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As filed with the Securities and Exchange Commission on April 29, 1998.
Registration No. 33-76684
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO.5
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA SEPARATE ACCOUNT A
(formerly NASL Variable Account)
(Exact name of Registrant)
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
(formerly North American Security Life Insurance Company)
(Name of Depositor)
116 Huntington Avenue
Boston, Massachusetts 02116
(Address of Depositor's Principal Executive Offices)
(617) 266-6004
(Depositor's Telephone Number Including Area Code)
James D. Gallagher, Esq. Copy to:
Vice President, Secretary J. Sumner Jones, Esq.
and General Counsel Jones & Blouch, L.L.P.
The Manufacturers Life Insurance 1025 Thomas Jefferson Street, N.W.
Company of North America Washington, DC 20007
73 Tremont Street
Boston, Massachusetts 02108
(Name and Address of Agent for Service)
-----------------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
---
X on May 1, 1998 pursuant to paragraph (b) of Rule 485
---
60 days after filing pursuant to paragraph (a)(1) of Rule 485
---
on (date) pursuant to paragraph (a)(1) of Rule 485
---
*The Prospectus contained in this registration statement also relates to
variable annuity contracts no longer being sold but for which additional
purchase payments are accepted and which are covered by an earlier registration
statement under File No. 33-49604.
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT A
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-4
N-4 Item Caption in Prospectus
Part A ---------------------
- ------
1. Cover Page
2. Special Terms
3. Summary
4. Performance Data; Financial Statements
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
6. Charges and Deductions; Withdrawal Charge; Reduction or Elimination
of Withdrawal Charge; Administration Fees; Reduction or Elimination
of Annual Administration Fee; Mortality and Expense Risk Charge;
Taxes; Appendix A; Appendix B
7. Accumulation Provisions; Company Approval Purchase Payments;
Accumulation Units; Net Investment Factor; Transfers Among
Investment Options; Telephone Transactions; Special Transfer
Services-Dollar Cost Averaging; Withdrawals; Special Withdrawal
Services Systematic Withdrawal Plan; Owner Inquiries; Other
Contract Provisions; Ownership; Beneficiary; Modification;
8. Annuity Provisions; General; Annuity Options; Determination of Amount
of the First Variable Annuity Payment; Annuity Units and the
Determination of Subsequent
Variable Annuity Payments; Transfers After Maturity Date
9. Accumulation Provisions; Death Benefit Before Maturity Date; Annuity
Provisions; Death Benefit After Maturity Date
10. Accumulation Provisions; Purchase Payments; Accumulation Units; Value
of Accumulation Units; Net Investment Factor; Distribution of
Contracts
11. Withdrawals; Restrictions under the Texas Optional Retirement
Program; Accumulation Provisions; Purchase Payments; Other Contract
Provisions; Ten Day Right to Review
12. Federal Tax Matters; Introduction; The Company's Tax Status; Taxation
of Annuities in General; Diversification Requirements; Qualified
Retirement Plans
13. Legal Proceedings
14. Statement of Additional Information - Table of Contents
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Part B Caption in Statement of
- ------ Additional Information
-----------------------
15. Cover Page
16. Table of Contents
17. General Information and History
18. Services-Accountants; Services-Servicing Agent
19. Not Applicable
20. Services-Principal Underwriter
21. Performance Data
22. Not Applicable
23. Financial Statements
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PART A
INFORMATION REQUIRED IN A PROSPECTUS
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Annuity Service Office Mailing Address
116 Huntington Avenue Post Office Box 9230
Boston, Massachusetts 02116 Boston, Massachusetts
(617) 266-6004 02205-9230
(800) 344-1029
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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 GROUP ANNUITY CONTRACT
NON-PARTICIPATING
This Prospectus describes a flexible purchase payment deferred combination
fixed and variable group annuity contract (the "contract") issued by The
Manufacturers Life Insurance Company of North America, formerly North American
Security Life Insurance Company (the "Company"), a stock life insurance company,
the ultimate parent of which is The Manufacturers Life Insurance Company
("Manulife"). The contract is designed for use in connection with retirement
plans which may or may not qualify for special Federal income tax treatment.
Prior to February, 1995, the Company issued a class of variable annuity contract
which is no longer being issued but under which purchase payments may continue
to be made ("prior contract" or "Ven 8 contracts"), which were sold during the
period from September, 1992 until February, 1995. This Prospectus principally
describes the contract but also describes the Ven 8 contracts. The principal
differences between the contract offered by this Prospectus and the Ven 8
contract relate to the investment options available under the contracts, a
minimum interest rate to be credited for any guarantee period under the fixed
portion of the contracts, the charges made by the Company and the death benefit
provisions (see "Appendix D Prior Contracts").
The contract provides for the accumulation of contract values and the
payment of annuity benefits on a variable and/or fixed basis. The contract
offers forty-three investment options: thirty-eight variable and five 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, formerly NASL Variable Account (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-eight sub-accounts of the Variable
Account. The assets of each sub-account are invested in shares of Manufacturers
Investment Trust, formerly NASL Series Trust (the "Trust") or Merrill Lynch
Variable Series Funds, Inc. ("Merrill Variable Funds"), each a mutual fund
having an investment portfolio for each sub-account of the Variable Account (see
the accompanying prospectus of the Trust and Merrill Variable Funds). Fixed
contract values may be accumulated under one, three, five and seven year fixed
account investment options and, in states where approved, a dollar cost
averaging fixed investment option. 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.
Additional information about the variable portion of the contract 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 "SEC") 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 (800) 344-1029. In
addition, the SEC 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 SEC.
The table of contents for the Statement of Additional Information is included on
page 49 of this Prospectus.
SHARES OF THE TRUST OR THE MERRILL VARIABLE FUNDS 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.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS INFORMATION ABOUT THE VARIABLE ACCOUNT AND THE VARIABLE PORTION OF THE
CONTRACT AND CERTIFICATE THAT A PROSPECTIVE PURCHASER SHOULD KNOW BEFORE
INVESTING. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR
HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is May 1, 1998.
V22/23.PRO598 (MLAM)
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TABLE OF CONTENTS
SPECIAL TERMS ............................................3
SUMMARY ..................................................5
TABLE OF ACCUMULATION UNIT VALUES ........................13
GENERAL INFORMATION ABOUT THE
MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA, THE MANUFACTURERS
LIFE INSURANCE COMPANY OF NORTH
AMERICA SEPARATE ACCOUNT A,
MANUFACTURERS INVESTMENT TRUST AND
MERRILL LYNCH VARIABLE SERIES FUNDS, INC..................15
The Manufacturers Life Insurance Company of North
America ..........................................15
The Manufacturers Life Insurance Company of North
America Separate Account A........................16
Manufacturers Investment Trust ......................16
Merrill Lynch Variable Series Funds, Inc.............20
DESCRIPTION OF THE CONTRACT ..............................21
ELIGIBLE GROUPS .......................................21
ACCUMULATION PROVISIONS ...............................21
Purchase Payments ...................................21
Accumulation Units ..................................22
Value of Accumulation Units .........................22
Net Investment Factor ...............................22
Transfers Among Investment Options ..................23
Maximum Number of Investment Options ................23
Telephone Transactions ..............................23
Special Transfer Services - Dollar Cost Averaging....24
Asset Rebalancing Program ...........................24
Withdrawals .........................................24
Special Withdrawal Services - Income Plan ...........25
Loans ...............................................25
Death Benefit Before Maturity Date ..................26
ANNUITY PROVISIONS ...................................28
General .............................................28
Annuity Options .....................................28
Determination of Amount of the First Variable
Annuity Payment ..................................29
Annuity Units and the Determination of Subsequent
Variable Annuity Payments ........................29
Transfers After Maturity Date .......................30
Death Benefit On or After Maturity Date .............30
OTHER CONTRACT PROVISIONS .............................30
Ten Day Right to Review .............................30
Ownership ...........................................30
Beneficiary .........................................31
Annuitant ...........................................31
Modification ........................................31
Discontinuance of New Owners ........................32
Misstatement and Proof of Age, Sex or Survival ......32
FIXED ACCOUNT INVESTMENT OPTIONS .......................32
GUARANTEED RETIREMENT INCOME PROGRAM....................35
CHARGES AND DEDUCTIONS ...................................36
Withdrawal Charges ..................................37
Reduction or Elimination of Withdrawal Charges ......38
Administration Fees .................................38
Reduction or Elimination of Annual
Administration Fee ...............................39
Mortality and Expense Risk Charge ...................39
Taxes ...............................................40
FEDERAL TAX MATTERS ......................................40
INTRODUCTION ...........................................40
THE COMPANY'S TAX STATUS ...............................40
TAXATION OF ANNUITIES IN GENERAL .......................41
Tax Deferral During Accumulation Period .............41
Taxation of Partial and Full Withdrawals ............42
Taxation of Annuity Payments ........................42
Taxation of Death Benefit Proceeds ..................43
Penalty Tax on Premature Distributions ..............43
Aggregation of Contracts ............................43
QUALIFIED RETIREMENT PLANS .............................43
Qualified Plan Types ................................44
Direct Rollovers ....................................46
FEDERAL INCOME TAX WITHHOLDING .........................47
GENERAL MATTERS ..........................................47
Tax Deferral ........................................47
Performance Data ....................................47
Financial Statements ................................47
Asset Allocation and Timing Services ................47
Restrictions Under the Texas Optional
Retirement Program ..................................48
Distribution of Contracts ...........................48
Owner Inquiries .....................................48
Confirmation Statements .............................48
Legal Proceedings ...................................48
Other Information ...................................48
Year 2000 Issues.....................................49
STATEMENT OF ADDITIONAL INFORMATION-
TABLE OF CONTENTS ......................................49
APPENDIX A: EXAMPLES OF CALCULATION OF
WITHDRAWAL CHARGE ......................................50
APPENDIX B: STATE PREMIUM TAXES .........................52
APPENDIX C: PENNSYLVANIA MAXIMUM
MATURITY AGE ...........................................53
APPENDIX D: PRIOR CONTRACTS (VEN 8) .....................54
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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 certificate specifications page or in the application,
unless changed.
Annuity Option - The method selected by each owner (or as specified in the
contract if no selection is made) for annuity payments made by the Company.
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 participation under the 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 issued to each owner which summarizes the rights
and benefits of the owner under the contract.
Certificate Anniversary - The anniversary of the certificate date.
Certificate Date - The date of issue of a certificate under the contract.
Certificate Year - The period of twelve consecutive months beginning on the
certificate date or any anniversary thereof.
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.
Contract Application - The document signed by the Group Holder that
evidences the Group Holder's application for a Contract.
Contract Value - The total of an owner's investment account values and, if
applicable, any amount in the loan account attributable to that owner.
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 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.
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Group Holder - The person, persons or entity to whom the 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-eight variable and five 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 on the 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. See Appendix D for
information on the Maturity Date applicable to certain contracts which are no
longer being issued (Ven 8 contracts).
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 - 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. The owner is specified in the application, unless changed. The
maximum issue age is 85.
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, 408A 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 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.
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.
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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 Contract. The contract offered by this Prospectus is a flexible
purchase payment deferred combination fixed and variable group annuity contract.
Specific accounts are maintained under the contract for each member of the
eligible group participating in the contract as evidenced by the issuance of
certificates. The contract provides 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 contract.
Eligible Groups. The contract may be issued to fund either non-qualified
retirement plans or plans qualifying for special income tax treatment under the
Internal Revenue Code of 1986, as amended (the "Code"), such as individual
retirement accounts and annuities, including Roth IRAs, 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").
Purchase Payments. Except as noted below, the minimum initial purchase
payment is $5,000 for Non-Qualified Contracts and $2,000 for Qualified
Contracts. The minimum initial purchase payment is $3,500 if the source of such
payment was a direct rollover of an eligible rollover distribution from a
qualified plan under Section 401(a) of the Code or a Tax Sheltered Annuity
described in Section 403(b) of the Code, all or part of which assets are
invested in a group annuity contract issued by The Manufacturers Life Insurance
Company (U.S.A.). 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 certificate and an owner's participation
under a contract at the end of any two consecutive certificate 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 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
forty-three investment options currently available under the contract:
thirty-eight variable account investment options and five 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-eight variable account investment options are the
thirty-eight 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 and Merrill Lynch Variable Funds: Merrill Lynch Special Value Focus Fund,
Merrill Lynch Basic Value Focus Fund and Merrill Lynch Developing Capital
Markets Focus Fund (see the accompanying prospectus of the Trust and Merrill
Variable Funds). 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 five fixed account investment
options: one, three, five and seven year guaranteed investment accounts and, in
states where approved, a dollar cost averaging fixed investment account. 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
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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.
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 plus any
applicable withdrawal charge 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. A withdrawal charge and an administration fee may
be imposed (see "WITHDRAWALS"). A withdrawal may be subject to income tax and a
10% penalty tax (see "FEDERAL TAX MATTERS"). Withdrawal privileges may also be
exercised pursuant to the Company's systematic withdrawal plan service (see
"SPECIAL WITHDRAWAL SERVICES - THE 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").
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.
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.
CERTIFICATES ISSUED PRIOR TO MAY 1, 1998. If any owner dies on or prior to
his or her 85th birthday and the oldest owner had an attained age of less than
81 years on the certificate date, the death benefit will be determined as
follows: During the first certificate year, the death benefit will be the
greater of: (a) the contract value or (b) the sum of all purchase payments made,
less any amounts deducted in connection with partial withdrawals made by or on
behalf of the owner. During any subsequent certificate year, the death benefit
will be the greater of: (a) the contract value or (b) the death benefit on the
last day of the previous certificate year, plus any purchase payments made and
less any amounts deducted in connection with partial WITHDRAWALS made by or on
behalf of the owner since then.
If any owner dies after his or her 85th birthday and the oldest owner had
an attained age of less than 81 years on the certificate date, the death benefit
will be the greater of: (a) the contract value or (b) the excess of (i) the sum
of all purchase payments made by or on behalf of the owner over (ii) the sum of
any amounts deducted in connection with partial withdrawals made by or on behalf
of the owner. If any owner dies and the oldest owner had an attained age greater
than 80 on the certificate date, the death benefit will be the contract value
less any applicable withdrawal charges at the time of payment of benefits (see
"DEATH BENEFIT BEFORE MATURITY DATE"). For certificates issued on or after
October 1, 1997, any withdrawal charges applied against the death benefit shall
be waived by the Company.
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CERTIFICATES ISSUED ON OR AFTER MAY 1, 1998. If any owner dies and the
oldest owner had an attained age of less than 81 years on the certificate date,
the death benefit will be determined as follows: During the first certificate
year, the death benefit will be the greater of: (a) the contract value or (b)
the sum of all purchase payments made by or on behalf of the owner, less any
amounts deducted in connection with partial withdrawals made by or on behalf of
the owner. During any subsequent certificate year, the death benefit will be the
greater of: (a) the contract value or (b) the death benefit on the last day of
the previous certificate year, plus any purchase payments made by or on behalf
of the owner and less any amounts deducted in connection with partial
withdrawals made by or on behalf of the owner since then. If any owner dies on
or after his or her 81st birthday, the death benefit will be the greater of (a)
contract value or (b) the death benefit on the last day of the certificate year
ending just prior to the owner's 81st birthday, plus any payments made by or on
behalf of the owner, less amounts deducted in connection with partial
withdrawals.
If any owner dies and the oldest owner had an attained age of 81 years or
greater on the certificate date, the death benefit will be the greater of: (a)
the contract value or (b) the excess of (i) the sum of all purchase payments
made by or on behalf of the owner over (ii) the sum of any amounts deducted in
connection with partial withdrawals made by or on behalf of the owner.
In the states of Texas and Washington, the death benefit described under
"Certificates Issued Prior to May 1, 1998" will continue to apply to
certificates issued on or after May 1, 1998.
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"). See Appendix D for
information on death benefit provisions applicable to certain contracts which
are no longer being issued (Ven 8 contracts).
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").
Guaranteed Retirement Income Program. The Guaranteed Retirement Income
Program (the "Income Benefit") guarantees a minimum lifetime fixed income
benefit in the form of fixed monthly annuity payments. The Income Benefit is
based on the aggregate net purchase payments applied to the certificate,
accumulated at interest, minus an adjustment for any partial withdrawals (the
"Income Base"). The amount of the monthly annuity payment provided by the Income
Benefit is determined by applying the Income Base to the monthly income factors
set forth in the Income Benefit Rider. Because the fixed annuity options
provided for in the contract are based on the contract value at the time of
annuitization, the amount of the monthly payments under such options may exceed
the monthly payments provided by the Income Benefit Rider. If the Income Benefit
is exercised and the annuity payment available under the contract is greater
than the monthly payment provided by the Income Benefit Rider, the Company will
pay the monthly annuity payment available under the contract. The Income Benefit
is available for certificates issued on or after May 1, 1998. The Income Benefit
is not available in all states (see "GUARANTEED RETIREMENT INCOME PROGRAM").
