and will be available for any proper corporate purpose including,
among other things, payment of distribution expenses. On the Period Certain Only
Annuity Option, where an owner elects benefits payable on a variable basis, the
mortality and expense risk charge is assessed although the Company bears only
the expense risk and not any mortality risk. The mortality and expense risk
charge is not assessed against the fixed account investment options.
TAXES
The Company reserves the right to charge, or provide for, certain taxes
against purchase payments (either at the time of payment or liquidation),
contract values, payment of death benefit or annuity payments. Such taxes may
include premium taxes or other taxes levied by any government entity which the
Company determines to have resulted from the (i) establishment or maintenance of
the Variable Account, (ii) receipt by the Company of purchase payments, (iii)
issuance of the contracts or certificates, or (iv) commencement or continuance
of annuity payments under the contracts or certificates. In addition, the
Company will withhold taxes to the extent required by applicable law.
Except for residents of those states which apply premium taxes upon
receipt of purchase payments, premium taxes will be deducted from the contract
value used to provide for fixed or variable annuity payments. For residents of
those states which apply premium taxes upon receipt of purchase payments,
premium taxes will be deducted upon payment of any withdrawal benefits, upon
any annuitization, or payment of death benefits. The amount deducted will
depend on the premium tax assessed in the applicable state. State premium taxes
currently range from 0% to 3.5% depending on the jurisdiction and the tax
status of the contract and are subject to change by the legislature or other
authority (see "APPENDIX B: STATE PREMIUM TAXES").
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the federal income tax treatment of the
contract is not exhaustive, does not purport to cover all situations, and is not
intended as tax advice. The federal income tax treatment of a group annuity
contract is unclear in certain circumstances, and a qualified tax adviser should
always be consulted with regard to the application of law to individual
circumstances. This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Department regulations, and interpretations
existing on the date of this Prospectus. These authorities, however, are subject
to change by Congress, the Treasury Department, and judicial decisions.
References below to the contract generally include the certificate in the case
of group contracts.
This discussion does not address state or local tax consequences
associated with the purchase of a contract. In addition, THE COMPANY MAKES NO
GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY
CONTRACT OR OF ANY TRANSACTION INVOLVING A CONTRACT.
THE COMPANY'S TAX STATUS
The Company is taxed as a life insurance company under the Code. Since
the operations of the Variable Account are a part of, and are taxed with, the
operations of the Company, the Variable Account is not separately taxed as a
"regulated investment company" under the Code. Under existing federal income tax
laws, investment income and capital gains of the Variable Account are not taxed
to the extent they are applied under a contract. The Company does not anticipate
that it will incur any federal income tax liability attributable to such income
and gains of the Variable Account, and therefore the Company does not intend to
make provision for any such taxes. If the Company is taxed on investment income
or capital gains of the Variable Account, then the Company may impose a charge
against the Variable Account in order to make provision for such taxes.
29
<PAGE> 33
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Code, except as described below, any
increase in an owner's contract value is generally not taxable to the owner or
annuitant until received, either in the form of annuity payments as contemplated
by the contract, or in some other form of distribution. However, certain
requirements must be satisfied in order for this general rule to apply,
including: (1) the contract must be owned by an individual (or treated as owned
by an individual), (2) the investments of the Variable Account must be
"adequately diversified" in accordance with Treasury Department regulations, (3)
the Company, rather than the owner, must be considered the owner of the assets
of the Variable Account for federal tax purposes, and (4) the contract must
provide for appropriate amortization, through annuity payments, of the
contract's purchase payments and earnings, e.g., the maturity date must not
occur at too advanced an age.
Non-Natural Owners. As a general rule, deferred annuity contracts held
by "non-natural persons" such as a corporation, trust or other similar entity,
as opposed to a natural person, are not treated as annuity contracts for federal
tax purposes. The investment income on such contracts is taxed as ordinary
income that is received or accrued by the owner during the taxable year. There
are several exceptions to this general rule for non-natural owners. First,
contracts will generally be treated as held by a natural person if the nominal
owner is a trust or other entity which holds the contract as an agent for a
natural person. Thus, if a group annuity contract is held by a trustee, contract
owners who are individuals should be treated as owning an annuity contract for
federal tax purposes. However, this special exception will not apply in the case
of any employer who is the nominal owner of an annuity contract under a
non-qualified deferred compensation arrangement for its employees.
In addition, exceptions to the general rule for non-natural owners will
apply with respect to (1) contracts acquired by an estate of a decedent by
reason of the death of the decedent, (2) certain qualified contracts, (3)
certain annuities purchased by employers upon the termination of certain
qualified plans, (4) certain annuities used in connection with structured
settlement agreements, and (5) annuities purchased with a single premium when
the annuity starting date (as defined in the tax law) is no later than a year
from purchase of the annuity and substantially equal periodic payments are made,
not less frequently than annually, during the annuity period.
Diversification Requirements. For a contract to be treated as an
annuity contract for federal income tax purposes, the investments of the
Variable Account must be "adequately diversified" in accordance with Treasury
Department regulations. The Secretary of the Treasury has issued regulations
which prescribe standards for determining whether the investments of the
Variable Account are "adequately diversified." If the Variable Account failed to
comply with these diversification standards, a contract would not be treated as
an annuity contract for federal income tax purposes and an owner would be
taxable currently on the excess of his or her contract value over the premiums
he or she paid for the contract.
Although the Company does not control the investments of the Trust, it
expects that the Trust will comply with such regulations so that the Variable
Account will be considered "adequately diversified."
Ownership Treatment. In certain circumstances, a variable annuity owner
may be considered the owner, for federal income tax purposes, of the assets of
the separate account used to support his or her contract. In those
circumstances, income and gains from such separate account assets would be
includible in the variable annuity owner's gross income. The Internal Revenue
Service (the "Service") has stated in published rulings that a variable annuity
owner will be considered the owner of separate account assets if the owner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. In addition, the Treasury
Department announced, in connection with the issuance of regulations concerning
investment 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, 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 policyholders may direct their investments to
particular sub-accounts [of a separate account] 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 this contract are similar to, but different
in certain respects from, those described by the Service in rulings in which it
was determined that policyholders were not owners of separate account assets.
For example, an owner under this contract has the choice of many more investment
options to which to allocate premiums and contract values, and may be able to
transfer among investment options more frequently than in such rulings. These
differences could result in the owner being treated as the owner of the assets
of the Variable Account and thus subject to current taxation on the income and
gains from those assets. In addition, the Company does not know what standards
will be set forth in the regulations or rulings which the Treasury Department
has
30
<PAGE> 34
stated it expects to issue. The Company therefore reserves the right to modify
the contract as necessary to attempt to prevent owners from being considered the
owners of the assets of the Variable Account.
Delayed Maturity Dates. If the maturity date occurs (or is scheduled to
occur) at a time when the annuitant has reached an advanced age, e.g., past age
85, it is possible that the contract would not be treated as an annuity for
federal income tax purposes. In that event, the income and gains under the
contract could be currently includible in the owner's income.
The remainder of this discussion assumes that the contract will be
treated as an annuity contract for federal income tax purposes and that the
Company will be treated as the owner of the Variable Account assets.
TAXATION OF PARTIAL AND FULL WITHDRAWALS
In the case of a partial withdrawal, amounts received are includible in
income to the extent the owner's contract value before the withdrawal exceeds
his or her "investment in the contract." In the case of a full withdrawal,
amounts received are includible in income to the extent they exceed the
"investment in the contract." For these purposes the investment in the contract
at any time equals the total of the purchase payments made under the contract to
that time (to the extent such payments were neither deductible when made nor
excludable from income as, for example, in the case of certain contributions to
qualified plans) less any amounts previously received from the contract which
were not included in income.
Other than in the case of certain qualified contracts, any amount
received as a loan under a contract, and any assignment or pledge (or agreement
to assign or pledge) any portion of the contract value, is treated as a
withdrawal of such amount or portion. (Loans, assignments and pledges are
permitted only in limited circumstances under qualified contracts.) The
investment in the contract is increased by the amount includible in income with
respect to such assignment or pledge, though it is not affected by any other
aspect of the assignment or pledge (including its release). If an individual
transfers his or her interest in a contract without adequate consideration to a
person other than the owner's spouse (or to a former spouse incident to
divorce), the owner will be taxed on the difference between his or her contract
value and the "investment in the contract" at the time of transfer. In such
case, the transferee's investment in the contract will be increased to reflect
the increase in the transferor's income.
There may be special income tax issues present in situations where the
owner and the annuitant are not the same person and are not married to one
another. A tax advisor should be consulted in those situations.
TAXATION OF ANNUITY PAYMENTS
Normally, the portion of each annuity payment taxable as ordinary
income is equal to the excess of the payment over the exclusion amount. In the
case of variable annuity payments, the exclusion amount is the "investment in
the contract" (defined above) allocated to the variable annuity option, adjusted
for any period certain or refund feature, when payments begin to be made divided
by the number of payments expected to be made (determined by Treasury Department
regulations which take into account the annuitant's life expectancy and the form
of annuity benefit selected). In the case of fixed annuity payments, the
exclusion amount is the amount determined by multiplying (1) the payment by (2)
the ratio of the investment in the contract allocated to the fixed annuity
option, adjusted for any period certain or refund feature, to the total expected
value of annuity payments for the term of the contract (determined under
Treasury Department regulations). A simplified method of determining the taxable
portion of annuity payments applies to contracts issued in connection with
certain qualified plans other than IRAs.
Once the total amount of the investment in the contract is excluded
using these ratios, annuity payments will be fully taxable. If annuity payments
cease because of the death of the annuitant and before the total amount of the
investment in the contract is recovered, the unrecovered amount generally will
be allowed as a deduction to the annuitant in his or her last taxable year.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a contract because of the death of an
owner or an annuitant. Prior to the maturity date, such death benefit proceeds
are includible in income as follows: (1) if distributed in a lump sum, they are
taxed in the same manner as a full withdrawal, as described above, or (2) if
distributed under an annuity option, they are taxed in the same manner as
annuity payments, as described above. After the maturity date, where a
guaranteed period exists under an annuity option and the annuitant dies before
the end of that period, payments made to the beneficiary for the remainder of
that period are includible in income as follows: (1) if received in a lump sum,
they are includible in income to the extent that they exceed the unrecovered
investment in the contract at that time, or (2) if distributed in accordance
with the existing annuity option selected, they are fully excludable from income
until the remaining investment in the contract is deemed to be recovered, and
all annuity payments thereafter are fully includible in income.
31
<PAGE> 35
PENALTY TAX ON PREMATURE DISTRIBUTIONS
There is a 10% penalty tax on the taxable amount of any payment from a
non-qualified contract unless the payment is: (a) received on or after the owner
reaches age 59 1/2; (b) attributable to the owner's becoming disabled (as
defined in the tax law); (c) made to a beneficiary on or after the death of the
owner or, if the owner is not an individual, on or after the death of the
primary annuitant (as defined in the tax law); (d) made as a series of
substantially equal periodic payments (not less frequently than annually) for
the life (or life expectancy) of the annuitant or for the joint lives (or joint
life expectancies) of the annuitant and designated beneficiary (as defined in
the tax law); (e) made under a contract purchased with a single premium when the
annuity starting date (as defined in the tax law) is no later than a year from
purchase of the contract and substantially equal periodic payments are made, not
less frequently than annually, during the annuity period; or (f) made with
respect to certain annuities issued in connection with structured settlement
agreements. (A similar penalty tax, applicable to distributions from certain
qualified contracts, is discussed below.)
AGGREGATION OF CONTRACTS
In certain circumstances, the amount of an annuity payment or a
withdrawal from a contract that is includible in income may be determined by
combining some or all of the non-qualified certificates and annuity contracts
owned by an individual. For example, if a person purchases a contract offered by
this Prospectus and also purchases at approximately the same time an immediate
annuity, the Service may treat the two contracts as one contract. In addition,
if a person purchases two or more deferred annuity contracts from the same
insurance company (or its affiliates) during any calendar year, all such
contracts will be treated as one contract. The effects of such aggregation are
not clear; however, it could affect the amount of a withdrawal or an annuity
payment that is taxable and the amount which might be subject to the penalty tax
described above.
LOSS OF INTEREST DEDUCTION WHERE CONTRACTS ARE HELD BY OR FOR THE BENEFIT OF
CERTAIN NON-NATURAL PERSONS
In the case of contracts issued after June 8, 1997 to a non-natural
taxpayer (such as a corporation or a trust), or held for the benefit of such an
entity, recent changes in the tax law may result in otherwise deductible
interest no longer being deductible by the entity, regardless of whether the
debt is used to purchase or carry the contract. However, this interest deduction
disallowance does not affect contracts where the income on such contracts is
treated as ordinary income that is received or accrued by the owner during the
taxable year. Entities that are considering purchasing the contract, or entities
that will be beneficiaries under a contract, should consult a tax adviser.
QUALIFIED RETIREMENT PLANS
The contracts are also designed for use in connection with certain
types of retirement plans which receive favorable treatment under the Code.
Numerous special tax rules apply to the participants in such qualified plans and
to the contracts used in connection with such qualified plans. Therefore, no
attempt is made in this Prospectus to provide more than general information
about use of the contract with the various types of qualified plans.
The tax rules applicable to qualified plans vary according to the type
of plan and the terms and conditions of the plan itself. For example, for both
withdrawals and annuity payments under certain qualified contracts, there may be
no "investment in the contract" and the total amount received may be taxable.
Also, loans from qualified contracts, where allowed, are subject to a variety of
limitations, including restrictions as to the amount that may be borrowed, the
duration of the loan, and the manner in which the loan must be repaid. (Owners
should always consult their tax advisors and retirement plan fiduciaries prior
to exercising their loan privileges.) Both the amount of the contribution that
may be made, and the tax deduction or exclusion that the owner may claim for
such contribution, are limited under qualified plans. If this contract is used
in connection with a qualified plan, the owner and annuitant must be the same
individual. If a co-annuitant is named, all distributions made while the
annuitant is alive must be made to the annuitant. Also, if a co-annuitant is
named who is not the annuitant's spouse, the annuity options which are available
may be limited, depending on the difference in ages between the annuitant and
co-annuitant. Furthermore, the length of any guarantee period may be limited in
some circumstances to satisfy certain minimum distribution requirements under
the Code.
In addition, special rules apply to the time at which distributions
must commence and the form in which the distributions must be paid. For example,
failure to comply with minimum distribution requirements applicable to IRAs and
other qualified plans will result in the imposition of an excise tax. This
excise tax generally equals 50% of the amount by which a minimum required
distribution exceeds the actual distribution from the qualified plan. In the
case of IRAs, distributions of minimum amounts (as specified in the tax law)
must generally commence by April 1 of the calendar year following the calendar
year in which the owner attains age 70 1/2. In the case of certain other
qualified plans, distributions of such minimum amounts generally must commence
by
32
<PAGE> 36
the later of this date or April 1 of the calendar year following the calendar
year in which the employee retires.
There is also a 10% penalty tax on the taxable amount of any payment
from certain qualified contracts (but not section 457 plans). (The amount of the
penalty tax is 25% of the taxable amount of any payment received from a "SIMPLE
retirement account" during the 2-year period beginning on the date the
individual first participated in any qualified salary reduction agreement (as
defined in the tax law) maintained by the individual's employer.) There are
exceptions to this penalty tax which vary depending on the type of qualified
plan. In the case of an IRA, including a "SIMPLE IRA," exceptions provide that
the penalty tax does not apply to a payment (a) received on or after the owner
reaches age 59 1/2, (b) received on or after the owner's death or because of the
owner's disability (as defined in the tax law), or (c) made as a series of
substantially equal periodic payments (not less frequently than annually) for
the life (or life expectancy) of the owner or for the joint lives (or joint life
expectancies) of the owner and designated beneficiary (as defined in the tax
law). These exceptions, as well as certain others not described herein,
generally apply to taxable distributions from other qualified plans (although,
in the case of plans qualified under sections 401 and 403, exception "c" above
for substantially equal periodic payments applies only if the owner has
separated from service). In addition, the penalty tax does not apply to certain
distributions from IRAs taken after December 31, 1997 which are used for
qualified first time home purchases or for higher education expenses. Special
conditions must be met to qualify for these two exceptions to the penalty tax.
Owners wishing to take a distribution from an IRA for these purposes should
consult their tax adviser.
When issued in connection with a qualified plan, a contract will be
amended as generally necessary to conform to the requirements of the type of
plan. However, owners, annuitants, and beneficiaries are cautioned that the
rights of any person to any benefits under qualified plans may be subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the contract and certificate. In addition, the Company shall not
be bound by terms and conditions of qualified plans to the extent such terms and
conditions contradict the contract or certificate, unless the Company consents.
QUALIFIED PLAN TYPES
Following are brief descriptions of various types of qualified plans in
connection with which the Company may issue a contract.
Individual Retirement Annuities. Section 408 of the Code permits
eligible individuals to contribute to an individual retirement program known as
an IRA. IRAs are subject to limits on the amounts that may be contributed
(generally, the lesser of $2000 or 100% of earned income), the persons who may
be eligible and on the time when distributions may commence. Also, distributions
from certain other types of qualified retirement plans may be "rolled over" on a
tax-deferred basis into an IRA. The contribution limits do not apply to such
rollover amounts. The contract may not be used in connection with an "Education
IRA."
Simplified Employee Pensions (SEP-IRAs). Section 408(k) of the Code
allows employers to establish simplified employee pension plans for their
employees, using the employees' IRAs for such purposes, if certain criteria are
met. Under these plans the employer may, within specified limits, make
deductible contributions on behalf of the employees to IRAs. Employers intending
to use the contract in connection with such plans should seek competent advice.
SIMPLE IRAs. Section 408(p) of the Code permits certain small employers
to establish "SIMPLE retirement accounts," including SIMPLE IRAs, for their
employees. Under SIMPLE IRAs, certain deductible contributions are made by both
employees and employers. SIMPLE IRAs are subject to various requirements,
including limits on the amounts that may be contributed, the persons who may be
eligible, and the time when distributions may commence. Employees intending to
use the contract in connection with such plans should seek competent advice.
Corporate and Self-Employed ("H.R. 10" and "Keogh") Pension and
Profit-Sharing Plans. Sections 401(a) and 403(a) of the Code permit corporate
employers to establish various types of tax-favored retirement plans for
employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "H.R. 10" or "Keogh," permits self-employed
individuals also to establish such tax-favored retirement plans for themselves
and their employees. Such retirement plans may permit the purchase of the
contract in order to provide benefits under the plans. Employers intending to
use the contract in connection with such plans should seek competent advice.
Tax-Sheltered Annuities. Section 403(b) of the Code permits public
school employees and employees of certain types of charitable, educational and
scientific organizations specified in Section 501(c)(3) of the Code to have
their employers purchase annuity contracts for them and, subject to certain
limitations, to exclude the amount of purchase payments from gross income for
tax purposes. These annuity contracts are commonly referred to as "tax-sheltered
annuities." Purchasers of the contracts for such purposes should seek competent
advice as to eligibility, limitations on permissible amounts of purchase
payments and other tax consequences associated with the contracts.
33
<PAGE> 37
Tax-sheltered annuity contracts must contain restrictions on
withdrawals of (i) contributions made pursuant to a salary reduction agreement
in years beginning after December 31, 1988, (ii) earnings on those
contributions, and (iii) earnings after 1988 on amounts attributable to salary
reduction contributions (and earnings on those contributions) held as of the
last day of the year beginning before January 1, 1989. These amounts can be paid
only if the employee has reached age 59 1/2, separated from service, died, or
become disabled (within the meaning of the tax law), or in the case of hardship
(within the meaning of the tax law). Amounts permitted to be distributed in the
event of hardship are limited to actual contributions; earnings thereon cannot
be distributed on account of hardship. Amounts subject to the withdrawal
restrictions applicable to section 403(b)(7) custodial accounts may be subject
to more stringent restrictions. (These limitations on withdrawals do not apply
to the extent the Company is directed to transfer some or all of the contract
value to the issuer of another tax-sheltered annuity or into a section 403(b)(7)
custodial account.)
Deferred Compensation Plans of State and Local Governments and
Tax-Exempt Organizations. Section 457 of the Code permits employees of state and
local governments and tax-exempt organizations to defer a portion of their
compensation without paying current taxes. The employees must be participants in
an eligible deferred compensation plan. Generally, a contract purchased by a
state or local government or a tax-exempt organization will not be treated as an
annuity contract for federal income tax purposes. Those who intend to use the
contracts in connection with such plans should seek competent advice.
ROTH IRAS
Recently enacted Section 408A of the Code permits eligible individuals to
contribute to a type of IRA known as a "Roth IRA." Roth IRAs differ from other
IRAs in several respects. Among the differences is that, although contributions
to a Roth IRA are not deductible, "qualified distributions" from a Roth IRA will
be excludable from income. Additionally, the eligibility and mandatory
distribution requirements for Roth IRAs differ from non-Roth IRAs.
CONTRIBUTIONS: The maximum amount of contributions allowable for any
taxable year to all Roth IRAs maintained for an individual (the "contribution
limit") generally is the lesser of $2,000 and 100% of compensation for the
taxable year. The contribution limit is reduced by the amount of any deductible
and non-deductible contributions to a non-Roth IRA. For individuals who file a
joint return and receive less compensation for the taxable year than their
spouse, special rules apply.
For taxpayers with adjusted gross incomes in excess of certain limits no
contribution (or only a reduced contribution) to a Roth IRA is allowed. For
married individuals filing a joint return, the contribution limit is phased out
for adjusted gross income between $150,000 and $160,000. (Special rules apply to
married individuals filing separate returns.) For single individuals, the
contribution limit is phased out for adjusted gross incomes between $95,000 and
$110,000.
ROLLOVERS: A rollover may be made to a Roth IRA only if it is a "qualified
rollover contribution." A "qualified rollover contribution" is a rollover
contribution to a Roth IRA from another Roth IRA or from a non-Roth IRA, but
only if such rollover contribution meets the rollover requirements for IRAs
under section 408(d)(3) of the Code. In addition, a transfer may be made to a
Roth IRA directly from another Roth IRA or from a non-Roth IRA. Persons with
adjusted gross incomes in excess of $100,000 or who are married and file a
separate return are not eligible to make a qualified rollover contribution or a
transfer in a taxable year from a non-Roth IRA to a Roth IRA.
In the case of a qualified rollover contribution or a transfer from a
non-Roth IRA to a Roth IRA, any portion of the amount rolled over which would be
includible in gross income were it not part of a qualified rollover contribution
or a nontaxable transfer will be includible in gross income. However, the 10
percent penalty tax on premature distributions generally will not apply. If such
a rollover occurs before January 1, 1999, any portion of the amount rolled over
which is required to be included in gross income must be included ratably over
the 4-taxable year period beginning with the taxable year in which the rollover
is made.
CONVERSIONS: All or part of amounts in a non-Roth IRA may be converted into
a Roth IRA. Such a conversion can be made without taking an actual distribution
from the IRA. For example, an individual may make a conversion by notifying the
IRA issuer or trustee, whichever is applicable. The conversion of an IRA to a
Roth IRA is a special type of qualified rollover distribution. Hence, the IRA
participant must be eligible to make a qualified rollover distribution in order
to convert an IRA to a Roth IRA. A conversion typically will result in the
inclusion of some or all of the IRA value in gross income, as described above.
UNDER SOME CIRCUMSTANCES, IT MAY NOT BE ADVISABLE TO ROLLOVER, TRANSFER, OR
CONVERT ALL OR PART OF A NON-ROTH IRA TO A ROTH IRA. WHETHER AN OWNER SHOULD DO
SO WILL DEPEND ON THE IRA OWNER'S PARTICULAR FACTS AND CIRCUMSTANCES, INCLUDING,
BUT NOT LIMITED TO, SUCH FACTORS AS WHETHER THE OWNER IS QUALIFIED TO MAKE SUCH
A ROLLOVER, TRANSFER, OR CONVERSION, HIS OR HER FINANCIAL SITUATION, AGE,
CURRENT AND FUTURE INCOME NEEDS, YEARS TO
34
<PAGE> 38
RETIREMENT, CURRENT AND FUTURE TAX RATES, ABILITY AND DESIRE TO PAY TAXES WITH
RESPECT TO AMOUNTS ROLLED OVER, TRANSFERRED, OR CONVERTED, AND WHETHER SUCH
TAXES MIGHT NEED TO BE PAID WITH WITHDRAWALS FROM OWNER'S ROTH IRA (SEE
DISCUSSIONS BELOW OF "NONQUALIFIED DISTRIBUTIONS" AND "PENDING LEGISLATION.")
