<PAGE> 1
As filed with the Securities and Exchange Commission on April 29, 1998.
Registration No. 33-76162
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 5
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 17
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
Vice President, Secretary
and General Counsel Copy to:
The Manufacturers Life Insurance Company J. Sumner Jones, Esq.
of North America Jones & Blouch L.L.P.
73 Tremont Street 1025 Thomas Jefferson Street, NW
Boston, Massachusetts 02108 Washington, DC 20007
(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 covered by earlier registration statements under File
Nos. 33-28455, 33-9960 and 2-93435.
<PAGE> 2
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA SEPARATE ACCOUNT A
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
N-4 Item Caption in Prospectus
Part A ---------------------
- ------
<S> <C>
1...................................Cover Page
2...................................Special Terms
3...................................Summary
4...................................Values; 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; Asset Rebalancing Program; Withdrawals; Special Withdrawal
Services Systematic Withdrawal Plan; Contract 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 on or 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
<CAPTION>
N-4 Item Caption in Statement of
Part B Additional Information
- ------ ----------------------
<S> <C>
15..................................Cover Page
16..................................Table of Contents
17..................................General History and Information.
18..................................Services-Accountants; Services-Servicing Agent
19..................................Not Applicable
20..................................Principal Underwriter
21..................................Performance Data
22..................................Not Applicable
23..................................Financial Statements
</TABLE>
<PAGE> 3
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 4
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
- --------------------------------------------------------------------------------
THE MANUFACTURES LIFE INSURANCE COMPANY OF NORTH AMERICA SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
FLEXIBLE PURCHASE PAYMENT INDIVIDUAL DEFERRED
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACT NON-PARTICIPATING
This Prospectus describes a flexible purchase payment individual
deferred combination fixed and variable 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 October, 1993, the Company issued two classes of variable
annuity contracts which are no longer being issued but under which purchase
payments may continue to be made "Ven 3" contracts, which were sold during the
period from November, 1986 until October, 1993, and "Ven 1" contracts, which
were sold during the period from June, 1985 until June, 1987. The Company also
has a class of variable annuity contracts which are no longer being issued,
except in the states of Maryland, New Jersey and Oregon, but under which
purchase payments may continue to be made ("Ven 7 contracts"). This Prospectus
principally describes the contract offered by this Prospectus but also describes
the Ven 7, Ven 3 and Ven 1 contracts (collectively, "prior contracts"). The
principal differences between the contract offered by this Prospectus and the
prior contracts relate to the investment options available under the contracts,
charges made by the Company, death benefit provisions and in the case of Ven 7
contracts, a minimum interest rate to be credited for any guarantee period under
the fixed portion of the contract (see "Appendices C and D").
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 45 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 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.
<PAGE> 5
The date of this Prospectus is May 1, 1998
V20/21.PRO598 (MLAM)
<PAGE> 6
TABLE OF CONTENTS
SPECIAL TERMS ............................................ 3
SUMMARY .................................................. 5
TABLE OF ACCUMULATION UNIT VALUES......................... 12
GENERAL INFORMATION ABOUT THE MANUFACTURERS LIFE
INSURANCE COMPANY OF NORTH AMERICA, THE MANUFACTURERS
LIFE INSURANCE COMPANY OF NORTH AMERICA SEPARATE
ACCOUNT A, MANUFACTURERS INVESTMENT TRUSTAND MERRILL
LYNCH VARIABLE SERIES FUNDS, INC. ........................ 14
The Manufacturers Life Insurance Company of
North America...................................... 14
The Manufacturers Life Insurance Company of
North America Separate Account A................... 14
Manufacturers Investment Trust....................... 15
Merrill Lynch Variable Series Funds, Inc............. 19
DESCRIPTION OF THE CONTRACT .............................. 20
ACCUMULATION PROVISIONS ............................... 20
Purchase Payments ................................... 20
Accumulation Units .................................. 20
Value of Accumulation Units ......................... 21
Net Investment Factor ............................... 21
Transfers Among Investment Options .................. 21
Maximum Number of Investment Options................. 21
Telephone Transactions .............................. 22
Special Transfer Services - Dollar Cost Averaging.... 22
Asset Rebalancing Program............................ 22
Withdrawals.......................................... 23
Special Withdrawal Services - the Income Plan........ 23
Loans................................................ 24
Death Benefit Before Maturity Date................... 24
ANNUITY PROVISIONS .................................... 26
General ............................................. 26
Annuity Options ..................................... 26
Determination of Amount of the First Variable
Annuity Payment.................................... 27
Annuity Units and the Determination of Subsequent
Variable Annuity Payments ......................... 27
Transfers After Maturity Date ....................... 28
Death Benefit on or After Maturity Date.............. 28
OTHER CONTRACT PROVISIONS ............................. 28
Ten Day Right to Review ............................. 28
Ownership ........................................... 28
Beneficiary ......................................... 29
Annuitant ........................................... 29
Modification ........................................ 29
Company Approval .................................... 29
Misstatement and Proof of Age, Sex or Survival....... 29
FIXED ACCOUNT INVESTMENT OPTIONS....................... 30
GUARANTEED RETIREMENT INCOME PROGRAM................... 32
CHARGES AND DEDUCTIONS.................................... 34
Withdrawal Charges .................................. 34
Reduction or Elimination of Withdrawal Charge ....... 35
Administration Fees.................................. 36
Reduction or Elimination of Annual
Administration Fee................................. 36
Mortality and Expense Risk Charge ................... 37
Taxes ............................................... 37
FEDERAL TAX MATTERS ...................................... 37
INTRODUCTION .......................................... 37
<PAGE> 7
THE COMPANY'S TAX STATUS .............................. 38
TAXATION OF ANNUITIES IN GENERAL ...................... 38
Tax Deferral During Accumulation Period ............. 38
Taxation of Partial and Full Withdrawals ............ 39
Taxation of Annuity Payments ........................ 40
Taxation of Death Benefit Proceeds .................. 40
Penalty Tax on Premature Distributions .............. 40
Aggregation of Contracts ............................ 40
QUALIFIED RETIREMENT PLANS............................. 40
Qualified Plan Types ................................ 41
Direct Rollovers .................................... 43
FEDERAL INCOME TAX WITHHOLDING......................... 43
GENERAL MATTERS........................................... 44
Tax Deferral......................................... 44
Performance Data..................................... 44
Financial Statements................................. 44
Asset Allocation and Timing Services................. 44
Distribution of Contracts ........................... 44
Contract Owner Inquiries............................. 45
Confirmation Statements.............................. 45
Legal Proceedings ................................... 45
Other Information ................................... 45
Year 2000 Issues..................................... 45
STATEMENT OF ADDITIONAL INFORMATION-
TABLE OF CONTENTS...................................... 45
APPENDIX A: EXAMPLES OF CALCULATION OF
WITHDRAWAL CHARGE...................................... 46
APPENDIX B: STATE PREMIUM TAXES.......................... 48
APPENDIX C - PRIOR CONTRACTS (VEN 7)...................... 49
APPENDIX D - PRIOR CONTRACTS (VEN 3 AND VEN 1)............ 57
SPECIAL TERMS
<PAGE> 8
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 the variable portion of the contract before the maturity date.