Ten Day Review. Within 10 days of receipt of his or her certificate, an
owner may cancel the 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 any 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, on 60 days' notice to the group
holder, the Company may change the withdrawal charges, administration fees,
mortality and expense risk charges, free withdrawal percentage, annuity purchase
rates and the market value charge as to any certificates issued after the
effective date of the modification (see "MODIFICATION").
Discontinuance of New Owners. On thirty days' notice to the group holder,
the Company may limit or discontinue acceptance of new applications and the
issuance of new certificates under a contract (see "DISCONTINUANCE OF NEW
OWNERS").
7
<PAGE> 13
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 "Transaction Expenses" and "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
Deferred sales load (as percentage of purchase payments)
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS WITHDRAWAL CHARGE
PURCHASE PAYMENT IN PERCENTAGE
CONTRACT
- --------------------------------------------------------------------------------
<S> <C>
0 6%
1 6%
2 5%
3 5%
4 4%
5 3%
6 2%
7+ 0%
</TABLE>
ANNUAL ADMINISTRATION FEE................................... $30(1)
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and expense risk fees............................. 1.25%
Administration fee - asset based............................ 0.15%
Total Separate Account Annual Expenses...................... 1.40%
OPTIONAL INCOME RIDER FEE................................... 0.25%(2)
(as a percentage of the Income Base)
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets)
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
TRUST PORTFOLIO FEES REIMBURSEMENT)*** ANNUAL EXPENSES
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets........ 0.850% 0.570% 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%
</TABLE>
- ----------
(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 equal to or greater than $100,000. See Appendix D for
information on the administration fee applicable to certain contracts which are
no longer being issued (Ven 8 contracts).
(2) If the Guaranteed Retirement Income Program is elected, this fee is
deducted on each certificate anniversary. The Guaranteed Retirement Income
Program is not available for Ven 8 contracts (see "GUARANTEED RETIREMENT INCOME
PROGRAM").
8
<PAGE> 14
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
TRUST PORTFOLIO FEES REIMBURSEMENT)*** ANNUAL EXPENSES
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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................. 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>
* 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:
<TABLE>
<CAPTION>
MANAGEMENT TOTAL TRUST
TRUST PORTFOLIO FEES OTHER EXPENSES ANNUAL EXPENSES
- --------------------------------------------------------------------------------------------------
<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>
*** During the one year period ended December 31, 1997, Manufacturers Securities
Services, LLC voluntarily waived fees payable to it and/or reimbursed expenses
to the extent necessary to prevent "Total Trust Annual Expenses" for the
Quantitative Equity, Real Estate and Capital Growth Bond Trusts from exceeding
.50% of the Trust's average net assets.
9
<PAGE> 15
This voluntary fee waiver was terminated effective January 1, 1998. Expenses
shown in the table for these three Trusts do not reflect the fee waiver.
# Each Lifestyle Trust will invest in shares of the Underlying Portfolios.
Therefore, each Lifestyle Trust will bear its pro rata share of the fees and
expenses incurred by the Underlying Portfolios and the investment return of each
Lifestyle Trust will be net of the Underlying Portfolio expenses. Each Lifestyle
Portfolio must also bear its own expenses. However, the Adviser is currently
paying these expenses as described in footnote ** above.
MERRILL VARIABLE FUNDS ANNUAL EXPENSES: CLASS B SHARES
(as a percentage of average net assets and after waivers and reimbursements)
<TABLE>
<CAPTION>
TOTAL COMPANY
OTHER EXPENSES ANNUAL EXPENSES
(AFTER EXPENSE (AFTER EXPENSE
MANAGEMENT REIMBURSEMENT AND REIMBURSEMENT AND
EXPENSES 12b-1 FEES WAIVER) WAIVER)
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Special Value Focus Fund 0.75% 0.15% 0.06%* 0.96%
Merrill Lynch Basic Value Focus Fund 0.60% 0.15% 0.07%* 0.82%
Merrill Lynch Developing Capital Markets Focus Fund 0.81% 0.15% 0.43%* 1.39%
</TABLE>
*Note that these are the expenses for the fiscal year ended December 31, 1997.
Merrill Lynch Asset Management, L.P. ("MLAM") and Merrill Lynch Life Agency,
Inc. have entered into a Reimbursement Agreement that limits the operating
expenses, exclusive of any distribution fees imposed on shares of Class B Common
Stock, paid by each portfolio in a given year to 1.25% of its average net
assets. This Reimbursement Agreement is expected to remain in effect for the
current year. During 1997, MLAM waived management fees for the Developing
Capital Markets Focus Fund in the amount totaling 0.19% of that Fund's average
daily net assets of Class B shares; absent this waiver, the total expenses for
Class B shares of this Fund would have been 1.58%.
EXAMPLE
A contract owner would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets, if the owner withdrew all of his or her
contract value at the end of the applicable time period:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS+ 5 YEARS* 10 YEARS*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pacific Rim Emerging Markets........ $84 $138 $182 $192 $321
Science & Technology................ 83 133 174 184 305
International Small Cap............. 83 134 177 187 310
Emerging Growth..................... 81 129 167 177 291
Pilgrim Baxter Growth............... 82 131 170 180 298
Small/Mid Cap....................... 81 127 164 174 285
International Stock................. 84 136 180 190 317
Worldwide Growth.................... 83 135 177 187 311
Global Equity....................... 81 126 162 172 281
Small Company Value................. 82 137
Equity.............................. 79 120 151 161 260
Growth.............................. 80 124 159 169 275
Quantitative Equity................. 78 119 150 160 257
Blue Chip Growth.................... 80 125 160 170 277
Real Estate Securities.............. 78 119 150 160 257
Value............................... 80 125 159 169 276
International Growth and Income..... 82 129 167 177 292
Growth and Income................... 78 120 151 161 259
Equity-Income....................... 79 121 154 164 265
Balanced............................ 79 122 155 165 268
Aggressive Asset Allocation......... 80 123 156 166 270
</TABLE>
10
<PAGE> 16
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS+ 5 YEARS* 10 YEARS*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
High Yield.......................... 79 122 155 165 268
Moderate Asset Allocation........... 79 121 154 164 265
Conservative Asset Allocation....... 79 123 156 166 269
Strategic Bond...................... 79 122 155 165 267
Global Government Bond.............. 80 124 158 168 273
Capital Growth Bond................. 78 118 148 158 253
Investment Quality Bond............. 78 118 148 158 254
U.S. Government Securities.......... 78 118 147 157 252
Money Market........................ 76 112 138 148 233
Lifestyle Aggressive 1000........... 82 129 167 177 291
Lifestyle Growth 820................ 81 127 164 174 285
Lifestyle Balanced 640.............. 80 124 158 168 274
Lifestyle Moderate 460.............. 79 121 154 164 265
Lifestyle Conservative 280.......... 78 117 146 156 250
Merrill Lynch Special Value
Focus............................. 80 125
Merrill Lynch Basic Value Focus..... 79 121
Merrill Lynch Developing Capital
Markets Focus..................... 84 137
</TABLE>
+ For prior contracts no longer issued, Ven 8 contracts, (as described in
Appendix D) only. The difference in numbers is attributable to the different
withdrawal charges. See Appendix D.
* The example of expenses for the Small Company Value Trust, Merrill Lynch
Special Value Focus Fund, Merrill Lynch Basic Value Focus Fund and Merrill Lynch
Developing Capital Markets Focus Fund contains figures for only one and three
years since they are newly created portfolios.
A contract owner would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets, if the contract owner annuitized as
provided in the contract or did not surrender the contract at the end of the
applicable time period:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS* 10 YEARS*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets........ $29 $89 $152 $321
Science & Technology................ 28 85 144 305
International Small Cap............. 28 86 147 310
Emerging Growth..................... 26 80 137 291
Pilgrim Baxter Growth............... 27 82 140 298
Small/Mid Cap....................... 25 78 134 285
International Stock................. 29 88 150 317
Worldwide Growth.................... 28 86 147 311
Global Equity....................... 25 78 133 283
Small Company Value................. 26 81
Equity.............................. 23 71 121 260
Growth.............................. 24 75 129 275
Quantitative Equity................. 23 70 120 257
Blue Chip Growth.................... 25 76 130 277
Real Estate Securities.............. 23 70 120 257
Value............................... 25 76 129 276
International Growth and Income..... 26 80 137 292
Growth and Income................... 23 70 121 259
Equity-Income....................... 23 72 124 265
Balanced............................ 24 73 125 268
</TABLE>
11
<PAGE> 17
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS* 10 YEARS*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive Asset Allocation......... 24 74 126 270
High Yield.......................... 24 73 125 268
Moderate Asset Allocation........... 23 72 124 265
Conservative Asset Allocation....... 24 73 126 269
Strategic Bond...................... 24 73 125 267
Global Government Bond.............. 24 75 128 273
Capital Growth Bond................. 22 69 118 253
Investment Quality Bond............. 22 69 118 254
U.S. Government Securities.......... 22 68 117 252
Money Market........................ 20 63 108 233
Lifestyle Aggressive 1000........... 26 80 137 291
Lifestyle Growth 820................ 25 78 134 285
Lifestyle Balanced 640.............. 24 75 128 274
Lifestyle Moderate 460.............. 23 72 124 265
Lifestyle Conservative 280.......... 22 68 116 250
Merrill Lynch Special Value
Focus............................. 24 76
Merrill Lynch Basic Value Focus..... 23 71
Merrill Lynch Developing Capital
Markets Focus..................... 29 88
</TABLE>
* The example of expenses for the Small Company Value Trust, Merrill Lynch
Special Value Focus Fund, Merrill Lynch Basic Value Focus Fund and Merrill Lynch
Developing Capital Markets Focus Fund contains figures for only one and three
years since they are newly created portfolios.
For purposes of presenting the foregoing Example, the Company has made
certain assumptions mandated by the SEC. The Company has assumed that, where
applicable, the maximum sales load is deducted, 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 SEC
in an attempt to provide prospective investors with standardized data with which
to compare various annuity contracts, do not take into account certain 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 0.063% annual asset charge based on the $47,500
approximate average size of certificates of this series. 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.
12
<PAGE> 18
TABLE OF ACCUMULATION UNIT VALUES +
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS
START OF YEAR* END OF YEAR AT END OF YEAR
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets
1997 $12.500000 $ 8.180904 74,344.781
- ------------------------------------------------------------------------------------------------------------------
Science & Technology
1997 $12.500000 $13.647195 385,384.991
- ------------------------------------------------------------------------------------------------------------------
International Small Cap
1996 $12.500000 $13.493094 265,493.981
1997 13.493094 13.410016 411,567.524
- ------------------------------------------------------------------------------------------------------------------
Emerging Growth
1997 $12.500000 $14.574077 211,397.254
- ------------------------------------------------------------------------------------------------------------------
Pilgrim Baxter Growth
1997 $12.500000 $12.327066 347,682.217
- ------------------------------------------------------------------------------------------------------------------
Small/Mid Cap
1996 $12.500000 $13.215952 684,451.580
1997 13.215952 15.020670 1,150,785.107
- ------------------------------------------------------------------------------------------------------------------
International Stock
1997 $12.500000 $12.652231 204,655.753
- ------------------------------------------------------------------------------------------------------------------
Worldwide Growth
1997 $12.500000 $13.965674 101,148.358
- ------------------------------------------------------------------------------------------------------------------
Global Equity
1994 $16.715126 $15.500933 171,668.821
1995 15.500933 16.459655 583,284.547
1996 16.459655 18.276450 923,612.249
1997 18.276450 21.770913 1,299,904.123
- ------------------------------------------------------------------------------------------------------------------
Small Company Value
1997 $12.500000 $11.898363 59,637.804
- ------------------------------------------------------------------------------------------------------------------
Equity
1994 $14.381312 $14.786831 156,302.930
1995 14.786831 20.821819 761,321.040
1996 20.821819 24.664354 1,637,731.552
1997 24.664354 29.002593 1,935,946.769
- ------------------------------------------------------------------------------------------------------------------
Growth
1996 $12.500000 $13.727312 252,538.943
1997 13.727312 16.968111 639,712.776
- ------------------------------------------------------------------------------------------------------------------
Quantitative Equity
1997 $12.500000 $16.107191 215,077.482
- ------------------------------------------------------------------------------------------------------------------
Blue Chip Growth
1994 $ 8.699511 $ 8.837480 67,651.751
1995 8.837480 11.026969 532,417.987
1996 11.026969 13.688523 1,036,815.886
1997 13.688523 17.134232 2,075,335.712
- ------------------------------------------------------------------------------------------------------------------
Real Estate Securities
1997 $12.500000 $14.949140 145,941.281
- ------------------------------------------------------------------------------------------------------------------
Value
1997 $12.500000 $15.057118 477,917.950
- ------------------------------------------------------------------------------------------------------------------
International Growth and Income
1995 $10.000000 $10.554228 403,796.120
1996 10.554228 11.718276 783,705.750
1997 11.718276 11.545714 1,064,531.666
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 19
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS
START OF YEAR* END OF YEAR AT END OF YEAR
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth and Income
1994 $13.239339 $13.076664 147,028.139
1995 13.076664 16.660889 916,107.230
1996 16.660889 20.178770 2,035,385.742
1997 20.178770 26.431239 3,295,978.088
- ------------------------------------------------------------------------------------------------------------------
Equity-Income
1994 $11.375744 $11.107620 147,434.130
1995 11.107620 13.548849 816,934.091
1996 13.548849 16.011513 1,486,734.204
1997 16.011513 20.479412 2,237,941.970
- ------------------------------------------------------------------------------------------------------------------
Balanced
1997 $12.500000 $14.609853 102,157.738
- ------------------------------------------------------------------------------------------------------------------
Aggressive Asset Allocation
1994 $12.538660 $12.381395 41,051.814
1995 12.381395 14.990551 102,929.895
1996 14.990551 16.701647 162,245.394
1997 16.701647 19.614359 188,134.226
- ------------------------------------------------------------------------------------------------------------------
High Yield
1997 $12.500000 $13.890491 338,419.694
- ------------------------------------------------------------------------------------------------------------------
Moderate Asset Allocation
1994 $12.522239 $12.396295 98,925.767
1995 12.396295 14.752561 312,206.344
1996 14.752561 15.995076 518,913.471
1997 15.995076 18.276161 675,599.424
- ------------------------------------------------------------------------------------------------------------------
Conservative Asset Allocation
1994 $12.378545 $12.298940 33,929.162
1995 12.298940 14.320582 127,957.567
1996 14.320582 15.113142 174,512.432
1997 15.113142 16.607511 214,321.762
- ------------------------------------------------------------------------------------------------------------------
Strategic Bond
1994 $10.192707 $ 9.965972 17,448.655
1995 9.965972 11.716972 276,219.578
1996 11.716972 13.250563 696,578.665
1997 13.250563 14.500997 1,080,748.752
- ------------------------------------------------------------------------------------------------------------------
Global Government Bond
1994 $14.734788 $14.630721 46,005.023
1995 14.630721 17.772344 117,694.301
1996 17.772344 19.803954 194,577.024
1997 19.803954 20.104158 242,752.181
- ------------------------------------------------------------------------------------------------------------------
Capital Growth Bond
1997 $12.500000 $13.475788 16,629.109
- ------------------------------------------------------------------------------------------------------------------
Investment Quality Bond
1994 $14.307698 $14.216516 15,254.616
1995 14.216516 16.751499 118,436.044
1996 16.751499 16.943257 276,418.440
1997 16.943257 18.336912 407,957.213
- ------------------------------------------------------------------------------------------------------------------
U.S. Government Securities
1994 $14.188969 $14.111357 14,981.455
1995 14.111357 16.083213 136,450.591
1996 16.083213 16.393307 299,784.238
1997 16.393307 17.535478 377,170.452
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 20
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS
START OF YEAR* END OF YEAR AT END OF YEAR
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market
1994 $13.453100 $13.623292 57,620.649
1995 13.623292 14.190910 218,876.370
1996 14.190910 14.699636 436,831.126
1997 14.699636 15.241915 751,417.909
- ------------------------------------------------------------------------------------------------------------------
Lifestyle Aggressive 1000
1997 $12.500000 $13.669625 621,262.575
- ------------------------------------------------------------------------------------------------------------------
Lifestyle Growth 820
1997 $12.500000 $14.033299 1,246,305.915
- ------------------------------------------------------------------------------------------------------------------
Lifestyle Balanced 640
1997 $12.500000 $14.066417 964,581.576
- ------------------------------------------------------------------------------------------------------------------
Lifestyle Moderate 460
1997 $12.500000 $14.016704 245,410.54
- ------------------------------------------------------------------------------------------------------------------
Lifestyle Conservative 280
1997 $12.500000 $13.825120 129,160.895
- ------------------------------------------------------------------------------------------------------------------
Merrill Lynch Special Value Focus Fund
1997 $12.500000 $27.655848 5,349.303
- ------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Focus Fund
1997 $12.500000 $15.792005 6,541.426
- ------------------------------------------------------------------------------------------------------------------
Merrill Lynch Developing Capital Markets
Focus Fund
1997 $12.500000 $ 9.191866 763.637
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Units under this series of contracts were first credited under the
sub-accounts on August 9, 1994, except in the case of International Growth and
Income where units were first credited on January 9, 1995, Small/Mid Cap and
International Small Cap where units were first credited on March 4, 1996, Growth
where units were first credited on July 15, 1996, Pacific Rim Emerging Markets,
Science & Technology, Emerging Growth, Pilgrim Baxter Growth, International
Stock, Worldwide Growth, Quantitative Equity, Real Estate Securities, Value,
Balanced, High Yield, Capital Growth Bond, Lifestyle Aggressive 1000, Lifestyle
Growth 820, Lifestyle Balanced 640, Lifestyle Moderate 460, Lifestyle
Conservative 280 where units were first credited on January 1, 1997, Small
Company Value where units were first credited on October 1, 1997 and Merrill
Lynch Special Value Focus Fund, Merrill Lynch Basic Value Focus Fund and Merrill
Lynch Developing Capital Markets Focus Fund were units were first credited on
October 22, 1997.