PERSONS CONSIDERING A ROLLOVER, TRANSFER, OR CONVERSION SHOULD CONSULT A
QUALIFIED TAX ADVISOR.
QUALIFIED DISTRIBUTIONS: Any "qualified distribution" from a Roth IRA is
excludible from gross income. A "qualified distribution" is a payment or
distribution which satisfies two requirements. First, the payment or
distribution must be (a) made after the Owner attains age 59-1/2, (b) made after
the Owner's death, (c) attributable to the Owner being disabled, or (d) a
qualified first-time homebuyer distribution within the meaning of section
72(t)(2)(F) of the Code. Second, the payment or distribution must be made in a
taxable year that is at least five years after (a) the first taxable year for
which a contribution was made to any Roth IRA established for the Owner, or (b)
in the case of a payment or distribution properly allocable to a qualified
rollover contribution from a non-Roth IRA (or income allocable thereto), the
taxable year in which the rollover contribution was made.
NONQUALIFIED DISTRIBUTIONS: A distribution from a Roth IRA which is not a
qualified distribution is generally taxed in the same manner as a distribution
from non-Roth IRAs. However, such a distribution will be treated as made first
from contributions to the Roth IRA to the extent that such distribution, when
added to all previous distributions from the Roth IRA, does not exceed the
aggregate amount of contributions to the Roth IRA. Generally, all Roth IRAs are
aggregated to determine the tax treatment of distributions.
MANDATORY DISTRIBUTIONS: Distributions from a Roth IRA need not commence at
age 70-1/2. However, if the Owner dies before the entire interest in a Roth IRA
is distributed, any remaining interest in the Contract must be distributed by
December 31 of the calendar year containing the fifth anniversary of the Owner's
death, subject to certain exceptions.
PENDING LEGISLATION: Pending legislation may modify these rules
retroactively to January 1, 1998. In particular, this legislation may provide
that if amounts rolled over, transferred, or converted from a non-Roth IRA (a
"conversion") are withdrawn from a Roth IRA within the 5-year period beginning
with the date of conversion, then amounts withdrawn which were includible in
income due to the conversion would be subject to the 10-percent penalty tax on
premature distributions and, if the 4-year income inclusion rule applied to the
conversion, an additional 10-percent tax.
35
<PAGE> 39
DIRECT ROLLOVERS
If the contract is used in connection with a retirement plan that is
qualified under sections 401(a), 403(a), or 403(b) of the Code, any "eligible
rollover distribution" from the contract will be subject to "direct rollover"
and mandatory withholding requirements. An eligible rollover distribution
generally is any taxable distribution from such qualified plans, excluding
certain amounts such as (i) minimum distributions required under section
401(a)(9) of the Code, and (ii) certain distributions for life, life expectancy,
or for 10 years or more which are part of a "series of substantially equal
periodic payments."
Under these requirements, federal income tax equal to 20% of the
eligible rollover distribution will be withheld from the amount of the
distribution. Unlike withholding on certain other amounts distributed from the
contract, discussed below, the owner cannot elect out of withholding with
respect to an eligible rollover distribution. However, this 20% withholding will
not apply if, instead of receiving the eligible rollover distribution, the
distributee elects to have it directly transferred to certain qualified plans.
Prior to receiving an eligible rollover distribution, a notice will be provided
explaining generally the direct rollover and mandatory withholding requirements
and how to avoid the 20% withholding by electing a direct rollover.
FEDERAL INCOME TAX WITHHOLDING
The Company will withhold and remit to the U.S. government a part of
the taxable portion of each distribution made under a contract unless the
distributee notifies the Company at or before the time of the distribution that
he or she elects not to have any amounts withheld. In certain circumstances, the
Company may be required to withhold tax, as explained above. The withholding
rates applicable to the taxable portion of periodic annuity payments (other than
eligible rollover distributions) are the same as the withholding rates generally
applicable to payments of wages. In addition, the withholding rate applicable to
the taxable portion of non-periodic payments (including withdrawals prior to the
maturity date) is 10%. As discussed above, the withholding rate applicable to
eligible rollover distributions is 20%.
GENERAL MATTERS
TAX DEFERRAL
The status of the contract as an annuity generally allows all earnings
on the underlying investments to be tax-deferred until withdrawn or until
annuity payments begin. (See "FEDERAL TAX MATTERS") This tax deferred treatment
may be beneficial to owners in building assets in a long-term investment
program.
PERFORMANCE DATA
Each of the sub-accounts may in its advertising and sales materials
quote total return figures. The sub-accounts may advertise both "standardized"
and "non-standardized" total return figures, although standardized figures will
always accompany non-standardized figures. Non-standardized total return figures
may be quoted assuming both (i) redemption at the end of the time period and
(ii) not assuming redemption at the end of the time period. Standardized figures
include total return figures from: (i) the inception date of the sub-account of
the Variable Account which invests in the portfolio or (ii) ten years, whichever
period is shorter. Non-standardized figures include total return numbers from:
(i) inception date of the portfolio or (ii) ten years, whichever period is
shorter. Such figures will always include the average annual total return for
recent one year and, when applicable, five and ten year periods and, where less
than ten years, the inception date of the sub-account, in the case of
standardized returns, and the inception date of the portfolio, in the case of
nonstandardized returns. Where the period since inception is less than one year,
the total return quoted will be the aggregate return for the period. The average
annual total return is the average annual compounded rate of return that equates
a purchase payment to the market value of such purchase payment on the last day
of the period for which such return is calculated. The aggregate total return is
the percentage change (not annualized) that equates a purchase payment to the
market value of such purchase payment on the last day of the period for which
such return is calculated. For purposes of the calculations it is assumed that
an initial payment of $1,000 is made on the first day of the period for which
the return is calculated. For total return figures quoted for periods prior to
the commencement of the offering of this contract, standardized performance data
will be the historical performance of the Trust portfolio from the date the
applicable sub-account of the Variable Account first became available for
investment under other contracts offered by the Company, adjusted to reflect
current contract charges. In the case of non-standardized performance,
performance figures will be the historical performance of the Trust portfolio
from the inception date of the portfolio (or in the case of the Trust portfolios
created in connection with the merger of Manulife Series Fund, Inc. into the
Trust, the inception date of the applicable predecessor Manulife Series Fund
portfolio), adjusted to reflect current contract charges. Past performance
figures quoted are not intended to indicate future performance of any
sub-account. More detailed information on the computations is set forth in the
Statement of Additional Information.
36
<PAGE> 40
FINANCIAL STATEMENTS
Financial Statements for the Variable Account and the Company are
contained in the Statement of Additional Information.
ASSET ALLOCATION AND TIMING SERVICES
The Company is aware that certain third parties are offering asset
allocation and timing services in connection with the contracts. In certain
cases the Company has agreed to honor transfer instructions from such asset
allocation and timing services where it has received powers of attorney, in a
form acceptable to it, from the owners participating in the service. THE COMPANY
DOES NOT ENDORSE, APPROVE OR RECOMMEND SUCH SERVICES IN ANY WAY AND
GROUPHOLDERS/OWNERS SHOULD BE AWARE THAT FEES PAID FOR SUCH SERVICES ARE
SEPARATE AND IN ADDITION TO FEES PAID UNDER THE CONTRACTS.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Section 830.105 of the Texas Government Code permits participants in
the Texas Optional Retirement Program ("ORP") to withdraw their interest in a
variable annuity contract issued under the ORP only upon (1) termination of
employment in the Texas public institutions of higher education, (2) retirement,
(3) death, or (4) the participant's attainment of age 70 1/2. Accordingly,
before any amounts may be distributed from the contract, proof must be furnished
to the Company that one of the four events has occurred. The foregoing
restrictions on withdrawal do not apply in the event a participant in the ORP
transfers his or her contract value to another contract or another qualified
custodian during the period of participation in the ORP. Loans are not available
under contracts issued under the ORP.
DISTRIBUTION OF CONTRACTS
Manufacturers Securities Services, LLC, ("MSS"), 116 Huntington Avenue,
Boston, Massachusetts 02116, a wholly-owned subsidiary of the Company, is the
principal underwriter of the contracts in addition to providing advisory
services to the Trust. MSS is a broker-dealer registered under the Securities
Exchange Act of 1934 ("1934 Act") and a member of the National Association of
Securities Dealers, Inc. ("NASD"). MSS has entered into a promotional agent
agreement with ManEquity, Inc., a broker-dealer controlled by Manulife.
ManEquity, Inc. also is registered under the 1934 Act and is a member of the
NASD. Sales of the contracts and certificates will be made by registered
representatives of broker-dealers authorized by MSS to sell them. Such
registered representatives will also be licensed insurance agents of the
Company. MSS will pay distribution compensation to selling brokers in varying
amounts which under normal circumstances are not expected to exceed 0.30% of
purchase payments. In addition, MSS may pay trail compensation after the first
contract year, which under normal circumstances will not exceed 0.30% of
contract value per year. MSS may from time to time pay additional compensation
pursuant to promotional contests. Additionally, in some circumstances, MSS will
provide reimbursement of certain sales and marketing expenses. MSS will pay
ManEquity, Inc. for providing marketing support for the distribution of the
contracts.
OWNER INQUIRIES
All owner inquiries should be directed to the Company's Annuity Service
Office at P.O. Box 9230, Boston, Massachusetts 02205-9230.
CONFIRMATION STATEMENTS
Owners will be sent confirmation statements for certain transactions in
their account. Owners should carefully review these statements to verify their
accuracy. Any mistakes should immediately be reported to the Company's Annuity
Service Office. If the owner fails to notify the Company's Annuity Service
Office of any mistake within 60 days of the mailing of the confirmation
statement, the owner will be deemed to have ratified the transaction.
37
<PAGE> 41
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party
or to which the assets of the Variable Account are subject. Neither the Company
nor MSS are involved in any litigation that is of material importance in
relation to their total assets or that relates to the Variable Account.
OTHER INFORMATION
A registration statement has been filed with the Commission under the
1933 Act, as amended, with respect to the variable portion of the contracts
discussed in this Prospectus. Not all the information set forth in the
registration statement, amendments and exhibits thereto has been included in
this Prospectus. Statements contained in this Prospectus or the Statement of
Additional Information concerning the content of the contracts and other legal
instruments are only summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the
Commission.
YEAR 2000 ISSUES
Like other business organizations and individuals, the Company would
be adversely affected if its computer systems and those of its service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. The Company is completing an assessment of
the Year 2000 impact on its systems and business processes. Management believes
that the Company will complete its Year 2000 project for all critical systems
and processes by September 30, 1998, prior to any anticipated impact on the
critical systems and processes.
The date on which the Company believes it will complete the Year 2000
project is based on management's best estimates, which were derived utilizing
numerous assumptions of future events. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer code, and other similar uncertainties.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
General Information and History.................................................
Performance Data................................................................
Services
Independent Auditors.....................................................
Servicing Agent..........................................................
Principal Underwriter....................................................
Cancellation.............................................................
Financial Statements.....................................................
38
<PAGE> 42
APPENDIX A
STATE PREMIUM TAXES
Premium taxes vary according to the state and are subject to change. In
many jurisdictions there is no tax at all. For current in formation, a tax
adviser should be consulted.
<TABLE>
<CAPTION>
TAX RATE
QUALIFIED NON-QUALIFIED
STATE CONTRACTS CONTRACTS
<S> <C> <C>
CALIFORNIA........................................... .50% 2.35%
DISTRICT OF COLUMBIA................................. 2.25% 2.25%
KENTUCKY............................................. 2.00% 2.00%
MAINE................................................ .00% 2.00%
NEVADA............................................... .00% 3.50%
PUERTO RICO.......................................... 1.00% 1.00%
SOUTH DAKOTA......................................... .00% 1.25%
WEST VIRGINIA........................................ 1.00% 1.00%
WYOMING.............................................. .00% 1.00%
</TABLE>
39
<PAGE> 43
APPENDIX B
For all contracts and certificates issued in Pennsylvania the maximum maturity
age based upon the issue age of the annuitant is as follows:
<TABLE>
<CAPTION>
ISSUE AGE MAXIMUM MATURITY AGE
<S> <C>
70 or less 85
71-75 86
76-80 88
81-85 90
86-90 93
91-93 96
94-95 98
96-97 99
98-99 101
100-101 102
102 103
103 104
104 105
105 106
</TABLE>
It is required that the annuitant exercise a settlement annuity option
no later than the maximum maturity age stated above. For example an annuitant
age 60 at issue must exercise a settlement option prior to the attainment of age
86. The Company will use the issue age of the youngest named annuitant in the
determination of the required settlement option date.
40
<PAGE> 44
PART B
Information Required in Statement of Additional Information
<PAGE> 45
STATEMENT OF ADDITIONAL INFORMATION
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA SEPARATE ACCOUNT A
OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
FLEXIBLE PAYMENT DEFERRED COMBINATION
FIXED AND VARIABLE ANNUITY CONTRACTS
NON-PARTICIPATING
This Statement of Additional Information is not a Prospectus. It
contains information in addition to that described in the Prospectus and should
be read in conjunction with the Prospectus dated the same date as this Statement
of Additional Information. The Prospectus may be obtained by writing The
Manufacturers Life Insurance Company of North America (the "Company") at the
Annuity Service Office, P.O. Box 9230, Boston, Massachusetts 02205-9230 or
telephoning (617) 266-6008.
The date of this Statement of Additional Information is , 1998.
The Manufacturers Life Insurance Company of North America
116 Huntington Avenue
Boston, Massachusetts 02116
(617) 266-6008
1
<PAGE> 46
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
General Information and History.................................................
Performance Data................................................................
Services
Independent Auditors.....................................................
Servicing Agent..........................................................
Principal Underwriter....................................................
Cancellation.............................................................
Financial Statements............................................................
2
<PAGE> 47
GENERAL INFORMATION AND HISTORY
The Manufacturers Life Insurance Company of North America Separate
Account A ("Variable Account") is a separate investment account of the Company,
a stock life insurance company organized under the laws of Delaware in 1979. The
Company changed its name from "North American Security Life Insurance Company"
effective October 1, 1997. The ultimate parent of the Company is The
Manufacturers Life Insurance Company ("Manulife"), a Canadian mutual life
insurance company based in Toronto, Canada. Prior to January 1, 1996, the
Company was a wholly owned subsidiary of North American Life Assurance Company
("NAL"), a Canadian mutual life insurance company. On January 1, 1996 NAL and
Manulife merged with the combined company retaining the Manulife name.
PERFORMANCE DATA
Each of the sub-accounts may in its advertising and sales materials
quote total return figures. The sub-accounts may advertise both "standardized"
and "non-standardized" total return figures, although standardized figures will
always accompany non-standardized figures. Non-standardized total return figures
may be quoted assuming both (i) redemption at the end of the time period and
(ii) not assuming redemption at the end of the time period. Standardized figures
include total return figures from: (i) the inception date of the subaccount of
the Variable Account which invests in the portfolio or (ii) ten years, whichever
period is shorter. Non-standardized figures include total return numbers from:
(i) inception date of the portfolio or (ii) ten years, whichever period is
shorter. Such figures will always include the average annual total return for
recent one year and, when applicable, five and ten year periods and, where less
than ten years, the inception date of the subaccount, in the case of
standardized returns, and the inception date of the portfolio, in the case of
nonstandardized returns. Where the period since inception is less than one year,
the total return quoted will be the aggregate return for the period. The average
annual total return is the average annual compounded rate of return that equates
a purchase payment to the market value of such purchase payment on the last day
of the period for which such return is calculated. The aggregate total return is
the percentage change (not annualized) that equates a purchase payment to the
market value of such purchase payment on the last day of the period for which
such return is calculated. For purposes of the calculations it is assumed that
an initial payment of $1,000 is made on the first day of the period for which
the return is calculated.
In calculating standardized return figures, all recurring charges (all
asset charges (mortality and expense risk fees, administrative fees and
distribution fees)) are reflected, and the asset charges are reflected in
changes in unit values. Standardized total return figures will be quoted
assuming redemption at the end of the period. Non-standardized total return
figures reflecting redemption at the end of the time period are calculated on
the same basis as the standardized returns. Non-standardized total return
figures not reflecting redemption at the end of the time period are calculated
on the same basis as the standardized returns except that the calculations
assume no redemption at the end of the period and do not reflect deduction of
the annual contract fee. The Company believes such non-standardized figures not
reflecting redemptions at the end of the time period are useful to contract
owners who wish to assess the performance of an ongoing contract of the size
that is meaningful to the individual contract owner.
For total return figures quoted for periods prior to the commencement
of the offering of this contract, standardized performance data will be
historical performance of the Trust portfolio from the date the applicable
sub-account of the Variable Account first became available for investment under
other contracts offered by the Company; adjusted to reflect current contract
charges. In the case of non-standardized performance, performance figures will
be the historical performance of the Trust portfolio from the inception date of
the portfolio (or in the case of the Trust portfolios created in connection with
the merger of Manulife Series Fund, Inc. into the Trust, the inception date of
the applicable predecessor Manulife Series Fund portfolio), adjusted to reflect
current contract charges.
3
<PAGE> 48
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
CALCULATED AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR SINCE INCEPTION SINCE INCEPTION OR *
OR 5 YEARS, 10 YEARS, WHICHEVER INCEPTION DATE
WHICHEVER IS IS SHORTER
SHORTER
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets N/A N/A -34.43%++ 01/01/97
Science & Technology N/A N/A 9.48%++ 01/01/97
International Small Cap -0.35% N/A 4.20% 03/04/96
Emerging Growth N/A N/A 16.92%++ 01/01/97
Pilgrim Baxter Growth N/A N/A -1.13%++ 01/01/97
Small/Mid Cap 13.97% N/A 10.87% 03/04/96
International Stock N/A N/A 1.49%++ 01/01/97
Worldwide Growth N/A N/A 12.03%++ 01/01/97
Global Equity 19.46% 13.40% 8.56% 03/18/88
Small Company Value N/A N/A -4.85%++ 10/01/97
Equity 17.92% 17.51% 13.91% + 06/18/85
Growth 23.97% N/A 23.56% 07/15/96
Quantitative Equity N/A N/A 29.23%++ 01/01/97
Blue Chip Growth 25.54% 11.86% 11.53% 12/11/92
Real Estate Securities N/A N/A 19.93%++ 01/01/97
Value N/A N/A 20.80%++ 01/01/97
Int'l Growth & Income -1.21% N/A 5.24% 01/09/95
Growth and Income 31.37% 17.61% 15.98% 04/23/91
Equity-Income 28.28% N/A 16.22% 02/19/93
Balanced N/A N/A 17.21%++ 01/01/97
Aggressive Asset Allocation 17.77% 11.36% 8.65% 08/03/89
High Yield N/A N/A 11.43% 01/01/97
Moderate Asset Allocation 14.58% 9.51% 7.74% 08/03/89
Conservative Asset Allocation 10.19% 7.34% 6.52% 08/03/89
Strategic Bond 9.74% N/A 8.24% 02/19/93
Global Government Bond 1.79% 8.75% 7.68% 03/18/88
</TABLE>
4
<PAGE> 49
<TABLE>
<S> <C> <C> <C> <C>
Capital Growth Bond N/A N/A 8.10%++ 01/01/97
Investment Quality Bond 8.52% 5.94% 5.78% + 06/18/85
U.S. Government Securities 7.26% 5.43% 6.07% 03/18/88
Money Market 3.97% 3.30% 4.29% 06/18/85
Lifestyle Aggressive 1000 N/A N/A 9.67%++ 01/07/97
Lifestyle Growth 820 N/A N/A 12.59%++ 01/07/97
Lifestyle Balanced 640 N/A N/A 12.86%++ 01/07/97
Lifestyle Moderate 460 N/A N/A 12.46%++ 01/07/97
Lifestyle Conservative 260 N/A N/A 10.92%++ 01/07/97
</TABLE>
* Inception date of the subaccount of the Variable Account which invests in the
portfolio.
+ 10 year average annual return.
++ Aggregate total return.
5
<PAGE> 50
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
(ASSUMING REDEMPTION AT THE END OF THE TIME PERIOD)
CALCULATED AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR SINCE INCEPTION SINCE INCEPTION OR **
OR 5 YEARS, 10 YEARS, WHICHEVER INCEPTION DATE
WHICHEVER IS IS SHORTER
SHORTER
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets* 34.91% N/A -9.08% 10/04/94
Markets*
Science & Technology N/A N/A 9.48%++ 01/01/97
International Small Cap -0.35% N/A 4.20% 03/04/96
Emerging Growth N/A N/A 16.92%++ 01/01/97
Pilgrim Baxter Growth N/A N/A -1.13%++ 01/01/97
Small/Mid Cap 13.97% N/A 10.87% 03/04/96
International Stock N/A N/A 1.49%++ 01/01/97
Worldwide Growth N/A N/A 12.03%++ 01/01/97
Global Equity 19.46% 13.40% 8.56% 03/18/88
Small Company Value N/A N/A -4.85%++ 10/01/97
Equity 17.92% 17.51% 13.91% + 06/18/85
Growth 23.97% N/A 23.56% 07/15/96
Quantitative Equity* 28.41% 15.26% 13.89% 04/30/87
Blue Chip Growth 25.54% 11.86% 11.53% 12/11/92
Real Estate Securities* 17.09% 15.69% 14.64% 04/30/87
Value N/A N/A 20.80%++ 01/01/97
Int'l Growth & Income -1.21% N/A 5.24% 01/09/95
Growth and Income 31.37% 17.61% 15.98% 04/23/91
Equity-Income 28.28% N/A 16.22% 02/19/93
Balanced N/A N/A 17.21%++ 01/01/97
Aggressive Asset Allocation 17.77% 11.36% 8.65% 08/03/89
High Yield N/A N/A 11.43%++ 01/01/97
Moderate Asset Allocation 14.58% 9.51% 7.74% 08/03/89
Conservative Asset Allocation 10.19% 7.34% 6.52% 08/03/89
Strategic Bond 9.74% N/A 8.24% 02/19/93
Global Government Bond 1.79% 8.75% 7.68% 03/18/88
</TABLE>
6
<PAGE> 51
<TABLE>
<S> <C> <C> <C> <C>
Capital Growth Bond* 7.50% 6.00% 7.35% 06/26/84
Investment Quality Bond 8.52% 5.94% 5.78% + 06/18/85
U.S. Government Securities 7.26% 5.43% 6.07% 03/18/88
Money Market 3.97% 3.30% 4.29% + 06/18/85
Lifestyle Aggressive 1000 N/A N/A 9.67%++ 01/07/97
Lifestyle Growth 820 N/A N/A 12.59%++ 01/07/97
Lifestyle Balanced 640 N/A N/A 12.86%++ 01/07/97
Lifestyle Moderate 460 N/A N/A 12.46%++ 01/07/97
Lifestyle Conservative 260 N/A N/A 10.92%++ 01/07/97
</TABLE>
* On December 31, 1996, Manulife Series Fund, Inc. merged with the Trust.
Performance presented for these sub-accounts is based upon the performance of
the respective predecessor Manulife Series Fund, Inc. portfolio for the periods
prior to December 31, 1996. Performance for each of these sub-accounts is based
on the historical expenses and performance of the predecessor Manulife Series
Fund, Inc. portfolio, adjusted to reflect current contract charges, and,
therefore, does not reflect for periods prior to December 31, 1996 the current
Trust portfolio expenses that an investor would incur as a holder of units of
the sub-account.
** Inception date of the portfolio in which the subaccount of the Variable
Account invests.
+ 10 year average annual return.
++ Aggregate total return.