Annuitant - Any natural person or persons whose life is used to
determine the duration of annuity payments involving life contingencies. If the
contract owner names more than one person as an "annuitant," the second person
named shall be referred to as "co-annuitant." The "annuitant" and "co-annuitant"
will be referred to collectively as "annuitant." The "annuitant" is as
designated on the contract specification page or in the application, unless
changed.
Annuity Option - The method selected by the contract 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.
Beneficiary - The person, persons or entity entitled to the death
benefit under the contract upon the death of a contract owner or, in certain
circumstances, an annuitant. The beneficiary is as specified in the application,
unless changed. If there is a surviving contract owner, that person will be
deemed the beneficiary.
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 Anniversary - The anniversary of the contract date.
Contract Date - The date of issue of the contract.
Contract Value - The total of the investment account values and, if
applicable, any amount in the loan account attributable to the contract.
Contract Year - The period of twelve consecutive months beginning on
the contract date or any anniversary thereof.
Debt - Any amounts in the loan account attributable to the contract
plus any accrued loan interest. The loan provision is applicable to certain
qualified contracts only.
Due Proof of Death - Due Proof of Death is required upon the death of
the contract 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 at 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.
Investment Account - An account established by the Company which
represents a contract owner's interest in an investment option prior to the
maturity date.
Investment Account Value - The value of a contract owner's investment
in an investment account.
Investment Options - The investment choices available to contract
owners. Currently, there are thirty-eight variable and five fixed investment
options under the contract.
4
<PAGE> 9
Loan Account - The portion of the general account that is used for
collateral when a loan is taken.
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 contract 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 C for
information on the Maturity Date for Ven 7 contracts and Appendix D for
information on the Maturity Date for Ven 3 and Ven 1 contracts.
Net Purchase Payment - The purchase payment less the amount of premium
tax.
Non-Qualified Contracts - Contracts which are not issued under
qualified plans.
Owner or Contract Owner - The person, persons (co-owner) or entity
entitled to all of the ownership rights under the contract. The owner has the
legal right to make all changes in contractual designations where specifically
permitted by the contract. The owner is as 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 a contract owner to the Company as
consideration for the benefits provided by the contract.
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.
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.
5
<PAGE> 10
SUMMARY
The Contract. The contract offered by this Prospectus is a flexible
purchase payment individual deferred combination fixed and variable annuity
contract. 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.
Retirement Plans. The contract may be issued pursuant to 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 contract value to exceed $1,000,000, or the
contract value already exceeds $1,000,000, additional purchase payments will be
accepted only with the prior approval of the Company. The Company may, at its
option, cancel a contract at the end of any two consecutive contract years in
which no purchase payments have been made, if both (i) the total purchase
payments made over the life of the contract, less any withdrawals, are less than
$2,000; and (ii) the contract value 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, 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 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 the 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
term of the guarantee period. The portion of the 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
the variable account investment options and from the variable account investment
options to the fixed account investment options without charge. In addition,
amounts may be transferred prior to the maturity date among the fixed account
investment options and from the fixed account investment options to the variable
account investment options, subject to a one year holding period requirement
(with certain exceptions) 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,
6
<PAGE> 11
after the transfer the amount remaining in the investment account of the
contract from which the transfer is made is less than $100, then the Company
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
the contract owner, the owner may withdraw all or a portion of the 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 contract value
to less than $300, the withdrawal request will be treated as a request to
withdraw the 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 to owners of contracts
issued in connection with Section 403(b) qualified plans that are not subject to
Title I of ERISA. Owners of such contracts may obtain loans using the contract
as the only security for the loan. The effective cost of a contract 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 contract owner
dies before the maturity date. If there is a surviving contract owner, that
contract owner will be deemed to be the beneficiary. No death benefit is payable
on the death of any annuitant, except that if any contract 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.
CONTRACTS ISSUED PRIOR TO MAY 1, 1998. If any contract 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 contract date, the death benefit will be determined as
follows: During the first contract 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. During any
subsequent contract 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 contract
year, plus any purchase payments made and less any amounts deducted in
connection with partial withdrawals since then.
If any contract owner dies after his or her 85th birthday and the
oldest owner had an attained age of less than 81 years on the contract 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 over (ii) the sum of any amounts
deducted in connection with partial withdrawals. If any contract owner dies and
the oldest owner had an attained age greater than 80 on the contract date, the
death benefit will be the contract value less any applicable withdrawal charges
at the time of payment of benefits. For contracts issued on or after October 1,
1997, any withdrawal charges applied against the death benefit shall be waived
by the Company.
CONTRACTS ISSUED ON OR AFTER MAY 1, 1998. If any contract owner dies
and the oldest owner had an attained age of less than 81 years on the contract
date, the death benefit will be determined as follows: During the first contract
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. During any subsequent contract 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 contract year, plus any purchase payments made and less
any amounts deducted in connection with partial withdrawals since then. If any
contract 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 contract year ending just prior to the owner's 81st birthday, plus any
payments made, less amounts deducted in connection with partial withdrawals.
If any contract owner dies and the oldest owner had an attained age of
81 years or greater on the contract 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 over (ii) the sum of any amounts deducted in connection with partial
withdrawals.
7
<PAGE> 12
In Connecticut, Washington D.C., Florida, Maryland, Massachusetts,
Minnesota, Montana, Oregon and Puerto Rico, the death benefit described under
"Contracts Issued Prior to May 1, 1998" will continue to apply to contracts
issued on or after May 1, 1998.
If there is any debt under the contract, the death benefit equals the
death benefit, as described above, less such debt (see "DEATH BENEFIT BEFORE
MATURITY DATE"). If the annuitant dies after the maturity date and annuity
payments have been selected based on an annuity option providing for payments
for a guaranteed period, the Company will make the remaining guaranteed payments
to the beneficiary (see "DEATH BENEFIT ON OR AFTER MATURITY DATE"). For
information on the death benefit applicable to Ven 7 contracts see Appendix C
and to Ven 1 and Ven 3 contracts see Appendix D.
Annuity Payments. The Company offers a variety of fixed and variable
annuity options. Periodic annuity payments will begin on the maturity date. The
contract 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 contract,
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 contracts issued on or after May 1, 1998. The Income Benefit is
not available in all states and is not available for Ven 7, Ven 3 or Ven 1
contracts (see "GUARANTEED RETIREMENT INCOME PROGRAM").
Ten Day Review. Within 10 days of receipt of a contract, the contract
owner may cancel the contract by returning it to the Company (see "TEN DAY RIGHT
TO REVIEW").
Charges and Deductions. The following table and Example are designed to
assist contract owners in understanding the various costs and expenses that
contract owners bear 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
contracts. The items listed under "Contract Owner 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.