+ See Appendix D for the TABLE of ACCUMULATION UNIT VALUES for certain contracts
which are no longer being issued (Ven 8 contracts).
GENERAL INFORMATION ABOUT
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA,
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA SEPARATE ACCOUNT A,
MANUFACTURERS INVESTMENT TRUST AND MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
The Manufacturers Life Insurance Company of North America (the "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 02116. 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
15
<PAGE> 21
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 Manufacturers Life Insurance Company of North
America Separate Account A (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 SEC under the Investment
Company Act of 1940, as amended (the "1940 Act") as a unit investment trust. A
unit investment trust is a type of investment company which invests its assets
in specified securities, such as the shares of one or more investment companies.
Registration under the 1940 Act does not involve supervision by the SEC 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.
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 Manufacturers Investment
Trust (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, Emerging Growth Trust and the five
Lifestyle Trusts which are non-diversified. The Trust receives investment
subadvisory services from Manufacturers Securities Services, LLC ("MSS"), the
successor to NASL Financial Services, Inc.
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 LLC Growth Trust
Worldwide Growth Trust
Balanced Trust
International Small Cap Trust
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
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SUBADVISER SUBADVISER TO
- ---------- -------------
Morgan Stanley Asset Management Inc. Global Equity Trust
Oechsle International Advisors, L.P. Global Government Bond Trust
Pilgrim Baxter & Associates, Ltd. Pilgrim Baxter Growth Trust
Rosenberg Institutional Equity Management Small Company Value Trust
Rowe Price-Fleming International, Inc. International Stock 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 Asset Management, 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 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
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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
Investor Services, Inc. or Standard & Poor's Corporation or, if unrated, of
equivalent credit quality as determined by the subadviser.
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.
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
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<PAGE> 24
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
Underlying Portfolios which invest primarily in fixed income securities and
approximately 60% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a high
level of current income and growth of capital with a greater emphasis given to
high income by investing approximately 60% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 40% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of
current income with some consideration also given to growth of capital by
investing approximately 80% of the Lifestyle Trust's assets in Underlying
Portfolios which invest primarily in fixed income securities and approximately
20% of its assets in Underlying Portfolios which invest primarily in equity
securities.
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<PAGE> 25
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 Trust
prospectus before investing in any of these Trusts.
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 Trust prospectus before investing in any of these Trusts.
If the shares of a portfolio are no longer available for investment or in
the Company's judgment investment in a 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 SEC 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 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.
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
The variable portion of your contract contains three additional investment
options. Each portfolio is a series of Merrill Lynch Variable Series Funds, Inc.
("Merrill Variable Funds"). Merrill Variable Funds 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, with the exception of the Developing
Capital Markets Focus Fund which is non-diversified. Merrill Variable Funds
receive investment advisory services from Merrill Lynch Asset Management, L.P.
The Merrill Variable Funds Class B shares are subject to a Rule 12b-1 fee of up
to .15% of a portfolio's Class B net assets. The portfolios are not available
for investment for Ven 1 and Ven 3 contract owners. Set forth below is a brief
description of each portfolio's investment objectives and certain policies
relating to that objective.
The MERRILL LYNCH SPECIAL VALUE FOCUS FUND seeks long-term growth of
capital by investing in a diversified portfolio of securities, primarily common
stocks, of relatively small companies that management of Merrill Variable Funds
believes have special investment value, and of emerging growth companies
regardless of size.
The MERRILL LYNCH BASIC VALUE FOCUS FUND seeks capital appreciation and,
secondarily, income by investing in securities, primarily equities, that
management of the portfolio believes are undervalued and therefore represent
basic investment value.
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<PAGE> 26
The MERRILL LYNCH DEVELOPING CAPITAL MARKETS FOCUS FUND seeks long-term
capital appreciation by investing in securities, principally equities, of
issuers in countries having smaller capital markets. For purposes of its
objective, the portfolio considers countries having smaller capital markets to
be all countries other than the four countries having the largest equity market
capitalizations.
The Merrill Lynch Developing Capital Markets Focus Fund may invest 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 "Risks of High Yield
Securities" in the Merrill Lynch Variable Series Funds, Inc. prospectus dated
April 16, 1998. The Merrill Lynch Developing Capital Markets Focus Fund may also
invest up to 100% of its assets in foreign securities which present additional
risks. See "Other Portfolio Strategies - Foreign Securities" in the Merrill
Lynch Variable Series Funds, Inc. prospectus dated April 16, 1998.
A full description of Merrill Variable Funds, including the investment
objectives, policies and restrictions of each portfolio is contained in Merrill
Variable Funds' prospectus which accompanies this prospectus and should be read
by a prospective purchaser before investing.
PLEASE NOTE THE MERRILL VARIABLE FUNDS ARE NOT AVAILABLE FOR ERISA GOVERNED
PLANS.
DESCRIPTION OF THE CONTRACT
ELIGIBLE GROUPS
The contract may be issued to fund plans qualifying for special income tax
treatment under the Code, such as individual retirement accounts and annuities,
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 contract is also designed so that it may be
used with non-qualified retirement plans, such as deferred compensation and
payroll savings plans and such other groups (trusteed or non-trusteed) as may be
eligible under applicable law. Contracts have been issued to 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 contract has been issued may
become an owner under the contract 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 contract will be
issued to an applicant acceptable to the Company. The Company reserves the right
to decline to issue a certificate to any person in its sole discretion. All
rights and privileges under the contract may be exercised by each owner as to
his or her interest unless expressly reserved to the group holder. However,
provisions of any plan in connection with which the contract was issued may
restrict an owner's ability to exercise such rights and privileges.
ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
Purchase payments are paid to the Company at its Annuity Service Office.
Except as noted below, the minimum initial purchase payment is $5,000 for
Non-Qualified Contracts and $2,000 for Qualified Contracts. The minimum initial
purchase payment is $3,500 if the source of such payment was a direct rollover
of an eligible rollover distribution from a qualified plan under Section 401(a)
of the Code or a Tax Sheltered Annuity described in Section 403(b) of the Code,
all or part of which assets are invested in a group annuity contract issued by
The Manufacturers Life Insurance Company (U.S.A.). 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 a certificate and an owner's
participation under a contract at the end of any two consecutive certificate
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 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
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<PAGE> 27
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 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 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, pursuant to the procedures
described below.
Initial purchase payments for a certificate 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. The applicant
will be informed of any deficiencies preventing processing if the certificate
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
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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 1.4% (0.15% for
administrative expenses and 1.25% 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
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 for a certificate 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 certificate 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
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<PAGE> 29
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 DCA fixed account investment
option may be established under the DCA program to make automatic transfers.
Only initial and subsequent net payments may be allocated to the DCA fixed
account investment option. 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 participation in
the DCA program.
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 participation in the Asset Rebalancing Program.
For rebalancing programs begun on or after October 1, 1996 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).
Rebalancing will continue to take place on the last business day of every
calendar quarter for rebalancing programs begun prior to October 1, 1996.
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 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, any debt and any applicable withdrawal charge, and the
owner's certificate 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 plus any applicable withdrawal charge
deducted from such 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 less any
applicable withdrawal charge. 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.
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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 (and deduction of any withdrawal
charge) 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 plus any applicable
withdrawal charge 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 SEC, by order, so permits
for the protection of security holders; provided that applicable rules and
regulations of the SEC shall govern as to whether the conditions described in
(2) and (3) exist.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax. Withdrawals are permitted from contracts 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 certificate year is limited to not more than 10% of
the purchase payments made by or on behalf of the owner to ensure that no
withdrawal or market value charge will ever apply to an IP withdrawal. 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
certificate 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.
Currently, there is no fee charged for the IP service.
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 advisors 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").
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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 certificate
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 certificate
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 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 not issued in connection with qualified plans, I.E., a
"non-qualified" contract or certificate. The requirements of the tax law
applicable to qualified plans, and the tax treatment of amounts held and
distributed under such plans, are quite complex. Accordingly, a prospective
purchaser of a contract or certificate to be used in connection with a qualified
plan 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 used in the plan. In particular, a prospective purchaser
who intends to use the contract or certificate in connection with a qualified
plan should consider that the contract provides a death benefit (described
below) that could be characterized as an incidental death benefit. There are
limits on the amount of incidental benefits that may be provided under certain
qualified plans and the provision of such benefits may result in currently
taxable income to plan participants (see "FEDERAL TAX MATTERS"). See Appendix D
for information on death benefit provisions applicable to certain contracts
which are no longer being issued (Ven 8 contracts).
Amount of Death Benefit.
CERTIFICATES ISSUED PRIOR TO MAY 1, 1998. If any owner dies on or prior to
his or her 85th birthday and the oldest owner had an attained age of less than
81 years on the certificate date, the death benefit will be determined as
follows: During the first certificate year, the death benefit will be the
greater of: (a) the contract value or (b) the sum of all purchase payments made,
less any amounts deducted in connection with partial withdrawals made by or on
behalf of the owner. During any subsequent certificate year, the death benefit
will be the greater of: (a) the contract value or (b) the death benefit on the
last day of the previous certificate year, plus any purchase payments made and
less any amounts deducted in connection with partial withdrawals made by or on
behalf of the owner since then.
If any owner dies after his or her 85th birthday and the oldest owner had
an attained age of less than 81 years on the certificate date, the death benefit
will be the greater of: (a) the contract value or (b) the excess of (i) the sum
of all purchase
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payments made by or on behalf of the owner over (ii) the sum of any amounts
deducted in connection with partial withdrawals made by or on behalf of the
owner. If any owner dies and the oldest owner had an attained age greater than
80 on the certificate date, the death benefit will be the contract value less
any applicable withdrawal charges at the time of payment of benefits. For
certificates issued on or after October 1, 1997, any withdrawal charges applied
against the death benefit shall be waived by the Company.
CERTIFICATES ISSUED ON OR AFTER MAY 1, 1998. If any owner dies and the
oldest owner had an attained age of less than 81 years on the certificate date,
the death benefit will be determined as follows: During the first certificate
year, the death benefit will be the greater of: (a) the contract value or (b)
the sum of all purchase payments made by or on behalf of the owner, less any
amounts deducted in connection with partial withdrawals made by or on behalf of
the owner. During any subsequent certificate year, the death benefit will be the
greater of: (a) the contract value or (b) the death benefit on the last day of
the previous certificate year, plus any purchase payments made by or on behalf
of the owner and less any amounts deducted in connection with partial
withdrawals made by or on behalf of the owner since then. If any owner dies on
or after his or her 81st birthday, the death benefit will be the greater of (a)
contract value or (b) the death benefit on the last day of the certificate year
ending just prior to the owner's 81st birthday, plus any payments made by or on
behalf of the owner, less amounts deducted in connection with partial
withdrawals.
If any owner dies and the oldest owner had an attained age of 81 years or
greater on the certificate date, the death benefit will be the greater of: (a)
the contract value or (b) the excess of (i) the sum of all purchase payments
made by or on behalf of the owner over (ii) the sum of any amounts deducted in
connection with partial withdrawals made by or on behalf of the owner.
In the states of Texas and Washington, the death benefit described under
"Certificates Issued Prior to May 1, 1998" will continue to apply to
certificates issued on or after May 1, 1998.
Determination of Death Benefit. 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. In addition, partial withdrawals
include amounts applied under an annuity option under the contract. Also,
amounts deducted in connection with partial withdrawals include charges imposed
on a partial withdrawal, but not amounts charged in payment of the annual
administration fee. If the owner has any debt under the contract, the death
benefit equals the death benefit, as described above, less such debt.
Payment of Death Benefit. The Company will pay the death benefit (which, as
defined above, 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. On the death of the last surviving
annuitant, the owner, if a natural person, will become the annuitant unless the
owner designates another person as the annuitant.
The death benefit may be taken in the form of a lump sum immediately. If
not taken immediately, the certificate will continue subject to the following:
(1) The beneficiary will become the owner. (2) Any excess of the death benefit
over the 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 spouse, distribution of the owner's
entire interest in the certificate must be made within five years of the owner's
death, or alternatively, distribution may be made as an annuity, under one of
the annuity options described below, which begins within one 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. Upon the death of the
beneficiary, the death benefit will equal the contract value which must be
distributed immediately in a single sum. (5) If the owner's spouse is the
beneficiary, the certificate will continue with the spouse as the new owner. In
such a case, the distribution rules described in "(4)" applicable when an owner
dies will apply when the spouse, as the owner, dies. In addition, a death
benefit will be paid upon the death of the spouse. For purposes of calculating
the death benefit payable upon the death of the spouse, the death benefit paid
upon the first owner's death will be treated as a purchase payment to the
certificate. In addition, the death benefit on the last day of the previous
certificate year (or the last day of the certificate year ending just prior to
the owner's 81st birthday, if applicable) shall be set to zero as of the date of
the first owner's death. (6) If any owner dies and the oldest owner had an
attained age of less than 81 on the certificate date, withdrawal charges are not
applied on payment of the death benefit (whether taken through a partial or
total withdrawal or applied under an annuity option). If any owner dies and the
oldest owner had an attained age greater than 80 on the certificate date,
withdrawal charges will be assessed only upon payment of the death benefit (if
such charges are otherwise applicable), so that if the death benefit is paid in
a subsequent year, a lower withdrawal charge will be applicable. For
certificates issued after October 1, 1997, any withdrawal charge applied against
the death benefit shall be waived.
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If the annuitant is changed and the owner is not a natural person, the
entire interest in the certificate must be distributed to the 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. Furthermore, the death benefit on the last day of the previous
certificate year shall be set to zero as of the date of the owner change. 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 will be paid 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 of the certificate. The maturity date is the date specified on the
certificate specifications page, unless changed. 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 qualified contracts may be required before the maturity date.
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.
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 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.
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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, 15 or 20 Years - An
annuity with payments guaranteed for 5, 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, 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.
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 sex
and age (as adjusted depending on the annuitant's year of birth) and the annuity
option selected, except for contracts issued in connection with certain employer
sponsored plans where sex-based tables may not be used. 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. See Appendix D for
information on assumed interest rates applicable to certain contracts which are
no longer being issued (Ven 8 contracts).
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.
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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 certificate 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.
OTHER CONTRACT PROVISIONS
TEN DAY RIGHT TO REVIEW
An owner may return his or her certificate to the Company's Annuity Service
Office or agent at any time within 10 days after receipt of the certificate.
Within 7 days of receipt of the 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 certificate is received by the Company, to the owner.
No withdrawal charge is imposed upon return of the 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 certificate is issued as an individual
retirement annuity under Sections 408 or 408A of the Code, 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
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 interests as specified in his or her certificate. Prior
to the maturity date, an owner is the person designated on the certificate
specifications page or as subsequently named. On and after a certificate's
maturity date, the annuitant is the owner. If amounts become payable under the
certificate to any beneficiary, the beneficiary is the owner.
In the case of non-qualified contracts, an owner's interest in the contract
may be changed, or the certificate may be collaterally assigned, at any time
prior to the maturity date, subject to the rights of any irrevocable
beneficiary. Ownership of the contract may be assigned at any time by the group
holder. Assigning a contract or interest therein, or changing the ownership of a
contract or certificate, 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").
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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 Code or as otherwise permitted by applicable Internal Revenue
Service ("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.
See Appendix D for information on ownership applicable to certain contracts
which are no longer being issued (Ven 8 contracts).
BENEFICIARY
The beneficiary is the person, persons or entity designated on the
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.
See Appendix D for information on ownership applicable to certain contracts
which are no longer being issued (Ven 8 contracts).
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
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.
MODIFICATION
The contract or any 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, on 60 days' notice to the group holder, the
Company may change the withdrawal charges, administration fees, mortality and
expense risk charges, free withdrawal percentage, 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 Code.
See Appendix D for information on ownership applicable to certain contracts
which are no longer being issued (Ven 8 contracts).