7
<PAGE> 52
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
(ASSUMING NO REDEMPTION AT THE END OF THE TIME PERIOD)
CALCULATED AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR SINCE INCEPTION SINCE INCEPTION OR **
OR 5 YEARS, 10 YEARS, WHICHEVER INCEPTION DATE
WHICHEVER IS IS SHORTER
SHORTER
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets* 34.78% N/A -8.92% 10/04/94
Markets*
Science & Technology N/A N/A 9.61%++ 01/01/97
International Small Cap -0.22% N/A 4.34% 03/04/96
Emerging Growth N/A N/A 17.06%++ 01/01/97
Pilgrim Baxter Growth N/A N/A -0.99%++ 01/01/97
Small/Mid Cap 14.11% N/A 11.02% 03/04/96
International Stock N/A N/A 1.62%++ 01/01/97
Worldwide Growth N/A N/A 12.17%++ 01/01/97
Global Equity 19.60% 13.50% 8.67%++ 03/18/88
Small Company Value N/A N/A -4.72%++ 10/01/97
Equity 18.06% 17.62% 14.00% + 06/18/85
Growth 24.10% N/A 23.72% 07/15/96
Quantitative Equity* 28.54% 15.38% 13.97% 04/30/87
Blue Chip Growth 25.67% 11.99% 11.68% 12/11/92
Real Estate Securities* 17.23% 15.80% 14.72% 04/30/87
Value N/A N/A 20.94%++ 01/01/97
Int'l Growth & Income -1.08% N/A 5.37% 01/09/95
Growth and Income 31.51% 17.72% 16.09% 04/23/91
Equity-Income 28.42% N/A 16.33% 02/19/93
Balanced N/A N/A 17.34%++ 01/01/97
Aggressive Asset Allocation 17.91% 11.48% 8.77% 08/03/89
High Yield N/A N/A 11.57%++ 01/01/97
Moderate Asset Allocation 14.72% 9.63% 7.86% 08/03/89
Conservative Asset Allocation 10.33% 7.46% 6.64% 08/03/89
Strategic Bond 9.88% N/A 8.37% 02/19/93
Global Government Bond 1.92% 8.86% 7.79% 03/18/88
</TABLE>
8
<PAGE> 53
<TABLE>
<S> <C> <C> <C> <C>
Capital Growth Bond* 7.63% 6.12% 7.45% 06/26/84
Investment Quality Bond 8.66% 6.07% 5.89% + 06/18/85
U.S. Government Securities 7.40% 5.56% 6.18% 03/18/88
Money Market 4.10% 3.43% 4.40% + 06/18/85
Lifestyle Aggressive 1000 N/A N/A 9.81%++ 01/07/97
Lifestyle Growth 820 N/A N/A 12.73%++ 01/07/97
Lifestyle Balanced 640 N/A N/A 13.00%++ 01/07/97
Lifestyle Moderate 460 N/A N/A 12.60%++ 01/07/97
Lifestyle Conservative 260 N/A N/A 11.06%++ 01/07/97
</TABLE>
* On December 31, 1996, Manulife Series Fund, Inc. merged with the Trust.
Performance presented for these sub-accounts is based upon the performance of
the respective predecessor Manulife Series Fund, Inc. portfolio for the periods
prior to December 31, 1996. Performance for each of these sub-accounts is based
on the historical expenses and performance of the predecessor Manulife Series
Fund, Inc. portfolio, adjusted to reflect current contract charges, and,
therefore, does not reflect for periods prior to December 31, 1996 the current
Trust portfolio expenses that an investor would incur as a holder of units of
the sub-account.
** Inception date of the portfolio in which the subaccount of the Variable
Account invests.
+ 10 year average annual return.
++ Aggregate total return.
* * * * *
In addition to the non-standardized returns quoted above, each of the
sub-accounts may from time to time quote aggregate non-standardized total
returns calculated in the same manner as set forth above for other time periods.
From time to time the Trust may include in its advertising and sales literature
general discussions of economic theories, including but not limited to,
discussions on how demographic and political trends can affect the financial
markets. Further, the Trust may also include in its advertising and sales
literature specific information on each of the Trust's subadvisers, including
but not limited to, research capabilities of a subadviser, assets under
management, information relating to other clients of a subadviser, and other
generalized information.
SERVICES
INDEPENDENT AUDITORS
The financial statements of the Company and the Variable Account at
December 31, 1997 and 1996 and for the years then ended appearing in this
Statement of Additional Information have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and is included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The consolidated statements of income, changes in shareholder's equity
and cash flows of the Company for the year ended December 31, 1995, appearing
in this Statement of Additional Information have been included herein in
reliance on the report of Coopers & Lybrand L. L. P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
9
<PAGE> 54
The financial statements of the Company which are included in the
Statement of Additional Information should be considered only as bearing on the
ability of the Company to meet its obligations under the contracts. They should
not be considered as bearing on the investment performance of the assets held in
the Variable Account.
SERVICING AGENT
Computer Sciences Corporation Financial Services Group ("CSC FSG")
provides to the Company a computerized data processing recordkeeping system for
variable annuity administration. CSC FSG provides various daily, semimonthly,
monthly, semiannual and annual reports including: daily updates on accumulation
unit values, variable annuity participants and transactions, agent production
and commissions; semimonthly commission statements; monthly summaries of agent
production and daily transaction reports; semiannual statements for contract
owners; and annual contract owner tax reports. CSC FSG receives approximately
$7.50 per policy per year, plus certain other fees paid by the Company for the
services provided.
PRINCIPAL UNDERWRITER
Manufacturers Security Services, Inc. ("MSS"), a wholly-owned
subsidiary of the Company, serves as principal underwriter of the contracts.
Contracts are offered on a continuous basis. The aggregate dollar amount of
underwriting commissions paid to MSS in 1997, 1996 and 1995 were $117,141,489,
$83,031,288 and $68,782,161 respectively. MSS did not retain any of these
amounts during such periods.
CANCELLATION
The Company may, at its option, cancel an individual contract or
certificate and an owner's participation under a group contract at the end of
any two consecutive contract years in which no purchase payments by or on behalf
of the owner have been made, if both (i) the total purchase payments made for
the contract or certificate, less any withdrawals, are less than $2,000; and
(ii) the contract value for the owner at the end of such two year period is less
than $2,000. The Company, as a matter of administrative practice, will attempt
to notify an owner prior to such cancellation in order to allow the owner to
make the necessary purchase payment to keep the contract or certificate in
force. The cancellation provisions may vary in certain states in order to comply
with the requirements of insurance laws and regulations in such states.
10
<PAGE> 55
AUDITED FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE COMPANY OF
NORTH AMERICA SEPARATE ACCOUNT A (FORMERLY
NASL VARIABLE ACCOUNT OF NORTH AMERICAN
SECURITY LIFE INSURANCE COMPANY)
Years ended December 31, 1997 and 1996
[Ernst & Young LLP logo]
<PAGE> 56
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Audited Financial Statements
Years ended December 31, 1997 and 1996
CONTENTS
Report of Independent Auditors...............................................1
Audited Financial Statements
Statement of Assets, Liabilities and Contract Owners' Equity.................2
Statements of Operations and Changes in Contract Owners' Equity..............4
Notes to Financial Statements...............................................14
<PAGE> 57
[Ernst & Young LLP letterhead]
Report of Independent Auditors
To the Contract Owners of
The Manufacturers Life Insurance Company of
North America Separate Account A
We have audited the accompanying statement of assets, liabilities and contract
owners' equity of The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American Security
Life Insurance Company) of The Manufacturers Life Insurance Company of North
America (formerly North American Security Life Insurance Company and hereinafter
referred to as the Company) as of December 31, 1997, and the related statements
of operations and changes in contract owners' equity for each of the two years
in the period then ended. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Manufacturers Life
Insurance Company of North America Separate Account A at December 31, 1997, and
the results of its operations and the changes in its contract owners' equity for
each of the two years in the period then ended in conformity with generally
accepted accounting principles.
February 5, 1998
/s/Ernst & Young LLP
<PAGE> 58
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Statement of Assets, Liabilities and Contract Owners' Equity
December 31, 1997
ASSETS
<TABLE>
<S> <C>
Investments at market value:
Sub-accounts held by Manufacturers Investment Trust:
Equity Portfolio--63,852,550 shares (cost $1,226,309,199) $1,372,829,825
Investment Quality Bond Portfolio--13,172,996 shares (cost $152,308,853) 159,788,447
Growth and Income Portfolio--61,220,978 shares (cost $1,023,496,669) 1,462,569,154
Blue Chip Growth Portfolio--42,179,990 shares (cost $535,338,598) 632,699,851
Money Market Portfolio--32,711,083 shares (cost $327,110,834) 327,110,834
Global Equity Portfolio--41,671,939 shares (cost $692,343,249) 807,602,178
Global Government Bond Portfolio--14,671,325 shares (cost $196,160,574) 206,425,547
U.S. Government Securities Portfolio--13,995,131 shares (cost $180,938,410) 188,934,270
Conservative Asset Allocation Portfolio--16,525,899 shares (cost $179,146,660) 194,675,088
Moderate Asset Allocation Portfolio--44,462,440 shares (cost $500,921,267) 575,788,595
Aggressive Asset Allocation Portfolio--15,418,817 shares (cost $183,269,597) 221,414,211
Equity-Income Portfolio--46,774,541 shares (cost $655,680,286) 806,393,095
Strategic Bond Portfolio--22,620,649 shares (cost $259,364,406) 280,043,629
International Growth and Income Portfolio--16,581,951 shares (cost $185,617,156) 182,567,276
Growth Portfolio--7,673,790 shares (cost $117,489,927) 132,065,932
Small/Mid Cap Portfolio--15,597,634 shares (cost $217,738,703) 240,359,539
International Small Cap Portfolio--7,398,907 shares (cost $100,970,214) 101,365,028
Pacific Rim Emerging Markets Portfolio--1,047,933 shares (cost $8,841,955) 7,503,203
Science & Technology Portfolio--4,071,018 shares (cost $58,726,895) 55,447,263
Emerging Growth Portfolio--1,669,277 shares (cost $39,034,773) 40,279,646
Pilgrim Baxter Growth Portfolio--3,697,543 shares (cost $44,793,715) 46,219,286
International Stock Portfolio--3,127,596 shares (cost $37,332,089) 35,873,526
Worldwide Growth Portfolio--1,416,448 shares (cost $19,706,862) 19,886,937
Quantitative Equity Portfolio--1,161,761 shares (cost $24,852,169) 26,139,618
Value Trust Portfolio--5,932,253 shares (cost $87,534,116) 87,797,338
</TABLE>
2
<PAGE> 59
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Statement of Assets, Liabilities and Contract Owners' Equity (continued)
December 31, 1997
ASSETS (CONTINUED)
<TABLE>
<S> <C>
Investments at market value (continued):
Sub-accounts held by Manufacturers Investment Trust (continued):
Real Estate Securities Portfolio--1,688,784 shares (cost $30,534,311) $ 33,893,892
Balanced Portfolio--1,164,809 shares (cost $21,292,874) 22,515,762
High Yield Portfolio--4,230,327 shares (cost $57,350,809) 57,363,230
Capital Growth Bond Portfolio--267,837 shares (cost $3,062,525) 3,173,865
Lifestyle Aggressive 1000 Portfolio--2,972,210 shares (cost $38,709,245) 40,035,673
Lifestyle Growth 820 Portfolio--13,013,534 shares (cost $172,999,142) 179,196,364
Lifestyle Balanced 640 Portfolio--11,803,828 shares (cost $155,149,415) 160,059,913
Lifestyle Moderate 460 Portfolio--3,356,871 shares (cost $43,638,222) 44,814,222
Lifestyle Conservative 280 Portfolio--1,331,455 shares (cost $16,823,849) 17,322,235
Small Company Value Portfolio--1,413,560 shares (cost $17,091,438) 16,877,903
Sub-accounts held by Merrill Lynch Variable Series Funds, Inc.:
Basic Value Focus Portfolio--21,965 shares (cost $349,271) 347,919
Developing Capital Markets Focus Portfolio--3,448 shares (cost $22,006) 31,788
Special Value Focus Portfolio--8,936 shares (cost $252,639) 247,898
--------------
Total assets $8,787,659,980
==============
LIABILITIES
Due to The Manufacturers Life Insurance Company of North America $ 124,536
--------------
Total liabilities 124,536
CONTRACT OWNERS' EQUITY
Variable annuity contracts 8,781,141,923
Annuity reserves 6,393,521
--------------
Total contract owners' equity 8,787,535,444
--------------
Total liabilities and contract owners' equiy $8,787,659,980
==============
</TABLE>
See accompanying notes.
3
<PAGE> 60
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in
Contract Owners' Equity
<TABLE>
<CAPTION>
SUB-ACCOUNT
---------------------------------------------------------------------------------------------
EQUITY INVESTMENT QUALITY BOND GROWTH AND INCOME
---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1997 1996 1997 1996 1997 1996
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 239,269,167 $ 98,211,395 $ 9,576,201 $ 8,112,676 $ 73,308,031 $ 26,099,422
Expenses:
Mortality and expense risk and
administrative charges 18,590,890 15,742,214 2,055,365 2,029,392 17,452,904 11,270,881
---------------------------------------------------------------------------------------------
Net investment income (loss) 220,678,277 82,469,181 7,520,836 6,083,284 55,855,127 14,828,541
Net realized gain (loss) 71,678,786 70,538,266 1,351,339 1,866,806 58,828,368 26,208,114
Unrealized appreciation
(depreciation) during the period (85,271,449) 30,086,166 2,582,281 (6,225,133) 202,291,723 114,578,536
---------------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from operations 207,085,614 183,093,613 11,454,456 1,724,957 316,975,218 155,615,191
Changes from principal
transactions:
Purchase payments 118,050,368 176,179,265 22,380,599 26,033,539 195,949,225 156,149,545
Transfers between sub-
accounts and the Company (119,918,534) 21,282,426 (4,673,249) (7,603,590) 74,410,407 62,642,334
Withdrawals (90,755,116) (70,974,645) (14,678,287) (12,418,477) (86,137,166) (50,384,807)
Annual contract fee (659,929) (593,891) (56,865) (62,358) (502,835) (378,803)
---------------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from principal
transactions (93,283,211) 125,893,155 2,972,198 5,949,114 183,719,631 168,028,269
---------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 113,802,403 308,986,768 14,426,654 7,674,071 500,694,849 323,643,460
Contract owners' equity at
beginning of period 1,259,027,422 950,040,654 145,361,793 137,687,722 961,874,305 638,230,845
---------------------------------------------------------------------------------------------
Contract owners' equity at end of
period $1,372,829,825 $1,259,027,422 $159,788,447 $145,361,793 $1,462,569,154 $961,874,305
=============================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 61
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
----------------------------------------------------------------------------------------
BLUE CHIP GROWTH MONEY MARKET GLOBAL EQUITY
----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1997 1996 1997 1996 1997 1996
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 71,469,602 $ 856,382 $ 17,013,261 $ 14,797,551 $ 68,544,055 $ 10,705,346
Expenses:
Mortality and expense risk and
administrative charges 7,222,500 4,643,767 4,845,927 4,282,556 10,725,251 9,354,676
----------------------------------------------------------------------------------------
Net investment income (loss) 64,247,102 (3,787,385) 12,167,334 10,514,995 57,818,804 1,350,670
Net realized gain (loss) 32,146,244 27,835,505 (42,506) 0 23,088,990 12,381,732
Unrealized appreciation
(depreciation) during the period 13,739,445 44,603,170 0 0 49,786,950 53,342,983
----------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from operations 110,132,791 68,651,290 12,124,828 10,514,995 130,694,744 67,075,385
Changes from principal
transactions:
Purchase payments 103,821,671 56,773,858 275,133,419 162,757,808 66,651,712 69,961,326
Transfers between sub-
accounts and the Company 52,434,431 28,258,477 (165,452,428) (52,784,116) (18,665,979) (21,060,694)
Withdrawals (30,741,388) (18,836,850) (90,042,016) (72,134,469) (55,723,933) (48,301,849)
Annual contract fee (209,155) (167,159) (103,157) (142,787) (383,153) (393,841)
----------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from principal
transactions 125,305,559 66,028,326 19,535,818 37,696,436 (8,121,353) 204,942
----------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 235,438,350 134,679,616 31,660,646 48,211,431 122,573,391 67,280,327
Contract owners' equity at
beginning of period 397,261,501 262,581,885 295,414,513 247,203,082 685,028,787 617,748,460
----------------------------------------------------------------------------------------
Contract owners' equity at end of
period $632,699,851 $397,261,501 $ 327,075,159 $295,414,513 $807,602,178 $685,028,787
========================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 62
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
----------------------------------------------------------------------------------------
GLOBAL GOVERNMENT BOND U.S. GOVERNMENT SECURITIES CONSERVATIVE ASSET ALLOCATION
----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1997 1996 1997 1996 1997 1996
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 19,326,548 $ 20,353,777 $ 11,671,420 $ 12,043,963 $ 17,400,745 $ 13,280,150
Expenses:
Mortality and expense risk and
administrative charges 3,118,976 3,326,805 2,556,850 2,858,553 2,741,328 3,018,397
----------------------------------------------------------------------------------------
Net investment income (loss) 16,207,572 17,026,972 9,114,570 9,185,410 14,659,417 10,261,753
Net realized gain (loss) 439,716 2,366,669 (527,162) (1,404,574) 3,400,777 5,557,130
Unrealized appreciation
(depreciation) during the period (14,053,773) 6,050,899 3,410,682 (4,741,349) 31,815 (4,550,061)
----------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from operations 2,593,515 25,444,540 11,998,090 3,039,487 18,092,009 11,268,822
Changes from principal
transactions:
Purchase payments 14,851,627 24,992,816 35,382,893 49,371,308 8,346,286 15,327,057
Transfers between sub-
accounts and the Company (31,446,736) (19,896,239) (25,230,072) (49,747,858) (3,474,315) (17,748,883)
Withdrawals (19,532,235) (18,086,875) (20,453,897) (19,777,598) (28,533,376) (28,016,444)
Annual contract fee (97,030) (114,090) (70,092) (82,721) (108,689) (128,219)
----------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from principal
transactions (36,224,374) (13,104,388) (10,371,168) (20,236,869) (23,770,094) (30,566,489)
----------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity (33,630,859) 12,340,152 1,626,922 (17,197,382) (5,678,085) (19,297,667)
Contract owners' equity at
beginning of period 240,056,406 227,716,254 187,307,348 204,504,730 200,353,173 219,650,840
----------------------------------------------------------------------------------------
Contract owners' equity at end of
period $206,425,547 $240,056,406 $188,934,270 $187,307,348 $194,675,088 $200,353,173
========================================================================================
</TABLE>
See accompanying notes.
6
<PAGE> 63
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
--------------------------------------------------------------------------------------------
MODERATE ASSET ALLOCATION AGGRESSIVE ASSET ALLOCATION EQUITY INCOME
--------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1997 1996 1997 1996 1997 1996
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 58,267,634 $ 51,330,043 $ 20,896,965 $ 15,310,582 $ 78,618,574 $ 27,996,391
Expenses:
Mortality and expense risk and
administrative charges 8,189,303 8,696,227 3,066,563 2,962,896 9,490,476 6,323,456
--------------------------------------------------------------------------------------------
Net investment income (loss) 50,078,331 42,633,816 17,830,402 12,347,686 69,128,098 21,672,935
Net realized gain (loss) 20,924,486 24,021,437 8,142,652 7,692,646 27,303,367 14,248,677
Unrealized appreciation
(depreciation) during the period 6,583,533 (17,357,736) 8,717,054 2,609,570 66,190,180 38,129,341
--------------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from operations 77,586,350 49,297,517 34,690,108 22,649,902 162,621,645 74,050,953
Changes from principal
transactions:
Purchase payments 21,885,718 42,525,583 12,256,277 18,402,805 104,660,103 89,722,422
Transfers between sub-
accounts and the Company (54,800,932) (46,406,195) (15,819,095) (9,078,642) 45,522,432 35,937,790
Withdrawals (67,053,011) (79,658,173) (21,820,832) (23,728,286) (39,782,767) (24,729,054)
Annual contract fee (376,642) (437,374) (174,213) (187,171) (264,381) (204,474)
--------------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from principal
transactions (100,344,867) (83,976,159) (25,557,863) (14,591,294) 110,135,387 100,726,684
--------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity (22,758,517) (34,678,642) 9,132,245 8,058,608 272,757,032 174,777,637
Contract owners' equity at
beginning of period 598,547,112 633,225,754 212,281,966 204,223,358 533,636,063 358,858,426
--------------------------------------------------------------------------------------------
Contract owners' at end of
period $575,788,595 $598,547,112 $221,414,211 $212,281,966 $806,393,095 $533,636,063
============================================================================================
</TABLE>
See accompanying notes.
7
<PAGE> 64
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
--------------------------------------------------------------------------------------------
INTERNATIONAL GROWTH
STRATEGIC BOND AND INCOME GROWTH (1)
--------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 PERIOD ENDED DECEMBER 31
1997 1996 1997 1996 1997 1996
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 13,993,910 $ 9,643,463 $ 10,918,983 $ 190,489 $ 2,064 $ 341,211
Expenses:
Mortality and expense risk and
administrative charges 3,393,458 2,160,517 2,671,634 1,849,647 1,315,949 188,200
--------------------------------------------------------------------------------------------
Net investment income (loss) 10,600,452 7,482,946 8,247,349 (1,659,158) (1,313,885) 153,011
Net realized gain (loss) 6,548,108 2,988,289 6,276,433 4,120,040 3,969,308 291,191
Unrealized appreciation
(depreciation) during the period 4,322,181 8,247,559 (17,080,972) 12,154,473 13,523,093 1,052,912
--------------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from operations 21,470,741 18,718,794 (2,557,190) 14,615,355 16,178,516 1,497,114
Changes from principal
transactions:
Purchase payments 61,132,738 46,182,825 34,462,322 46,387,432 42,821,722 18,581,188
Transfers between sub-
accounts and the Company 16,015,847 30,347,502 (12,884,732) 36,418,911 22,684,133 34,906,152
Withdrawals (15,800,829) (9,790,056) (10,478,961) (6,777,863) (3,950,420) (620,165)
Annual contract fee (74,181) (58,212) (76,258) (52,870) (28,627) (3,681)
--------------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from principal
transactions 61,273,575 66,682,059 11,022,371 75,975,610 61,526,808 52,863,494
--------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 82,744,316 85,400,853 8,465,181 90,590,965 77,705,324 54,360,608
Contract owners' equity at
beginning of period 197,299,313 111,898,460 174,102,095 83,511,130 54,360,608 0
--------------------------------------------------------------------------------------------
Contract owners' equity at end of
period $280,043,629 $197,299,313 $182,567,276 $174,102,095 $132,065,932 $54,360,608
============================================================================================
</TABLE>
(1) From commencement of operations July 15, 1996.
See accompanying notes.
8
<PAGE> 65
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
---------------------------------------------------------------------------
PACIFIC RIM
INTERNATIONAL EMERGING
SMALL/MID CAP (2) SMALL CAP (2) MARKETS(3)
---------------------------------------------------------------------------
YEAR ENDED
PERIOD ENDED DECEMBER 31 PERIOD ENDED DECEMBER 31 DECEMBER 31
1997 1996 1997 1996 1997
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income:
Dividends $ 0 $ 0 $ 51,091 $ 333,347 $ 24,903
Expenses:
Mortality and expense risk and
administrative charges 2,776,348 1,004,534 1,495,775 599,718 63,490
---------------------------------------------------------------------------
Net investment income (loss) (2,776,348) (1,004,534) (1,444,684) (266,371) (38,587)
Net realized gain (loss) 5,544,039 78,950 3,758,747 544,789 (1,283,209)
Unrealized appreciation
(depreciation) during the period 19,443,445 3,177,391 (3,090,673) 3,485,487 (1,338,752)
---------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from operations 22,211,136 2,251,807 (776,610) 3,763,905 (2,660,548)
Changes from principal
transactions:
Purchase payments 53,732,677 62,148,022 25,874,645 30,573,571 5,401,201
Transfers between sub-
accounts and the Company 10,377,888 102,797,240 (9,494,657) 58,323,270 4,903,144
Withdrawals (9,275,089) (3,784,793) (5,113,149) (1,732,325) (139,755)
Annual contract fee (79,115) (20,234) (41,050) (12,572) (839)
---------------------------------------------------------------------------
Net increase (decrease) in contract
owners' capital from principal
transactions 54,756,361 161,140,235 11,225,789 87,151,944 10,163,751
---------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 76,967,497 163,392,042 10,449,179 90,915,849 7,503,203
Contract owners' equity at
beginning of period 163,392,042 0 90,915,849 0 0
---------------------------------------------------------------------------
Contract owners' equity at end of
period $240,359,539 $163,392,042 $101,365,028 $90,915,849 $ 7,503,203
===========================================================================
</TABLE>
(2) From commencement of operations March 4, 1996.
(3) Denotes former Manulife Series Fund, Inc. which merged into Manufacturers
Investment Trust on December 31, 1996.
See accompanying notes.