CONTRACT OWNER TRANSACTION EXPENSES
See Appendix C for additional information regarding contract owner transaction
expenses for Ven 7 contracts. See Appendix D for information regarding contract
owner transaction expenses for Ven 3 and Ven 1 contracts.
Deferred sales load (as percentage of purchase payments)
NUMBER OF COMPLETE YEARS WITHDRAWAL CHARGE
PURCHASE PAYMENT IN PERCENTAGE
CONTRACT
- ------------------------------------------------------------------
0 6%
1 6%
2 5%
3 5%
4 4%
5 3%
6 2%
7+ 0%
8
<PAGE> 13
ANNUAL CONTRACT 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%
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%
</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 investment accounts is
greater than or equal to $100,000.
(2)If the Guaranteed Retirement Income Program is elected, this fee is deducted
on each contract anniversary. The Guaranteed Retirement Income Program is not
available for Ven 7, Ven 3 or Ven 1 contracts (see "GUARANTEED RETIREMENT INCOME
PROGRAM").
9
<PAGE> 14
<TABLE>
<S> <C> <C> <C>
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 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. 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
(AFTER EXPENSE EXPENSES (AFTER
MANAGEMENT REIMBURSEMENT EXPENSE
EXPENSES 12b-1 FEES AND WAIVER) REIMBURSEMENT
AND 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 contract owner surrendered the
contract at the end of the applicable time period:
10
<PAGE> 15
<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
</TABLE>
11
<PAGE> 16
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS+ 5 YEARS* 10 YEARS*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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................. 82 130
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
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 Ven 7 contracts only (as described in Appendix C). The difference in
amounts is attributable to the different withdrawal charges. See Appendix C.
*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
</TABLE>
12
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C>
Worldwide Growth.................... 28 86 147 311
</TABLE>
13
<PAGE> 18
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS* 10 YEARS*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Equity....................... 25 77 132 281
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
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 Contract Fee" to a 0.063% annual asset charge based on the $47,500
approximate average size of contracts of this series. So translated, such charge
would be higher for smaller contracts and lower for larger contracts.
* * * * * * * *
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
14
<PAGE> 19
which reference should be made. This Prospectus generally describes only the
variable aspects of the contract, except where fixed aspects are specifically
mentioned.
TABLE OF ACCUMULATION UNIT VALUES[Dagger]
<TABLE>
<CAPTION>
UNIT VALUE UNIT VALUE NUMBER OF UNITS
SUB-ACCOUNT AT START OF YEAR* AT END OF YEAR AT END OF YEAR
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets
1997.............................. $12.500000 $ 8.180904 461,452.138
Science & Technology
1997.............................. $12.500000 $13.647195 1,643,020.899
International Small Cap
1996.............................. $12.500000 $13.493094 2,508,877.311
1997.............................. 13.493094 13.410016 3,471,789.485
Emerging Growth
1997.............................. $12.500000 $14.574077 1,261,104.634
Pilgrim Baxter Growth
1997.............................. $12.500000 $12.327066 1,855,271.120
Small/Mid Cap
1996.............................. $12.500000 $13.215952 4,970,485.965
1997.............................. 13.215952 15.020670 7,199,403.308
International Stock
1997.............................. $12.500000 $12.652231 1,311,720.798
Worldwide Growth
1997.............................. $12.500000 $13.965674 669,088.538
Global Equity
1994.............................. $16.715126 $15.500933 951,915.210
1995.............................. 15.500933 16.459655 3,472,776.106
1996.............................. 16.459655 18.276450 6,625,243.867
1997.............................. 18.276450 21.770913 8,196,104.137
Small Company Value
1997.............................. $12.500000 $11.898363 620,681.436
Equity
1994.............................. $14.381312 $14.786831 891,587.416
1995.............................. 14.786831 20.821819 5,881,806.714
1996.............................. 20.821819 24.664354 12,141,813.159
1997.............................. 24.664354 29.002593 13,343,419.201
Growth
1996.............................. $12.500000 $13.727312 1,629,270.725
1997.............................. 13.727312 16.968111 3,610,591.057
Quantitative Equity
1997.............................. $12.500000 $16.107191 634,340.601
Blue Chip Growth
1994.............................. $ 8.699511 $ 8.837480 427,027.154
1995.............................. 8.837480 11.026969 3,534,123.332
1996.............................. 11.026969 13.688523 7,508,607.872
1997.............................. 13.688523 17.134232 11,974,571.122
Real Estate Securities
1997.............................. $12.500000 $14.949140 961,596.983
Value
1997.............................. $12.500000 $15.057118 2,974,221.078
International Growth and Income
1995.............................. $10.000000 $10.554228 2,338,302.067
1996.............................. 10.554228 11.718276 6,224,551.234
1997.............................. 11.718276 11.545714 7,490,974.192
Growth and Income
1994.............................. $13.239339 $13.076664 675,761.489
</TABLE>
15
<PAGE> 20
<TABLE>
<S> <C> <C> <C>
1995.............................. 13.076664 16.660889 4,936,977.686
1996.............................. 16.660889 20.178770 11,948,147.164
1997.............................. 20.178770 26.431239 17,029,624.733
</TABLE>
<TABLE>
<CAPTION>
UNIT VALUE UNIT VALUE NUMBER OF UNITS
SUB-ACCOUNT AT START OF YEAR* AT END OF YEAR AT END OF YEAR
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity-Income
1994.............................. $11.375744 $11.107620 747,374.695
1995.............................. 11.107620 13.548849 4,453,647.654
1996.............................. 13.548849 16.011513 12,141,813.159
1997.............................. 16.011513 20.479412 13,420,571.870
Balanced
1997.............................. $12.500000 $14.609853 761,001.508
Aggressive Asset Allocation
1994.............................. $12.538660 $12.381395 202,014.859
1995.............................. 12.381395 14.990551 963,754.656
1996.............................. 14.990551 16.701647 1,725,531.634
1997.............................. 16.701647 19.614359 1,842,826.443
High Yield
1997.............................. $12.500000 $13.890491 1,854,776.096
Moderate Asset Allocation
1994.............................. $12.522239 $12.396295 462,460.272
1995.............................. 12.396295 14.752561 2,139,216.556
1996.............................. 14.752561 15.995076 3,599,312.544
1997.............................. 15.995076 18.276161 3,631,403.547
Conservative Asset Allocation
1994.............................. $12.478545 $12.298940 128,525.165
1995.............................. 12.298940 14.320582 716,489.411
1996.............................. 14.320582 15.113142 1,281,095.343
1997.............................. 15.113142 16.607511 1,606,748.573
Strategic Bond
1994.............................. $10.192707 $ 9.965972 191,924.981
1995.............................. 9.965972 11.716972 1,392,653.448
1996.............................. 11.716972 13.250563 4,418,383.860
1997.............................. 13.250563 14.500997 6,763,049.841
Global Government Bond
1994.............................. $14.734788 $14.630721 194,131.021
1995.............................. 14.630721 17.772344 952,156.169
1996.............................. 17.772344 19.803954 1,613,888.548
1997.............................. 19.803954 20.104158 1,767,579.789
Capital Growth Bond
1997.............................. $12.500000 $13.475788 115,764.156
Investment Quality Bond
1994.............................. $14.307698 $14.216516 128,932.292
1995.............................. 14.216516 16.751499 889,906.187
1996.............................. 16.751499 16.943257 1,828,328.994
1997.............................. 16.943257 18.336912 2,353,565.854
U.S. Government Securities
1994.............................. $14.188969 $14.111357 231,053.897