DISCONTINUANCE OF NEW OWNERS
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<PAGE> 37
On thirty days' notice to the group holder, the Company may limit or
discontinue acceptance of new applications and the issuance of new certificates
under a contract.
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 (the "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 SEC 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 contract 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.
Investment Options. Currently there are five fixed account investment
options under the contract: one, three, five and seven year investment accounts
and, in states where approved, a DCA fixed investment account which may be
established under the DCA program to make automatic transfers 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. See Appendix D for information on fixed account investment options
and the guaranteed rate of interest applicable to certain contracts which are no
longer being issued (Ven 8 contracts).
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. 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
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<PAGE> 38
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. 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).
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 certificate;
(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 certificate year that do not exceed
10% of total purchase payments less any prior partial withdrawals in that
certificate 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) together with any withdrawal charges for an
investment account 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. The cumulative effect of the market value and withdrawal charges (or
the effect of the withdrawal charge itself) could, however, result in an owner
receiving total withdrawal proceeds of less than the owner's investment in the
contract. See Appendix D for information on the market value charge applicable
to certain contracts which are no longer being issued (Ven 8 contracts).
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.
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<PAGE> 39
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 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. For this purpose, the DCA fixed account
investment option is considered to have a shorter guarantee period than the one
year fixed account investment option.
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 benefit
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 annuity
payments.
GUARANTEED RETIREMENT INCOME PROGRAM
The Guaranteed Retirement Income Program (the "Income Benefit") guarantees
a minimum lifetime fixed income benefit in the form of fixed monthly annuity
payments. The Income Benefit is based on the aggregate net purchase payments
applied to the certificate, accumulated at interest, minus an adjustment for any
partial withdrawals. The amount of the monthly annuity payment provided by the
Income Benefit is determined by applying the Income Base, described below, to
the annuity purchase rates set forth in the Income Benefit Rider. Because the
fixed annuity options provided for in the contract are based on the contract
value at the time of annuitization, the amount of the monthly payments under
such options may exceed the monthly payments provided by the Income Benefit
Rider. If the Income Benefit is exercised and the annuity payment available
under the contract is greater than the monthly payment provided by the Income
Benefit Rider, the Company will pay the monthly annuity payment available under
the contract. The Income Benefit is available for certificates issued on or
after May 1, 1998. The Income Benefit is not available in all states.
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<PAGE> 40
Income Base. The Income Base is equal to (a) less (b), where (a) is the sum
of all payments made, accumulated at the growth factor indicated below starting
on the date each payment is allocated to the certificate, and (b) is the sum of
Income Base reductions on a pro rata basis in connection with partial
withdrawals taken, accumulated at the growth factor indicated below starting on
the date each deduction occurs. The growth factor is 6% per annum for annuitant
issue ages up to age 75, and 4% per annum for annuitant issue ages 76 or older.
The growth factor is reduced to 0% once the annuitant has attained age 85.
Income Base reduction on a pro rata basis is equal to the Income Base
immediately prior to a partial withdrawal multiplied by the percentage reduction
in contract value resulting from a partial withdrawal.
If the Income Benefit is added to the contract after the certificate date,
the Income Base on the date the rider is issued (the "Rider Date") is the
contract value on the Rider Date. For purposes of subsequent calculation of the
Income Base, the contract value on the Rider Date will be treated as a purchase
payment made on the Rider Date. In addition, all purchase payments made and all
amounts deducted in connection with partial withdrawals prior to the Rider Date
will not be considered in determining the Income Base.
The Income Base is also reduced for any withdrawal charge remaining on the
date the Income Benefit is exercised. The Company reserves the right to reduce
the Income Base by any premium taxes that may apply.
The Income Base is used solely for purposes of calculating the Income
Benefit and does not provide a contract value or guarantee performance of any
investment option.
Step-Up of Income Base. Within 30 days immediately following any
certificate anniversary, the owner may elect to step-up the Income Base to the
contract value on that contract anniversary by sending the Company a written
request. If the owner elects to step-up the Income Base, the earliest date that
the owner may exercise the Income Benefit is extended to the seventh certificate
anniversary following the most recent date the Income Base was stepped-up to
contract value (the "Step-Up Date").
Following a step-up of the Income Base, the Income Base as of the Step-Up
Date is equal to the contract value on the Step-Up Date. For purposes of
subsequent calculation of the Income Base, the contract value on the Step-Up
Date will be treated as a purchase payment made on that date. In addition, all
payments made and all amounts deducted in connection with partial withdrawals
prior to the Step-Up Date will not be considered in determining the Income Base.
Conditions of Exercise of the Income Benefit. The Income Benefit may be
exercised subject to the following conditions:
1. The Income Benefit must be exercised within 30 days immediately
following an Election Date. An Election Date is the seventh or later certificate
anniversary following the date the income benefit is elected or, in the case of
a step-up of the Income Base, the seventh or later certificate anniversary
following the Step-Up Date.
2. The Income Benefit must be exercised by the later of (i) the certificate
anniversary immediately prior to the annuitant's 85th birthday or (ii) the tenth
certificate anniversary.
Monthly Income Factors. The Income Benefit may be used to purchase a
guaranteed lifetime income under the following annuity options: (1) Life Annuity
with a 10-Year Period Certain or (2) Joint and Survivor Life Annuity with a
20-Year Period Certain.
Option 1: Life Annuity with a 10-Year Period certain. 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: Joint and Survivor Life Annuity with a 20-Year Period Certain. An
annuity with payments guaranteed for 20 years and continuing thereafter
during the lifetime of the annuitant and a designated co-annuitant. Since
payments are guaranteed for 20 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 twentieth year.
The monthly income factors depend upon the annuitant's (and co-annuitant's,
if any) sex and age (nearest birthday) and the
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<PAGE> 41
annuity option selected. The factors are based on the 1983 Table A projected at
Scale G, and reflect an assumed interest rate of 3% per year.
Illustrated below are Income Benefit amounts per $100,000 of initial
payments, for a male annuitant and a female co-annuitant both age 60 (at issue),
on certificate anniversaries as indicated below, assuming no subsequent payments
or withdrawals and assuming there was no step-up of the Income Base. The Company
will, upon request, provide illustrations of the Income Benefit for an annuitant
based on other assumptions.
<TABLE>
<CAPTION>
Income Benefit-Annual
Income Benefit-Annual Income Joint & Survivor Life
Contract Anniversary at Income Life Annuity with 10 Annuity with 20 Year Period
Election Year Period Certain Certain
-------------------------------------------------------------------------------------------------
<S> <C> <C>
7 $ 9,797 $ 7,830
10 $12,593 $ 9,842
15 $19,124 $14,293
</TABLE>
Income Rider Fee. The risk assumed by the Company associated with the
Income Benefit is that the annuity benefits payable under the Income Benefit are
greater than the annuity benefits that would have been payable had the owner
selected another annuity benefit permitted by the contract (see "ANNUITY
PROVISIONS"). To compensate the Company for this risk, the Company charges an
annual Income Rider Fee (the "Rider Fee"). On or before Maturity Date, the Rider
Fee is deducted on each certificate anniversary. The amount of the Rider Fee is
equal to .25% multiplied by the Income Base in effect on that certificate
anniversary. The fee is withdrawn from each investment option in the same
proportion that the value of the investment account of each investment option
bears to the contract value.
In the case of full withdrawal of contract value on any date other than the
certificate anniversary, the Company will deduct the Rider Fee from the amount
paid upon withdrawal. In the case of a full withdrawal, the Rider Fee is equal
to .25% multiplied by the Income Base immediately prior to withdrawal. The Rider
Fee will not be deducted during the annuity period. For purposes of determining
the Rider Fee, annuity payment commencement shall be treated as a full
withdrawal.
THE INCOME BENEFIT DOES NOT PROVIDE CONTRACT VALUE OR GUARANTEE PERFORMANCE
OF ANY INVESTMENT OPTION. BECAUSE THIS BENEFIT IS BASED ON CONSERVATIVE
ACTUARIAL FACTORS, THE LEVEL OF LIFETIME INCOME THAT IT GUARANTEES MAY OFTEN BE
LESS THAN THE LEVEL THAT WOULD BE PROVIDED BY APPLICATION OF CONTRACT VALUE AT
CURRENT ANNUITY FACTORS. THEREFORE, THE INCOME BENEFIT SHOULD BE REGARDED AS A
SAFETY NET. AS DESCRIBED ABOVE UNDER "INCOME BENEFIT," WITHDRAWALS WILL REDUCE
THE INCOME BENEFIT.
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.
WITHDRAWAL CHARGES
If a withdrawal is made from the contract by an owner before the maturity
date of the certificate, a withdrawal charge (contingent deferred sales charge)
may be assessed against amounts withdrawn attributable to purchase payments that
have been in the contract for the owner less than seven complete years. There is
never a withdrawal charge with respect to earnings accumulated for an owner in
the contract, certain other free withdrawal amounts described below or purchase
payments by or on behalf of the owner that have been in the contract more than
seven complete years. In no event may the total withdrawal charges exceed 6% of
the total purchase payments made by or on behalf of the owner. The amount of the
withdrawal charge and when it is assessed is discussed below:
1. Each withdrawal is allocated first to the "free withdrawal amount" and
second to "unliquidated purchase payments" for each certificate. In any
certificate year, the free withdrawal amount for that year is the greater of (1)
the excess of the owner's
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<PAGE> 42
contract value on the date of withdrawal over the unliquidated purchase payments
made by or on behalf of the owner (the accumulated earnings on the owner's
certificate) or (2) the excess of (i) over (ii), where (i) is 10% of total
purchase payments made by or on behalf of the owner and (ii) is all prior
partial withdrawals made by or on behalf of the owner in that certificate year.
Withdrawals allocated to the free withdrawal amount may be withdrawn without the
imposition of a withdrawal charge.
2. If an owner makes a withdrawal for an amount in excess of the free
withdrawal amount, the excess will be allocated to purchase payments made by or
on behalf of the owner which will be liquidated on a first-in first-out basis.
On any withdrawal request, the Company will liquidate purchase payments made by
or on behalf of the owner equal to the amount of the withdrawal request which
exceeds the free withdrawal amount in the order such purchase payments were
made: the oldest unliquidated purchase payment first, the next purchase payment
second, etc. until all purchase payments have been liquidated.
3. Each purchase payment or portion thereof liquidated in connection with a
withdrawal request is subject to a withdrawal charge based on the length of time
the purchase payment has been in the contract. The amount of the withdrawal
charge is calculated by multiplying the amount of the purchase payment being
liquidated by the applicable withdrawal charge percentage obtained from the
table below.
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS
PURCHASE PAYMENT IN WITHDRAWAL CHARGE
CONTRACT PERCENTAGE
- --------------------------------------------------------------------
<S> <C>
0 6%
1 6%
2 5%
3 5%
4 4%
5 3%
6 2%
7+ 0%
</TABLE>
The total withdrawal charge will be the sum of the withdrawal charges for
the purchase payments being liquidated.
4. The withdrawal charge is deducted from the owner's contract value
remaining after the owner is paid the amount requested, except in the case of a
complete withdrawal when it is deducted from the amount otherwise payable. In
the case of a partial withdrawal, the amount requested from an investment
account may not exceed the value of that investment account less any applicable
withdrawal charge plus market value charge.
5. There is generally no withdrawal charge on distributions made as a
result of the death of the owner or, if applicable, annuitant (see "DEATH
BENEFIT BEFORE MATURITY DATE - Amount of Death Benefit") and no withdrawal
charges are imposed on the maturity date if the owner annuitizes as provided in
the contract.
The amount collected from the withdrawal charge will be used to reimburse
the Company for the compensation paid to cover selling concessions to
broker-dealers, preparation of sales literature and other expenses related to
sales activity.
For examples of calculation of the withdrawal charge, see Appendix A. See
Appendix D for information on withdrawal charges applicable to certain contracts
which are no longer being issued (Ven 8 contracts). Withdrawals from the fixed
account investment options may be subject to a market value charge in addition
to the withdrawal charge described above (see "FIXED ACCOUNT INVESTMENT
OPTIONS"). The Company reserves the right to modify the withdrawal charge as to
certificates issued after the effective date of a change specified in written
notice to the group holder.
REDUCTION OR ELIMINATION OF WITHDRAWAL CHARGES
The amount of the withdrawal charge on a contract or certificate may be
reduced or eliminated when some or all of the certificates are to be sold to a
group of individuals in such a manner that results in savings of sales expenses.
The entitlement to such a reduction in the withdrawal charge will be determined
by the Company in the following manner:
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<PAGE> 43
1. The size and type of group to which the sales are to be made will be
considered. Generally, sales expenses for a larger group are smaller than for a
smaller group because of the ability to implement large numbers of sales with
fewer sales contacts.
2. The total amount of purchase payments to be received will be considered.
Per dollar sales expenses are likely to be less on larger purchase payments than
on smaller ones.
3. Any prior or existing relationship with the Company will be considered.
Certificate sales expenses are likely to be less when there is a prior or
existing relationship because of the likelihood of implementing more sales with
fewer sales contacts.
4. The level of commissions paid to selling broker-dealers will be
considered. Certain broker-dealers may offer certificates in connection with
financial planning programs offered on a fee for service basis. In view of the
financial planning fees, such broker-dealers may elect to receive lower
commissions for sales of the certificates, thereby reducing the Company's sales
expenses.
5. There may be other circumstances of which the Company is not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, it is determined that
there will be a reduction in sales expenses, the Company will provide a
reduction in the withdrawal charge. The withdrawal charge will be eliminated
when a certificate is issued to an officer, director or employee (or a relative
thereof) of the Company, Manulife, the Trust or any of their affiliates. In no
event will reduction or elimination of the withdrawal charge be permitted where
such reduction or elimination will be unfairly discriminatory to any person.
Withdrawal Charge Waiver in Connection with Clinton's Administration's
Fiscal Year 1999 Budget Proposal
The Clinton administration's Fiscal Year 1999 Budget proposal dated
February 2, 1998 (the "1999 Budget Proposal") contains proposals to change the
taxation of non-qualified annuity contracts (see "FEDERAL TAX MATTERS -
Introduction."). While it is uncertain whether the 1999 Budget Proposal will
become law, if the 1999 Budget Proposal is enacted substantially as proposed,
withdrawal charges will be waived on purchase payments made on or after February
2, 1998, provided such amounts are withdrawn within 60 days of the date that the
1999 Budget Proposal becomes law. The Company reserves the right to terminate
this withdrawal charge waiver at any time. If the waiver is terminated, purchase
payments made from February 2, 1998 to the termination date of the waiver will
not be subject to withdrawal charge as provided above. This waiver does not
affect a contract owner's right to cancel a contract within the ten day right to
review period (see "OTHER CONTRACT PROVISIONS -- Ten Day Right to Review").
Withdrawals may be subject to income tax to the extent of earnings under the
contract and, if made prior to age 59 1/2, generally will be subject to a 10%
IRS penalty tax (see "FEDERAL TAX MATTERS - Taxation of Partial and Full
Withdrawals").
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 certificate
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 certificate 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. See Appendix D for the administration fee applicable
to certain contracts which are no longer being issued (Ven 8 contracts).
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 each owner's 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.
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<PAGE> 44
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 certificates 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 certificate.
REDUCTION OR ELIMINATION OF ANNUAL ADMINISTRATION FEE
The amount of the annual administration fee on a contract or a certificate
may be reduced or eliminated when some or all of the 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 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 with respect to existing certificates. This assures each
annuitant that his longevity will not have an adverse effect on the amount of
annuity payments. Also, the Company guarantees that if an owner dies 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 or withdrawal charge 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 1.25% of the
value of the variable investment accounts on an annual basis, consisting of .8%
for the mortality risk and .45% 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 can be increased, 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 and certificates 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
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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 or certificate 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 advisor should always be consulted with regard to the application of law to
individual circumstances. This discussion is based on 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.
The 1999 Budget Proposal contains proposals to change the taxation of
non-qualified annuity contracts. The 1999 Budget Proposal proposes to tax
exchanges of variable contracts for fixed contracts, exchanges of fixed
contracts for variable contracts, exchanges of variable contracts for variable
contracts and reallocation within variable contracts. Currently, owners of
annuity contracts may exchange their contracts for another annuity without
currently incurring tax, and reallocations among investment options are not
treated as a taxable exchange. In addition, the 1999 Budget Proposal proposes
that the contract owner's basis in annuity contracts be reduced annually by
1.25% of the cash value for purposes of determining the taxable gain on
surrenders, withdrawals, and all annuity payments except those made for life at
the rates guaranteed in the contract. Currently, basis in annuity contracts is
not reduced by this amount. The 1999 Budget Proposal states that it generally
would apply only to contracts issued after the date of first congressional
committee action, but that the new exchange and reallocation rules would also
apply to any existing contract that was materially changed. While it is
uncertain whether the 1999 Budget Proposal will become law, if the 1999 Budget
Proposal is enacted substantially as proposed, withdrawal charges will be waived
(see "CHARGES AND DEDUCTIONS -- Reduction or Elimination of Withdrawal Charge").