9
<PAGE> 66
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
---------------------------------------------------------------------------------------------
SCIENCE AND EMERGING PILGRIM BAXTER INTERNATIONAL WORLDWIDE QUANTITATIVE
TECHNOLOGY (4) GROWTH(3) GROWTH (4) STOCK (3) GROWTH(4) EQUITY (3)
---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 873,736 $ 0 $ 0 $ 502,025 $ 171,241 $ 0
Expenses:
Mortality and expense risk and
administrative charges 397,473 244,267 378,926 273,695 135,977 137,434
---------------------------------------------------------------------------------------------
Net investment income (loss) 476,263 (244,267) (378,926) 228,330 35,264 (137,434)
Net realized gain (loss) 862,369 1,689,252 (4,272) 215,723 227,718 358,162
Unrealized appreciation
(depreciation) during the period (3,279,632) 1,244,873 1,425,571 (1,458,563) 180,075 1,287,449
---------------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from operations (1,941,000) 2,689,858 1,042,373 (1,014,510) 443,057 1,508,177
Changes from principal transactions:
Purchase payments 28,700,891 16,793,570 24,174,018 19,620,377 11,388,148 11,381,942
Transfers between sub-accounts
and the Company 29,505,144 21,563,046 21,686,668 17,915,598 8,324,039 13,657,744
Withdrawals (811,869) (763,760) (678,547) (646,006) (267,075) (405,906)
Annual contract fee (5,903) (3,068) (5,226) (1,933) (1,232) (2,339)
---------------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from principal
transactions 57,388,263 37,589,788 45,176,913 36,888,036 19,443,880 24,631,441
---------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 55,447,263 40,279,646 46,219,286 35,873,526 19,886,937 26,139,618
Contract owners' equity at
beginning of period 0 0 0 0 0 0
---------------------------------------------------------------------------------------------
Contract owners' equity at end of
period $55,447,263 $40,279,646 $46,219,286 $35,873,526 $19,886,937 $26,139,618
=============================================================================================
</TABLE>
(3) Denotes former Manulife Series Fund, Inc. which merged into Manufacturers
Investment Trust on December 31, 1996.
(4) From commencement of operations January 1, 1997.
See accompanying notes.
10
<PAGE> 67
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
---------------------------------------------------------------------------------------------
LIFESTYLE
VALUE REAL ESTATE HIGH CAPITAL GROWTH AGGRESSIVE
TRUST (4) SECURITIES (3) BALANCED (3) YIELD (4) BOND (3) 1000 (4)
---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 2,689,347 $ 0 $ 0 $ 2,135,102 $ 0 $ 237,194
Expenses:
Mortality and expense risk and
administrative charges 486,817 228,065 150,866 331,892 23,398 269,924
---------------------------------------------------------------------------------------------
Net investment income (loss) 2,202,530 (228,065) (150,866) 1,803,210 (23,398) (32,730)
Net realized gain (loss) 541,216 295,630 256,879 490,122 64,894 351,951
Unrealized appreciation
(depreciation) during the period 263,222 3,359,581 1,222,888 12,421 111,340 1,326,428
---------------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from operations 3,006,968 3,427,146 1,328,901 2,305,753 152,836 1,645,649
Changes from principal
transactions:
Purchase payments 48,382,252 13,091,725 15,888,339 34,480,584 2,378,537 27,666,649
Transfers between sub-
accounts and the Company 37,456,120 18,128,028 5,629,987 21,582,628 677,347 11,510,544
Withdrawals (1,043,743) (749,394) (330,644) (1,003,593) (34,729) (788,594)
Annual contract fee (4,259) (3,613) (821) (2,142) (126) (3,037)
---------------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from principal
transactions 84,790,370 30,466,746 21,186,861 55,057,477 3,021,029 38,385,562
---------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 87,797,338 33,893,892 22,515,762 57,363,230 3,173,865 40,031,211
Contract owners' equity at
beginning of period 0 0 0 0 0 0
---------------------------------------------------------------------------------------------
Contract owners' equity at end of
period $87,797,338 $33,893,892 $22,515,762 $57,363,230 $3,173,865 $40,031,211
=============================================================================================
</TABLE>
(3) Denotes former Manulife Series Fund, Inc. which merged into Manufacturers
Investment Trust on December 31, 1996.
(4) From commencement of operations January 1, 1997.
See accompanying notes.
11
<PAGE> 68
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
---------------------------------------------------------------------------------------------
LIFESTYLE LIFESTYLE LIFESTYLE SMALL
LIFESTYLE BALANCED MODERATE CONSERVATIVE COMPANY BASIC VALUE
GROWTH 820(4) 640(4) 460(4) 280(4) VALUE(5) FOCUS(6)
---------------------------------------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 1,919,754 $ 2,096,508 $ 683,968 $ 259,709 $ 0 $ 0
Expenses:
Mortality and expense risk and
administrative charges 1,182,975 969,100 270,936 100,989 35,127 324
---------------------------------------------------------------------------------------------
Net investment income (loss) 736,779 1,127,408 413,032 158,720 (35,127) (324)
Net realized gain (loss) 701,940 405,934 188,826 1,381 (220) 4,325
Unrealized appreciation
(depreciation) during the period 6,197,222 4,910,498 1,176,000 498,386 (213,535) (1,352)
---------------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from operations 7,635,941 6,443,840 1,777,858 658,487 (248,882) 2,649
Changes from principal transactions:
Purchase payments 124,787,100 109,585,494 34,707,149 13,240,905 4,592,023 306,338
Transfers between sub-
accounts and the Company 49,397,612 47,685,861 8,719,380 3,508,965 12,576,387 38,957
Withdrawals (2,638,434) (3,689,366) (402,607) (94,919) (41,086) (25)
Annual contract fee (8,534) (4,843) (1,185) (369) (539) 0
---------------------------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from principal
transactions 171,537,744 153,577,146 43,022,737 16,654,582 17,126,785 345,270
---------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 179,173,685 160,020,986 44,800,595 17,313,069 16,877,903 347,919
Contract owners' equity at
beginning of period 0 0 0 0 0 0
---------------------------------------------------------------------------------------------
Contract owners' equity at end of
period $179,173,685 $160,020,986 $44,800,595 $17,313,069 $16,877,903 $347,919
=============================================================================================
</TABLE>
(4) From commencement of operations January 1, 1997.
(5) From commencement of operations October 1, 1997.
(6) From commencement of operations October 13, 1997.
See accompanying notes.
12
<PAGE> 69
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------
DEVELOPING SPECIAL
CAPITAL MARKETS VALUE
FOCUS (6) FOCUS (6) PERIOD ENDED PERIOD ENDED
----------------------------------- DECEMBER 31 DECEMBER 31
PERIOD ENDED DECEMBER 31, 1997 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income:
Dividends $ 0 $ 0 $ 721,921,738 $ 309,606,188
Expenses:
Mortality and expense risk and
administrative charges 54 315 107,391,541 80,312,436
-----------------------------------------------------------------------------
Net investment income (loss) (54) (315) 614,530,197 229,293,752
Net realized gain (loss) (9,818) (891) 278,189,604 199,335,667
Unrealized appreciation
(depreciation) during the period 9,782 (4,741) 288,054,676 284,644,208
-----------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from operations (90) (5,947) 1,180,774,477 713,273,627
Changes from principal transactions:
Purchase payments 12,381 199,113 1,744,172,738 1,092,070,370
Transfers between sub-accounts
and the Company 19,497 54,768 94,125,873 186,587,885
Withdrawals 0 (36) (624,402,560) (489,752,729)
Annual contract fee 0 0 (3,355,380) (3,040,457)
-----------------------------------------------------------------------------
Net increase (decrease) in contract
owners' equity from principal
transactions 31,878 253,845 1,210,540,671 785,865,069
-----------------------------------------------------------------------------
Total increase (decrease) in contract
owners' equity 31,788 247,898 2,391,315,148 1,499,138,696
Contract owners' equity at beginning
of period 0 0 6,396,220,296 4,897,081,600
-----------------------------------------------------------------------------
Contract owners' equity at end of
period $31,788 $247,898 $8,787,535,444 $6,396,220,296
=============================================================================
</TABLE>
(6) From commencement of operations October 13, 1997.
See accompanying notes.
13
<PAGE> 70
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Notes to Financial Statements
December 31, 1997
1. ORGANIZATION
The Manufacturers Life Insurance Company of North America Separate Account A
(formerly NASL Variable Account of North American Security Life Insurance
Company and hereinafter referred to as the "Account") is a separate account
established by The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company and hereinafter
referred to as the "Company"). The Company established the Account on August 24,
1984 as a separate account under Delaware law. The Account operates as a Unit
Investment Trust under the Investment Company Act of 1940, as amended, and
invests in thirty-five subaccounts of Manufacturers Investment Trust (formerly
NASL Series Trust and hereinafter referred to as the "Trust") and three
subaccounts of Merrill Lynch Variable Series Funds, Inc. The Account is a
funding vehicle for variable annuity contracts (the "Contracts") issued by the
Company. The Account includes sixteen contracts, distinguished principally by
the level of expenses and surrender charges. These sixteen contracts are as
follows: Venture Variable Annuity 1, 3, 7, 8, 17, 18, 20, 21, 22, 23, 25, 26,
and 27 ("VEN 1, 3, 7, 8, 17, 18, 20, 21, 22, 23, 25, 26 and 27"), Venture
Vantage Annuity ("VTG20") and Venture Vision Variable Annuity 5 and 25 ("VIS 5
and 25"). The Company is a wholly-owned subsidiary of Manulife Wood Logan
Holding Company, Inc. (formerly NAWL Holding Company, Inc. and hereinafter
referred to as MWL. MWL holds all the outstanding shares of the Company and Wood
Logan Associates, Inc. ("Wood Logan"). The Manufacturers Life Insurance Company
("MLI") owns all Class A shares of MWL, representing 85% of the voting shares of
MWL. Certain employees of Wood Logan own all Class B shares, which represent the
remaining 15% voting interest in MWL. Prior to January 1, 1996, the Company was
a wholly-owned subsidiary of North American Life Assurance Company (NAL), a
Canadian mutual life insurance company. NAL merged with The Manufacturers Life
Insurance Company of Canada effective January 1, 1996. The surviving company is
conducting business under the name "The Manufacturers Life Insurance Company."
Effective after the close of business on December 31, 1996, the portfolios of
the Manulife Series Funds, Inc. (a series trust of MLI) were merged with the
Trust. As a result of this merger, seven additional portfolios became available
as investment options to the contract owners of the Account and include the
Emerging Growth, Quantitative Equity, Balanced, Real Estate Securities, Capital
Growth, Pacific Rim Emerging Markets and International Stock portfolios. Also
effective after the close of business on December 31, 1996, ten new portfolios
became available as investment options to contract owners of the Account and
include the five Lifestyle portfolios and the Pilgrim Baxter Growth, Science and
Technology, Worldwide Growth, Value Trust and High Yield portfolios.
14
<PAGE> 71
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Notes to Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
On March 4, 1996, two new sub-accounts, Small/Mid Cap and International Small
Cap, commenced operations. On July 15, 1996, the Growth sub-account commenced
operations.
On October 1, 1997, the new sub-account, Small Company Value, commenced
operations.
On October 13, 1997, an agreement was entered into with Merrill Lynch Variable
Series Funds, Inc. For contracts purchased through Merrill Lynch brokers,
contract owners of the Account have an additional three portfolios available as
investment options - Basic Value Focus, Developing Capital Markets Focus and
Special Value Focus portfolios.
2. SIGNIFICANT ACCOUNTING POLICIES
Investments are made in the portfolios of the Trust and are valued at the
reported net asset values 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.
In addition to the Account, a contract holder may also allocate funds to the
Fixed Account, which is part of the Company's general account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933, and the Company's general
account has not been registered as an investment company under the Investment
Company act of 1940.
Annuity reserves are computed for contracts under which periodic benefit
payments are being made according to the 1983a Individual Annuitant Mortality
Table. The assumed investment return is 4%, as regulated by the laws of the
respective states. The mortality risk is fully borne by the Company and may
result in additional amounts being transferred into the Account by the Company.
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
15
<PAGE> 72
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 generally accepted
accounting principles 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. AFFILIATED COMPANY TRANSACTIONS
Administrative services necessary for the operation of the Account are performed
by the Company. The Company had an underwriting agreement with its wholly-owned
subsidiary, NASL Financial Services, Inc. (NASL Financial). NASL Financial had
an agreement with Wood Logan to promote the sale of annuity contracts. On
October 1, 1997, NASL Financial ceased operations, and certain assets and
liabilities of NASL Financial were contributed to form a new company,
Manufacturers Securities Services LLC (MSS), for a 99.9% ownership interest. MSS
has an Administrative Services Agreement with Wood Logan for marketing services
for the sale of annuity contracts. Certain officers of the Account are officers
and directors of the Company or the Trust.
4. CONTRACT CHARGES
There are no deductions made from purchase payments for sales charges at the
time of purchase. In the event of a surrender, a contingent deferred sales
charge may be charged by the Company to cover sales expenses. An annual
administrative fee of $30 is deducted from each contract owners' account on the
contract anniversary date to cover contract administration costs. This charge is
waived on certain contracts.
Deductions from each sub-account are made daily for administrative fees and for
the assumption of mortality and expense risk charges as follows:
16
<PAGE> 73
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Notes to Financial Statements (continued)
4. CONTRACT CHARGES (CONTINUED)
(i) Prior Contract Series (VEN 1): deductions from each sub-account are made
daily for the assumption of mortality and expense risks equal to an
effective annual rate of 1.30% of the contract value.
(ii) Current Contract Series (VEN 3, 7, 8, 17, 18, 20, 21, 22, 23, 25, 26, 27):
deductions from each sub-account are made daily for administration and for
the assumption of mortality and expense risks equal to an effective annual
rate of 0.15% and 1.25% of the contract value, respectively.
(iii) Current Contract Series (VIS 5, 25): deductions from each sub-account are
made daily for distribution fees, administration and for the assumption of
mortality and expense risks equal to an effective annual rate of 0.15%,
0.25% and 1.25% of the contract value, respectively.
(iv) Current Contract Series (VTG20): deductions from each sub-account are made
daily for distribution fees, administration and for the assumption of
mortality and expense risks equal to an effective annual rate of 0.15%,
0.25% and 1.15% of the contract value, respectively.
5. PURCHASES AND SALES OF INVESTMENTS
The following table shows aggregate cost of shares purchased and proceeds from
sales of each subaccount for the year ended December 31, 1997.
<TABLE>
<CAPTION>
PURCHASES SALES
---------------------------------
<S> <C> <C>
Equity Portfolio $449,202,294 $321,807,228
Investment Quality Bond Portfolio 49,272,622 38,779,588
Growth and Income Portfolio 379,492,654 139,917,896
Blue Chip Growth Portfolio 298,317,291 108,764,630
Money Market Portfolio 795,820,890 764,082,063
Global Equity Portfolio 204,958,969 155,261,518
Global Government Bond Portfolio 38,578,382 58,595,184
U.S. Government Securities Portfolio 65,438,331 66,694,929
Conservative Asset Allocation Portfolio 37,702,546 46,813,223
Moderate Asset Allocation Portfolio 84,965,671 135,232,207
Aggressive Asset Allocation Portfolio 36,312,046 44,039,507
</TABLE>
17
<PAGE> 74
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Notes to Financial Statements (continued)
5. PURCHASES AND SALES OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
PURCHASES SALES
-----------------------------------
<S> <C> <C>
Equity-Income Portfolio $ 288,480,254 $ 109,216,769
Strategic Bond Portfolio 132,920,562 61,046,535
International Growth and Income Portfolio 147,588,167 128,318,447
Growth Portfolio 83,175,407 22,962,484
Small/Mid Cap Portfolio 121,008,745 69,028,732
International Small Cap Portfolio 71,987,096 62,205,991
Pacific Rim Emerging Markets Portfolio 28,011,997 17,886,833
Science & Technology Portfolio 73,156,395 15,291,869
Emerging Growth Portfolio 50,731,879 13,386,358
Pilgrim Baxter Growth Portfolio 54,848,110 10,050,123
International Stock Portfolio 52,847,329 15,730,963
Worldwide Growth Portfolio 22,055,328 2,576,184
Quantitative Equity Portfolio 27,071,421 2,577,414
Value Trust Portfolio 91,870,067 4,877,167
Real Estate Securities Portfolio 34,829,758 4,591,077
Balanced Portfolio 23,811,682 2,775,687
High Yield Portfolio 68,253,996 11,393,309
Capital Growth Bond Portfolio 4,234,266 1,236,635
Lifestyle Aggressive 1000 Portfolio 41,927,479 3,570,185
Lifestyle Growth 820 Portfolio 181,721,290 9,424,088
Lifestyle Balanced 640 Portfolio 162,803,970 8,060,489
Lifestyle Moderate 460 Portfolio 47,934,901 4,485,505
Lifestyle Conservative 280 Portfolio 17,743,718 921,250
Small Company Value Portfolio 17,569,925 478,267
Basic Value Focus Portfolio 384,345 39,399
Developing Capital Markets Focus Portfolio 51,326 19,502
Special Value Focus Portfolio 301,503 47,973
-------------- --------------
Total $4,287,382,612 $2,462,187,208
============== ==============
</TABLE>
18
<PAGE> 75
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American Security
Life Insurance Company)
Notes to Financial Statements (continued)
6. UNIT VALUES
A summary of the accumulation unit values at December 31, 1996 and 1997 and the
accumulation units and dollar value outstanding, exclusive of annuity reserves
and net of the liability due to the general account, at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------------------------------------------
Unit Unit
Value Value Units Dollars
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Equity sub-account
VEN 1 Contracts ......................... $40.513296 $47.690851 17,423 $ 830,907
VEN 3,7,8,17,18,20,21,22,23 Contracts ... 24.664354 29.002593 44,219,209 1,282,471,729
VIS 5 and 25 Contracts .................. 18.199588 21.347335 3,960,188 84,539,470
VTG20 Contracts ........................ ---- 12.479231 339,520 4,236,953
---------- --------------
48,536,340 1,372,079,059
Investment Quality Bond sub-account
VEN 1 Contracts ......................... 19.560775 21.192677 10,088 213,802
VEN 3,7,8,17,18,20,21,22,23 Contracts ... 16.943257 18.336912 7,868,259 144,279,565
VIS 5 and 25 Contracts .................. 11.519237 12.435620 1,142,667 14,209,770
VTG20 Contracts ........................ ---- 12.932971 75,628 978,093
---------- --------------
9,096,642 159,681,230
Growth & Income sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... 20.178770 26.431239 50,837,494 1,343,697,947
VIS 5 and 25 Contracts .................. 16.024067 20.936844 5,131,418 107,435,704
VTG20 Contracts ........................ ---- 12.692204 778,392 9,879,504
---------- --------------
56,747,304 1,461,013,155
Blue Chip Growth sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... 13.688523 17.134232 33,333,432 571,142,764
VIS 5 and 25 Contracts .................. 14.303631 17.859518 3,148,195 56,225,242
VTG20 Contracts ........................ ---- 12.831858 373,368 4,791,002
---------- --------------
36,854,995 632,159,008
Money Market sub-account
VEN 1 Contracts ......................... 16.050779 16.660935 5,228 87,107
VEN 3,7,8,17,18,20,21,22,23 Contracts ... 14.699636 15.241915 18,897,298 288,031,007
VIS 5 and 25 Contracts .................. 11.048244 11.427217 2,911,149 33,266,336
VTG20 Contracts ........................ ---- 12.682927 431,879 5,477,486
---------- --------------
22,245,554 326,861,936
Global Equity sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... 18.276450 21.770913 34,208,874 744,758,415
VIS 5 and 25 Contracts .................. 14.257610 16.941296 3,546,765 60,086,800
VTG20 Contracts ........................ ---- 12.616506 195,153 2,462,154
---------- --------------
37,950,792 807,307,369
Global Government Bond sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... 19.803954 20.104158 9,420,432 189,389,859
VIS 5 and 25 Contracts .................. 13.821405 13.995892 1,168,936 16,360,297
VTG20 Contracts ........................ ---- 12.850434 45,991 591,001
---------- --------------
10,635,359 206,341,157
</TABLE>
19
<PAGE> 76
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American Security
Life Insurance Company)
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1996 1997
---------- ----------------------------------------------
Unit Unit
Value Value Units Dollars
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
U.S. Government Securities sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... $16.393307 $17.535478 9,854,546 $ 172,804,182
VIS 5 and 25 Contracts .................. 11.522857 12.294922 1,254,810 15,427,795
VTG20 Contracts ........................ ---- 12.898929 49,384 637,005
---------- --------------
11,158,740 188,868,982
Conservative Asset Allocation sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... 15.113142 16.607511 10,999,682 182,677,337
VIS 5 and 25 Contracts .................. 12.287873 13.469181 858,012 11,556,715
VTG20 Contracts ........................ ---- 12.768031 25,278 322,753
---------- --------------
11,882,972 194,556,805
Moderate Asset Allocation sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... 15.995076 18.276161 30,154,877 551,115,384
VIS 5 and 25 Contracts .................. 13.039212 14.861563 1,581,816 23,508,258
VTG20 Contracts ........................ ---- 12.705736 59,162 751,701
---------- --------------
31,795,855 575,375,343
Aggressive Asset Allocation sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... 16.701647 19.614359 10,871,862 213,244,607
VIS 5 and 25 Contracts .................. 13.829135 16.200363 478,710 7,755,280
VTG20 Contracts ........................ ---- 12.605559 19,304 243,338
---------- --------------
11,369,876 221,243,225
Equity-Income sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... 16.011513 20.479412 35,445,383 725,900,602
VIS 5 and 25 Contracts .................. 15.172018 19.357272 3,827,398 74,087,987
VTG20 Contracts ........................ ---- 13.251413 411,415 5,451,826
---------- --------------
39,684,196 805,440,415
Strategic Bond sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... 13.250563 14.500997 17,151,152 248,708,804
VIS 5 and 25 Contracts .................. 13.093621 14.293477 1,991,028 28,458,707
VTG20 Contracts ........................ ---- 12.793187 201,747 2,580,991
---------- --------------
19,343,927 279,748,502
International Growth and Income sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... 11.718276 11.545714 14,390,739 166,151,357
VIS 5 and 25 Contracts .................. 11.660474 11.460078 1,330,330 15,245,686
VTG20 Contracts ........................ ---- 11.688584 97,919 1,144,538
---------- --------------
15,818,988 182,541,581
Growth sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... 13.727312 16.968111 6,958,938 118,080,031
VIS 5 and 25 Contracts .................. 13.711434 16.906185 668,629 11,303,968
VTG20 Contracts ........................ ---- 12.257373 208,997 2,561,751
---------- --------------
7,836,564 131,945,750
</TABLE>
20
<PAGE> 77
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American Security
Life Insurance Company)
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1996 1997
---------- ----------------------------------------------
Unit Unit
Value Value Units Dollars
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Small Mid Cap sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... $13.215952 $15.020670 14,331,913 $ 215,274,929
VIS 5 and 25 Contracts .................. 13.188627 14.952186 1,508,574 22,556,474
VTG20 Contracts ........................ ---- 12.153015 185,064 2,249,091
---------- --------------
16,025,551 240,080,494
International Small Cap sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... 13.493094 13.410016 6,852,959 91,898,287
VIS 5 and 25 Contracts .................. 13.465203 13.348864 644,263 8,600,183
VTG20 Contracts ........................ ---- 11.841960 71,206 843,221
---------- --------------
7,568,428 101,341,691
Pacific Rim Emerging Markets sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 8.180904 766,698 6,272,279
VIS 5 and 25 Contracts .................. ---- 8.160547 127,115 1,037,331
VTG20 Contracts ........................ ---- 7.956465 24,331 193,591
---------- --------------
918,144 7,503,201
Science & Technology sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 13.647195 3,443,786 46,998,015
VIS 5 and 25 Contracts .................. ---- 13.613317 490,997 6,684,102
VTG20 Contracts ........................ ---- 10.983380 156,836 1,722,585
---------- --------------
4,091,619 55,404,702
Emerging Growth sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 14.574077 2,419,354 35,259,854
VIS 5 and 25 Contracts .................. ---- 14.537900 264,416 3,844,046
VTG20 Contracts ........................ ---- 13.088401 88,229 1,154,771
---------- --------------
2,771,999 40,258,671
Pilgrim Baxter sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 12.327066 3,324,086 40,976,226
VIS 5 and 25 Contracts .................. ---- 12.296448 360,639 4,434,582
VTG20 Contracts ........................ ---- 11.595531 66,641 772,740
---------- --------------
3,751,366 46,183,548
International Stock sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 12.652231 2,372,334 30,015,312
VIS 5 and 25 Contracts .................. ---- 12.620816 393,300 4,963,762
VTG20 Contracts ........................ ---- 11.346605 78,203 887,334
---------- --------------
2,843,837 35,866,408
Worldwide Growth sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 13.965674 1,142,980 15,962,485
VIS 5 and 25 Contracts .................. ---- 13.931008 222,572 3,100,649
VTG20 Contracts ........................ ---- 12.232350 67,346 823,803
---------- --------------
1,432,898 19,886,937
</TABLE>
21
<PAGE> 78
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American Security
Life Insurance Company)
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1996 1997
---------- ----------------------------------------------
Unit Unit
Value Value Units Dollars
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Quantitative Equity sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- $16.107191 1,341,062 $ 21,600,735
VIS 5 and 25 Contracts .................. ---- 16.067235 229,808 3,692,381
VTG20 Contracts ........................ ---- 12.572103 66,662 838,084
---------- --------------
1,637,532 26,131,200
Value Trust sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 15.057118 4,862,565 73,216,214
VIS 5 and 25 Contracts .................. ---- 15.019763 721,825 10,841,639
VTG20 Contracts ........................ ---- 12.435876 298,713 3,714,754
---------- --------------
5,883,103 87,772,607
Real Estate Securities sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 14.949140 1,879,558 28,097,782
VIS 5 and 25 Contracts .................. ---- 14.912035 331,060 4,936,774
VTG20 Contracts ........................ ---- 13.563334 59,873 812,072
---------- --------------
2,270,491 33,846,628
Balanced sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 14.609853 1,150,500 16,808,634
VIS 5 and 25 Contracts .................. ---- 14.573591 253,068 3,688,105
VTG20 Contracts ........................ ---- 12.798613 155,470 1,989,795
---------- --------------
1,559,038 22,486,534
High Yield sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 13.890491 3,237,837 44,975,140
VIS 5 and 25 Contracts .................. ---- 13.856003 691,323 9,578,980
VTG20 Contracts ........................ ---- 12.864277 205,433 2,642,745
---------- --------------
4,134,593 57,196,865
Capital Growth Bond sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 13.475788 168,343 2,268,551
VIS 5 and 25 Contracts .................. ---- 13.442339 56,385 757,952
VTG20 Contracts ........................ ---- 12.877605 11,443 147,362
---------- --------------
236,171 3,173,865
Lifestyle Aggressive 1000 sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 13.669625 2,657,206 36,323,011
VIS 5 and 25 Contracts .................. ---- 13.635694 223,085 3,041,912
VTG20 Contracts ........................ ---- 12.184094 54,685 666,288
---------- --------------
2,934,976 40,031,211
Lifestyle Growth 820 sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 14.033299 10,572,489 148,366,894
VIS 5 and 25 Contracts .................. ---- 13.998474 1,559,402 21,829,243
VTG20 Contracts ........................ ---- 12.418021 722,945 8,977,548
---------- --------------
12,854,836 179,173,685
</TABLE>
22
<PAGE> 79
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American Security
Life Insurance Company)
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1996 1997
---------- ----------------------------------------------
Unit Unit
Value Value Units Dollars
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Lifestyle Balanced 640 sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- $14.066417 8,975,654 $ 126,255,291
VIS 5 and 25 Contracts .................. ---- 14.031517 1,674,008 23,488,875
VTG20 Contracts ........................ ---- 12.545543 819,161 10,276,820
---------- --------------
11,468,823 160,020,986
Lifestyle Moderate 460 sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 14.016704 2,470,272 34,625,073
VIS 5 and 25 Contracts .................. ---- 13.981923 630,145 8,810,638
VTG20 Contracts ........................ ---- 12.686656 107,584 1,364,884
---------- --------------
3,208,001 44,800,595
Lifestyle Conservative 280 sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 13.825120 989,260 13,676,642
VIS 5 and 25 Contracts .................. ---- 13.790807 219,293 3,024,234
VTG20 Contracts ........................ ---- 12.839861 47,679 612,193
---------- --------------
1,256,232 17,313,069
Small Company Value sub-account
VEN 3,7,8,17,18,20,21,22,23 Contracts ... ---- 11.898363 1,187,619 14,130,723
VIS 5 and 25 Contracts .................. ---- 11.890948 186,253 2,214,728
VTG20 Contracts ........................ ---- 11.893914 44,767 532,453
---------- --------------
1,418,639 16,877,904
Basic Value Focus sub-account
Ven 25 Contracts ....................... ---- 15.792005 14,894 235,199
Ven 26 Contracts ....................... ---- 15.792005 6,541 103,302
Ven 27 Contracts ....................... ---- 15.792005 596 9,418
---------- --------------
22,031 347,919
Developing Capital Market Focus sub-account
Ven 25 Contracts ....................... ---- 9.191866 2,695 24,769
Ven 26 Contracts ....................... ---- 9.191866 764 7,019
Ven 27 Contracts ....................... ---- 9.191866 0 0
---------- --------------
3,459 31,788
Special Value Focus sub-account
Ven 25 Contracts ....................... ---- 27.655848 3,108 85,953
Ven 26 Contracts ....................... ---- 27.655848 5,349 147,940
Ven 27 Contracts ....................... ---- 27.655848 506 14,005
---------- --------------
8,963 247,898
--------------
Total: $8,781,141,923
==============
</TABLE>
23
<PAGE> 80
The Manufacturers Life Insurance Company of North America
Separate Account A (formerly NASL Variable Account of North American
Security Life Insurance Company)
Notes to Financial Statements (continued)
7. DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code, a variable
annuity contract other than a contract issued in connection with certain types
of employee benefits plans, will not be treated as an annuity contract for
federal tax purposes for any period for which the investments of the segregated
asset account on which the contract is based are not adequately diversified. The
Code provides that the "adequately diversified" requirement may be met if the
underlying investments satisfy either a statutory safe harbor test or
diversification requirements set forth in regulations issued by the Secretary of
Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of the
Code. The Company believes that the Account satisfies the current requirements
of the regulations, and it intends that the Account will continue to meet such
requirements.