1995.............................. 14.111357 16.083213 1,744,509.872
1996.............................. 16.083213 16.393307 2,512,596.677
1997.............................. 16.393307 17.535478 2,636,669.504
Money Market
1994.............................. $13.453100 $13.623292 870,982.381
1995.............................. 13.623292 14.190910 3,204,791.061
1996.............................. 14.190910 14.699636 5,629,209.351
1997.............................. 14.699636 15.241915 8,474,412.668
Lifestyle Aggressive 1000
</TABLE>
16
<PAGE> 21
<TABLE>
<S> <C> <C> <C>
1997.............................. $12.500000 $13.669625 1,463,426.964
Lifestyle Growth 820
1997.............................. $12.500000 $14.033299 6,430,704.073
</TABLE>
<TABLE>
<CAPTION>
UNIT VALUE UNIT VALUE NUMBER OF UNITS
SUB-ACCOUNT AT START OF YEAR* AT END OF YEAR AT END OF YEAR
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lifestyle Balanced 640
1997.............................. $12.500000 $14.066417 5,943,640.615
Lifestyle Moderate 460
1997.............................. $12.500000 $14.016704 1,534,133.462
Lifestyle Conservative 280
1997.............................. $12.500000 $13.825120 600,120.072
Merrill Lynch Special Value Focus
1997.............................. $12.500000 $27.655848 3,107.949
Merrill Lynch Basic Value Focus
1997.............................. $12.500000 $15.792005 14,893.523
Merrill Lynch Developing Capital Markets Focus
1997.............................. $12.500000 $ 9.191866 2,694.632
</TABLE>
[Dagger]For the TABLE OF ACCUMULATION UNIT VALUES for Ven 7 contracts see
Appendix C and for Ven 3 and Ven 1 contracts see Appendix D.
* 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.
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 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
17
<PAGE> 22
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 the prior approval of the appropriate state or Federal
regulatory authorities. See Appendix D for information on sub-accounts available
to Ven 1 contracts.
MANUFACTURERS INVESTMENT TRUST
The assets of each sub-account of the Variable Account are invested in
shares of a corresponding portfolio of the 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 advisory
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:
<TABLE>
<CAPTION>
SUBADVISER SUBADVISER TO
---------- -------------
<S> <C>
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
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
</TABLE>
18
<PAGE> 23
<TABLE>
<S> <C>
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
<CAPTION>
SUBADVISER SUBADVISER TO
<S> <C>
Warburg Pincus Asset Management, Inc. Emerging Growth Trust
Wellington Management Company, LLP Growth and Income Trust
Investment Quality Bond Trust
</TABLE>
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 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.
19
<PAGE> 24
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 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.
20
<PAGE> 25
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.
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
21
<PAGE> 26
portfolio shares for which voting instructions may be given will be determined
by the Company in the manner described below, not more than 90 days prior to the
meeting of the Trust. Trust proxy material will be distributed to each person
having the voting interest under the contract together with appropriate forms
for giving voting instructions. Portfolio shares held in the Variable Account
that are attributable to contract owners and as to which no timely instructions
are received and portfolio shares held in the Variable Account that are
beneficially owned by the Company will be voted by the Company in proportion to
the instructions received.
Prior to the maturity date, the person having the voting interest under
a contract is the contract owner and the number of votes as to each portfolio
for which voting instructions may be given is determined by dividing the value
of the investment account corresponding to the sub-account in which such
portfolio shares are held by the net asset value per share of that portfolio.
After the maturity date, the person having the voting interest under a contract
is the annuitant and the number of votes as to each portfolio for which voting
instructions may be given is determined by dividing the reserve for the contract
allocated to the sub-account in which such portfolio shares are held by the net
asset value per share of that portfolio. Generally, the number of votes tends to
decrease as annuity payments progress since the amount of reserves attributable
to a contract will usually decrease after commencement of annuity payments. The
Company reserves the right to make any changes in the voting rights described
above that may be permitted by the Federal securities laws or regulations or
interpretations of these laws or regulations.
A full description of the Trust, including the investment objectives,
policies and restrictions of each of the portfolios is contained in the
prospectus for the Trust which accompanies this Prospectus and should be read by
a prospective purchaser before investing.
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.
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
22
<PAGE> 27
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 for purchase payments to be automatically withdrawn from a
contract owner's bank account on a periodic basis. If a purchase payment would
cause the contract value to exceed $1,000,000 or the contract value already
exceeds $1,000,000, additional purchase payments will be accepted only with the
prior approval of the Company.
The Company may, at its option, cancel a contract at the end of any two
consecutive contract years in which no purchase payments have been made, if both
(i) the total purchase payments made over the life of the contract, less any
withdrawals, are less than $2,000; and (ii) the contract value 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 contract owner the 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 contract owner. In addition,
contract owners have the option to participate in the Guarantee Plus Program
administered by the Company. Under the Guarantee Plus Program the initial
purchase payment is split between the fixed and variable investment options. A
percentage of the initial purchase payment is allocated to the chosen fixed
account, such that, at the end of the guaranteed period the fixed account will
have grown to an amount at least equal to the total initial purchase payment.
The percentage depends upon the current interest rate of the fixed investment
option. The balance of the initial purchase payment is allocated among the
variable investment options as indicated on the contract specifications page.
Contract 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. The contract 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.
See Appendix D for information on purchase payments applicable to Ven 3
and Ven 1 contracts.
ACCUMULATION UNITS
The Company will establish an investment account for the contract owner
for each variable account investment option to which such contract 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, pursuant to the procedures
described below.
Initial purchase payments 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 contract. The applicant will be
informed of any deficiencies preventing processing if the contract cannot be
issued and the purchase payment credited within two business days after receipt.
If the deficiencies are not remedied within five business days after receipt,
the purchase payment will be returned promptly to the applicant, unless the
applicant specifically consents to the Company's retaining the purchase payment
until all necessary information is received. Initial purchase payments received
by wire transfer from broker-dealers will be credited in the valuation period
during which received where such broker-dealers have made special arrangements
with the Company.
23
<PAGE> 28
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 either $10.00 or $12.50 for the first
valuation period under contracts similar to the contracts described in this
Prospectus. The value of an accumulation unit for any subsequent valuation
period is determined by multiplying the value of an accumulation unit for the
immediately preceding valuation period by the net investment factor for such
sub-account (described below) for the valuation period for which the value is
being determined.