This discussion does not address state or local tax consequences associated
with the purchase of a contract or certificate. In addition, THE COMPANY MAKES
NO GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY
CONTRACT OR CERTIFICATE OR OF ANY TRANSACTION INVOLVING A CONTRACT OR
CERTIFICATE.
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 provisions 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 provisions for such taxes.
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 certificate, or in some
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other form of distribution. However, certain requirements must be satisfied in
order for this general rule to apply, including: (1) the certificate 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 certificate must provide for appropriate
amortization, through annuity payments, of the certificate'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 (or
certificates) 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 income tax purposes. The investment income on such
contracts (or certificates) 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, certificate 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) certificates acquired by an estate of a decedent by
reason of the death of the decedent, (2) certain qualified contracts or
certificates, (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.
Loss of Interest Deduction Where Certificates are Held by or for the
Benefit of Certain Non-Natural Persons. In the case of certificates 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 interest relates to debt used to purchase or carry the
certificate. However, this interest deduction disallowance does not affect
certificates where the income on such certificates is treated as ordinary income
that is received or accrued by the owner during the taxable year. Entities that
are considering purchasing the certificate, or entities that will be
beneficiaries under a certificate, should consult a tax advisor.
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 certificate 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 certificate.
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 IRS 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 certificate are similar to, but different
in certain respects from, those described by the IRS in rulings in which it was
determined that policyholders were not owners of separate account assets. For
example, an owner under
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this certificate 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 stated it
expects to issue. The Company therefore reserves the right to modify the
contract and certificate 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 certificate would not be treated as an annuity for
Federal income tax purposes. In that event, the income and gains under the
certificate 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 certificate
to that time (to the extent such payments were neither deductible when made nor
excludible from income as, for example, in the case of certain contributions to
qualified plans) less any amounts previously received from the certificate which
were not included in income.
Other than in the case of certain qualified contracts or certificates, 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 certificate 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.
The certificate provides a death benefit that in certain circumstances may
exceed the greater of the purchase payments made by or on behalf of an owner and
the contract value. As described elsewhere in this Prospectus, the Company
imposes certain charges with respect to the death benefit. It is possible that
those charges (or some portion thereof) could be treated for Federal income tax
purposes as a partial withdrawal from the certificate.
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 certificates 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.
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TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a certificate 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.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
There is a 10% penalty tax on the taxable amount of any payment from a
non-qualified certificate unless the payment is: (a) received on or after the
owner reaches age 59 1/2; (b) attributable to the owner 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 certificate 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 certificate 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 certificate 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 certificate offered by this
Prospectus and also purchases at approximately the same time an immediate
annuity, the IRS may treat the two contracts as one contract. In addition, if a
person purchases two or more deferred annuity contracts or certificates 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.
QUALIFIED RETIREMENT PLANS
The certificates 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 certificate 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 (or certificates), 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 certificate 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
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must commence and the form in which the distributions must be paid. For example,
failure to comply with minimum distribution requirements applicable to 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 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 "Individual Retirement Annuity" or 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 advisor.
When issued in connection with a qualified plan, a contract and certificate
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 certificate.
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, 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 certificate may not,
however, be used in connection with an "Education IRA" under Section 530 of the
Code.
IRAs generally may not provide life insurance, but they may provide a death
benefit that equals the greater of the premiums paid and the contract's cash
value. The contract provides a death benefit that in certain circumstances may
exceed the greater of the purchase payments and the contract value. It is
possible that the certificate's death benefit could be viewed as providing life
insurance coverage with the result that the certificate would not be viewed as
satisfying the requirements of an 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. As discussed above (see
"Individual Retirement Annuities"), there is some uncertainty regarding the tax
treatment of the certificate's death benefit for purposes of the tax rules
governing IRAs (which would include SEP-IRAs). Employers intending to use the
contract or certificates 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
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persons who may be eligible, and the time when distributions may commence. As
discussed above (see "Individual Retirement Annuities"), there is some
uncertainty regarding the proper characterization of the certificate's death
benefit for purposes of the tax rules governing IRAs (which would include SIMPLE
IRAs). 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 or certificates in order to provide benefits under the plans. The
contract provides a death benefit that in certain circumstances may exceed the
greater of the purchase payments made by or on behalf of an owner and the
contract value. It is possible that such death benefit could be characterized as
an incidental death benefit. There are limitations on the amount of incidental
death benefits that may be provided under pension and profit sharing plans. In
addition, the provision of such benefits may result in currently taxable income
to participants. Employers intending to use the contract or certificates 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 or certificates 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 or
certificates. In particular, purchasers should consider that the contract
provides a death benefit that in certain circumstances may exceed the greater of
the purchase payments made by or on behalf of an owner and the contract value.
It is possible that such death benefit could be characterized as an incidental
death benefit. If the death benefit were so characterized, this could result in
currently taxable income to purchasers. In addition, there are limitations on
the amount of incidental death benefits that may be provided under a
tax-sheltered annuity. Even if the death benefit under the contract were
characterized as an incidental death benefit, it is unlikely to violate those
limits unless the purchaser also purchases a life insurance contract as part of
his or her tax-sheltered annuity plan.
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 or certificate
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 or certificates 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. Furthermore, 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 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
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<PAGE> 51
nontaxable transfer will be includible in gross income. However, the 10 percent
penalty tax on premature distributions generally will not apply.
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.
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.
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. 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.
Distributions from a Roth IRA need not commence at age 70 1/2.
As described above (see "Individual Retirement Annuities"), there is some
uncertainty regarding the proper characterization of the contract's death
benefit for purposes of the tax rules governing IRAs (which include Roth IRAs).
Persons intending to use the contract in connection with a Roth IRA should seek
competent advice.
The state income tax treatment of a Roth IRA may differ from the Federal
income tax treatment of a Roth IRA. A tax advisor should be consulted regarding
the state law treatment of a Roth IRA.
DIRECT ROLLOVERS
If the certificate 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 certificate 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 certificate,
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 certificate 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 and rollovers from non-Roth IRAs to Roth IRAs) is 10%. As
discussed above, the withholding rate applicable to eligible rollover
distributions is 20%.
GENERAL MATTERS
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<PAGE> 52
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
non-standardized 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, August 9, 1994,
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 Inc. 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.
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 AND CERTIFICATES.
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
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<PAGE> 53
MSS located at 73 Tremont Street, Boston, Massachusetts 02108, a Delaware
limited liability company controlled by the Company, is the principal
underwriter of the contracts and certificates in addition to providing advisory
services to the Trust. MSS is a broker-dealer registered under the Securities
Exchange Act of 1934 (the "1934 Act") and a member of the National Association
of Securities Dealers, Inc. ("NASD"). MSS has entered into an exclusive
promotional agent agreement with Wood Logan Associates, Inc. ("Wood Logan").
Wood Logan is a broker-dealer registered under the 1934 Act and a member of the
NASD. Wood Logan is a wholly owned subsidiary of a holding company that is 62.5%
owned by The Manufacturers Life Insurance Company (U.S.A.), 22.5% owned by MRL
Holding, LLC and 15% owned by the principals of Wood Logan. 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. Under the promotional
agent agreement, Wood Logan will recruit and provide sales training and
licensing assistance to such registered representatives. In addition, Wood Logan
will prepare sales and promotional materials for the Company's approval. MSS
will pay distribution compensation to selling brokers in varying amounts which
under normal circumstances are not expected to exceed 6% of purchase payments.
In addition, MSS may pay trail compensation after the first certificate year,
which under normal circumstances will not exceed 0.75% 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 the
promotional agent for providing marketing support for the distribution of the
contracts and certificates.
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.
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 SEC under the 1933 Act
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 SEC.
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
48
<PAGE> 54
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......................................... 3
Performance Data........................................................ 3
Services
Independent Auditors................................................ 10
Servicing Agent..................................................... 10
Principal Underwriter............................................... 10
Cancellation of Certificate............................................. 10
Financial Statements.................................................... 11
49
<PAGE> 55
APPENDIX A
EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE*
Example 1 - Assume a single payment of $50,000 is made by an owner into the
contract and a certificate is issued. No transfers are made, no additional
payments are made and there are no partial withdrawals. The table below
illustrates four examples of the withdrawal charges that would be imposed if the
contract value of the certificate were completely withdrawn. This illustration
is based on hypothetical contract values.
<TABLE>
<CAPTION>
CERTIFICATE HYPOTHETICAL FREE
YEAR CONTRACT WITHDRAWAL PAYMENTS CHARGE
VALUE AMOUNT LIQUIDATED ---------------------------------
PERCENT AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2 55,000 5,000(a) 50,000 6% 3,000
4 50,500 5,000(b) 45,500 5% 2,275
6 60,000 10,000(c) 50,000 3% 1,500
8 70,000 20,000(d) 50,000 0% 0
</TABLE>
(a) During any certificate year the free withdrawal amount is the greater of
accumulated earnings, or 10% of the total payments made by the owner less
any prior partial withdrawals in that certificate year. In the second
certificate year the earnings under the contract and 10% of payments both
equal $5,000. Consequently, on total withdrawal $5,000 is withdrawn free of
the withdrawal charge, the entire $50,000 payment is liquidated and the
withdrawal charge is assessed against such liquidated payment (contract
value less free withdrawal amount).
(b) In the example for the fourth certificate year, the accumulated earnings of
$500 is less than 10% of payments, therefore the free withdrawal amount is
equal to 10% of payments ($50,000 X 10% = $5,000) and the withdrawal charge
is only applied to payments liquidated (contract value less free withdrawal
amount).
(c) In the example for the sixth certificate year, the accumulated earnings of
$10,000 is greater than 10% of payments ($5,000), therefore the free
withdrawal amount is equal to the accumulated earnings of $10,000 and the
withdrawal charge is applied to the payments liquidated (contract value
less free withdrawal amount).
(d) There is no withdrawal charge on any payments liquidated that have been in
the contract for at least 7 years.
Example 2 - Assume a single payment of $50,000 is made by an owner into the
contract and a certificate is issued. No transfers are made, no additional
payments are made and there are a series of four partial withdrawals made during
the third certificate year of $2,000, $5,000, $7,000, and $8,000. The
illustration below is based on hypothetical contract values.
<TABLE>
<CAPTION>
HYPOTHETICAL PARTIAL FREE WITHDRAWAL
CONTRACT WITHDRAWAL WITHDRAWAL PAYMENTS CHARGE
VALUE REQUESTED AMOUNT LIQUIDATED ---------------------------------
PERCENT AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
65,000 2,000 15,000(a) 0 5% 0
49,000 5,000 3,000(b) 2,000 5% 100
52,000 7,000 4,000(c) 3,000 5% 150
44,000 8,000 0(d) 8,000 5% 400
</TABLE>
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<PAGE> 56
(a) The free withdrawal amount during any certificate year is the greater of
the contract value less the unliquidated payments (accumulated earnings),
or 10% of payments less 100% of all prior withdrawals in that certificate
year. For the first example, accumulated earnings of $15,000 is the free
withdrawal amount since it is greater than 10% of payments less prior
withdrawals ($5,000-0). The amount requested ($2,000) is less than the free
withdrawal amount so no payments are liquidated and no withdrawal charge
applies.
(b) The contract has negative accumulated earnings ($49,000-$50,000), so the
free withdrawal amount is limited to 10% of payments less all prior
withdrawals. Since $2,000 has already been withdrawn in the current
certificate year, the remaining free withdrawal amount during the third
certificate year is $3,000. The $5,000 partial withdrawal will consist of
$3,000 free of withdrawal charge, and the remaining $2,000 will be subject
to a withdrawal charge and result in payments being liquidated. The
remaining unliquidated payments are $48,000.
(c) The contract has increased in value to $52,000. The unliquidated payments
are $48,000 so the accumulated earnings are $4,000, which is greater than
10% of payments less prior withdrawals ($5,000-$2,000-$5,000 0). Hence the
free withdrawal amount is $4,000. Therefore, $3,000 of the $7,000 partial
withdrawal will be subject to a withdrawal charge and result in payments
being liquidated. The remaining unliquidated payments are $45,000.
(d) The free withdrawal amount is zero since the contract has negative
accumulated earnings ($44,000-$45,000) and the full 10% of payments
($5,000) has already been withdrawn. The full amount of $8,000 will result
in payments being liquidated subject to a withdrawal charge. At the
beginning of the next certificate year the full 10% of payments would be
available again for withdrawal requests during that year.
* Examples do not illustrate withdrawal charges applicable to Ven 8
contracts.
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<PAGE> 57
APPENDIX B
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 information, a tax
advisor 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>
* Premium tax paid upon receipt of premium (no tax at annuitization if tax
paid on premium at issue).
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<PAGE> 58
APPENDIX C
PENNSYLVANIA MAXIMUM MATURITY AGE
For all 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.
If certificates are issued with annuitants over age 84, a withdrawal charge
could be imposed if they terminate the certificate rather than elect a
settlement option upon attainment of the maximum maturity age. This is a result
of the restrictions by Pennsylvania in combination with the 7-year withdrawal
charge schedule of the certificate.
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<PAGE> 59
APPENDIX D
PRIOR CONTRACTS
Prior to February, 1995, the Company issued a class of variable annuity
contract which is no longer being issued but under which purchase payments may
continue to be made ("prior contract") -- "Ven 8" contracts, which were sold
during the period from September, 1992 until February, 1995.
The principal differences between the contract offered by this Prospectus
and the prior contract relate to the investment options available under the
contracts, a minimum interest rate to be credited for any guarantee period under
the fixed portion of the contracts, the charges made by the Company and the
death benefit provisions.
INVESTMENT OPTIONS
The investment options under the prior contract differ as follows from the
investment options described in this Prospectus. The prior contract does not
allow for investments in the five and seven year fixed account investments
options. The prior contract allows investments in a six year fixed account
investment option not available under the contract offered by this Prospectus.
The prior contract does not provide the Company the authority to offer
additional fixed account investment options for any yearly period from two to
ten years. The portfolios of Merrill Variable Funds are not available for
investment for Ven 8 contract owners.
FIXED ACCOUNT MINIMUM INTEREST GUARANTEE
The minimum interest rate to be credited for any guarantee period under the
fixed portion of the prior contract is 4%.
MARKET VALUE CHARGE
For purposes of calculating the market value adjustment factor (see "Fixed
Account Investment Options - Market Value Charge") the maximum difference
between "B" and "A" will be 3%. The adjustment factor will never be greater than
2x(A-4%) and never less than zero. ("A" is the guaranteed interest rate on the
investment account. "B" is 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.)
There will be no market value charge on withdrawals from the fixed account
investment options in the following situations: (a) death of the annuitant; (b)
amounts withdrawn to pay fees or charges; (c) amounts applied at the maturity
date to purchase an annuity as provided in the certificate; (d) amounts
withdrawn from three and six year investment accounts within one month prior to
the end of the guarantee period; and (e) amounts withdrawn in any year that do
not exceed 10% of total purchase payments less any prior partial withdrawals in
that certificate year.
Notwithstanding application of the market value adjustment formula, in no
event will the market value charge (i) exceed the earnings attributable to the
amount withdrawn from an investment account, (ii) together with any withdrawal
charges for an investment account 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. The cumulative effect of the market value and withdrawal
charges (or the effect of the withdrawal charge itself) could, however, result
in a owner receiving total withdrawal proceeds of less than the owner's
investment in the contract.
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<PAGE> 60
WITHDRAWAL CHARGES
The withdrawal charges under the prior contract differ from the withdrawal
charges described in this Prospectus.
Prior Contract Withdrawal Charge
The withdrawal charge assessed under the prior contract is as follows:
If a withdrawal is made from the contract by an owner before the maturity
date of the certificate, a withdrawal charge (contingent deferred sales charge)
may be assessed against amounts withdrawn attributable to purchase payments that
have been in the contract for the owner less than six complete years. There is
never a withdrawal charge with respect to earnings accumulated for an owner in
the contract, certain other free withdrawal amounts described below or purchase
payments by or on behalf of the owner that have been in the contract more than
six complete years. In no event may the total withdrawal charges exceed 6% of
the total purchase payments made by or on behalf of the owner. The amount of the
withdrawal charge and when it is assessed is discussed below:
1. Each withdrawal is allocated first to the "free withdrawal amount" and
second to "unliquidated purchase payments" for each certificate. In any
certificate year, the free withdrawal amount for that year is the greater of (1)
the excess of the owner's contract value on the date of withdrawal over the
unliquidated purchase payments made by or on behalf of the owner (the
accumulated earnings on the owner's certificate) or (2) 10% of total purchase
payments made by or on behalf of the owner less any prior partial withdrawals by
the owner in that certificate year. Withdrawals allocated to the free withdrawal
amount may be withdrawn without the imposition of a withdrawal charge.