8. YEAR 2000 ISSUES (UNAUDITED)
Like other investment funds, financial and business organizations and
individuals, the Account would be adversely affected if the computer systems
used by the Company and other service providers do not properly process and
calculate date-related information and data from and after January 1, 2000. The
Company is completing an assessment of the year 2000 impact on its systems and
business processes. Management believes that the Company will complete its Year
2000 project for all critical systems and processes by September 30, 1998, prior
to any anticipated impact on the critical systems and processes.
The date on which the Company believes it will complete the Year 2000 project is
based on management's best estimates, which were derived utilizing numerous
assumptions of future events. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer code, and
other similar uncertainties.
24
<PAGE> 81
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE
INSURANCE COMPANY OF NORTH
AMERICA (FORMERLY NORTH
AMERICAN SECURITY LIFE
INSURANCE COMPANY)
Years ended December 31, 1997, 1996
and 1995
<PAGE> 82
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Audited Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995
CONTENTS
Report of Independent Auditors............................................... 1
Audited Consolidated Financial Statements
Consolidated Balance Sheets.................................................. 3
Consolidated Statements of Income............................................ 4
Consolidated Statements of Changes in Shareholder's Equity................... 5
Consolidated Statements of Cash Flows........................................ 6
Notes to Consolidated Financial Statements................................... 7
<PAGE> 83
Report of Independent Auditors
The Board of Directors and Shareholder
The Manufacturers Life Insurance Company of North America
We have audited the accompanying consolidated balance sheets of The
Manufacturers Life Insurance Company of North America (formerly North American
Security Life Insurance Company and hereinafter referred to as the Company) as
of December 31, 1997 and 1996, and the related consolidated statements of
income, changes in shareholder's equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1997 and 1996 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Manufacturers Life Insurance Company of North America at December 31, 1997 and
1996, and the consolidated results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
- ---------------------
February 26, 1998
1
<PAGE> 84
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and
Shareholder of The Manufacturers Life Insurance
Company of North America:
We have audited the accompanying statements of income, changes in stockholder's
equity and cash flows of The Manufacturers Life Insurance Company of North
America (formerly North American Security Life Insurance Company) for the year
ended December 31, 1995. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements 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 results of operations and cash flows of The
Manufacturers Life Insurance Company of North America for the year ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Financial Accounting Standards Board Interpretation No. 40 (FIN 40) and
Statement of Financial Accounting Standards No. 120 (SFAS 120), which required
implementation of several accounting pronouncements not previously adopted.
The effects of adopting FIN 40 and SFAS 120 were retroactively applied to the
Company's previously issued financial statements, consistent with the
implementation guidance of those standards.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Boston, Massachusetts
May 29, 1997, except for Note 14,
as to which the date is February 26, 1998
<PAGE> 85
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available-for-sale, at fair value $ 143,307,365 $ 97,431,343
Marketable equity securities available-for-sale,
at fair value 1,177
Short-term investments 14,991,793 4,294,370
Foreclosed real estate -- 2,268,120
Policy loans 3,275,654 637,096
--------------------------------------
161,574,812 104,632,106
Cash and cash equivalents 7,338,690 12,073,302
Accrued investment income 2,640,707 1,806,106
Deferred policy acquisition costs 364,983,732 290,610,274
Receivable from affiliates 4,605,036
Other assets 9,625,844 8,229,825
Due from reinsurers 553,833,869 573,418,610
Separate account assets 9,529,160,219 6,820,599,385
--------------------------------------
Total assets $10,633,762,909 $7,811,369,608
======================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Policyholder funds $ 92,750,188 $ 82,619,372
Payable to affiliates 1,462,021
Amounts on deposit from reinsurer 3,000,000 6,000,000
Amount payable to reinsurers 571,881,943 593,909,628
Notes payable to affiliates 183,955,075 158,200,680
Deferred tax liability 16,428,278 288,800
Other liabilities 27,861,648 21,219,254
Separate account liabilities 9,529,160,219 6,820,599,385
--------------------------------------
Total liabilities 10,425,037,351 7,684,299,140
Shareholder's equity:
Common stock (par value $1,000 per share--authorized, 3,000
shares; issued and outstanding, 2,600 shares) 2,600,000 2,600,000
Additional paid-in capital 179,052,696 131,322,072
Unrealized appreciation on securities available-for-sale 1,199,890 508,601
Retained earnings (deficit) 25,872,972 (7,360,205)
--------------------------------------
Total shareholder's equity 208,725,558 127,070,468
--------------------------------------
Total liabilities and shareholder's equity $10,633,762,909 $7,811,369,608
======================================
</TABLE>
See accompanying notes.
3
<PAGE> 86
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
Revenues:
Fees from separate accounts and policyholder funds $126,636,872 $ 95,323,185 $ 77,572,040
Advisory fees and other distribution revenues 67,677,977 46,232,682 27,911,710
Net investment income 7,905,545 5,452,083 28,701,102
Net realized investment gains 530,886 764,139 9,711,168
-------------------------------------------------
202,751,280 147,772,089 143,896,020
Benefits and expenses:
Benefits to policyholders 4,986,244 4,241,628 27,128,685
Amortization of deferred policy acquisition costs 40,648,703 30,830,214 43,287,070
Other insurance expenses 100,385,240 71,255,354 58,745,087
Financing costs 14,267,785 15,820,730 9,282,164
-------------------------------------------------
160,287,972 122,147,926 138,443,006
-------------------------------------------------
Income from continuing operations before provision
for income tax (benefit) 42,463,308 25,624,163 5,453,014
Provision for income tax (benefit):
Current (723,741) 1,464,291 2,022,624
Deferred 15,767,246 7,614,476 (9,063,710)
-------------------------------------------------
15,043,505 9,078,767 (7,041,086)
-------------------------------------------------
Income from continuing operations 27,419,803 16,545,396 12,494,100
Discontinued operations
Loss from operations, net of tax (141,134) (809,948) (1,461,888)
Gain on disposal, net of tax 5,954,508
-------------------------------------------------
Net income $ 33,233,177 $ 15,735,448 $ 11,032,212
=================================================
</TABLE>
See accompanying notes.
4
<PAGE> 87
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Consolidated Statements of Changes in Shareholder's Equity
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION ON RETAINED TOTAL
ADDITIONAL SECURITIES EARNINGS SHAREHOLDER'S
COMMON STOCK PAID-IN CAPITAL AVAILABLE-FOR-SALE (DEFICIT) EQUITY
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 as
previously reported $2,600,000 $110,633,000 $(53,824,868) $ 59,408,132
Cumulative effect on prior years
of applying the new basis of
accounting 1,830,140 $ (8,664,619) 19,697,003 12,862,524
------------------------------------------------------------------------------------
Balance at January 1, 1995 2,600,000 112,463,140 (8,664,619) (34,127,865) 72,270,656
Net income 11,032,212 11,032,212
Reversal of deferred tax
valuation allowance 858,932 858,932
Change in unrealized
appreciation on securities
available-for-sale, net of tax 11,094,515 11,094,515
------------------------------------------------------------------------------------
Balance at December 31, 1995 2,600,000 113,322,072 2,429,896 (23,095,653) 95,256,315
Capital contribution 18,000,000 18,000,000
Net income 15,735,448 15,735,448
Change in unrealized
appreciation on securities
available-for-sale, net of
tax and DPAC adjustments (1,921,295) (1,921,295)
------------------------------------------------------------------------------------
Balance at December 31, 1996 2,600,000 131,322,072 508,601 (7,360,205) 127,070,468
Capital contribution 47,730,624 47,730,624
Net income 33,233,177 33,233,177
Change in unrealized
appreciation on securities
available-for-sale, net of
tax and DPAC adjustments 691,289 691,289
------------------------------------------------------------------------------------
Balance at December 31, 1997 $2,600,000 $179,052,696 $ 1,199,890 $ 25,872,972 $208,725,558
====================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 88
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 33,233,177 $ 15,735,448 $ 11,032,212
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Write-down of foreclosed real estate 342,025 1,235,620
Amortization of bond discount and premium 400,488 196,315 56,458
Benefits to policyholders 4,986,244 4,241,628 27,128,685
Gain on interest rate swap (1,632,000) (475,407)
Provision for deferred income tax (benefit) 15,767,246 7,944,703 (7,929,766)
Net realized investment gains (530,886) (764,139) (9,711,168)
Amortization of deferred policy acquisition costs 40,648,703 30,830,214 43,287,070
Amortization of deferred policy acquisition costs
included in discontinued operations 1,706,547 2,213,505 1,035,069
Policy acquisition costs deferred (123,964,814) (89,535,239) (61,103,093)
Gain on disposal of discontinued operations (9,393,984)
Changes in assets and liabilities:
Accrued investment income (834,601) 146,322 5,575,157
Other assets (1,396,019) 2,061,204 (2,456,292)
Receivable from affiliates (4,605,036)
Payable to affiliates (1,462,021) (4,203,687) (4,233,252)
Other liabilities 6,642,395 (1,788,725) 12,081,461
------------------------------------------------------
Net cash (used in) provided by operating activities (38,802,561) (34,212,426) 15,522,754
INVESTING ACTIVITIES
Purchase of fixed maturities (118,765,270) (48,300,025) (506,524,031)
Purchase of marketable equity securities (250,000) (6,033,533) (10,137,860)
Mortgage loans issued (136,101)
Proceeds from fixed maturities sold, matured or repaid 74,625,632 41,269,218 781,840,143
Proceeds from marketable equity securities sold 1,239 12,737,787 5,080,010
Proceeds from sales of foreclosed real estate 2,268,120 1,602,064 860,375
Proceeds from disposal of discontinued operations 16,337,562
Proceeds from sales of mortgage loans 110,791,046
Net change in short-term investments (10,697,423) (3,984,370)
Net change in policy loans (2,638,558) (569,773) 2,511,985
------------------------------------------------------
Net cash (used in) provided by investing activities (39,118,698) (3,278,632) 384,285,567
FINANCING ACTIVITIES
Net reinsurance (consideration) proceeds (2,442,944) (1,116,114) 4,785,845
Repayment of amounts on deposit from reinsurers (3,000,000) (3,000,000) (3,000,000)
Receipts credited to policyholder funds 20,606,428 20,923,239 302,496,632
Return of policyholder funds (15,461,856) (24,657,906) (69,404,163)
Transfer of policyholder funds to reinsurer (745,950,764)
Increase in notes payable to affiliates 25,754,395 138,200,680
Increase in notes payable 29,843,003
Notes payable repaid (109,866,565) (20,000,000)
Capital contribution 47,730,624 18,000,000
------------------------------------------------------
Net cash provided by (used in) financing activities 73,186,647 38,483,334 (501,229,447)
------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (4,734,612) 992,276 (101,421,126)
Cash and cash equivalents at beginning of year 12,073,302 11,081,026 112,502,152
------------------------------------------------------
Cash and cash equivalents at end of year $ 7,338,690 $ 12,073,302 $ 11,081,026
======================================================
Non-cash transactions:
Mortgage loans transferred to foreclosed real estate $2,405,052
======================================================
</TABLE>
See accompanying notes.
6
<PAGE> 89
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements
December 31, 1997
1. ORGANIZATION
The Manufacturers Life Insurance Company of North America (formerly North
American Security Life Insurance Company and hereinafter referred to as MNA or
the Company) is a stock life insurance company domiciled in the State of
Delaware. The Company is a wholly-owned subsidiary of Manulife Wood Logan
Holding Company, Inc. (formerly NAWL Holding Company, Inc. and hereinafter
referred to as MWL or the Parent). On January 1, 1996, North American Life
Assurance Company of North York, Canada (NAL), the former parent of the Company,
merged with The Manufacturers Life Insurance Company. The surviving company
conducts business under the name The Manufacturers Life Insurance Company (MLI).
Concurrent with the merger, the Company's Parent went through a corporate
restructuring which resulted in the formation of a newly organized holding
corporation, MWL. At that time, all of the assets and liabilities of MNA and its
subsidiaries, The Manufacturers Life Insurance Company of New York (formerly
First North American Life Assurance Company and hereinafter referred to as MNY)
and NASL Financial Services, Inc. (NASL Financial), were transferred from MLI to
MWL. In addition, MLI's 20.2% ownership interest in Wood Logan Associates, Inc.
and its majority-owned subsidiary, Wood Logan Distributors, Inc., (collectively
Wood Logan) was transferred to MWL. In exchange, MLI received all Class A shares
of MWL common stock representing an 85% ownership interest. On January 1, 1997,
MLI contributed 62.5% of its 85% ownership interest to its indirect wholly-owned
subsidiary, The Manufacturers Life Insurance Company (U.S.A.) (MANUSA).
Effective December 18, 1997, MLI transferred its remaining 22.5% interest in MWL
to MRL Holding, LLC, (MRL) a newly formed Delaware limited liability company.
Also effective January 1, 1996, as part of the restructuring, the remaining
79.8% of Wood Logan was purchased by MWL. In exchange for the remaining shares
of Wood Logan, certain employees and former owners of Wood Logan received the
Class B voting shares of MWL representing a 15% ownership interest. Wood Logan
provides marketing services for the sale of the annuity products of MNA and MNY.
7
<PAGE> 90
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
The Company issues individual life, variable life and annuity insurance
contracts (the contracts) in forty-eight states, including New York. Amounts
invested in the fixed portion of the contracts are allocated to the general
account of the Company. Amounts invested in the variable portion of the
contracts are allocated to the separate accounts of the Company. The separate
account assets are invested in shares of the Manufacturers Investment Trust
(formerly NASL Series Trust and hereinafter referred to as MIT), a no-load,
open-end management investment company organized as a Massachusetts business
trust.
NASL Financial acted as investment adviser to MIT and the North American Funds
(NAF), a no-load, open-end management investment company organized as a
Massachusetts business trust. NASL Financial also acted as principal underwriter
of the annuity and life insurance contracts issued by the Company. NASL
Financial had an agreement with Wood Logan to act as the promotional agent for
the sale of the variable annuity and variable life insurance products issued by
MNA and MNY.
Effective October 1, 1997, Manufacturers Securities Services, LLC (MSS),
replaced NASL Financial as the investment advisor to MIT and as the principal
underwriter of the annuity contracts. Wood Logan provides marketing services for
the sale of annuity contracts under an Administrative Services Agreement dated
October 7, 1997, between the Company and MLI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company and its
majority and wholly-owned subsidiaries have been prepared in conformity with
generally accepted accounting principles (GAAP).
8
<PAGE> 91
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION (CONTINUED)
Prior to 1996, the Company prepared its financial statements in conformity with
accounting practices prescribed or permitted by the Delaware Insurance
Department which practices were considered GAAP for mutual life insurance
companies. FASB Interpretation 40, Applicability of Generally Accepted
Accounting Principles to Mutual Life Insurance and other Enterprises (FIN 40),
as amended, which is effective for 1996 annual financial statements, no longer
permits statutory-basis financial statements to be described as being prepared
in conformity with GAAP. Accordingly, the Company has adopted various accounting
pronouncements, principally Statement of Financial Accounting Standards No. 120,
Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts (SFAS No. 120),
which addresses the accounting for long-duration insurance contracts.
Pursuant to the requirements of the above pronouncements, the effect of the
changes in accounting have been applied retroactively and the previously issued
1995 financial statements have been restated for the change. The effect of the
change applicable to years prior to January 1, 1995 has been presented as a
restatement of shareholder's equity as of this date.
The adoption had the effect of increasing net income for 1995 by approximately
$18,300,000.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and the
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.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts and
operations, after intercompany eliminations, of the Company and its majority and
wholly-owned subsidiaries, MNY and MSS (NASL Financial through October 1, 1997).
9
<PAGE> 92
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS AND INVESTMENT INCOME
The Company accounts for its fixed maturities and marketable equity securities
in accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115).
SFAS 115 requires that fixed maturities and marketable equity securities be
designated as either held-to-maturity, available-for-sale or trading at the time
of purchase. Held-to-maturity fixed maturities are reported at amortized cost
and the remainder of fixed maturities and marketable equity securities are
reported at fair value with unrealized holding gains and losses reported in
income for those designated as trading and as a separate component of
shareholder's equity for those designated as available-for-sale.
The Company has classified all of its fixed maturities and marketable equity
securities as available-for-sale. As a result, these securities are reported in
the accompanying financial statements at fair value. Changes in fair values,
after adjustment for deferred policy acquisition costs (DPAC) and deferred
income taxes, are reported as unrealized appreciation or depreciation directly
in shareholder's equity, and accordingly, have no effect on net income. The DPAC
offset to the unrealized appreciation or depreciation represents valuation
adjustments or reinstatements of DPAC that would have been required as a charge
or credit to operations had such unrealized amounts been realized.
The amortized cost of fixed maturities 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 maturities 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.
Short-term investments generally consist of instruments which have a maturity of
less than one year at the time of acquisition. Short-term investments are
reported at cost, which approximates fair value.
10
<PAGE> 93
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
Real estate acquired in satisfaction of debt is stated at the lower of the
appraised fair value or the outstanding principal loan balance plus accrued
interest and foreclosure costs.
Policy loans are reported at unpaid balances, not in excess of the underlying
cash value of the policies.
Realized gains or losses on investments sold and declines in value judged to be
other-than-temporary are determined on the specific identification basis.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity date of three months or less to be cash equivalents. Cash
equivalents are stated at cost plus accrued interest, which approximates fair
value.
DEFERRED POLICY ACQUISITION COSTS
Commissions, net of commission allowances for reinsurance ceded, and other costs
of acquiring new business that vary with and are primarily related to the
production of new business have been deferred. These acquisition costs are being
amortized generally in proportion to the present value of expected gross profits
from surrender charges and investment, mortality and expense margins. That
amortization is adjusted retrospectively when estimates of current or future
gross profits to be realized from a group of products are revised.
The Company, through the date of the NAF sale, deferred NAF commissions and
promotional agent fees (NAF commission) up to the amount recoverable from
contingent deferred sales charges (CDSC). Deferred NAF commissions were
recognized on a straight-line basis over the period in which the CDSC's were in
effect.
11
<PAGE> 94
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNT ASSETS AND LIABILITIES
Separate account assets and liabilities that are reported in the accompanying
consolidated balance sheet represent investments in MIT, which are mutual funds
that are separately administered for the exclusive benefit of the variable life
and annuity policyholders and are reported at fair value. Such policyholders,
rather than the Company, bear the investment risk. The operations of the
separate accounts are not included in the accompanying consolidated financial
statements. Fees charged on separate account policyholder funds are included in
revenues.
POLICYHOLDER FUNDS AND BENEFITS TO POLICYHOLDERS
Policyholder funds for the fixed portion of variable life and annuity contracts
are computed under a retrospective deposit method and represent account balances
before applicable surrender charges. Benefits to policyholders include interest
credited to policyholders and other benefits that are charged to expense
including benefit claims incurred in the period in excess of the related
policyholder account balances. Interest crediting rates for the fixed portion of
variable life and annuity contracts ranged from 4.10% to 6.15% in 1997; 4.00% to
6.15% in 1996 and 4.20% to 7.15% in 1995.
RECOGNITION OF REVENUES
Fees from separate accounts and policyholder funds represent fees assessed
against policyholder account balances, and include mortality and expense risk
charges, surrender charges and an annual administrative charge.