NET INVESTMENT FACTOR
The net investment factor is an index used to measure the investment
performance of a sub-account from one valuation period to the next. The net
investment factor for each sub-account for any valuation period is determined by
dividing (a) by (b) and subtracting (c) from the result:
Where (a) is:
(1) the net asset value per share of a portfolio share held in
the sub-account determined at the end of the current valuation period,
plus
(2) the per share amount of any dividend or capital gain
distributions made by the portfolio on shares held in the sub-account
if the "ex-dividend" date occurs during the current valuation period.
Where (b) is:
the net asset value per share of a portfolio share held in the
sub-account determined as of the end of the immediately preceding
valuation period.
Where (c) is:
a factor representing the charges deducted from the
sub-account on a daily basis for administrative expenses and mortality
and expense risks. Such factor is equal on an annual basis to 1.40%
(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 the contract owner may transfer amounts among
the variable account investment options and from such investment options to the
fixed account investment options at any time and without charge upon written
notice to the Company or by telephone if the contract owner authorizes the
Company in writing to accept telephone transfer requests. Accumulation units
will be canceled from the investment account from which amounts are transferred
and credited to the investment account to which amounts are transferred. The
Company will effect such transfers so that the contract value on the date of the
transfer will not be affected by the transfer. The contract 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 a contract owner may make to one per month or six at any time
within a contract year. In addition, the Company reserves the right to defer the
transfer privilege at any time that the Company is unable to purchase or redeem
shares of the Trust portfolios. The Company also reserves the right to modify or
terminate the transfer privilege at any time in accordance with applicable law.
See Appendix D for information on Transfer Among Investment Options applicable
to Ven 1 and Ven 3 contracts.
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 purchase payments
at any time
24
<PAGE> 29
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
Contract 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, a contract owner must
elect the option on the Application. (If a contract owner does not initially
elect an option in the Application form, he or she may request authorization by
executing an appropriate authorization form provided by the Company upon
request.) 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, contract owners will be asked to provide their account
number, and if not available, their social security number. For the contract
owner's and Company's protection, all conversations with contract owners will be
tape recorded. All telephone transactions will be followed by a confirmation
statement of the transaction.
SPECIAL TRANSFER SERVICES - DOLLAR COST AVERAGING
The Company administers a Dollar Cost Averaging ("DCA") program which
enables a contract owner to pre-authorize a periodic exercise of the contractual
transfer rights described above. Contract 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 contract
owners making a substantial deposit to the contract 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. Contract owners interested in the DCA program may elect to
participate in the program on the contract application or by separate
application. Contract owners may obtain a separate application and full
information concerning the program and its restrictions from their securities
dealer or the Annuity Service Office. See Appendix D for information on the DCA
program applicable to Ven 1 and Ven 3 contracts. There is no charge for
participation in the DCA program.
ASSET REBALANCING PROGRAM
The Company administers an Asset Rebalancing Program which enables a
contract owner to indicate to the Company the percentage levels he or she would
like to maintain in particular portfolios. The contract owner's contract value
will be automatically rebalanced pursuant to the schedule described below to
maintain the indicated percentages by transfers among the portfolios. (Fixed
Account Investment Options are not eligible for participation in the Asset
Rebalancing Program.) The entire value of the variable investment accounts 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, contract owners should monitor their
use of these other programs and any other transfers or withdrawals while the
Asset Rebalancing Program is being used. Contract 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
25
<PAGE> 30
Prior to the earlier of the maturity date or the death of the contract
owner, the owner may withdraw all or a portion of the 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 contract 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 contract 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 contract 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 contract owner's investments in variable account
investment options.
For the rules governing the order and manner of withdrawals from the
fixed account investment options, see "FIXED ACCOUNT INVESTMENT OPTIONS."
There is no limit on the frequency of partial withdrawals; however, the
amount withdrawn must be at least $300 or, if less, the entire balance in the
investment option. If after the withdrawal (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 issued in connection with
Section 403(b) qualified plans only under limited circumstances (see "FEDERAL
TAX MATTERS").
TELEPHONE REDEMPTIONS. The contract owner may request the option to
withdraw a portion of the contract value by telephone by completing the
application described under "Telephone Transactions" above. 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 - THE INCOME PLAN
The Company administers an Income Plan ("IP") which enables a contract
owner to pre-authorize a periodic exercise of the contractual withdrawal rights
described above. Contract owners entering into an IP agreement instruct the
Company to withdraw a level dollar amount from specified investment options on a
periodic basis. The total of IP withdrawals in a contract year is limited to not
more than 10% of the purchase payments made to ensure that no withdrawal or
market value charge will ever apply to an IP withdrawal. If an additional
withdrawal is made from a contract participating in an IP, the IP will terminate
automatically and may be reinstated only on or after the next contract
anniversary pursuant to a new application. The IP is not available to contracts
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"). Contract owners interested in an IP may obtain a
26
<PAGE> 31
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 to owners of contracts issued
in connection with Section 403(b) qualified plans that are not subject to Title
I of ERISA. Owners of such contracts may obtain loans using the contract 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 the 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 plus
accrued interest. Loans will be made only upon written request from the owner.
The Company will make loans within seven days of receiving a properly completed
loan application (applications are available from the Annuity Service Office),
subject to postponement under the same circumstances that payment of withdrawals
may be postponed (see "WITHDRAWALS").
When an owner requests a loan, the Company will reduce the owner's
investment in the investment accounts and transfer the amount of the loan to the
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 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 loan account to the investment accounts. The owner
may designate the investment accounts to which a repayment is to be allocated.
Otherwise, the repayment will be allocated in the same manner as the owner's
most recent purchase payment. On each contract anniversary, the Company will
transfer from the investment accounts to the loan account the amount by which
the debt on the contract exceeds the balance in the 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 debt and bears interest at 6% as well.
The Company credits interest with respect to amounts held in the loan account at
a rate of 4% per year. Consequently, the net cost of loans under the contract is
2%. If on any date debt under a contract exceeds the contract value, the
contract will be in default. In such case the owner will receive a notice
indicating the payment needed to bring the contract out of 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 (terminated without value).
The amount of any debt will be deducted from the death benefit
otherwise payable under the contract (see "DEATH BENEFIT BEFORE MATURITY DATE").
In addition, debt, whether or not repaid, will have a permanent effect on the
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 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.
See Appendix D for information on Loans applicable to Ven 1 and Ven 3
contracts.
DEATH BENEFIT BEFORE MATURITY DATE
For information on the death benefit applicable to Ven 7 contracts see Appendix
C and to Ven 1 and Ven 3 contracts see Appendix D.
In General. The following discussion applies principally to contracts
that are not issued in connection with qualified plans, i.e., a "non-qualified
contract." 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 the contract to be used in
connection with a qualified plan should seek competent legal and tax advice
regarding the suitability of the contract for the situation involved and the
requirements governing the distribution of benefits, including death benefits,
from a contract used in the plan. In particular, a prospective purchaser who
intends to use the contract 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
27
<PAGE> 32
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")
Amount of Death Benefit.