2. If an owner makes a withdrawal for an amount in excess of the free
withdrawal amount, the excess will be allocated to purchase payments which will
be liquidated on a first-in first-out basis. On any withdrawal request, the
Company will liquidate purchase payments equal to the amount of the withdrawal
request which exceeds the free withdrawal amount in the order such purchase
payments were made: the oldest unliquidated purchase payment first, the next
purchase payment second, etc. until all purchase payments have been liquidated.
3. Each purchase payment or portion thereof liquidated in connection with a
withdrawal request is subject to a withdrawal charge based on the length of time
the purchase payment has been in the contract. The amount of the withdrawal
charge is calculated by multiplying the amount of the purchase payment being
liquidated by the applicable withdrawal charge percentage obtained from the
table below.
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS WITHDRAWAL CHARGE
PURCHASE PAYMENT IN CONTRACT PERCENTAGE
- -------------------------------------------------------------------------
<S> <C>
0 6%
1 6%
2 5%
3 4%
4 3%
5 2%
6+ 0%
</TABLE>
The total withdrawal charge will be the sum of the withdrawal charges for
the purchase payments being liquidated.
4. The withdrawal charge is deducted from the owner's contract value
remaining after the owner is paid the amount requested, except in the case of a
complete withdrawal when it is deducted from the amount otherwise payable. In
the case of a partial withdrawal, the amount requested from an investment
account may not exceed the value of that investment account less any applicable
withdrawal charge and market value charge.
5. There is generally no withdrawal charge on distributions made as a
result of the death of the annuitant or owner and no withdrawal charges are
imposed on the maturity date if the owner annuitizes as provided in the
contract.
OTHER CONTRACT CHARGES
The prior contract makes no provision for the waiver of the $30 annual
administration fee when prior to the maturity date the
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<PAGE> 61
contract value equals or exceeds $100,000 at the time of the fee's assessment.
DEATH BENEFIT PROVISIONS
Prior Contract Death Benefit Provisions
The provisions governing the death benefit prior to the maturity date under
the prior contract are as follows:
Death of Annuitant who is not the Owner. The Company will pay the minimum
death benefit, less any debt, to the beneficiary if the owner is not the
annuitant and the annuitant dies before the owner and before the maturity date.
If there is more than one such annuitant, the minimum death benefit will be paid
on the death of the last surviving co-annuitant. The minimum death benefit will
be paid either as a lump sum or in accordance with any of the annuity options
available under the contract. An election to receive the death benefit under an
annuity option must be made within 60 days after the date on which the death
benefit first becomes payable. Rather than receiving the minimum death benefit,
the beneficiary may elect to continue his or her participation under the
contract as a new owner. (In general, a beneficiary who makes such an election
will nonetheless be treated for Federal income tax purposes as if he or she had
received the minimum death benefit.)
Death of Annuitant who is the Owner. The Company will pay the minimum death
benefit, less any debt, to the beneficiary if the owner is the annuitant, dies
before the maturity date and is not survived by a co-annuitant. If the
certificate is a non-qualified certificate, the owner is the annuitant and the
owner dies before the maturity date survived by a co-annuitant, the Company,
instead of paying the minimum death benefit to the beneficiary, will pay to the
successor owner an amount equal to the amount payable on total withdrawal
without reduction for any withdrawal charge. If the certificate is a
non-qualified certificate, distribution of the minimum death benefit to the
beneficiary (or of the amount payable to the successor owner) must be made
within five years after the owner's death. If the beneficiary or successor
owner, as appropriate, is an individual, in lieu of distribution within five
years of the owner's death, distribution may be made as an annuity which begins
within one year of the owner's death and is payable over the life of the
beneficiary (or the successor owner, as appropriate) or over a period not in
excess of the life expectancy of the beneficiary (or the successor owner, as
appropriate). If the owner's spouse is the beneficiary (or the successor owner,
as appropriate) that spouse may elect to continue his or her participation under
the contract as a new owner in lieu of receiving the distribution. In such a
case, the distribution rules applicable when a owner dies generally will apply
when that spouse, as the owner, dies.
Death of Owner who is not the Annuitant. If the owner is not the annuitant
and dies before the maturity date and before the annuitant, the successor owner
shall have the ownership rights of the owner and will be entitled to the owner's
interest in the contract. If the certificate is a non-qualified contract, an
amount equal to the amount payable on total withdrawal, without reduction for
any withdrawal charge, will be paid to the successor owner. Distribution of the
amount to the successor owner must be made within five years of the owner's
death. If the successor owner is an individual, in lieu of distribution within
five years of the owner's death, distribution may be made as an annuity which
begins within one year of the owner's death and is payable over the life of the
successor owner (or over a period not greater than the successor owner's life
expectancy). If the owner's spouse is the successor owner, that spouse may elect
to continue his or her participation under the contract as a new owner in lieu
of receiving the distribution. In such a case, the distribution rules applicable
when an owner dies generally will apply when that spouse, as the owner, dies.
For purposes of these death benefit provisions applicable on an owner's
death (whether or not such owner is an annuitant), if a non-qualified
certificate has more than one individual owner, death benefits must be paid as
provided in the contract upon the death of any such owner. If both owners are
individuals, the distributions will be made to the remaining owner rather than
to the successor owner.
Entity as Owner. In the case of a non-qualified certificate where the owner
is not an individual (for example, the owner is a corporation or a trust), the
special rules stated in this paragraph apply. For purposes of distributions of
death benefits before the maturity date, any annuitant under the certificate
will be treated as the owner, and a change in the annuitant or any co-annuitant
shall be treated as the death of the owner. In the case of distributions which
result from a change in an annuitant when the annuitant does not actually die,
the amount distributed will be reduced by charges which would otherwise apply
upon withdrawal.
If a non-qualified certificate has both an individual and a non-individual
owner, death benefits must be paid as provided in the contract upon the death of
any annuitant, a change in any annuitant, or the death of any individual owner,
whichever occurs earlier.
The minimum death benefit during the first six certificate years will be
equal to the greater of: (a) the owner's contract value on the date due proof of
death and all required claim forms are received at the Company's Annuity Service
Office, or (b) the sum of all purchase
56
<PAGE> 62
payments made by or on behalf of the owner, less any amount deducted in
connection with partial withdrawals made by the owner. During any subsequent six
contract year period, the minimum death benefit will be the greater of (a) the
owner's contract value on the date due proof of death and all required claim
forms are received at the Company's Annuity Service Office, or (b) the minimum
death benefit on the last day of the previous six certificate year period plus
any purchase payments made by or on behalf of the owner and less any amount
deducted in connection with partial withdrawals made by the owner since then. If
the annuitant dies after the first of the month following his or her 85th
birthday, the minimum death benefit will be the owner's contract value on the
date due proof of death and all required claim forms are received at the
Company' Annuity Service Office.
Death benefits will be paid within seven days of receipt of due proof of
death and all required claim forms at the Company's Annuity Service Office,
subject to postponement under the same circumstances that payment of withdrawals
may be postponed.
OTHER CONTRACT PROVISIONS
Contract Maturity Date
Under the prior contract, the contract maturity date is the later of the
first day of the month following the 85th birthday of the annuitant or the sixth
certificate anniversary. The prior contract allows the owner to 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
must be the first day of a month no later than the first day of the month
following the 85th birthday of the annuitant.
Annuity Tables Assumed Interest Rate
A 4% assumed interest rate is built into the annuity tables in the prior
contract used to determine the first variable annuity payment to be made under
that contract.
Beneficiary
Under the prior contract certain provisions relating to beneficiary are as
follows:
The beneficiary is the person, persons or entity designated in the
application or as subsequently named to whom benefits will be paid on the death
of the annuitant. The beneficiary may be changed by the owner during the
lifetime of the annuitant and prior to the maturity date 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. Prior to the maturity date, if no beneficiary survives
the annuitant, the owner or the owner's estate will be the beneficiary. The
interest of any beneficiary is subject to that of any assignee. In the case of
certain qualified contracts or certificates, regulations promulgated by the
Treasury Department prescribe certain limitations on the designation of a
beneficiary.
Ownership
Under the prior contract certain provisions relating to ownership are as
follows:
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 interests as specified in his or her certificate. Prior
to the maturity date, an owner is the person designated in an application or as
subsequently named. On and after a certificate's maturity date, the annuitant is
the owner and after the death of the annuitant, the beneficiary is the owner.
In the case of non-qualified contracts, ownership of the contract may be
changed at any time. In the case of non-qualified certificates, an owner may
assign his or her interest in the contract during the lifetime of the annuitant
prior to the maturity date, subject to the rights of any irrevocable
beneficiary. Assigning a contract or interest therein, or changing the ownership
of a contract or certificate, may be treated as a distribution of all or a
portion of the contract value for Federal tax purposes. 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 on which written. The Company assumes no liability for any payments made or
actions taken before a change is approved or assignment is accepted or
responsibility for the validity or sufficiency of any assignment.
57
<PAGE> 63
Modification
The prior contract does not include "free withdrawal percentage" among
contract terms the Company is authorized to change on 60 days' notice to the
group holder.
GUARANTEED RETIREMENT INCOME PROGRAM
The Guaranteed Retirement Income Program is not available for prior
contracts.
58
<PAGE> 64
<TABLE>
<CAPTION>
TABLE OF ACCUMULATION UNIT VALUES
=====================================================================================================================
SUB-ACCOUNT UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS
START OF YEAR* END OF YEAR AT END OF YEAR
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets
1997 $12.500000 $ 8.180904 18,049.496
- ---------------------------------------------------------------------------------------------------------------------
Science & Technology
1997 $12.500000 $13.647195 68,696.549
- ---------------------------------------------------------------------------------------------------------------------
International Small Cap
1996 $12.500000 $13.493094 265,493.981
1997 13.493094 13.410016 148,139.543
- ---------------------------------------------------------------------------------------------------------------------
Emerging Growth
1997 $12.500000 $14.574077 29,183.460
- --------------------------------------------------------------------------------------------------------------------
Pilgrim Baxter Growth
1997 $12.500000 $12.327066 33,654.601
- ---------------------------------------------------------------------------------------------------------------------
Small/Mid Cap
1996 $12.500000 $13.215952 293,815.378
1997 13.215952 15.020670 362,356.638
- ---------------------------------------------------------------------------------------------------------------------
International Stock
1997 $12.500000 $12.652231 18,313.864
- ---------------------------------------------------------------------------------------------------------------------
Worldwide Growth
1997 $12.500000 $13.965674 8,228.033
- ---------------------------------------------------------------------------------------------------------------------
Global Equity
1992 $12.003976 $11.790318 28,203.763
1993 11.790318 15.450341 985,277.929
1994 15.450341 15.500933 2,268,423.530
1995 15.500933 16.459655 2,132,127.330
1996 16.459655 18.276450 1,785,966.081
1997 18.276450 21.770913 1,662,176.913
- ---------------------------------------------------------------------------------------------------------------------
Small Company Value
1997 $12.500000 $11.898363 21,030.641
- ---------------------------------------------------------------------------------------------------------------------
Equity
1992 $12.386657 $13.143309 122,807.657
1993 13.143309 15.075040 1,315,253.114
1994 15.075040 14.786831 1,958,082.571
1995 14.786831 20.821819 2,278,573.962
1996 20.821819 24.664354 2,007,082.996
1997 24.664354 29.002593 1,794,644.944
- ---------------------------------------------------------------------------------------------------------------------
Growth
1996 $12.500000 $13.727312 98,424.809
1997 13.727312 16.968111 276,494.410
- ---------------------------------------------------------------------------------------------------------------------
Quantitative Equity
1997 $12.500000 $16.107191 32,343.397
- ---------------------------------------------------------------------------------------------------------------------
Blue Chip Growth
1992 $10.000000 $ 9.923524 58,049.495
1993 9.923524 9.413546 707,931.534
1994 9.413546 8.837480 1,001,113.147
1995 8.837480 11.026969 1,257,014.677
1996 11.026969 13.688523 1,223,305.806
1997 13.688523 17.134232 1,282,330.299
- ---------------------------------------------------------------------------------------------------------------------
Estate Securities $12.500000 $14.949140 46,874.008
1997
- ---------------------------------------------------------------------------------------------------------------------
Value
1997 $12.500000 $15.057118 41,009.600
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE> 65
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS
START OF YEAR* END OF YEAR AT END OF YEAR
- ---------------------------------------------------------------------------------------------------------------------
International Growth and Income
<S> <C> <C> <C>
1995 $10.000000 $10.554228 100,475.374
1996 10.554228 11.718276 223,718.019
1997 11.718276 11.545714 216,124.371
- ---------------------------------------------------------------------------------------------------------------------
Growth and Income
1992 $10.942947 $11.927411 149,476.889
1993 11.927411 12.893007 1,610,454.400
1994 12.893007 13.076664 2,142,828.604
1995 13.076664 16.660889 2,230,320.953
1996 16.660889 20.178770 2,214,190.721
1997 20.178770 26.431239 2,165,598.782
- ---------------------------------------------------------------------------------------------------------------------
Equity-Income
1993 $10.000000 $11.175534 715,700.792
1994 11.175534 11.107620 1,432,473.155
1995 11.107620 13.548849 1,741,975.072
1996 13.548849 16.011513 1,661,006.752
1997 16.011513 20.479412 1,587,287.165
- ---------------------------------------------------------------------------------------------------------------------
Balanced
1997 $12.500000 $14.609853 3,333.690
- ---------------------------------------------------------------------------------------------------------------------
Aggressive Asset Allocation
1992 $10.880194 $11.623893 21,660.089
1993 11.623893 12.642493 244,300.482
1994 12.642493 12.381395 395,864.362
1995 12.381395 14.990551 422,911.593
1996 14.990551 16.701647 365,478.331
1997 16.701647 19.614359 297,611.885
- ---------------------------------------------------------------------------------------------------------------------
High Yield
1997 $12.500000 $13.890491 59,072.119
- ---------------------------------------------------------------------------------------------------------------------
Moderate Asset Allocation
1992 $11.012835 $11.772128 120,020.418
1993 11.772128 12.775798 1,245,900.794
1994 12.775798 12.396295 1,690,801.919
1995 12.396295 14.752561 1,435,414.191
1996 14.752561 15.995076 1,266,755.972
1997 15.995076 18.276161 1,089,331.565
- ---------------------------------------------------------------------------------------------------------------------
Conservative Asset Allocation
1992 $11.102574 $11.821212 415,991.541
1993 11.821212 12.705196 506,414.765
1994 12.705196 12.298940 330,900.271
1995 12.298940 14.320582 478,239.388
1996 14.320582 15.113142 325,608.369
1997 15.113142 16.607511 340,682.860
- ---------------------------------------------------------------------------------------------------------------------
Strategic Bond
1993 $10.000000 $10.750617 381,406.287
1994 10.750617 9.965972 564,406.390
1995 9.965972 11.716972 682,547.892
1996 11.716972 13.250563 797,845.050
1997 13.250563 14.500997 763,855.628
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
60
<PAGE> 66
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS
START OF YEAR* END OF YEAR AT END OF YEAR
- ---------------------------------------------------------------------------------------------------------------------
Global Government Bond
<S> <C> <C> <C>
1992 $13.322602 $13.415849 56,786.509
1993 13.415849 15.741586 745,370.831
1994 15.741586 14.630721 694,644.982
1995 14.630721 17.772344 586,608.921
1996 17.772344 19.803954 494,576.435
1997 19.803954 20.104158 436,440.899
- ---------------------------------------------------------------------------------------------------------------------
Capital Growth Bond
1997 $12.500000 $13.475788 391.426
- ---------------------------------------------------------------------------------------------------------------------
Investment Quality Bond
1992 $13.147350 $13.936240 59,746.432
1993 13.936240 15.118716 319,417.770
1994 15.118716 14.216516 384,804.353
1995 14.216516 16.751499 371,328.627
1996 16.751499 16.943257 361,839.590
1997 16.943257 18.336912 291,735.510
- ---------------------------------------------------------------------------------------------------------------------
U.S. Government Securities
1992 $13.015785 $13.651495 212,815.440
1993 13.651495 14.490734 783,550.472
1994 14.490734 14.111357 585,709.535
1995 14.111357 16.083213 494,142.862
1996 16.083213 16.393307 390,696.559
1997 16.393307 17.535478 345,437.781
- ---------------------------------------------------------------------------------------------------------------------
Money Market
1992 $12.892485 $13.137257 28,928.622
1993 13.137257 13.303085 331,225.229
1994 13.303085 13.623292 1,079,557.666
1995 13.623292 14.190910 530,610.979
1996 14.190910 14.699636 846,105.590
1997 14.699636 15.241915 454,080.933
- ---------------------------------------------------------------------------------------------------------------------
Lifestyle Aggressive 1000
1997 $12.500000 $13.669625 19,900.057
- ---------------------------------------------------------------------------------------------------------------------
Lifestyle Growth 820
1997 $12.500000 $14.033299 60,974.946
- ---------------------------------------------------------------------------------------------------------------------
Lifestyle Balanced 640
1997 $12.500000 $14.066417 59,780.667
- ---------------------------------------------------------------------------------------------------------------------
Lifestyle Moderate 460
1997 $12.500000 $14.016704 0.000
- ---------------------------------------------------------------------------------------------------------------------
Lifestyle Conservative 280
1997 $12.500000 $13.825120 88,291.620
=====================================================================================================================
</TABLE>
* Units under this series of contracts were first credited under the
sub-accounts on September, 1992, except in the case of Blue Chip Growth
where units were first credited on December 11, 1992; Equity-Income where
units were first credited on February 19, 1992; International Growth and
Income where units were first credited on January 9, 1995; Small/Mid Cap
and International Small Cap where units were first credited on March 4,
1996; Growth where units were first credited on July 15, 1996; Pacific Rim
Emerging Markets, Science & Technology, Emerging Growth, Pilgrim Baxter
Growth, International Stock, Worldwide Growth, Quantitative Equity, Real
Estate Securities, Value, Balanced, High Yield, Capital Growth Bond,
Lifestyle Aggressive 1000, Lifestyle Growth 820, Lifestyle Balanced 640,
Lifestyle Moderate 460, Lifestyle Conservative 280 where units were first
credited on January 2, 1997 and Small Company Value where units were first
credited on October 1, 1997.