MSS, and formerly NASL Financial (collectively the Advisor), are responsible for
managing the corporate and business affairs of MIT and act as investment advisor
to MIT. As compensation for its investment advisory services, the Advisor
receives advisory fees based on the daily average net assets of the portfolios.
The Advisor, as part of its advisory services, is responsible for selecting and
compensating subadvisors to manage the investment and reinvestment of the assets
of each portfolio, subject to the supervision of the Board of Trustees of MIT.
The Company's discontinued operations include the compensation of NASL Financial
for investment advisory fees and subadvisor compensation from NAF through
October 1, 1997 the date the Company sold NAF. Subadvisor compensation, for MIT,
is included in other insurance expenses.
12
<PAGE> 95
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCING AGREEMENTS
The Company has entered into various financing agreements with reinsurers. All
assets and liabilities related to these contracts are reported on a gross basis.
Due to the nature of the Company's products, these agreements are accounted for
under the deposit method whereby the net premiums paid to the reinsurer are
recorded as deposits.
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). 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.
RECLASSIFICATIONS
Certain 1995 balances have been reclassified to permit comparison with the 1997
and 1996 presentations.
13
<PAGE> 96
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS
The major components of net investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Fixed maturities $7,250,366 $ 5,197,363 $21,980,896
Marketable equity securities 34,993 137,862
Mortgage loans 5,620,613
Short-term investments 1,126,181 1,187,368 3,133,008
Foreclosed real estate 432,648 (164,540)
----------------------------------------------
8,376,547 6,852,372 30,707,839
Less: investment expenses (471,002) (1,400,289) (2,006,737)
----------------------------------------------
Net investment income $7,905,545 $ 5,452,083 $28,701,102
==============================================
</TABLE>
The proceeds from sales of available-for-sale fixed maturities for the year
ended December 31, 1997, 1996 and 1995 were $53,325,435, $15,151,764 and
$755,538,955, respectively.
The gross realized gains and losses on the sales of investments for the year
ended December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
YEAR DECEMBER 31
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Gross realized gains $ 787,645 $ 429,786 $10,913,975
Gross realized losses (6,759) (3,814) (2,042,666)
Marketable equity securities:
Gross realized gains 988,022 80,010
Gross realized losses (250,000) (15,308)
Mortgage loans:
Gross realized gains 967,301
Foreclosed real estate:
Gross realized gains 12,063
Gross realized losses (634,547) (219,515)
--------------------------------------------
Net realized gain $ 530,886 $ 764,139 $ 9,711,168
============================================
</TABLE>
14
<PAGE> 97
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
The gross unrealized gains and losses for fixed maturities available-for-sale
and marketable equity securities held at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed maturities:
U.S. Treasury securities and
obligations of U.S. Government
agencies $ 14,333 $ 566 $ 13 $ 14,886
Corporate securities 110,191 1,905 23 112,073
Mortgage-backed securities 10,455 74 3 10,526
States, territories and possessions 5,594 228 5,822
---------------------------------------------------
Total $140,573 $2,773 $ 39 $143,307
===================================================
DECEMBER 31, 1996
Fixed maturities:
U.S. Treasury securities and
obligations of U.S. Government
agencies $ 10,160 $ 337 $ 27 $ 10,470
Corporate securities 79,375 1,084 208 80,251
Mortgage-backed securities 1,940 19 9 1,950
States, territories and possessions 4,578 182 4,760
---------------------------------------------------
Total fixed-maturity securities 96,053 1,622 244 97,431
Marketable equity securities 1 1
---------------------------------------------------
Total $ 96,054 $1,622 $244 $ 97,432
===================================================
</TABLE>
15
<PAGE> 98
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
The amortized cost and fair value of fixed maturities available-for-sale at
December 31, 1997, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers or lenders may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------------------------
(In Thousands)
<S> <C> <C>
FIXED MATURITIES AVAILABLE-FOR-SALE
Due in one year or less $ 13,870 $ 13,870
Due after one year through five years 61,741 63,235
Due after five years through ten years 32,936 33,350
Due after ten years through twenty years 2,050 2,127
Due after twenty years 19,521 20,199
Mortgage-backed securities 10,455 10,526
----------------------------
Total fixed maturities available-for-sale $140,573 $143,307
============================
</TABLE>
Investments with a fair value of $6,283,750 and $5,820,150 at December 31, 1997
and 1996 respectively were on deposit with, or in custody accounts on behalf of,
state insurance departments to satisfy regulatory requirements.
4. FEDERAL INCOME TAXES
Beginning in 1996, the Company participated as a member of the MWL affiliated
group consolidated federal income tax return. In 1995, the Company filed a group
consolidated federal income tax return with MNY and NASL Financial. The Company
files separate state income tax returns. The method of allocation between
companies is subject to a written tax sharing agreement. The tax liability is
allocated to each member 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 shall not be
more than the Company would have paid on a separate return basis.
16
<PAGE> 99
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
4. FEDERAL INCOME TAXES
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
Statutory federal income rate applied to income
before federal income taxes 35% 35% 35%
Add (deduct):
Non-deductible meals and entertainment 1 1 2
Nondeductible consulting fees 4
Change in prior year income taxes (1) (1)
Reversal of deferred asset valuation allowance (285)
---------------------------------
Effective income tax rate 35% 35% (244)%
=================================
</TABLE>
The Company maintained a valuation allowance of approximately $11,982,000 at
December 31, 1994 as the Company had current and cumulative net losses. During
1997, 1996 and 1995, no valuation allowance has been established as the Company
believes that it is more likely than not that its deferred tax assets will be
realized from the generation of future taxable income.
17
<PAGE> 100
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
4. FEDERAL INCOME TAXES (CONTINUED)
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>
DECEMBER 31
1997 1996
--------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 10,313,135
Financing arrangements $ 2,699,371 4,222,611
Interest on notes payable 1,282,776 677,823
Guaranty fund assessment liabilities 315,000 490,000
Alternative minimum tax credit 313,839
Real estate 607,920 241,266
Other 116,862 500,524
--------------------------------
Total deferred tax assets 5,021,929 16,759,198
--------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs (18,429,529) (15,336,265)
Unrealized appreciation on securities
available-for-sale (646,094) (273,863)
Other (2,374,584) (1,437,870)
--------------------------------
Total deferred tax liabilities (21,450,207) (17,047,998)
--------------------------------
Net deferred tax liability $(16,428,278) $ (288,800)
================================
</TABLE>
The Company made estimated tax payments of $530,666, $0 and $164,260 in 1997,
1996 and 1995, respectively.
18
<PAGE> 101
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
5. FINANCING AGREEMENTS
All financing agreements entered into with reinsurance companies relate solely
to the products sold by the Company and not its subsidiaries. The Company's
reinsured products are considered investment products under generally accepted
accounting principles and, as such, the reinsurance agreements are considered
financing arrangements and are accounted for under the deposit method. Under
this method, net premiums received by the reinsurer are recorded as deposits.
Financing transactions have been entered into primarily to improve cash flow and
statutory capital. All financing agreements discussed below were in effect for
the full year in 1997, 1996 and 1995 unless otherwise indicated.
On June 30, 1995, the Company entered into an indemnity coinsurance agreement
with Peoples Security Life Insurance Company (Peoples), a AA+ rated subsidiary
of the Aegon Corporation, to reinsure 100% of the fixed portion of the variable
annuity business written by the Company. In 1997, the treaty was amended to
cover the Company's Market Value Adjusted fixed annuity product.
The indemnity aspects of the agreement provide that the Company remains liable
for the contractual obligations whereas Peoples agrees to indemnify the Company
for any contractual claims incurred. The coinsurance aspects of the agreement
require the Company to transfer to Peoples all receipts of the fixed portion of
premiums and transfers from variable to the fixed portion of the variable
annuity contracts. Once transferred, the assets belong to Peoples. In exchange,
Peoples reimburses the Company for all claims and provides expense allowances to
cover commissions and other costs associated with the acquisition of the fixed
portion of the variable annuity business. Under this agreement, the Company will
continue to administer the fixed portion of the annuity business for which it
will earn an expense allowance.
Peoples is responsible for investing the premiums received for the fixed portion
of the contracts and is at risk for any potential investment gains and losses.
There is no recourse to the Company if investment losses are incurred. As of
October, 1997, the assets are maintained at Bankers Trust under a trust
agreement owned by Peoples. The Company is the beneficiary of the trust.
19
<PAGE> 102
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
5. FINANCING AGREEMENTS (CONTINUED)
Effective July 1, 1995 and August 1, 1995, the Company entered into treaties
with the Connecticut General Life Insurance Company (CIGNA) and Swiss Re Life
Insurance Company, respectively, to reinsure the minimum death benefit guarantee
risks of the Company. Each company has assumed 50% of the risk. In addition, the
Company reinsured 50% of its risk related to the waiving of surrender charges at
death with CIGNA. The Company is paying the reinsurers an asset-based premium,
the level of which varies with both the amount of exposure to this risk and the
realized experience.
Effective November 1, 1995, the Company entered into a modified coinsurance
treaty with Transamerica Occidental Life Insurance Company (Transamerica).
Transamerica reinsures a 50% quota share of the variable portion of the
Company's variable life insurance contracts. At inception, Transamerica
reinsured 80% of this product's net amount at risk in excess of the Company's
retention limit on a yearly renewable term basis. At December 31, 1997, this
contract was amended to increase this percentage to 100%.
The Company entered into a modified coinsurance agreement with RGA/Swiss,
formerly ITT Lyndon Life, to cede 64% of certain variable annuity contracts
(policy form 203-VA) and 95% of certain other variable annuity contracts
(VISION.001). At the time of the transaction, the Company received $25 million
in cash representing withheld premiums of $15 million and $10 million of ceding
commissions. The withheld premiums are being repaid with interest over five
years. The ceding commission is payable out of future profits generated by the
business reinsured. Effective December 31, 1994, the agreement was amended to
increase the percentage of ceded business on policy form 203-VA to 95%. In
return, the Company received additional ceding commissions of $5,200,000 which
is reflected as a due to reinsurers and is expected to be paid back over a five
year period. Policies issued under the applicable policy forms after December
31, 1996, in accordance with a 1997 amendment, are not reinsured under this
agreement.
20
<PAGE> 103
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
5. FINANCING AGREEMENTS (CONTINUED)
The Company entered into an indemnity quota share reinsurance agreement with
PaineWebber Life to reinsure a portion of its policy forms 207-VA, VFA,
VENTURE.001, and VENTURE.003. The quota share percentage for business written
prior to January 1, 1997 varies between 15% and 35% depending on the policy
form. Effective January 1, 1997, the agreement was amended to change the quota
share to 20% for policies written thereafter. The form of reinsurance is
modified coinsurance and only covers the variable portion of contracts written
by PaineWebber brokers. All elements of risk (including persistency, investment
performance, and mortality) have been transferred.
During 1997, the Company entered into a modified coinsurance agreement with
Merrill Lynch Life to cede 50% of the variable portion of its Merrill Lynch
policies. The agreement only covers the variable portion of contracts sold by
Merrill Lynch brokers. All elements of risk (including persistency, investment
performance, and mortality) have been transferred.
In the event of insolvency of a reinsurer, the Company remains primarily liable
to its policyholders. Failure of reinsurers to honor their obligations could
result in losses to the Company and accordingly, the Company periodically
monitors the financial condition of its reinsurers.
6. SHAREHOLDER'S EQUITY
Generally, the net assets of the Company and its insurance subsidiary available
for the Parent as dividends are 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 Insurance Commissioners
of the States of Delaware and New York is subject to restrictions relating to
statutory surplus and net gain from operations on a statutory basis.
21
<PAGE> 104
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
6. SHAREHOLDER'S EQUITY (CONTINUED)
Net income (loss) and capital and surplus, as determined in accordance with
statutory accounting principles, for the Company and its insurance subsidiary,
MNY, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
MNA:
Net income (loss) $ 22,259,385 $ 3,066,908 $(7,287,985)
Net capital and surplus 139,170,756 69,553,706 50,157,994
MNY:
Net (loss) income (1,562,544) 231,315 (578,899)
Net capital and surplus 68,336,238 22,265,070 8,821,782
</TABLE>
The Company's broker dealer subsidiaries, MSS and formerly NASL Financial
(through October 1, 1997), are subject to the Securities and Exchange
Commission's (SEC) "Net Capital Rule" as defined under rule 15c3-1. At December
31, 1997 and 1996, the net capital of each of the broker dealers exceeded the
SEC's minimum capital requirements.
The components of the balance sheet caption "Unrealized appreciation on
securities available-for-sale" in shareholder's equity are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------------------
(In Thousands)
<S> <C> <C>
Fair value of securities $143,307 $97,432
Amortized cost of securities 140,573 96,054
------------------------
Unrealized appreciation 2,734 1,378
Adjustment to deferred policy
acquisition costs (888) (595)
Deferred income taxes (646) (274)
------------------------
Unrealized appreciation on securities
available-for-sale $ 1,200 $ 509
========================
</TABLE>
22
<PAGE> 105
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
7. RELATED-PARTY TRANSACTIONS
In connection with the indemnity coinsurance agreement (see Note 5) of the fixed
portion of annuities, the Company pooled its mortgage portfolio (book value of
approximately $106 million) and transferred a senior participation interest to
an affiliate of Peoples. The senior interest was transferred for a purchase
price of approximately $72 million and entitles an affiliate of Peoples to 100%
of the cash flows produced by the portfolio until it recovers in full the
purchase price with interest at a rate of 7.52%. The remaining residual interest
was transferred to First North American Realty, Inc., which at the time of the
transaction was a wholly-owned subsidiary of NAL, the former Parent, for a
purchase price of $33 million. As a result of the sale of the senior and
residual interests in the Company's mortgages, the Company has no further
economic interest in any mortgages.
The Company utilizes various services administered by MLI in 1997 and 1996 and
NAL in 1995, such as legal, personnel, investment accounting and other corporate
services. The charges for these services were approximately $8,229,000,
$6,053,000 and $295,000 in 1997, 1996 and 1995, respectively. During 1996, MLI
changed the allocation method of expenses subsequent to the merger with NAL. At
December 31, 1997 and 1996, the Company had a net liability to MLI for these
services and interest accrued on notes payable of $3,646,308 and $3,172,259,
respectively. At December 31, 1997, the payable is offset by a receivable from
MIT and MLI for expenses paid on their behalf of $8,251,344. At December 31,
1996, payable to affiliates was offset by a receivable from MIT and NAF of
$1,710,238 for expenses paid on behalf of those entities.
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, 4, 6, 8, 10, 11 and 13 for
additional related-party transactions).
23
<PAGE> 106
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
8. NOTES PAYABLE TO AFFILIATES AND LINES OF CREDIT
The Company has a promissory note dated March 27, 1997, from MANUSA for
$138,500,000. Interest on the loan is calculated at a fluctuating rate equal to
LIBOR plus 32.5 basis points and is payable in quarterly installments starting
June 15, 1997. Principal and accrued interest are payable within 45 days of
demand. On June 15, 1997, the Company borrowed an additional $25,000,000
increasing the principal outstanding to $163,500,000.
During 1996 and through March 26, 1997 the Company had a revolving credit line
with Manufacturers Investment Corporation (MIC), an affiliated company. The
original term of the agreement was seven years. Each additional borrowing under
the agreement had a seven year term from the date of that additional borrowing.
Principal and interest was payable in quarterly installments. The interest rate
was LIBOR plus 32.5 basis points. This revolving credit line was replaced by the
demand promissory note. The balance outstanding for the borrowings at December
31, 1997 and 1996 is $163,500,000 and $137,864,052, respectively. Accrued
interest payable at December 31, 1997 and 1996 is $455,075 and $336,628,
respectively.
During 1995, the Company had a $150 million revolving credit and term loan
agreement with the Canadian Imperial Bank of Commerce and Deutsche Bank AG. The
amount outstanding at December 31, 1995 was in the form of a term loan of $107
million. In April of 1996, this loan was paid in full and the credit line with
MIC described above was established.
The Company received $20,000,000 from its former Parent, NAL, in the form of a
surplus note agreement with interest at 8%. This note agreement was assumed by
MLI upon the merger described in Note 1. The note and accrued interest are
subordinated to payments due to policyholders and other claimants. Principal and
interest payments can be made only upon prior approval of the Insurance
Department of the State of Delaware. Interest accrued at December 31, 1997 and
1996 was $3,191,231 and $1,591,232, respectively.
The Company and its insurance subsidiaries have unsecured lines of credit with
State Street Bank and Trust totaling $15,000,000, bearing interest at the bank's
money market rate plus 50 basis points. There were no outstanding advancements
under the line of credit at December 31, 1997 and 1996.
24
<PAGE> 107
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
8. NOTES PAYABLE TO AFFILIATES AND LINES OF CREDIT (CONTINUED)
Interest expense and interest paid in 1997 were $11,072,791 and $9,354,343,
respectively. Interest expense and interest paid in 1996 were $8,774,643 and
$11,727,002, respectively. Interest expense and interest paid in 1995 were
$8,981,532 and $8,980,132.
9. OTHER INSURANCE EXPENSES
Other insurance expenses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
Selling and administrative expenses $ 42,580,888 $29,207,640 $28,058,234
Subadvisory fees 26,364,212 15,882,860 12,007,940
General operating expenses 31,440,140 26,164,854 18,678,913
-------------------------------------------------
$100,385,240 $71,255,354 $58,745,087
=================================================
</TABLE>
10. RETIREMENT PLANS
MLI, and formerly NAL prior to the merger, sponsors a defined benefit pension
plan (the Plan) covering substantially all of the Company's employees. The
benefits are based on years of service and the employee's compensation during
the last five years of employment. MLI's funding policy is to contribute
annually the normal cost up to the maximum amount that can be deducted for
federal income tax purposes and to charge each subsidiary for its allocable
share of such contributions based on a percentage of payroll. No pension costs
were allocated to the Company in 1997, 1996 or 1995, as the Plan was subject to
the full funding limitation under the Internal Revenue Code.
The Company sponsors a defined contribution retirement plan pursuant to
regulation 401(k) of the Internal Revenue Code. All employees who are 21 years
old are eligible after one year of service. The Company contributes two percent
of base pay plus fifty percent of the employee savings contribution. The
employee savings contribution is limited to six percent of base pay. The Company
contributed $352,867, $306,989 and $209,423 in 1997, 1996 and 1995,
respectively.
25
<PAGE> 108
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
11. LEASES
The Company leases its office space and various office equipment under operating
lease agreements. For the years ended December 31, 1997, 1996 and 1995, the
Company incurred rent expense of $1,315,567, $1,224,352 and $1,461,475,
respectively. The Company negotiated a ten-year lease for new office space which
commenced in March 1992. In connection with the lease, the Company was required
to deposit $1,500,000 in an escrow account as security toward fulfilling the
future lease commitment. The balance of the escrow at December 31, 1997 and 1996
is $750,000 and $900,000, respectively. The lease for the offices of MNY expires
in 1999 and is subject to a renewal option at market rates prevailing at the
time of renewal.
The minimum lease payments associated with the office space and various office
equipment under operating lease agreements are as follows:
<TABLE>
<CAPTION>
MINIMUM LEASE
PAYMENTS
-------------
<S> <C>
Year ended:
1998 $1,285,808
1999 1,261,159
2000 1,197,368
2001 1,197,368
2002 197,651
----------
Total $5,139,354
==========
</TABLE>
12. INTEREST RATE SWAP
The Company entered into a variable-for-fixed interest rate swap in 1995 with
Canadian Imperial Bank of Commerce and Deutsche AG for the purpose of minimizing
exposure to fluctuations in interest rates on a portion of the variable-rate
outstanding debt held by the Company. This interest rate swap was prematurely
terminated in 1996 concurrent with the restructuring of the Company's revolving
line of credit resulting in a gain of $1,632,000 recorded as an offset to
interest expense.
26
<PAGE> 109
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
13. GUARANTEE AGREEMENT
Pursuant to a guarantee agreement, MLI unconditionally guarantees that it will,
on demand, make funds available to the Company for the timely payment of
contractual claims made under the fixed portion of the variable annuity
contracts issued by its subsidiaries. The guarantee covers the outstanding fixed
portion of variable annuity contracts, including those issued prior to the date
of the guarantee agreement.
14. DISCONTINUED OPERATIONS
On May 6, 1997, the Company signed a letter of intent to sell their mutual fund
operations. This disposal has been accounted for as discontinued operations in
accordance with Accounting Principles Board Opinion No. 30, which among other
provisions, requires the plan of disposal to be carried out within one year. On
October 1, 1997, the Company sold its advisory operations for NAF and the
pre-existing deferred commission assets related to the mutual fund operations.
The Company realized a gain of $9,160,782, before applicable taxes of
$3,206,274. Included in the gain is a provision of $9,758, before applicable
taxes of $3,415, for the loss from continuing operations during the phase-out
period. Expenses of $223,444 were incurred on the sale and netted against the
realized gain.
The operating results related to discontinued operations are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Advisory fees, commissions
and distribution revenues $4,605,110 $12,444,560 $10,336,334
==============================================
Loss from operations before provision for
income (tax) benefit $ (217,129) $(1,246,074) $(2,249,058)
Provision for income (tax) benefit:
Current 75,995 766,353 1,921,114
Deferred (330,227) (1,133,944)
----------------------------------------------
75,995 436,126 787,170
Loss from operations, net of tax $ (141,134) $ (809,948) $(1,461,888)
==============================================
</TABLE>
27
<PAGE> 110
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
14. DISCONTINUED OPERATIONS (CONTINUED)
The sale agreement contains a contingent payment option where the Company could
earn an additional $1,000,000, before income taxes, if certain conditions are
met. This amount, if earned, would be reflected in discontinued operations
during 1998.
15. FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
consolidated balance sheet, for which it is practicable to estimate that value.
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
SFAS No. 107 also excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements and allows companies to forego the
disclosures when those estimates can only be made at excessive cost.
Accordingly, the aggregate fair value amounts presented herein are limited by
each of these factors and do not purport to represent the underlying value of
the Company.
The following methods and assumptions were used by the Company in estimating the
fair value disclosures for financial instruments:
Investments: Fair values for fixed maturities are obtained from an
independent pricing service. The fair value for marketable equity
securities are based on quoted market prices.
Short-term investment and cash and cash equivalents: The carrying amounts
reported in the consolidated balance sheets for short-term investments and
cash and cash equivalents approximate their fair values.
Policy loans: The carrying amount in the consolidated balance sheets for
policy loans approximates their fair value.
28
<PAGE> 111
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
15. FINANCIAL INSTRUMENTS (CONTINUED)
Due from reinsurers: The fair value of the amount due from reinsurers is
equal to deposits made under the contract and approximates the carrying
value.
Policyholder funds: 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.
Amounts on deposit from and payable to reinsurers: Amounts on deposit from
and payable to reinsurers reflects the net reinsured cash flow related to
financing agreements which is primarily a current liability. As such, fair
value approximates carrying value.
Notes payable to affiliates: Fair value is considered to approximate
carrying value as the majority of notes payable are at variable interest
rates that fluctuate with market interest rate levels.
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Fixed maturities $143,307,365 $143,307,365 $ 97,431,343 $ 97,431,343
Marketable equity securities 1,177 1,177
Short-term investments 14,991,793 14,991,793 4,294,370 4,294,370
Policy loans 3,275,654 3,275,654 637,096 637,096
Cash and cash equivalents 7,338,690 7,338,690 12,073,302 12,073,302
Due from reinsurers 553,833,869 553,833,869 573,418,610 573,418,610
Liabilities:
Policyholder funds 92,750,188 87,375,237 82,619,372 81,123,255
Amounts on deposit from and
payable to reinsurers 574,881,943 574,881,943 599,909,628 599,909,628
Notes payable to affiliates 183,955,075 183,955,075 158,200,680 158,200,680
</TABLE>
29
<PAGE> 112
PART C
Other Information
<PAGE> 113
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial Statements of the Registrant, The Manufacturers
Life Insurance Company of North America Separate Account A
(Part B of the registration statement).
(2) Financial Statements of the Depositor, The Manufacturers
Life Insurance Company of North America (Part B of the
registration statement).
(b) Exhibits
(1) (i) Resolution of the Board of Directors of North
American Security Life Insurance Company
establishing the NASL Variable Account --
Incorporated by reference to Exhibit (A)(1)
to Form S-6, file number 2-93435, filed
September 24, 1984 on behalf of the NASL
Variable Account of North American Security
Life Insurance Company.