CONTRACTS ISSUED PRIOR TO MAY 1, 1998. If any contract 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 contract date, the death benefit will be determined as
follows: During the first contract 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. During any
subsequent contract 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 contract
year, plus any purchase payments made and less any amounts deducted in
connection with partial withdrawals since then.
If any contract owner dies after his or her 85th birthday and the
oldest owner had an attained age of less than 81 years on the contract 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 over (ii) the sum of any amounts
deducted in connection with partial withdrawals. If any contract owner dies and
the oldest owner had an attained age greater than 80 on the contract date, the
death benefit will be the contract value less any applicable withdrawal charges
at the time of payment of benefits. For contracts issued on or after October 1,
1997, any withdrawal charges applied against the death benefit shall be waived
by the Company.
CONTRACTS ISSUED ON OR AFTER MAY 1, 1998. If any contract owner dies
and the oldest owner had an attained age of less than 81 years on the contract
date, the death benefit will be determined as follows: During the first contract
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. During any subsequent contract 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 contract year, plus any purchase payments made and less
any amounts deducted in connection with partial withdrawals since then. If any
contract 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 contract year ending just prior to the owner's 81st birthday, plus any
payments made, less amounts deducted in connection with partial withdrawals.
If any contract owner dies and the oldest owner had an attained age of
81 years or greater on the contract 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 over (ii) the sum of any amounts deducted in connection with partial
withdrawals.
In Connecticut, Washington D.C., Florida, Maryland, Massachusetts,
Minnesota, Montana, Oregon and Puerto Rico, the death benefit described under
"Contracts Issued Prior to May 1, 1998" will continue to apply to contracts
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 to the contract in
payment of the annual administration fee. If there is 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 contract
owner dies before the maturity date. If there is a surviving contract owner,
that contract owner will be deemed to be the beneficiary. No death benefit is
payable on the death of any annuitant, except that if any contract 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 contract owner, if a
natural person, will become the annuitant unless the contract 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 contract will continue subject to the following:
(1) The beneficiary will become the contract 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 due proof of the owner's death. (3) No
additional purchase payments may be made. (4) If the beneficiary is not the
deceased's owner spouse, distribution of the contract owner's entire interest in
the contract 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 spouse continues the
28
<PAGE> 33
contract as the new owner. In such a case, the distribution rules described in
"(4)" applicable when a contract 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 contract. In addition, the death benefit on the
last day of the previous contract year (or the last day of the contract 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 contract owner dies
and the oldest owner had an attained age of less than 81 on the contract 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 contract owner dies and the oldest owner had an attained age greater than
80 on the contract 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 contracts issued after October 1, 1997, any withdrawal charge
applied against the death benefit shall be waived.
If any annuitant is changed and any contract owner is not a natural
person, the entire interest in the contract must be distributed to the contract
owner within five years. That amount distributed will be reduced by charges
which would otherwise apply upon withdrawal.
A substitution or addition of any contract 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. 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
The proceeds of the contract payable on death, withdrawal or the
contract maturity date may be applied to the annuity options described below,
subject to the distribution of death benefit provisions (see "DEATH BENEFIT
BEFORE MATURITY DATE").
Generally, annuity benefits under the contract will begin on the
maturity date. The maturity date is the date specified on the contract
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. The contract 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.
The contract owner may select the frequency of annuity payments.
However, if the 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. Upon purchase of
the contract, and on or before the maturity date, the contract 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, such
payments to be made for a period certain of 10 years and continuing thereafter
during the lifetime of the annuitant. 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:
29
<PAGE> 34
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.
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. (The
amount of the first and all subsequent fixed annuity payments is determined on
the same basis using the portion of the contract value used to purchase a fixed
annuity.) 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. For information on
annuity rates for Ven 7 contracts see Appendix C and for Ven 1 and Ven 3
contracts see Appendix D.
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. 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 to effect the annuity 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 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.
30
<PAGE> 35
The value of an annuity unit for each sub-account for any valuation
period is determined by multiplying the annuity unit value for the immediately
preceding valuation period by the net investment factor for that sub-account
(see "NET INVESTMENT FACTOR") for the valuation period for which the annuity
unit value is being calculated and by a factor to neutralize the assumed
interest rate.
A 3% assumed interest rate is built into the annuity tables in the
contract used to determine the first variable annuity payment. A higher
assumption would mean a larger first annuity payment, but more slowly rising
subsequent payments when actual investment performance exceeds the assumed rate,
and more rapidly falling subsequent payments when actual investment performance
is less than the assumed rate. A lower assumption would have the opposite
effect. If the actual net investment performance is 3% annually, annuity
payments will be level.
TRANSFERS AFTER MATURITY DATE
Once variable annuity payments have begun, the contract 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 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. The Company reserves the right to limit, upon
notice, the maximum number of transfers a contract owner may make per contract
year to four. 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. 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
The contract owner may cancel the contract by returning it to the
Company's Annuity Service Office or agent at any time within 10 days after
receipt of the contract. Within 7 days of receipt of the contract by the
Company, the Company will pay the contract value, less any debt, computed at the
end of the valuation period during which the contract is received by the
Company, to the contract owner.
No withdrawal charge is imposed upon return of the contract within the
ten day right to review period. The ten day right to review may vary in certain
states in order to comply with the requirements of insurance laws and
regulations in such states. When the contract 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 owner is the person entitled to exercise all rights under
the contract. Prior to the maturity date, the contract owner is the person
designated in the contract specifications page or as subsequently named. On and
after the maturity date, the annuitant is the contract owner. If amounts become
payable to any beneficiary under the contract, the beneficiary is the contract
owner.
In the case of non-qualified contracts, ownership of the contract may
be changed or the contract may be collaterally assigned at any time prior to the
maturity date, subject to the rights of any irrevocable beneficiary. Assigning a
contract, or changing the ownership of a contract, may be treated as a
distribution of the contract value for Federal tax purposes (see "FEDERAL TAX
MATTERS"). A change of any contract owner may result in resetting the death
benefit to an amount equal to the contract value as
31
<PAGE> 36
of the date of the change and treating such value as a purchase payment made on
that date for purposes of computing the amount of the death benefit (see "DEATH
BENEFIT BEFORE MATURITY DATE").
Any change of ownership or assignment must be made in writing. Any
change must be approved by the Company. Any assignment and any change, if
approved, will be effective as of the date the Company receives the request at
its Annuity Service Office. The Company assumes no liability for any payments
made or actions taken before a change is approved or an assignment is accepted
or responsibility for the validity or sufficiency of any assignment. An absolute
assignment will revoke the interest of any revocable beneficiary.
In the case of qualified contracts, ownership of the contract generally
may not be transferred except by 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, a qualified contract may not be sold, assigned,
transferred, discounted or pledged as collateral for a loan or as security for
the performance of an obligation or for any other purpose to any person other
than the Company.