61
<PAGE> 67
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 68
- --------------------------------------------------------------------------------
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 GROUP ANNUITY CONTRACT
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 at the Annuity Service
Office, P.O. Box 9230, Boston, Massachusetts 02205-9230 or telephoning (800)
344-1029.
The date of this Statement of Additional Information is May 1, 1998.
The Manufacturers Life Insurance Company of North America
116 Huntington Avenue
Boston, Massachusetts 02116
(617) 266-6004
- --------------------------------------------------------------------------------
V22/23.SAI598
<PAGE> 69
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
General Information and History......................................... 3
Performance Data........................................................ 3
Services
Independent Auditors............................................. 10
Servicing Agent.................................................. 10
Principal Underwriter............................................ 10
Cancellation of Certificate............................................. 10
Financial Statements.................................................... 11
<PAGE> 70
GENERAL INFORMATION AND HISTORY
The Manufacturers Life Insurance Company of North America Separate Account
A (the "Variable Account") is a separate investment account of The Manufacturers
Life Insurance Company of North America (the "Company"), a stock life insurance
company organized under the laws of Delaware in 1979. 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 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
non-standardized 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 and administration 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 not reflecting redemptions at the end of the time
period are useful to owners who wish to assess the performance of an ongoing
contract of the size that is meaningful to the individual owner.
For total return figures quoted for periods prior to the commencement of
the offering of this contract, August 9, 1994, 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,
Inc. portfolio), adjusted to reflect current contract charges.
3
<PAGE> 71
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
CALCULATED AS OF DECEMBER 31, 1997
====================================================================================================================
TRUST PORTFOLIO 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE*
WHICHEVER IS
SHORTER
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets N/A N/A -37.94% 01/01/97
--------------------------------------------------------------------------------------------------------------------
Science & Technology N/A N/A 3.17% 01/01/97
--------------------------------------------------------------------------------------------------------------------
International Small Cap -6.04% N/A 0.72% 03/04/96
--------------------------------------------------------------------------------------------------------------------
Emerging Growth N/A N/A 10.53% 01/01/97
--------------------------------------------------------------------------------------------------------------------
Pilgrim Baxter Growth N/A N/A -6.76% 01/01/97
--------------------------------------------------------------------------------------------------------------------
Small/Mid Cap 7.59% N/A 7.45% 03/04/96
--------------------------------------------------------------------------------------------------------------------
International Stock N/A N/A -4.31% 01/01/97
--------------------------------------------------------------------------------------------------------------------
Worldwide Growth N/A N/A 5.66% 01/01/97
--------------------------------------------------------------------------------------------------------------------
Global Equity 13.06% 12.51% 8.18% 03/18/88
--------------------------------------------------------------------------------------------------------------------
Small Company Value N/A N/A -9.98% 10/01/97
--------------------------------------------------------------------------------------------------------------------
Equity 11.53% 16.67% 13.50%+ 06/18/85
--------------------------------------------------------------------------------------------------------------------
Growth 17.55% N/A 19.40% 07/15/96
--------------------------------------------------------------------------------------------------------------------
Quantitative Equity N/A N/A 22.79% 01/01/97
--------------------------------------------------------------------------------------------------------------------
Blue Chip Growth 19.11% 10.96% 10.78% 12/11/92
--------------------------------------------------------------------------------------------------------------------
Real Estate Securities N/A N/A 13.53% 01/01/97
--------------------------------------------------------------------------------------------------------------------
Value N/A N/A 14.39% 01/01/97
--------------------------------------------------------------------------------------------------------------------
International Growth and Income -6.84% N/A 3.33% 01/09/95
--------------------------------------------------------------------------------------------------------------------
Growth and Income 24.92% 16.77% 15.44% 04/23/91
--------------------------------------------------------------------------------------------------------------------
Equity-Income 21.84% N/A 15.35% 02/19/93
--------------------------------------------------------------------------------------------------------------------
Balanced N/A N/A 10.82% 01/01/97
--------------------------------------------------------------------------------------------------------------------
Aggressive Asset Allocation 11.38% 10.44% 8.51% 08/03/89
--------------------------------------------------------------------------------------------------------------------
High Yield N/A N/A 5.06% 01/01/97
--------------------------------------------------------------------------------------------------------------------
Moderate Asset Allocation 8.20% 8.57% 7.51% 08/03/89
--------------------------------------------------------------------------------------------------------------------
Conservative Asset Allocation 3.84% 6.36% 6.21% 08/03/89
--------------------------------------------------------------------------------------------------------------------
Strategic Bond 3.41% N/A 7.26% 02/19/93
--------------------------------------------------------------------------------------------------------------------
Global Government Bond -4.03% 7.79% 7.31% 03/18/88
--------------------------------------------------------------------------------------------------------------------
Capital Growth Bond N/A N/A 1.88% 01/01/97
--------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 72
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
TRUST PORTFOLIO 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE*
WHICHEVER IS
SHORTER
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Quality Bond 2.27% 4.93% 5.42%+ 06/18/85
---------------------------------------------------------------------------------------------------------------------
U.S. Government Securities 1.09% 4.41% 5.82% 03/18/88
---------------------------------------------------------------------------------------------------------------------
Money Market -1.99% 2.23% 3.93%+ 06/18/85
---------------------------------------------------------------------------------------------------------------------
Lifestyle Aggressive 1000 N/A N/A 3.36% 01/07/97
---------------------------------------------------------------------------------------------------------------------
Lifestyle Growth 820 N/A N/A 6.22% 01/07/97
---------------------------------------------------------------------------------------------------------------------
Lifestyle Balanced 640 N/A N/A 6.49% 01/07/97
---------------------------------------------------------------------------------------------------------------------
Lifestyle Moderate 460 N/A N/A 6.09% 01/07/97
---------------------------------------------------------------------------------------------------------------------
Lifestyle Conservative 280 N/A N/A 4.56% 01/07/97
---------------------------------------------------------------------------------------------------------------------
Merrill Lynch Special Value Focus - N/A N/A -17.45% 10/13/97
Class B
---------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Focus - N/A N/A -12.29% 10/13/97
Class B
---------------------------------------------------------------------------------------------------------------------
Merrill Lynch Developing Capital N/A N/A -22.04% 10/13/97
Markets Focus - Class B
---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Inception date of the sub-account of the Variable Account which invests in
the portfolio.
+ 10 year average annual return.
5
<PAGE> 73
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 5 YEARS SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE*
WHICHEVER IS
SHORTER
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets* -38.04% N/A -10.58% 10/04/94
---------------------------------------------------------------------------------------------------------------------
Science & Technology N/A N/A 3.17% 01/01/97
---------------------------------------------------------------------------------------------------------------------
International Small Cap -6.04% N/A 0.72% 03/04/96
---------------------------------------------------------------------------------------------------------------------
Emerging Growth N/A N/A 10.53% 01/01/97
---------------------------------------------------------------------------------------------------------------------
Pilgrim Baxter Growth N/A N/A -6.76% 01/01/97
---------------------------------------------------------------------------------------------------------------------
Small/Mid Cap 7.59% N/A 7.45% 03/04/96
---------------------------------------------------------------------------------------------------------------------
International Stock N/A N/A -4.31% 01/01/97
---------------------------------------------------------------------------------------------------------------------
Worldwide Growth N/A N/A 5.66% 01/01/97
---------------------------------------------------------------------------------------------------------------------
Global Equity 13.06% 12.51% 8.18% 03/18/88
---------------------------------------------------------------------------------------------------------------------
Small Company Value N/A N/A -9.98% 10/01/97
---------------------------------------------------------------------------------------------------------------------
Equity 11.53% 16.67% 13.50%+ 06/18/85
---------------------------------------------------------------------------------------------------------------------
Growth 17.55% N/A 19.40% 07/15/96
---------------------------------------------------------------------------------------------------------------------
Quantitative Equity* 21.97% 14.40% 13.48%+ 04/30/87
---------------------------------------------------------------------------------------------------------------------
Blue Chip Growth 19.11% 10.96% 10.78% 12/11/92
---------------------------------------------------------------------------------------------------------------------
Real Estate Securities* 10.70% 14.83% 14.22%+ 04/30/87
---------------------------------------------------------------------------------------------------------------------
Value N/A N/A 14.39% 01/01/97
---------------------------------------------------------------------------------------------------------------------
International Growth and Income -6.84% N/A 3.33% 01/09/95
---------------------------------------------------------------------------------------------------------------------
Growth and Income 24.92% 16.77% 15.44% 04/23/91
---------------------------------------------------------------------------------------------------------------------
Equity-Income 21.84% N/A 15.35% 02/19/93
---------------------------------------------------------------------------------------------------------------------
Balanced N/A N/A 10.82% 01/01/97
---------------------------------------------------------------------------------------------------------------------
Aggressive Asset Allocation 11.38% 10.44% 8.51% 08/03/89
---------------------------------------------------------------------------------------------------------------------
High Yield N/A N/A 5.06% 01/01/97
---------------------------------------------------------------------------------------------------------------------
Moderate Asset Allocation 8.20% 8.57% 7.51% 08/03/89
---------------------------------------------------------------------------------------------------------------------
Conservative Asset Allocation 3.84% 6.36% 6.21% 08/03/89
---------------------------------------------------------------------------------------------------------------------
Strategic Bond 3.41% N/A 7.26% 02/19/93
---------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 74
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
TRUST PORTFOLIO 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE*
WHICHEVER IS
SHORTER
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Government Bond -4.03% 7.79% 7.31% 03/18/88
---------------------------------------------------------------------------------------------------------------------
Capital Growth Bond* 1.31% 4.99% 6.97%+ 06/26/84
---------------------------------------------------------------------------------------------------------------------
Investment Quality Bond 2.27% 4.93% 5.42%+ 06/18/85
---------------------------------------------------------------------------------------------------------------------
U.S. Government Securities 1.09% 4.41% 5.82% 03/18/88
---------------------------------------------------------------------------------------------------------------------
Money Market -1.99% 2.23% 3.93%+ 06/18/85
---------------------------------------------------------------------------------------------------------------------
Lifestyle Aggressive 1000 N/A N/A 3.36% 01/07/97
---------------------------------------------------------------------------------------------------------------------
Lifestyle Growth 820 N/A N/A 6.22% 01/07/97
---------------------------------------------------------------------------------------------------------------------
Lifestyle Balanced 640 N/A N/A 6.49% 01/07/97
---------------------------------------------------------------------------------------------------------------------
Lifestyle Moderate 460 N/A N/A 6.09% 01/07/97
---------------------------------------------------------------------------------------------------------------------
Lifestyle Conservative 280 N/A N/A 4.56% 01/07/97
---------------------------------------------------------------------------------------------------------------------
Merrill Lynch Special Value Focus - N/A N/A -17.45% 10/13/97
Class B
---------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Focus - N/A N/A -12.29% 10/13/97
Class B
---------------------------------------------------------------------------------------------------------------------
Merrill Lynch Developing Capital N/A N/A -22.04% 10/13/97
Markets Focus - Class B
---------------------------------------------------------------------------------------------------------------------
</TABLE>
+ 10 year average annual return.
* Performance for each of these sub-accounts is based on the historical
performance of the portfolio, adjusted to reflect current contract charges.
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
periods prior to December 31, 1996.
7
<PAGE> 75
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 5 YEARS SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE*
WHICHEVER IS
SHORTER
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets* -35.04% N/A -9.28% 10/04/94
---------------------------------------------------------------------------------------------------------------------
Science & Technology N/A N/A 9.18% 01/01/97
---------------------------------------------------------------------------------------------------------------------
International Small Cap -0.62% N/A 3.92% 03/04/96
---------------------------------------------------------------------------------------------------------------------
Emerging Growth N/A N/A 16.59% 01/01/97
---------------------------------------------------------------------------------------------------------------------
Pilgrim Baxter Growth N/A N/A -1.38% 01/01/97
---------------------------------------------------------------------------------------------------------------------
Small/Mid Cap 13.66% N/A 10.58% 03/04/96
---------------------------------------------------------------------------------------------------------------------
International Stock N/A N/A 1.22% 01/01/97
---------------------------------------------------------------------------------------------------------------------
Worldwide Growth N/A N/A 11.73% 01/01/97
---------------------------------------------------------------------------------------------------------------------
Global Equity 19.12% 13.05% 8.23% 03/18/88
---------------------------------------------------------------------------------------------------------------------
Small Company Value N/A N/A -4.81% 01/01/97
---------------------------------------------------------------------------------------------------------------------
Equity 17.59% 17.15% 13.54%+ 06/18/85
---------------------------------------------------------------------------------------------------------------------
Growth 23.61% N/A 23.23% 07/15/96
---------------------------------------------------------------------------------------------------------------------
Quantitative Equity* 28.03% 14.92% 13.52%+ 04/30/87
---------------------------------------------------------------------------------------------------------------------
Blue Chip Growth 25.17% 11.54% 11.23% 12/11/92
---------------------------------------------------------------------------------------------------------------------
Real Estate Securities* 16.76% 15.34% 14.27%+ 04/30/87
---------------------------------------------------------------------------------------------------------------------
Value N/A N/A 20.46% 01/01/97
---------------------------------------------------------------------------------------------------------------------
International Growth and Income -1.47% N/A 4.94% 01/09/95
---------------------------------------------------------------------------------------------------------------------
Growth and Income 30.99% 17.25% 15.62% 04/23/91
---------------------------------------------------------------------------------------------------------------------
Equity-Income 27.90% N/A 15.87% 02/19/93
---------------------------------------------------------------------------------------------------------------------
Balanced N/A N/A 16.88% 01/01/97
---------------------------------------------------------------------------------------------------------------------
Aggressive Asset Allocation 17.44% 11.03% 8.57% 08/03/89
---------------------------------------------------------------------------------------------------------------------
High Yield N/A N/A 11.12% 01/01/97
---------------------------------------------------------------------------------------------------------------------
Moderate Asset Allocation 14.26% 9.20% 7.56% 08/03/89
---------------------------------------------------------------------------------------------------------------------
Conservative Asset Allocation 9.89% 7.04% 6.26% 08/03/89
---------------------------------------------------------------------------------------------------------------------
Strategic Bond 9.44% N/A 7.94% 02/19/93
---------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 76
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
TRUST PORTFOLIO 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE*
WHICHEVER IS
SHORTER
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Government Bond 1.52% 8.43% 7.36% 03/18/88
---------------------------------------------------------------------------------------------------------------------
Capital Growth Bond* 7.20% 5.70% 7.02%+ 06/26/84
---------------------------------------------------------------------------------------------------------------------
Investment Quality Bond 8.23% 5.64% 5.47%+ 06/18/85
---------------------------------------------------------------------------------------------------------------------
U.S. Government Securities 6.97% 5.14% 5.87% 03/18/88
---------------------------------------------------------------------------------------------------------------------
Money Market 3.69% 3.02% 3.98%+ 06/18/85
---------------------------------------------------------------------------------------------------------------------
Lifestyle Aggressive 1000 N/A N/A 9.38% 01/07/97
---------------------------------------------------------------------------------------------------------------------
Lifestyle Growth 820 N/A N/A 12.29% 01/07/97
---------------------------------------------------------------------------------------------------------------------
Lifestyle Balanced 640 N/A N/A 12.55% 01/07/97
---------------------------------------------------------------------------------------------------------------------
Lifestyle Moderate 460 N/A N/A 12.16% 01/07/97
---------------------------------------------------------------------------------------------------------------------
Lifestyle Conservative 280 N/A N/A 10.62% 01/07/97
---------------------------------------------------------------------------------------------------------------------
Merrill Lynch Special Value Focus - N/A N/A -12.76% 10/13/97
Class B
---------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Focus - N/A N/A -7.27% 10/13/97
Class B
---------------------------------------------------------------------------------------------------------------------
Merrill Lynch Developing Capital N/A N/A -17.64% 10/13/97
Markets Focus - Class B
---------------------------------------------------------------------------------------------------------------------
</TABLE>
+ 10 year average annual return.