(ii) Resolution of the Board of Directors of North
American Security Life Insurance Company
redesignating existing sub-accounts and
dividing the NASL Variable Account to create
additional sub-accounts, dated May 30, 1995
-- Incorporated by reference to Exhibit
(b)(1)(ii) to post-effective amendment no. 2
to Form N-4, file number 33-76684, filed
March 1, 1996 on behalf of the NASL Variable
Account of North American Security Life
Insurance Company. *
(iii) Resolution of the Board of Directors of North
American Security Life Insurance Company
redesignating existing sub-accounts and
dividing the NASLVariable Account to create
additional sub-accounts, dated September 30,
1996 -- Incorporated by reference to Exhibit
(b)(1)(iii) to post-effective amendment no. 3
to Form N-4, file number 33-76684, filed
February 28, 1997 on behalf of the NASL
Variable Account of North American Security
Life Insurance Company.*
(iv) Resolution of the Board of Directors of North
American Security Life Insurance Company
redesignating existing sub-accounts and
dividing the NASL Variable Account to create
additional sub-accounts, dated September 30,
1996 -- Incorporated by reference to Exhibit
(b)(1)(iv) to post-effective amendment no. 3
to Form N-4, file number 33-76684, filed
February 28, 1997 on behalf of the NASL
Variable Account of North American Security
Life Insurance Company.*
(2) Agreements for custody of securities and similar
investments - Not Applicable.
(3) (i) Underwriting Agreement - Incorporated by
reference to Exhibit 3 (i) to post- effective
amendment No. 4 on Form N-4, file number
33-76162, filed February 25, 1998 on behalf
of The Manufacturers Life Insurance Company
of North America.*
------------------------
*/ Filed electronically.
- 1 -
<PAGE> 114
(ii) Form of broker-dealer agreement -
Incorporated by reference to Exhibit 3 (iv)
to post-effective amendment No. 4 on Form
N-4, file number 33-76162, filed February 28,
1998 on behalf of The Manufacturers Life
Insurance Company of North America.*
(iii) Form of Promotional Agent Agreement.*
(4) (i) Form of Flexible Payment Deferred Combination
Fixed and Variable Group Annuity Contract,
Non-Participating -- Previously filed.*
(ii) Specimen Certificate Under Flexible Payment
Deferred Combination Fixed and Variable Group
Annuity Contract, Non-Participating --
Previously filed.*
(iii) Specimen Endorsements to Contracts -
Incorporated by reference to Exhibit 4 (ii)
Form N-4, file number 33-76684, filed March
18, 1994 on behalf of the NASL Variable
Account.
(iv) Individual Retirement Annuity Endorsement --
Previously filed.*
(5) (i) Specimen Application for Flexible Payment
Deferred Combination Fixed and Variable Group
Annuity Contract, Non-Participating.*
(ii) Specimen Certificate Application -
Incorporated by reference to Exhibit 5 (i)
Form N-4, file number 33-76684, filed March
18, 1994 on behalf of the NASL Variable
Account.
(6) (i) Certificate of Incorporation of North
American Security Life Insurance Company --
Incorporated by reference to Exhibit (A)(6)
to Form S-6, file number 2-93435, filed
September 24, 1984 on behalf of the NASL
Variable Account of North American Security
Life Insurance Company.
(ii) Amendment to Certificate of Incorporation
Changing Name to "The Manufacturers Life
Insurance Company of North America" --
Previously filed.*
(iii) Amended and Restated By-laws of The
Manufacturers Life Insurance Company of North
America -- Previously filed.*
(7) (i) Contract of reinsurance in connection with
the variable annuity contracts being offered
- Variable Annuity Guaranteed Death Benefit
Reinsurance Contract between North American
Security Life Insurance Company and
Connecticut General Life Insurance Company,
effective July 1, 1995 -- Incorporated by
reference to Exhibit (b)(7)(ii) to
post-effective amendment no. 2 to Form N-4,
file number 33-76684, filed March 1, 1996 on
behalf of the NASL Variable Account of North
American Security Life Insurance Company.*
------------------------
*/ Filed electronically.
- 2 -
<PAGE> 115
(ii) Contract of reinsurance in connection with
the variable annuity contracts being offered
- Variable Annuity Guaranteed Death Benefit
Reinsurance Contract between North American
Security Life Insurance Company and
Connecticut General Life Insurance Company,
effective July 1, 1995 -- Incorporated by
reference to Exhibit (b)(7)(iii) to
post-effective amendment no. 2 to Form N-4,
file number 33-76684, filed March 1, 1996 on
behalf of the NASL Variable Account of North
American Security Life Insurance Company.*
(iii) Contract of reinsurance in connection with
the variable annuity contracts being offered
- Automatic Reinsurance Agreement between
North American Security Life Insurance
Company and Swiss Re America, effective
August 1, 1995 -- Incorporated by reference
to Exhibit (b)(7)(iv) to post-effective
amendment no. 3 to Form N-4, file number
33-76684, filed February 28, 1997 on behalf
of the NASL Variable Account of North
American Security Life Insurance Company.*
(iv) Contract of reinsurance in connection with
the variable annuity contracts being offered
- Reinsurance Agreement between North
American Security Life Insurance Company and
PaineWebber Life Insurance Company, effective
December 31, 1994 -- Incorporated by
reference to Exhibit (b)(7)(v) to
post-effective amendment no. 2 to Form N-4,
file number 33-76684, filed March 1, 1996 on
behalf of the NASL Variable Account of North
American Security Life Insurance Company.
(8) Other material contracts not made in the ordinary
course of business which are to be performed in whole
or in part on or after the date the registration
statement is filed:
(i) Form of Remote Service Agreement dated
November 1, 1996 between North American
Security Life Insurance Company and CSC
Continuum, Inc.-- Incorporated by reference
to Exhibit (b)(8)(i) to post-effective
amendment no. 3 to Form N-4, file number
33-76684 , filed February 28, 1997 on behalf
of the NASL Variable Account of North
American Security Life Insurance Company.*
(9) Opinion of James D. Gallagher, Esq. as to the
legality of the securities being registered and
consent to use of opinion.*
(10) (i) Written consent of Ernst & Young LLP
independent certified public accountants.*
(ii) Written consent of Coopers & Lybrand L.L.P.
independent certified public accountants.*
(11) All financial statements omitted from Item 23,
Financial Statements -- Not Applicable.
(12) Agreements in consideration for providing initial
capital between or among Registrant, Depositor,
Underwriter or initial contract owners -- Not
Applicable.
------------------------
*/ Filed electronically.
- 3 -
<PAGE> 116
(13) Schedule for computation of performance quotations
provided in the Registration Statement in response to
Item 21--Incorporated by reference to Exhibit (b)(13)
to post-effective amendment no. 2 to Form N-4, file
number 33-76684, filed March 1, 1996 on behalf of the
NASL Variable Account of North American Security Life
Insurance Company.*
(15) (i) Powers of Attorney - The Manufacturers Life
Insurance Company of North America Directors
-- Incorporated by reference to Exhibit
(b)(14) to Form N-4, file number 33-55712,
filed March 22, 1993 on behalf of the NASL
Variable Account of North American Security
Life Insurance Company.
(ii) Power of Attorney - David Libbey,
Treasurer, The Manufacturers Life Insurance
Company of North America (Principal Financial
and Accounting Officer) - Incorporated by
reference to Exhibit 24 (ii) to Form 10Q,
filed November 14, 1997 on behalf of The
Manufacturers Life Insurance Company of North
America.*
(iii) Power of Attorney - Peter Hutchison,
Director, The Manufacturers Life Insurance
Company of North America -- Incorporated by
reference to Exhibit (b) (15) (iii) to
post-effective amendment No. 4 to Form N-4,
File No. 33-76162, filed February 28, 1998 on
behalf of The Manufacturers Life Insurance
Company of North America Separate Account A.*
(iv) Power of Attorney - John D. Richardson
(Chairman of the Board of Directors, North
American Security Life Insurance Company)
- Incorporated by reference to Exhibit
(15)(iii) to post-effective amendment No. 2
to Form N-4, file number 33-76162 filed April
29, 1997 on behalf of NASL Variable Account.
------------------------
*/ Filed electronically.
Item 25. Directors and Officers of the Depositor.
OFFICERS AND DIRECTORS OF THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA
<TABLE>
<CAPTION>
Name and Principal
Business Address Position with Depositor
- ------------------ -----------------------
<S> <C>
John Richardson Chairman of the Board of Directors
200 Bloor Street East
North Tower 11th Floor
Toronto, Ontario
Canada M4W-1E5
Peter S. Hutchison Director
5650 Yonge Street
North York, Ontario
Canada M2M 4G4
John D. DesPrez III President and Director
73 Tremont Street
Boston, MA 02108
James Boyle Vice President, Annuity Administration Services
116 Huntington Avenue and Chief Administrative Officer
Boston, MA 02116
</TABLE>
- 4 -
<PAGE> 117
<TABLE>
<S> <C>
John G. Vrysen Vice President and Chief Actuary
73 Tremont Street
Boston, MA 02108
Hugh McHaffie Vice President, Product Management
73 Tremont Street
Boston, MA 02108
Richard C. Hirtle Vice President, Treasurer and
73 Tremont Street Chief Operating Officer
Boston, MA 02108
James D. Gallagher Vice President, Secretary and General Counsel
73 Tremont Street
Boston, MA 02108
Janet Sweeney Vice President, Corporate Services
73 Tremont Street
Boston, MA 02108
</TABLE>
Item 26. Persons Controlled by or Under Common Control with Depositor or
Registrant.
THE MANUFACTURERS LIFE INSURANCE COMPANY
Manulife Corporate Organization as at December 31, 1997
The Manufacturers Life Insurance Company (Canada)
1. Cantay Holdings Inc. - Ontario (100%)
2. 484551 Ontario Limited - Ontario (100%)
a. 911164 Ontario Inc. - Ontario (100%)
3. Churchill Lifestyles Corp. (100%)
4. 495603 Ontario Limited - Ontario (100%)
5. 1198183 Ontario Limited - Ontario (100%)
6. 1198184 Ontario Limited - Ontario (100%)
7. 1235434 Ontario Limited - Ontario (100%)
8. 576986 Ontario Inc. - Ontario (100%)
9. Balmoral Developments Inc. - Ontario (100%)
10. Manulife Bank of Canada - Canada (100%)
11. Manulife Securities International Ltd. - Canada (100%)
12. Family Realty First Corp. - Ontario (100%)
13. NAL Resources Limited - Alberta (100%)
14. Manulife International Capital Corporation Limited - Ontario (100%)
a. Regional Power Inc. - Ontario (100%)
i. La Regionale Power (Port Cartier) Inc. - Ontario
(100%)
ii. La Regionale Power Angliers Inc. - Ontario (100%)
iii. Addalam Power Corporation - Philippines (100%)
15. Peel-de Maisonneuve Investments Ltd. - Canada (100%)
a. 2932121 Canada Inc. - Canada (100%)
16. FNA Financial Inc. - Canada (100%)
a. NAL Trustco Inc. - Ontario (100%)
b. First North American Insurance Company - Canada (100%)
c. Elliott & Page Limited - Ontario (100%)
- 5 -
<PAGE> 118
d. Seamark Asset Management Ltd. - Canada (67.86%)
e. NAL Resources Management Limited - Canada (100%)
i. NAL Energy Inc. - Alberta (100%)
17. ManuCab Ltd. - Canada (100%)
a. Plazcab Service Limited - Newfoundland (100%)
18. Manufacturers Life Capital Corporation Inc. - Canada (100%)
19. The North American Group Inc. - Ontario (100%)
20. 994744 Ontario Inc. - Ontario (100%)
21. 1268337 Ontario Inc. - Ontario (100%)
22. 3426505 Canada Inc. - Canada (100%)
23. The Manufacturers Investment Corporation - Michigan (100%)
a. Manulife Reinsurance Corporation (U.S.A.) - Michigan (100%)
i. The Manufacturers Life Insurance Company (U.S.A.) -
Michigan (100%)
(1) Dover Leasing Investments, LLC - Delaware
(99%)
(2) The Manufacturers Life Insurance Company of
America - Michigan (100%)
(a) Manulife Holding Corporation -
Delaware (100%)
(i) Manufacturers Adviser
Corporation - Colorado (100%)
(ii) Succession Plainning
International, Inc. -
Wisconsin (100%)
(iii) ManEquity, Inc. - Colorado
(100%)
(iv) Manulife Property Management of
Washington, D.C. Inc. -
Washington, D.C. (100%)
(v) ManuLife Service Corporation -
Colorado (100%)
(vi) Manulife Leasing Company, LLC -
Delaware (80%)
(3) Capitol Bankers Life Insurance Company -
Michigan (100%)
(4) Ennal, Inc. - Ohio (100%)
(5) Manulife-Wood Logan Holding Co. Inc. -
Delaware (62.5%)
(a) Wood Logan Associates, Inc. -
Connecticut (100%)
(i) Wood Logan Distributors, Inc. -
Connecticut (100%)
(b) The Manufacturers Life Insurance
Company of North America -Delaware
(100%)
(i) Manufacturers Securities
Services, LLC - Massachusetts
(100%)
(ii) The Manufacturers Life
Insurance Company of New York -
New York (100%)
ii. Manulife Reinsurance Limited - Bermuda (100%)
(1) MRL Holding, LLC - Delaware (99%)
(a) Manulife-Wood Logan Holding Co. Inc.
- Delaware (22.5%)
iii. MRL Holding, LLC - Delaware (1%)
24. Manulife International Investment Management Limited - U.K. (100%)
a. Manulife International Fund Management Limited - U.K. (100%)
25. WT(SW) Properties Ltd. - U.K. (100%)
26. Manulife Europe Ruckversicherungs-Aktiengesellschaft - Germany (100%)
27. Manulife International Holdings Limited - Bermuda (100%)
a. Manulife (International) Limited - Bermuda (100%)
i. Zhong Hong Life Insurance Co., Ltd. - China (51%)
ii. The Manufacturers (Pacific Asia) Insurance Company
Limited - H.K. (100%)
iii. Newtime Consultants Limited - H.K. (100%)
28. Manulife (International) Reinsurance Limited - Bermuda (100%)
a. Manulife (International) P & C Limited - Bermuda (100%)
b. Manufacturers P & C Limited - Barbados (100%)
c. Manufacturers Life Reinsurance Limited - Barbados (100%)
29. Chinfon-Manulife Insurance Company Limited - Bermuda (100%)
- 6 -
<PAGE> 119
30. Manulife (Malaysia) SDN. BHD. - Malaysia (100%)
31. Manulife (Thailand) Ltd. - Thailand (100%)
32. Young Poong Manulife Insurance Company - Korea (100%)
33. Manulife Data Services Inc. - Barbados (100%)
a. Manulife Funds Direct (Barbados) Limited - Barbados (100%)
i. Manulife Funds Direct (Hong Kong) Limited - H.K.
(100%)
34. OUB Manulife Pte. Ltd. - Singapore (100%)
35. Manulife Holdings (Hong Kong) Limited - H.K. (100%)
36. ManuLife Financial Systems (Hong Kong) Limited - H.K. (100%)
37. P.T. Asuransi Jiwa Dhamala ManuLife - Indonesia (51%)
a. P.T. AMP Panin Life - Indonesia (100%)
Item 27. Number of Contract owners.
As of March 1, 1998, there were no contracts of the series offered hereby
outstanding.
Item 28. Indemnification.
Article 9 of the Articles of Incorporation of the Company provides as follows:
NINTH: A director of this corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. Any repeal or
modification of the foregoing sentence shall not adversely affect any right or
protection of a director of the corporation existing hereunder with respect to
any act or omission occurring prior to such repeal or modification.
Article XIV of the By-laws of the Company provides as follows:
Each Director or officer, whether or not then in office, shall be indemnified
by the Company against all costs and expenses reasonably incurred by or imposed
upon him or her, including legal fees, in connection with or resulting from any
claim, action, suit or proceeding, whether civil, criminal or administrative,
in which he or she may become involved as a party or otherwise, by reason of
his or her being or having been a Director or officer of the Company.
(1) Indemnity will not be granted to any Director or officer with respect
to any claim, action, suit or proceeding which shall be brought against such
Director or officer by or in the right of the Company, and
(2) Indemnification for amounts paid and expenses incurred in settling
such action, claim, suit or proceeding, will not be granted, until it shall be
determined by a disinterested majority of the Board of Directors or by a
majority of any disinterested committee or group of persons to whom the
question may be referred by the Board, that said Director or officer did indeed
act in good faith and in a manner he or she reasonably believed to be in, or
not adverse, to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonably cause to believe that his or her
conduct was legal, and that the payment of such costs, expenses, penalties or
fines is in the interest of the Company, and not contrary to public policy or
other provisions of law.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendre or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in, or not
adverse, to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful. Indemnification shall be made by the corporation upon
determination by a disinterested majority of the Board of Directors or of a
majority of any disinterested committee or group or persons to whom the
question may be referred to by said Board, that the person did indeed act in
good faith and in a manner he or she reasonably believed to be in, or not
- 7 -
<PAGE> 120
adverse, to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonably cause to believe that his or her
conduct was legal.
The foregoing right to indemnity shall not be exclusive of any other rights
to which such Director or officer may be entitled as a matter of law.
The foregoing right to indemnity shall also extend to the estate of any
deceased Director or officer with respect to any such claim, action, suit or
proceeding in which such Director or officer or his or her estate may become
involved by reason of his or her having been a Director or officer of the
Company, and subject to the same conditions outlined above.
Notwithstanding the foregoing, Registrant hereby makes the following
undertaking pursuant to Rule 484 under the Securities Act of 1933:
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
Item 29. Principal Underwriters.
a. Set forth below is information concerning other investment companies for
which Manufacturers Securities Services, LLC, the principal underwriter
of the contracts, acts as investment adviser or principal underwriter.
<TABLE>
<CAPTION>
Name of Investment Company Capacity in which acting
-------------------------- ------------------------
<S> <C>
Manufacturers Investment Trust Investment Adviser
The Manufacturers Life Insurance Principal Underwriter
Company of New York Separate
Account A
The Manufacturers Life Insurance Principal Underwriter
Company of North America
Separate Account B
</TABLE>
b. The Manufacturers Life Insurance Company of North America is the
managing member of Manufacturers Securities Services, LLC and has sole
power to act on behalf of Manufacturers Securities Services, LLC. The
officers and directors of The Manufacturers Life Insurance Company of
North America are set forth under Item 25
c. None.
Item 30. Location of Accounts and Records.
All books and records are maintained at 116 Huntington Avenue, Boston, MA
02116 and at 73 Tremont Street, Boston, MA 02108.
Item 31. Management Services.
None.
- 8 -
<PAGE> 121
Item 32. Undertakings.
a. The Manufacturers Life Insurance Company of North America Separate
Account A undertakes (a) to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never
more than 16 months old for so long as payments under the variable
annuity contracts may be accepted, (b) to include either (1) as part of
any application to purchase a contract offered by the prospectus, a
space that an applicant can check to request a Statement of Additional
Information, or (2) a post card or similar written commuication affixed
to or included in the prospectus that the applicant can remove to send
for a Statement of Additional Information and (c) to deliver any
Statement of Additional Information and any financial statements
required to be made available under this Form promptly upon written or
oral request.
b. Representation of Insurer Pursuant to Section 26 of the Investment
Company Act of 1940
The Manufacturers Life Insurance Company of North America (the
"Company") hereby represents that the fees and charges deducted under
the contracts issued pursuant to this registration statement in the
aggregate are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by the Company.
- 9 -
<PAGE> 122
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant, The Manufacturers Life Insurance Company of North
America Separate Account A, has caused this amendment to its Registration
Statement to be signed on its behalf, in the City of Boston, and Commonwealth
of Massachusetts on this 16th day of March, 1998.
The Manufacturers Life Insurance Company of North America Separate Account A
----------------------------------------------------------------------------
(Registrant)
By: The Manufacturers Life Insurance Company
of North America
(Depositor)
By: John D. DesPrez III
------------------------------
John D. DesPrez III, President
Attest:
James D. Gallagher
- -----------------------------
James D. Gallagher, Secretary
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Depositor has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned on the
16th day of March, 1998 in the City of Boston, and Commonwealth of
Massachusetts.
THE MANUFACTURERS LIFE INSURANCE
--------------------------------
COMPANY OF NORTH AMERICA
------------------------
(Depositor)
By: John D. DesPrez III
------------------------------
John D. DesPrez III, President
Attest:
James D. Gallagher
- ----------------------------
James D. Gallager, Secretary
<PAGE> 123
As required by the Securities Act of 1933, this amended Registration
Statement has been signed by the following persons in the capacities with the
Depositor and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
John D. DesPrez III Director and President March 16, 1998
------------------- (Principal Executive Officer) ------------------------------
John D. DesPrez III (Date)
* Director
------------------- ------------------------------
Peter S. Hutchinson (Date)
* Director and Chairman
------------------- of the Board ------------------------------
John D. Richardson (Date)
* Vice President and
------------------- Treasurer (Principal Financial ------------------------------
David Libbey and Accounting Officer) (Date)
*By: James D. Gallagher March 16, 1998
------------------ ------------------------------
James D. Gallagher (Date)
Attorney-in-Fact
Pursuant to Powers of Attorney
</TABLE>
<PAGE> 124
EXHIBIT INDEX
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE IN SEQUENTIAL
NUMBERING
SYSTEM WHERE
EXHIBIT NO. DESCRIPTION OF EXHIBIT EXHIBIT LOCATED
- ----------- ---------------------- ---------------
<S> <C> <C>
99.3(ii) Form of Promotional Agent Agreement
99.5(i) Specimen Application for Flexible Payment deferred
Combination Fixed and Variable Group Annuity
Contract, Non-Participating.
99.9 Opinion of James D. Gallagher, Esq.
99.10(i) Written Consent of Ernst & Young LLP
99.10(ii) Written Consent of Coopers & Lybrand L.L.P.
</TABLE>
<PAGE> 1
EXHIBIT 99.3(ii)
PROMOTIONAL AGENT AGREEMENT
AGREEMENT ("Agreement") made as of this _____ day of ________________,
1998 by and among Manufacturers Securities Services, LLC ("MSS"), a
broker-dealer registered under the Securities Exchange Act of 1934 (1934 Act")
and a member of the National Association of Securities Dealers, Inc. ("NASD"),
The Manufacturers Life Insurance Company of North America ("Manulife North
America"), a stock life insurance company issuing, developing and sponsoring
Insurance Products, and ManEquity, Inc. ("Promotional Agent"), also registered
as a broker-dealer under the 1934 Act and a member of the NASD.
I. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
Insurance Products - fixed and variable annuity contracts issued by
Manulife North America as of the date of this Agreement together with
any products developed during the period of this Agreement that are
regulated as insurance products under the laws of the several States
of the United States, some of which are also regulated as securities
under the federal securities laws.
Selling Agreements - contracts among Broker-Dealers, Promotional Agent
and MSS and Manulife North America providing for the distribution of
Insurance Products issued, sponsored or developed by Manulife North
America.
Broker-Dealers - brokerage firms and insurance agencies (to the extent
they are licensed to sell Insurance Products) that have entered into
Selling Agreements to distribute Insurance Products to retail
customers.
II. INTRODUCTION
WHEREAS, Manulife North America is in the business of issuing,
developing and sponsoring various Insurance Products;
WHEREAS, Manulife North America distributes such Insurance Products
through its wholly-owned subsidiary MSS, which is the principal
underwriter of all its products regulated under the federal securities
laws;
WHEREAS, MSS is authorized to enter into Selling Agreements with
Manulife North America's consent with Broker-Dealers for the
distribution of Insurance Products; and
WHEREAS, Promotional Agent wishes to assist MSS in making arrangements
with Broker-Dealers for the distribution of Insurance Products and in
promoting the sale thereof through such Broker-Dealers, and MSS wishes
the Promotional Agent to do so;
<PAGE> 2
NOW THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
III. APPOINTMENT OF PROMOTIONAL AGENT
A. APPOINTMENT
MSS hereby appoints Promotional Agent as its non-exclusive agent for
the promotion of sales of the Insurance Products specified in Schedule
A hereto through Broker-Dealers, and Promotional Agent accepts such
appointments subject to the terms and conditions set forth herein.
IV. DUTIES OF PROMOTIONAL AGENT
A. PROMOTION OF CONTRACTS
Promotional Agent agrees to use its best efforts to promote the sale
of Insurance Products through Broker-Dealers, and in furtherance
thereof Promotional Agent shall to the extent it deems appropriate and
at its own expense:
(i) Use its best efforts to secure duly qualified Broker-Dealers
to enter into Selling Agreements for the distribution of Insurance
Products;
(ii) Prepare or cause to be prepared sales and promotional
materials, such materials being subject, however, to the prior
approval of MSS and Manulife North America as provided in Section VII
B of this Agreement;
C. PROMOTIONAL AGENT'S EXPENSES
Promotional Agent will be responsible for all expenses (excluding
first time and renewal licensing expenses for sellers of Insurance
Products) incurred in performing its duties under this Agreement.