BENEFICIARY
The beneficiary is the person, persons or entity designated in the
contract specifications page or as subsequently named. However, if there is a
surviving contract 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 contract owner. In the case of certain qualified contracts,
regulations promulgated by the Treasury Department prescribe certain limitations
on the designation of a beneficiary. For information regarding the beneficiary
for Ven 7 contracts see Appendix C and for Ven 3 and Ven 1 see Appendix D.
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
contract owner names more than one person as an "annuitant," the second person
named shall be referred to as "co-annuitant." The annuitant is as designated on
the contract 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 may not be modified by the Company without the consent of
the contract owner, except as may be required to make it conform to any law or
regulation or ruling issued by a governmental agency. The provisions of the
contract shall be interpreted so as to comply with the requirements of Section
72(s) of the Code.
COMPANY APPROVAL
The Company reserves the right to accept or reject any contract
application at its sole discretion.
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
For information on Fixed Account Investment Options for Ven 7 contracts see
Appendix C and for Ven 3 and Ven 1 contracts see Appendix D.
32
<PAGE> 37
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 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. Notwithstanding the foregoing, with respect to contracts issued in
the State of Oregon, no purchase payments may be invested, transferred or
reinvested into any fixed account investment option with a guarantee period of
more than one year within 15 years of the maturity date, and no purchase
payments may be invested in the one year fixed account investment option within
six years of the maturity date.
Investment Accounts. Contract owners may allocate purchase payments, or
make transfers from the variable investment options, to the fixed account
investment options at any time prior to the maturity date. The Company
establishes a separate investment account each time the contract 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, the contract owner may
establish a new investment account with the same guarantee period at the then
current interest rate, select a different fixed account investment option or
transfer the amounts to a variable account investment option, all without the
imposition of any charge. The contract 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 the contract 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.
33
<PAGE> 38
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 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
contract owner; (b) amounts withdrawn to pay fees or charges; (c) amounts
applied at the maturity date to purchase an annuity at the guaranteed rates
provided in the contract; (d) amounts withdrawn from investment accounts within
one month prior to the end of the guarantee period; (e) amounts withdrawn from a
one-year fixed investment account; and (f) amounts withdrawn in any contract
year that do not exceed 10% of total purchase payments less any prior partial
withdrawals in that 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
could, however, result in a contract owner receiving total withdrawal proceeds
of less than the contract owner's investment in the contract.
Transfers. Prior to the maturity date, the contract owner may transfer
amounts among the fixed account investment options and from the fixed account
investment options to the 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.
The contract 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. The contract owner may make total and partial withdrawals
of amounts held in fixed account investment options at any time prior to his or
her death. 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 (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
34
<PAGE> 39
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 a contract owner requests a partial withdrawal from a contract in
excess of the 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 the 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. Withdrawals are permitted from contracts 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 to owners of contracts
issued in connection with Section 403(b) qualified plans that are not subject to
Title I of ERISA. Owners of such contracts may obtain loans using the contract
as the only security for the loan. Owners of such contracts may borrow amounts
allocated to fixed investment accounts in the same manner and subject to the
same limitations as set forth under "LOANS". The market value charge described
above may apply to amounts transferred from the fixed investment accounts to the
loan account in connection with such loans and, if applicable, will be deducted
from the amount so transferred.
Fixed Annuity Options. Subject to the distribution of death benefits
provisions (see "DEATH BENEFIT BEFORE MATURITY DATE"), on death, withdrawal or
the maturity date of the contract, 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
contract 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 contract, 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 contracts issued on or
after May 1, 1998. The Income Benefit is not available in all states and is not
available for Ven 7, Ven 3 or Ven 1 contracts.
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 contract, 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 contract 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.
35
<PAGE> 40
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
contract 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 contract
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 contract
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 contract anniversary
following the Step-Up Date.
2. The Income Benefit must be exercised by the later of (i) the
contract anniversary immediately prior to the annuitant's 85th birthday or (ii)
the tenth contract 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 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 contract 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
Contract Income Benefit-Annual Income Joint & Survivor Life
Anniversary Income Life Annuity with 10 Annuity with 20 Year Period
at 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 contract anniversary. The amount of the Rider Fee is
equal to .25% multiplied by the Income Base in effect on that contract
36
<PAGE> 41
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 contract 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 under the contracts 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
For information on Withdrawal Charges for Ven 7 contracts see Appendix C and for
Ven 3 and Ven 1 contracts see Appendix D.
If a withdrawal is made from the contract before the maturity date, a
withdrawal charge (contingent deferred sales charge) may be assessed against
amounts withdrawn attributable to purchase payments that have been in the
contract less than seven complete contract years. There is never a withdrawal
charge with respect to earnings accumulated in the contract, certain other free
withdrawal amounts described below or purchase payments that have been in the
contract more than seven complete contract years. In no event may the total
withdrawal charges exceed 6% of the amount invested. The amount of the
withdrawal charge and when it is assessed is discussed below:
1. Each withdrawal from the contract is allocated first to the "free
withdrawal amount" and second to "unliquidated purchase payments". In any
contract year, the free withdrawal amount for that year is the greater of (1)
the excess of the contract value on the date of withdrawal over the unliquidated
purchase payments (the accumulated earnings on the contract) or (2) the excess
of (i) over (ii), where (i) is 10% of total purchase payments and (ii) is all
prior partial withdrawals in that contract year. Withdrawals allocated to the
free withdrawal amount may be withdrawn without the imposition of a withdrawal
charge. The free withdrawal amount will be applied to a requested withdrawal,
first, to withdrawals from variable account investment options and then to
withdrawals from fixed account investment options beginning with those with the
shortest guarantee period first and the longest guarantee period last.
2. If a withdrawal is made 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.
NUMBER OF COMPLETE YEARS
PURCHASE PAYMENT IN WITHDRAWAL CHARGE
CONTRACT PERCENTAGE
-------------------------------------------------------
0 6%
1 6%
2 5%
37
<PAGE> 42
3 5%
4 4%
5 3%
6 2%
7+ 0%
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 contract value remaining
after the contract 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.
5. There is generally no withdrawal charge on distributions made as a
result of the death of the contract owner or, if applicable, the annuitant, (see
"DEATH BENEFIT BEFORE MATURITY DATE - Amount of Death Benefit"), and no
withdrawal charges are imposed on the maturity date if the contract 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.
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").
REDUCTION OR ELIMINATION OF WITHDRAWAL CHARGE
The amount of the withdrawal charge on a contract may be reduced or
eliminated when sales of the contracts are made to individuals or 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:
1. The size and type of group to which 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 contracts
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. Per contract sales expenses are likely to be less when there is a
prior or existing relationship because of the likelihood of implementing the
contract with fewer sales contacts.
4. The level of commissions paid to selling broker-dealers will be
considered. Certain broker-dealers may offer the contract 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 contracts, 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 contract 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
38
<PAGE> 43
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"). The waiver of the withdrawal charge
does not apply to Ven 3 and Ven 1 contracts.