* Performance for each of these sub-accounts is based on the historical
performance of the portfolio, adjusted to reflect current contract charges.
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
periods prior to December 31, 1996.
* * * * *
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.
9
<PAGE> 77
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 are included in reliance upon such reports 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 elsewhere 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.
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
$7.80 per policy per year, plus certain other fees paid by the Company for the
services provided.
PRINCIPAL UNDERWRITER
Manufacturers Securities Services, LLC ("MSS"), a Delaware limited
liability company controlled by 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
$105,479,741, $83,031,288 and $68,782,161, respectively. MSS did not retain any
of these amounts during such periods.
CANCELLATION OF CERTIFICATE
The Company may, at its option, cancel a certificate and an owner's
participation under a contract at the end of any two consecutive certificate
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 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 a certificate owner prior to
such cancellation in order to allow the certificate owner to make the necessary
purchase payment to keep the certificate in force. The cancellation of
certificate provisions may vary in certain states in order to comply with the
requirements of insurance laws and regulations in such states.
10
<PAGE> 78
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> 79
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> 80
[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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Manufacturers Life
Insurance Company of 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.
Boston, Massachusetts
February 5, 1998
/s/Ernst & Young LLP
<PAGE> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
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> 104
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> 105
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> 106
'
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
- ---------------------
Boston, Massachusetts
February 26, 1998
1
<PAGE> 107
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
2
<PAGE> 108
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> 109
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> 110
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> 111
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> 112
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> 113
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> 114
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
$18,320,197.
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> 115
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> 116
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> 117
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> 118
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> 119
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> 120
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> 121
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> 122
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)
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> 123
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> 124
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> 125
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> 126
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> 127
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> 128
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> 129
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> 130
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> 131
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> 132
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> 133
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> 134
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> 135
PART C
OTHER INFORMATION
<PAGE> 136
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,
formerly NASL Variable Account (Part B of the registration
statement).
(2) Financial Statements of the Depositor, The Manufacturers
Life Insurance Company of North America, formerly North
American Security Life Insurance Company (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 (b)(1)(i) to
Form N-4, file number 33-76162, filed February 25,
1998.
(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 -- Previously filed
as Exhibit (b)(1)(ii) to post-effective amendment
no. 2 to Form N-4 filed March 1, 1996.
(iii) 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 -- Previously
filed as Exhibit (b)(1)(iii) to post effective
amendment no. 3 to Form N-4 filed February 28, 1997.
(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 -- Previously
filed as Exhibit (b)(1)(iv) to post effective
amendment no. 3 to Form N-4 filed February 28, 1997.
(v) 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 four additional
sub-accounts dated September 26, 1997 --
Incorporated by reference to Exhibit (b)(1)(v) to
Form N-4, file number 33-76162 filed February 25,
1998.
(2) Agreements for custody of securities and similar
investments - Not Applicable.
(3) (i) Underwriting Agreement between North American
Security Life Insurance Company (Depositor) and NASL
Financial Services, Inc. (Underwriter) --
Incorporated by reference to Exhibit (b)(3)(i) to
Form N-4, file number 33-76162, filed February 25,
1998.
-1-
<PAGE> 137
(ii) Promotional Agent Agreement between NASL Financial
Services, Inc. (Underwriter), North American
Security Life Insurance Company (Depositor) and Wood
Logan Associates, Inc. (Promotional Agent) and NAWL
Holding Company, Inc. -- Previously filed as Exhibit
(b)(3)(iii) to post effective amendment no. 3 to
Form N-4 filed February 28, 1997.
(iii) Amendment to Promotional Agent Agreement --
Incorporated by reference to Exhibit (b)(3)(iii) to
Form N-4, file number 33-76162, filed February 25,
1998
(iv) Form of Selling Agreement between The Manufacturers
Life Insurance Company of North America,
Manufacturers Securities Services, LLC, Selling
Broker-Dealer and General Agent -- Incorporated by
reference to Exhibit (b)(3)(iv) to Form N-4, file
number 33-76162, filed February 25, 1998.
(4) (i) Specimen Flexible Payment Deferred Combination Fixed
and Variable Group Annuity Contract,
Non-Participating -- Previously filed as Exhibit
(b)(4)(i) to post effective amendment no. 4 to Form
N-4 filed February 26, 1998.
(ii) Specimen Certificate Under Flexible Payment Deferred
Combination Fixed and Variable Group Annuity
Contract, Non-Participating -- Previously filed as
Exhibit (b)(4)(ii) to post effective amendment no. 4
to Form N-4 filed February 26, 1998.
(iii) Specimen Endorsements to Contract: (i) Individual
Retirement Annuity Endorsement; (ii) ERISA
Tax-sheltered Annuity Endorsement; (iii)
Tax-sheltered Annuity Endorsement; (iv) Section 401
Plans Endorsement; (v) Texas Optional Retirement
Program Endorsement; (vi) Qualified Contract
Provisions; (vii) Fixed Account Endorsement; (viii)
Death Benefit Endorsement -- Previously filed as
Exhibit (b)(4)(iii) to post effective amendment
no. 4 to Form N-4 filed February 26, 1998.
(iv) Specimen Death Benefit Endorsements to Contract
(apply to certain prior contracts only) --
Previously filed as Exhibit (b)(4)(iv) to post
effective amendment no. 4 to Form N-4 filed February
26, 1998.
(v) Change of Name Endorsement -- Incorporated by
reference to Exhibit (4)(v) to post-effective
amendment no. 1 to Form S-1, file number 333-6011
filed October 9, 1997.
(5) (i) Specimen Group Holder Application for Flexible
Payment Deferred Combination Fixed and Variable
Group Annuity Contract -- Previously filed as
Exhibit (b)(5)(i) to post effective amendment no. 4
to Form N-4 filed February 26, 1998.
(ii) Specimen Participant Application for the Flexible
Payment Deferred Combination Fixed and Variable
Group Annuity Application -- Previously filed as
Exhibit (b)(5)(ii) to post effective amendment no. 4
to Form N-4 filed February 26, 1998.
-2-
<PAGE> 138
(6) (i) Certificate of Incorporation of North American
Security Life Insurance Company -- Incorporated by
reference to Exhibit (3)(i) to Form 10Q of The
Manufacturers Life Insurance Company of North
America filed November 14, 1997.
(ii) Certificate of Amendment of Certificate of
Incorporation of the Company, Name Change July 1984
-- Incorporated by reference to Exhibit (3)(i)(a) to
Form 10Q of The Manufacturers Life Insurance Company
of North America, filed November 14, 1997.
(iii) Certificate of Amendment of Certificate of
Incorporation of the Company, Authorization of
Capital December 1994 -- Incorporated by reference
to Exhibit (3)(i)(b) to Form 10Q of The
Manufacturers Life Insurance Company of North
America, filed November 14, 1997.
(iv) Certificate of Amendment of Certificate of
Incorporation, Name change March 1997 --
Incorporated by reference to Exhibit (3)(i)(a) to
post effective amendment no. 1 to Form S-1 on behalf
of The Manufacturers Life Insurance Company of North
America, file number 333-6011, filed October 9,
1997.
(v) Certificate of Amendment of Certificate of
Incorporation of the Company, Registered Agent July
1997 -- Incorporated by reference to Exhibit
(3)(i)(c) to Form 10Q of The Manufacturers Life
Insurance Company of North America filed November
14, 1997.
(vi) Amended and Restated By-laws of The Manufacturers
Life Insurance Company of North America --
Incorporated by reference to Exhibit (3)(ii) to
Form 10Q of The Manufacturers Life Insurance
Company of North America filed November 14, 1997.
(7) (i) Contract of reinsurance in connection with the
variable annuity contracts being offered - Form of
Reinsurance and Accounts Receivable Agreements
between North American Security Life Insurance
Company and ITT Lyndon Life, effective December 31,
1993, and amendments -- Incorporated by reference to
Exhibit (b)(7)(i) to Form N-4, file number 33-76162,
filed February 25, 1998.
(ii) (A) 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--Previously filed as
Exhibit (b)(7)(ii) to post-effective
amendment no. 2 to Form N-4 filed March 1,
1996.
(B) 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--Previously filed as
Exhibit (b)(7)(iii) to post-effective
amendment no. 2 to Form N-4 filed March 1,
1996.
-3-
<PAGE> 139
(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 -- Previously
filed as Exhibit (b)(7)(iv) to post-effective
amendment no. 3 to Form N-4 filed February 28, 1997.
(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 --
Previously filed as Exhibit (b)(7)(v) to
post-effective amendment no. 3 to Form N-4 filed
February 28, 1997.
(v) Contract of reinsurance in connection with the
variable annuity contracts being offered - Form of
Reinsurance Agreement between North American
Security Life Insurance Company and Merrill Lynch
Life Insurance Company effective January 1, 1997 --
Incorporated by reference to Exhibit (b)(7)(v) to
Form N-4, file number 33-76162, filed February 25,
1998.
(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. -- Previously filed
as Exhibit (b)(8)(i) to post-effective amendment
no. 3 to Form N-4 filed February 28, 1997.
(9) Opinion of Counsel and consent to its use as to the
legality of the securities being registered June 28, 1994
-- Previously filed as Exhibit (b)(9) to post effective
amendment no. 4 to Form N-4 filed February 26, 1998.
(10) (i) Written consent of Ernst & Young LLP, independent
auditors -- Filed herewith.
(ii) Written consent of Coopers & Lybrand, L.L.P.,
independent accountants -- Filed herewith.
(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.
(13) Schedules of computation -- Previously filed as Exhibit
(b)(13) to post-effective amendment no. 2 to Form N-4 filed
March 1, 1996.
(14) Financial Data Schedule -- Not Applicable.
(15) (i) Power of Attorney - John D. Richardson (Chairman of
the Board of Directors, North American Security Life
Insurance Company) -- Previously filed as
Exhibit(b)(15)(iii) to post-effective amendment
no. 2 to Form N-4 filed April 29, 1997.
-4-
<PAGE> 140
(ii) Power of Attorney - David W. Libbey, Principal
Financial Officer, North American Security Life
Insurance Company -- Incorporated by reference to
Exhibit (24)(ii) to Form 10Q of The Manufacturers
Life Insurance Company of North America filed
November 14, 1997.
(iii) Power of Attorney - Peter S. Hutchison (Director,
The Manufacturers Life Insurance Company of North
America) -- Incorporated by reference to
Exhibit(b)(15)(iii) to Form N-4, file number
33-76162 filed February 25, 1998.
-5-
<PAGE> 141
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR.
OFFICERS AND DIRECTORS OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH
AMERICA
Name and Principal Position with
Business Address Manulife North America
- ---------------- ----------------------
John D. Richardson Chairman of the Board of Directors
200 Bloor Street East
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, Administration and Chief
116 Huntington Avenue Administrative Officer
Boston, MA 02116
John G. Vrysen Vice President and Chief Actuary
73 Tremont Street
Boston, MA 02108
Hugh McHaffie Vice President, U.S. Annuities and Product
73 Tremont Street Development
Boston, MA 02108
Richard C. Hirtle Vice President, Strategic Development and
116 Huntington Avenue Accumulation Life Products
Boston, MA 02116
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
David W. Libbey Vice President, Treasurer and Chief Financial
73 Tremont Street Officer
Boston, MA 02108
Robert Boyda Vice President, Investment Management Services
73 Tremont Street
Boston, MA 02108
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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%)
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 Planning
International, Inc. -
Wisconsin (100%)
(iii) ManEquity, Inc. -
Colorado (100%)
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<PAGE> 143
(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%)
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 31, 1998, there were 3,651 qualified contracts for Ven 22/23 and
1,895 qualified contracts for Ven 8 of the series offered hereby outstanding. As
of March 31, 1998 there were 5,159 non-qualified contracts for Ven 22/23 and
2,422 non-qualified contracts for Ven 8 of the series offered hereby
outstanding.
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<PAGE> 144
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 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.
Section IX, paragraph D of the Promotional Agent Agreement among the Company
(referred to therein as "Security Life"), NASL Financial and Wood/Logan
(referred to therein as "Promotional Agent") provides as follows:
a. NASL Financial and Security Life agree to indemnify and hold harmless
Promotional Agent, its officers, directors and employees against any and
all losses, claims, damages or liabilities to which they may become
subject under the Securities Act of 1933 ("1933 Act"), the 1934 Act or
other federal or state statutory law or
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<PAGE> 145
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission to state a material
fact required to be stated or necessary to make the statements made not
misleading in any registration statement for the Contracts filed pursuant
to the 1933 Act or any prospectus included as a part thereof, as from
time to time amended and supplemented, or any advertisement or sales
literature approved in writing by NASL Financial or Security Life
pursuant to Section VI, paragraph B of this Agreement.
b. Promotional Agent agrees to indemnify and hold harmless NASL Financial
and Security Life, their officers, directors and employees against any
and all losses, claims, damages or liabilities to which they may become
subject under the 1933 Act, the 1934 Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon: (i) any oral or written misrepresentation
by Promotional Agent or its officers, directors, employees or agents
unless such misrepresentation is contained in any registration statement
for the Contracts or Fund shares, any prospectus included as a part
thereof, as from time to time amended and supplemented, or any
advertisement or sales literature approved in writing by NASL Financial
pursuant to Section VI, paragraph B of this Agreement or, (ii) the
failure of Promotional Agent or its officers, directors, employees or
agents to comply with any applicable provisions of this Agreement.
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.
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<PAGE> 146
Item 29. PRINCIPAL UNDERWRITERS.
a. Name of Investment Company Capacity in which acting
-------------------------- ------------------------
Manufacturers Investment Trust Investment Adviser
The Manufacturers Life Insurance Principal Underwriter
Company of North America Separate
Account A
The Manufacturers Life Insurance Principal Underwriter
Company of North America Separate
Account B
The Manufacturers Life Insurance Principal Underwriter
Company of New York Separate
Account A
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.
Item 32. UNDERTAKINGS.
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.
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<PAGE> 147
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, certifies that it meets all the requirements for
effectiveness of this Amendment to the Registration Statement pursuant to
Securities Act Rule 485(b) and has caused this Amendment to the Registration
Statement to be signed on its behalf, in the City of Boston, and Commonwealth of
Massachusetts on this 28th day of April, 1998.
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA SEPARATE ACCOUNT A
(Registrant)
By: THE MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Depositor)
By: /s/ JOHN D. DESPREZ III
----------------------------------------
John D. DesPrez III, President
Attest:
/s/ JAMES D. GALLAGHER
- -----------------------------------
James D. Gallagher, Secretary
Pursuant to the requirements of the Securities Act of 1933, the Depositor
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned on the 28th day of April, 1998 in the City of Boston,
and Commonwealth of Massachusetts.
THE MANUFACTURERS LIFE INSURANCE COMPANY OF
NORTH AMERICA
(Depositor)
By: /s/ JOHN D. DESPREZ III
----------------------------------------
John D. DesPrez III, President
Attest:
/s/ JAMES D. GALLAGHER
- ------------------------------------
James D. Gallagher, Secretary
<PAGE> 148
As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed by the following persons in the capacities with the
Depositor and on the dates indicated.
SIGNATURE TITLE DATE
/s/ JOHN D. DESPREZ III Director and President April 28, 1998
- ----------------------- (Principal Executive --------------
John D. DesPrez III Officer) (Date)
*______________________ Director April 28, 1998
--------------
Peter S. Hutchison (Date)
*______________________ Director and Chairman April 28, 1998
of the Board --------------
John D. Richardson (Date)
/s/ DAVID W. LIBBEY Vice President and April 28, 1998
- ----------------------- Treasurer (Principal --------------
David W. Libbey Financial and Accounting (Date)
Officer)
*By: /s/ JAMES D. GALLAGHER April 28, 1998
---------------------- --------------
James D. Gallagher (Date)
Attorney-in-Fact
Pursuant to Powers
of Attorney
<PAGE> 149
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
(10)(i) Written consent of Ernst & Young LLP, independent auditors
(10)(ii) Written consent of Coopers & Lybrand, L.L.P., independent
accountants
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Auditors" and to the use of our reports dated February 26, 1998 with respect to
the consolidated financial statements of The Manufactures Life Insurance
Company of North America and February 5, 1998 with respect to the financial
statements of The Manufactures Life Insurance Company of North America Separate
Account A, in Post Effective Amendment No. 5 to the Registration Statement
(form N-4 File No. 33-76684) in the Statement of Additional Information of The
Manufacturers Life Insurance Company of North America Separate Account A.
ERNST & YOUNG LLP
Boston Massachusetts
April 27, 1998
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 5 to this
Registration Statement under the Securities Act of 1933 on Form N-4 (File
No. 33-76684) 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 American Security Life Insurance Company). We also
consent to the reference to our firm under the caption "Independent Auditors."
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 27, 1998