V. DUTIES OF MSS AND MANULIFE NORTH AMERICA
A. DUTIES
MSS or Manulife North America shall to the extent they deem
appropriate and at their own expense:
(i) Where permitted, obtain such corporate registrations and
agent licenses as are necessary to carry on business and issue and
sell Insurance Products in all states of the
<PAGE> 3
United States and its territories and shall process all licensing,
registration and appointment applications of Broker-Dealers;
(ii) Underwrite fixed and variable annuity policies;
(iii) Issue fixed and variable annuity policies and provide full
administration services therefore;
(iv) Draft and file as required, prospectuses, contracts,
application forms and Selling Agreements;
(v) Comply with all other legal and regulatory requirements in
respect of Insurance Products; and
(vi) Review any marketing materials prepared by Promotional Agent
promptly.
B. COOPERATION OF MSS AND MANULIFE NORTH AMERICA
MSS and Manulife North America agree that to the extent the
cooperation or concurrence of one is required to enable the other to
fulfill its obligations pursuant to this Agreement, they will
cooperate or concur to the extent permitted by law.
VI. COMPENSATION
A. COMPENSATION SCHEDULE
In consideration of providing the services called for under this
Agreement, with respect to each category of Insurance Products the
Promotional Agent shall receive the compensation detailed in Schedule
B ("Statement of Expenses and Compensation") attached hereto and as
amended from time to time pursuant to Section X, paragraph I of this
Agreement. Such compensation shall constitute full compensation to
Promotional Agent for all services performed under this Agreement.
VII. LIMITATIONS ON PROMOTIONAL AGENT'S AUTHORITY
A. SOLICITATION
Nothing contained herein shall be construed as granting authority to
Promotional Agent to sell Insurance Products directly to, or solicit
applications for Insurance Products directly from, customers or
prospective customers.
<PAGE> 4
B. MARKETING MATERIALS
Promotional Agent will not use any marketing materials without
Manulife North America's or MSS's prior review and written approval.
C. RESTRICTION ON INFORMATION
Neither Promotional Agent nor its representatives, employees and
affiliated companies are authorized to give any information or make
any representations concerning Insurance Products other than those
contained in any registration statements or related prospectuses and
statements of additional information filed with the Securities and
Exchange Commission relating thereto or in such sales literature as
may be specifically authorized in writing by Manulife North America or
MSS (as applicable).
VIII. RECORDS
A. RECORD-KEEPING DUTIES
Promotional Agent, MSS and Manulife North America agree to keep all
necessary records as are required of each by applicable federal and
state law and acceptable business practices and to render any
necessary assistance to one another for the accurate and timely
preparation of such records. The parties to this Agreement, their
representatives and the representatives of any regulatory body with
jurisdiction, during normal business hours and upon five (5) days
written notice, shall have access to any records pertaining to this
Agreement maintained by the other parties hereto for purposes of
reviewing or copying same.
IX. CUSTOMER CONFIDENTIALITY
A. CONFIDENTIALITY
Promotional Agent agrees that the names and addresses of all customers
and prospective customers of MSS and of any affiliated company, which
may come to the attention of Promotional Agent or any company or
person affiliated with Promotional Agent, are confidential. Such
customer information shall not be used without the prior written
consent of MSS by Promotional Agent or any company or person
affiliated with Promotional Agent for any purposes whatsoever except
as may be necessary in connection with Insurance Products covered by
this Agreement.
<PAGE> 5
X. GENERAL PROVISIONS
A. WAIVER
Failure of any party to insist upon strict compliance with any of the
conditions of this Agreement shall not be construed as a waiver of any
of the conditions, but the same shall remain in full force and effect.
No waiver of any of the provisions of this Agreement shall be deemed
to be, or shall constitute, a waiver of any other provisions, whether
or not similar, nor shall any waiver constitute a continuing waiver.
B. BINDING EFFECT
This Agreement shall be binding on, and shall inure to the benefit of,
the parties to it and their respective successors and permitted
assigns, provided that this Agreement or any rights or obligations
hereunder may not be assigned without the prior written consent of the
parties hereto.
C. REGULATIONS
All parties agree to observe and comply with all laws, rules and
regulations applicable to the business contemplated by this Agreement.
D. GOVERNING LAW
This Agreement shall be construed in accordance with and governed by
the laws of the State of Massachusetts.
E. COMPLAINTS AND INVESTIGATIONS
Promotional Agent, MSS and Manulife North America agree to cooperate
fully in the event of any regulatory investigation, inquiry or
proceeding, judicial proceeding or customer complaint involving
Insurance Products.
F. TERMINATION
(a) This Agreement shall be for a period of five (5) years from
the date first mentioned above renewable automatically for one year
periods thereafter unless terminated by any party at the end of the
five year period or thereafter at the end of any one year period.
(b) This Agreement will terminate automatically if either MSS
(or any successor thereto) or Promotional Agent should cease to be a
registered broker-dealer under the 1934 Act or a member of the NASD.
Termination shall not affect the obligations of the parties under
Section IX of this Agreement or under paragraph D of this Section X.
<PAGE> 6
(c) This Agreement may be terminated by mutual consent of all
the parties to the Agreement.
G. AMENDMENT
This Agreement or any schedule annexed hereto may be amended only in
writing signed by all the parties.
H. COUNTERPARTS
This Agreement may be signed by the parties in counterpart.
The parties hereby execute this Agreement effective the date first
mentioned above.
I. AMENDMENT
This Agreement or any schedule annexed hereto may be amended only in
writing signed by all the parties.
<PAGE> 7
MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
By:
--------------------------------------------
Name and Title:
Date:
------------------------------------------
MANUFACTURERS SECURITIES SERVICES, LLC
By:
--------------------------------------------
Name and Title:
Date:
------------------------------------------
MANEQUITY, INC.
By:
--------------------------------------------
Name and Title:
Date:
------------------------------------------
<PAGE> 8
SCHEDULE A
(i) Variable Annuities (including fixed accounts)
(ii) Such other Insurance Products as are from time to
time agreed by the parties to the foregoing Agreement
and added to this Schedule A in accordance therewith.
<PAGE> 9
SCHEDULE B
STATEMENT OF EXPENSES AND COMPENSATION
Promotional Agent shall be compensated as follows:
Venture Annuity:
Venuture Rollover Annuity:
<PAGE> 1
EXHIBIT 99.5(i)
[MANULIFE FINANCIAL LOGO]
1. ACCOUNT REGISTRATION (Please Print)
Owners (Applicants)
Name*
- -----------------------------------------------------------------------
First Middle Last
Address
- -----------------------------------------------------------------------
Street
- -----------------------------------------------------------------------
City State Zip
---------------------
Sex [ ] M [ ] F Date of Birth
---------------------
Month Day Year
Daytime Phone Number: ( ) ________________________________________
- -------------------------- --------------------------
or
- -------------------------- --------------------------
Social Security Number Tax ID Number
Client Brokerage Acct. # (if applicable): _____________________________
=======================================================================
Co-Owner (Optional)
Name*
- -----------------------------------------------------------------------
First Middle Last
---------------------
Sex [ ] M [ ] F Date of Birth
---------------------
Month Day Year
- -------------------------- --------------------------
or
- -------------------------- --------------------------
Social Security Number Tax ID Number
=======================================================================
Annuitants (If different from Owner)
Name*
- -----------------------------------------------------------------------
First Middle Last
Address
- -----------------------------------------------------------------------
Street
- -----------------------------------------------------------------------
City State Zip
---------------------
Sex [ ] M [ ] F Date of Birth
---------------------
Month Day Year
- --------------------------
- --------------------------
Social Security Number
=======================================================================
Co-Annuitant (Optional)
Name*
- -----------------------------------------------------------------------
First Middle Last
---------------------
Sex [ ] M [ ] F Date of Birth
---------------------
Month Day Year
- --------------------------
- --------------------------
Social Security Number
2. BENEFICIARIES
(Enclose signed letter if more information is required.)
Name*
- -----------------------------------------------------------------------
First Middle Last Relationship
------------------- ---------------------------
Date of Birth
------------------- ---------------------------
Month Day Year Social Security Number
Name*
- -----------------------------------------------------------------------
First Middle Last Relationship
------------------- ---------------------------
Date of Birth
------------------- ---------------------------
Month Day Year Social Security Number
CONTINGENT BENEFICIARY
Name*
- -----------------------------------------------------------------------
First Middle Last Relationship
------------------- ---------------------------
Date of Birth
------------------- ---------------------------
Month Day Year Social Security Number
Flexible Payment Deferred Combination Fixed and Variable Annuity Application.
Payment (or original of exchange/transfer request) must accompany Application.
Please make check payable to THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH
AMERICA (the "Company") and address to: P.O. BOX 9230 GMF, BOSTON, MA
02205-9230.
3. INVESTMENT ALLOCATION
Allocate payment with application of $______________ as indicated below (must
total 100%) (Minimum initial investment of [$3,500]):
___% [Manufacturers Adviser Pac Rim Emerging Mkts]
___% [T. Rowe Price Science & Technology]
___% [Founders Int'l Small Cap]
___% [Warburg Pincus Emerging Growth]
___% [Pilgrim Baxter Growth]
___% [Fred Alger Small/Mid Cap]
___% [T. Rowe Price-Fleming Int'l Stock]
___% [Founders Worldwide Growth]
___% [Morgan Stanley Global Equity]
___% [Founders Growth]
___% [Rosenburg Small Company Value]
___% [Manufacturers Adviser Quant Equity]
___% [T. Rowe Price Blue Chip Growth]
___% [Fidelity Equity]
___% [Manufacturers Advisers Real Estate Securities]
___% [Miller Anderson Value]
___% [J.P. Morgan Int'l Growth & Income]
___% [Wellington Management Growth & Income]
___% [T. Rowe Price Equity-Income]
___% [Founders Balanced]
___% [Fidelity Aggr Asset Alloc]
___% [Miller Anderson High Yield]
___% [Fidelity Mod Asset Alloc]
___% [Fidelity Cons Asset Alloc]
___% [Salomon Brothers Strategic Bond]
___% [Oechsle Global Gov't Bond]
___% [Manufacturers Adviser Capital Growth Bond]
___% [Wellington Management Inv Quality Bond]
___% [Salomon Brothers U.S. Gov't Securities]
___% [Manufacturers Adviser Money Market]
[Fixed Accounts]
___% [1 Yr] ___% [3 Yr]
___% [5 Yr] ___% [7 Yr]
[Lifestyle Portfolios]
___% [Cons 280] ___% [Mod 460]
___% [Bal 640] ___% [Growth 820]
___% [Aggr 1000]
=============================================================================
REMARKS
<TABLE>
<S> <C> <C>
MRP.APP.002 *Unless subsequently changed in accordance with terms of Contract issued. 10/97
</TABLE>
<PAGE> 2
4. PLAN SPECIFICS
TYPE OF PLAN (Must be completed)
<TABLE>
<S> <C> <C> <C> <C>
[ ] Non-Qualified or [ ] IRA Rollover [ ] IRA Transfer [ ] Defined Benefit [ ] 403(b) Check if ERISA [ ]
[ ] Profit Sharing [ ] 401(k) [ ] 457 [ ] SEP IRA Tax Year _________
[ ] Money Purchase [ ] IRA Tax Year _________ [ ] Keogh (HR-10) [ ] Other Qualified __________
=============================================================================================================================
</TABLE>
Will the purchase of this Annuity replace or change any other insurance or
annuity? [ ] No [ ] Yes
(If "Yes," state company and contract number in Remarks, and attach replacement
forms.) If 1035 exchange, or any other transfer of assets, attach original of
exchange form or letter.
GROUP HOLDER: Name_________________ Address__________________
==============================================================================
Has Annuitant or applicant(s) any other annuities or insurance with the
Company? [ ] No [ ] Yes
(If "yes," list contract number in Remarks.)
5. SIGNATURES (Irrevocable Beneficiary, if designated, must also sign
application.)
NOTICE TO APPLICANT:
FOR FLORIDA RESIDENTS ONLY: Any person who knowingly and with intent to
injure, defraud, or deceive any insurer files a statement of claim or an
application containing any false, incomplete, or misleading information is
guilty of a felony of the third degree.
FOR NEW JERSEY RESIDENTS ONLY: Any person who includes any false or misleading
information on an insurance policy is subject to criminal and civil penalties.
FOR OHIO, KENTUCKY AND PENNSYLVANIA, RESIDENTS ONLY: Any person who knowingly
and with intent to defraud any insurance company or other person files an
application or submits a claim containing any materially false information or
conceals for the purpose of misleading, information concerning any fact
material thereto, commits a fraudulent insurance act, which is a crime, and
subjects such person to criminal and civil penalties.
STATEMENT OF APPLICANT:
I/We agree that the Contract I/we have applied for shall not take effect until
the later of: (1) the issuance of the Contract, or (2) receipt by the Company
at its Annuity Service Office of the first payment required under the
Contract. The information herein is true and complete to the best of my/our
knowledge and belief and is correctly recorded. I/We agree to be bound by the
representations made in this application. The Contract I/we have applied for is
suitable for my/our insurance investment objectives, financial situation and
needs. I/We understand that unless I/we elect otherwise in the Remarks
section, the Maturity Date will be the later of the Annuitant's 85th birthday,
or 10 years from the Contract Date (IRA's and certain qualified retirement
plans may require distributions to begin by age 70 1/2).
I/WE ACKNOWLEDGE RECEIPT OF THE MOST CURRENT PROSPECTUS DATED _________ AND
UNDERSTAND THAT ANNUITY PAYMENTS AND OTHER VALUES PROVIDED BY THE CONTRACT
APPLIED FOR, WHEN BASED ON THE INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE
VARIABLE AND NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Signed in (State) Date Signed Signature of Owner/Applicant Signature of Co-Owner
- --------------------------------------------------------------------------------------------------------------------------------
Signature of Annuitant Signature of Co-Annuitant Signature of Irrevocable Beneficiary (if designated)
(if different from Owner) (if different from Owner)
</TABLE>
STATEMENT OF AGENT: Will this contract replace or change any existing life
insurance or annuity in this or any other company? [ ] Yes [ ] No If yes,
please explain under Remarks. I certify I am authorized and qualified to
discuss the Contract herein applied for.
- -------------------------------------------------------------------------------
Signature of Agent Print Full Name Name of Firm
- -------------------------------------------------------------------------------
Agent Number
6. OTHER
MRP.APP.002 10/97
<PAGE> 3
Initial below each VENTURE service option you wish to elect.
GUARANTEE PLUS PROGRAM (MINIMUM PAYMENT $5,000)
OWNER PLEASE INITIAL HERE ________.
The Company will allocate a portion of the payment with this application to the
7-year Fixed Account, such that, at the end of the 7-year period, the account
will have grown to an amount at least equal to the total payment. The
remaining balance will be allocated proportionately according to the investment
selections on the application, which should total 100% excluding the amount
allocated to the 7-year Fixed Account.
CHECK PLUS-AUTOMATIC PURCHASE*
OWNER PLEASE INITIAL HERE ________.
I authorize the Company to collect $______ (minimum $30) starting the month of
________ by initiating electronic debit entries to my bank account with the
following frequency: [] Monthly: [] 5th or [] 20th [] Quarterly (20th of
January, April, July and October). When utilizing Check Plus, I agree that if
any debit/transfer is erroneously received by the bank indicated on the
enclosed voided check, or is not honored upon presentation, any accumulation
units may be canceled, and agree to hold the Company harmless from any loss due
to such electronic debits/transfers. (PLEASE ATTACH A VOIDED CHECK/WITHDRAWAL
SLIP.)
DOLLAR COST AVERAGING* (MINIMUM PAYMENT $6,000)
OWNER PLEASE INITIAL HERE ________.
I authorize the Company to transfer an amount (minimum $100) each month as
indicated below. Transfers are available from all variable and the one-year
fixed Investment Options. A maximum of 10% from the one-year fixed Investment
Option may be transferred monthly. Please make first transfer on __/__/__
(mm/dd/yy).
SOURCE FUND DESTINATION FUND AMOUNT
$
- ------------------------- --------------------- -------------------------
$
- ------------------------- --------------------- -------------------------
$
- ------------------------- --------------------- -------------------------
$
- ------------------------- --------------------- -------------------------
$
- ------------------------- --------------------- -------------------------
INCOME PLAN* (MINIMUM PAYMENT $12,000)
OWNER PLEASE INITIAL HERE ________.
I authorize withdrawals (minimum $100) from my Contract Value to commence as
indicated below. A maximum of 20% of payments may be withdrawn annually. When
utilizing the Income Plan, I agree that if any debit/transfer is erroneously
received by the bank indicated on the enclosed voided check, or is not honored
upon presentation, any accumulation units may be canceled, and agree to hold
the Company harmless from any loss due to such electronic debits/transfers.
From: $
----------------------------- --------------------
From: $
----------------------------- --------------------
From: $
----------------------------- --------------------
From: $
----------------------------- --------------------
From: $
----------------------------- --------------------
PLEASE INDICATE FREQUENCY: [] Monthly or
[] Quarterly (January, April, July and October)
Day of Withdrawal: [] 1st [] 7th [] 16th or
[] 26th
Please [] Withhold
[] Do not withhold Federal Income Taxes
[ ] I wish to utilize Electronic Funds Transfer in the processing of my
Income Plan. PLEASE ATTACH A VOIDED CHECK.
Or, if different from owner, make check payable to: (Please allow 7 business
days for receipt of check.)
- --------------------------------------------------------------------------------
First Middle Last
- --------------------------------------------------------------------------------
Street City State Zip
*Unless subsequently changed in accordance with terms of Contract issued.
<PAGE> 4
Initial below each VENTURE service option you wish to elect.
TELEPHONE TRANSFER AUTHORIZATION
OWNER PLEASE INITIAL HERE __________.
I authorize the Company to act on transfer instructions given by telephone from
any person who can furnish proper identification. Neither the Company nor any
person authorized by the Company will be responsible for any claim, loss,
liability or expense in connection with a telephone transfer if the Company or
such other person acted on telephone transfer instructions in good faith in
reliance on this authorization.
TELEPHONE WITHDRAWAL AUTHORIZATION
OWNER PLEASE INITIAL HERE __________.
I authorize the Company to act on withdrawal instructions given from any person
who can furnish proper identification by telephone. Neither the Company nor
any person authorized by the Company will be responsible for any claim, loss,
liability or expense in connection with a telephone withdrawal if the Company
or such other person acted on telephone withdrawal instructions in good faith
in reliance on this authorization. The minimum withdrawal amount is $1,000.
Withdrawal instructions may authorize Partial Withdrawals of up to $50,000.00
per account. (Full withdrawals are not permitted by telephone.) The check may
only be payable to the owner of record (who must be individual) and may be
mailed only to the address of record. The Company will not allow telephone
withdrawals for the following accounts: a) An account on which the address has
been changed in the last 30 days, b) Accounts over which a person has Power of
Attorney, c) 403(b) accounts for which the owner is under 59 1/2, d) Custodial
accounts, and e) Accounts with Market Timers as owners.
AUTOMATIC REBALANCING
OWNER PLEASE INITIAL HERE __________.
If marked, the policyholder's contract value, excluding amounts in the fixed
account investment options, will be automatically rebalanced to maintain the
rebalancing percentage levels in the variable portfolios as selected below,
based on the current total value of the eligible portfolios on the day of
rebalancing.
You may change the rebalancing percentages or terminate your participation in
the program by providing North American Security Life with a completed
Automatic Rebalancing Authorization form or by providing instructions via
telephone to an authorized North American Security Life representative prior to
the day the rebalancing will occur.
If a policyholder elects to participate in Automatic Rebalancing, the total
value of the variable portfolios must be included in the program. Therefore,
subsequent payments received and applied to portfolios in percentages different
from the current rebalancing allocation will be rebalanced at the next date of
rebalancing unless the subsequent payments are allocated to the fixed account
investment options.
Rebalancing will occur on the 25th of the month (or next business day), please
indicate frequency:
[] Quarterly [] Semi-Annually (June & December) [] Annually (December)
ASSET ALLOCATIONS (must total 100%):
<TABLE>
<S> <C>
___% Manufacturers Adviser Pac Rim Emerging Mkts (008) ____% Wellington Management Growth & Income (017)
___% T. Rowe Price Science & Technology (016) ____% T. Rowe Price Equity-Income (007)
___% Founders Int'l Small Cap (006) ____% Founders Balanced (071)
___% Warburg Pincus Emerging Growth (020) ____% Fidelity Aggr Asset Alloc (004)
___% Pilgrim Baxter Growth (022) ____% Miller Anderson High Yield (076)
___% Fred Alger Small/Mid Cap (011) ____% Fidelity Mod Asset Alloc (003)
___% T. Rowe Price-Fleming Int'l Stock (024) ____% Fidelity Cons Asset Alloc (002)
___% Founders Worldwide Growth (026) ____% Salomon Brothers Strategic Bond (015)
___% Morgan Stanley Global Equity (009) ____% Oechsle Global Gov't Bond (010)
___% Rosenberg Small Company Value (119) ____% Manufacturers Adviser Capital Growth Bond (080)
___% Fidelity Equity (001) ____% Wellington Management Inv Quality Bond (018)
___% Founders Growth (005) ____% Salomon Brothers U.S. Gov't Securities (014)
___% Manufacturers Adviser Quant Equity (065) ____% Manufacturers Adviser Money Market (019)
___% T. Rowe Price Blue Chip Growth (012) LIFESTYLE PORTFOLIOS
___% Manufacturers Adviser Real Estate Securities (068) ____% Cons 280 (179) ____% Mod 460 (180)
___% Miller Anderson Value (066) ____% Bal 640 (181) ____% Growth 820 (182)
___% J.P. Morgan Int'l Growth & Income (013) ____% Aggr 1000 (183)
</TABLE>
*Unless subsequently changed in accordance with terms of Contract issued.
<PAGE> 1
EXHIBIT 99.9
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
116 Huntington Avenue
Boston, MA 02116
March 16, 1998
To whom it may concern,
This opinion is written in reference to the flexible purchase payment individual
deferred combination fixed and variable annuity contracts (the "Contracts") to
be issued by The Manufacturers Life Insurance Company of North America, a
Delaware corporation (the "Company"), with respect to the variable portion of
which pre-effective Amendment No. 1 to a Registration Statement on Form N-4,
File No. 333-38081 (the "Registration Statement") is being filed under the
Securities Act of 1933, as amended (the "Act").
As General Counsel to the Company, I have examined such records and documents
and reviewed such questions of law as I deemed necessary for purposes of this
opinion.
1. The Company has been duly incorporated under the laws of the state of
Delaware and is a validly existing corporation.
2. The Manufacturers Life Insurance Company of North American Separate Account A
(the "Variable Account") is a separate account of the Company and is duly
created and validly existing pursuant to Title 18, Section 2932(a) of the
Delaware Code, as amended.
3. The portion of the assets to be held in the Variable Account equal to the
reserves and other liabilities under the Contracts is not chargeable with
liabilities arising out of any other business the Company may conduct.
4. The Contracts, when issued in accordance with the prospectus contained in the
effective Registration Statement and upon compliance with applicable local law,
will be legal and binding obligations of the Company.
I consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement.
Very truly yours,
James D. Gallagher
General Counsel, Vice President and
Secretary
<PAGE> 1
EXHIBIT 99.10(i)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Auditors" and to use our reports dated February 24, 1998 with respect to the
financial statements of The Manufacturers Life Insurance Company of North
America and February 5, 1998 with respect to the financial statements of The
Manufacturers Life Insurance Company of North America Separate Account A, in
Pre-Effective Amendment No. 1 to the Registration Statement (form N-4 File No.
333-38081) and in the Statement of Additional Information of The Manufacturers
Life Insurance Company of North America Separate Account A.
Ernst & Young LLP
Boston, Massachusetts
March 13, 1998
<PAGE> 1
EXHIBIT 99.10(ii)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Pre-Effective Amendment No. 1 to this
Registration Statement under the Securities Act of 1993 on Form N-4 (File No.
333-38081) of our report which includes an explanatory paragraph, regarding the
adoption of Financial Accounting Standards Board Interpretation No. 40 and
Statement of Financial Accounting Standards No. 120, dated May 29, 1997, except
for Note 14, as to which the date is February 26, 1998, on our audit of the
financial statements of The Manufacturers Life Insurance Company of North
America (formerly North America Security Life Insurance Company). We also
consent to the reference in our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 13, 1998