ADMINISTRATION FEES
For information on the Administration Fee applicable to Ven 7 contracts see
Appendix C and to Ven 3 and Ven 1 contracts see Appendix D.
Except as noted below, the Company will deduct each year an annual
administration fee of $30 as partial compensation for the cost of providing all
administrative services attributable to the contracts and the operations of the
Variable Account and the Company in connection with the contracts. However, if
prior to the maturity date the contract value is equal to or greater than
$100,000 at the time of the fee's assessment, the fee will be waived. Prior to
the maturity date, this administration fee is deducted on the last day of each
contract year. It is withdrawn from each investment option in the same
proportion that the value of such investment option bears to the contract value.
If the entire contract is withdrawn on other than the last day of any contract
year, the $30 administration fee will be deducted from the amount paid. During
the annuity period, the fee is deducted on a pro-rata basis from each annuity
payment.
A daily charge in an amount equal to 0.15% of the value of each
variable investment account on an annual basis is also deducted from each
sub-account to reimburse the Company for administrative expenses. This asset
based administrative charge will not be deducted from the fixed account
investment options. The charge will be reflected in the contract value as a
proportionate reduction in the value of each variable investment account.
Because this portion of the administrative fee is a percentage of assets rather
than a flat amount, larger contracts will in effect pay a higher proportion of
this portion of the administrative expense than smaller contracts.
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.
REDUCTION OR ELIMINATION OF ANNUAL ADMINISTRATION FEE
The amount of the annual administration fee on a contract may be
reduced or eliminated when sales of the contracts are made to individuals or to
a group of individuals in such a manner that results in savings of
administration expenses. The entitlement to such a reduction or elimination of
the administration charges will be determined by the Company in the following
manner:
1. The size and type of group to which administrative services are to
be provided will be considered.
2. The total amount of purchase payments to be received will be
considered.
3. There may be other circumstances of which the Company is not
presently aware, which could result in reduced administrative expense.
If, after consideration of the foregoing factors, it is determined that
there will be a reduction or elimination of administration expenses, the Company
will provide a reduction in the annual administration fee. In no event will
reduction or elimination of the administration fees be permitted where such
reduction or elimination will be unfairly discriminatory to any person. The
Company may waive all or a portion of the administration fee when a contract 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
For information on Mortality and Expense Risk Charges for Ven 1 contracts see
Appendix D.
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. This
39
<PAGE> 44
assures each annuitant that his longevity will not have an adverse effect on the
amount of annuity payments. Also, the Company guarantees that if the contract
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 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 the contract value as a proportionate reduction in the value of each variable
investment account. The rate of the mortality and expense risk charge cannot be
increased. 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. 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, contract values 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 contacts, or (iv) commencement or continuance of annuity
payments under the contracts. In addition, the Company will withhold taxes to
the extent required by applicable law.
Except for residents of those states which apply premium taxes upon
receipt of purchase payments, premium taxes will be deducted from the contract
value used to provide for fixed or variable annuity payments. For residents of
those states which apply premium taxes upon receipt of purchase payments,
premium taxes will be deducted upon payment of any withdrawal benefits, upon any
annuitization, or payment of death benefits. The amount deducted will depend on
the premium tax assessed in the applicable state. State premium taxes currently
range from 0% to 3.5% depending on the jurisdiction and the tax status of the
contract and are subject to change by the legislature or other authority (see
"APPENDIX B: STATE PREMIUM TAXES").
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the Federal income tax treatment of the
contract is not exhaustive, does not purport to cover all situations, and is not
intended as tax advice. 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").
The waiver of the withdrawal charge does not apply to Ven 3 and Ven 1 contracts.
This discussion does not address state or local tax consequences
associated with the purchase of a contract. In addition, THE COMPANY MAKES NO
GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE, OR LOCAL -- OF ANY
CONTRACT OR OF ANY TRANSACTION INVOLVING A CONTRACT.
THE COMPANY'S TAX STATUS
40
<PAGE> 45
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 the contract value is generally not taxable to the contract owner or
annuitant until received, either in the form of annuity payments, as
contemplated by the contract, or in some other form of distribution. However,
certain requirements must be satisfied in order for this general rule to apply,
including: (1) the contract must be owned by an individual (or treated as owned
by an individual), (2) the investments of the Variable Account must be
"adequately diversified" in accordance with Treasury Department regulations, (3)
the Company, rather than the owner, must be considered the owner of the assets
of the Variable Account for Federal tax purposes, and (4) the contract must
provide for appropriate amortization, through annuity payments, of the
contract's purchase payments and earnings, e.g., the maturity date must not
occur at too advanced an age.
Non-Natural Owners. As a general rule, deferred annuity contracts held
by "non-natural persons" such as a corporation, trust or other similar entity,
as opposed to a natural person, are not treated as annuity contracts for Federal
income tax purposes. The investment income on such contracts is taxed as
ordinary income that is received or accrued by the owner of the contract during
the taxable year. There are several exceptions to this general rule for
non-natural contract 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. 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 contract
owners will apply with respect to (1) contracts acquired by an estate of a
decedent by reason of the death of the decedent, (2) certain qualified
contracts, (3) certain contracts purchased by employers upon the termination of
certain qualified plans, (4) certain contracts used in connection with
structured settlement agreements, and (5) contracts 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 Contracts are Held by or for the
Benefit of Certain Non-Natural Persons. In the case of contracts issued after
June 8, 1997 to a non-natural taxpayer (such as a corporation or a trust), or
held for the benefit of such an entity, recent changes in the tax law may result
in otherwise deductible interest no longer being deductible by the entity,
regardless of whether the interest relates to debt used to purchase or carry the
contract. However, this interest deduction disallowance does not affect
contracts where the income on such contracts is treated as ordinary income that
is received or accrued by the owner during the taxable year. Entities that are
considering purchasing the contract, or entities that will be beneficiaries
under a contract, should consult a tax advisor.
Diversification Requirements. For a contract to be treated as an
annuity for Federal income tax purposes, the investments of the Variable Account
must be "adequately diversified" in accordance with Treasury Department
Regulations. The Secretary of the Treasury has issued regulations which
prescribe standards for determining whether the investments of the Variable
Account are "adequately diversified." If the Variable Account failed to comply
with these diversification standards, a contract would not be treated as an
annuity contract for Federal income tax purposes and the contract owner would
generally be taxable currently on the excess of the contract value over the
premiums paid for the contract.
Although the Company does not control the investments of the Trust, it
expects that the Trust will comply with such regulations so that the Variable
Account will be considered "adequately diversified."
Ownership Treatment. In certain circumstances, a variable annuity
contract 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 contract owner's gross income. The IRS has stated in published
rulings that a variable contract owner will be considered the owner of separate
account assets if the owner possesses
41
<PAGE> 46
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. In addition, the Treasury Department
announced, in connection with the issuance of regulations concerning investment
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor, rather than the insurance company, to be treated
as the owner of the assets in the account." This announcement also stated that
guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular sub-accounts [of
a separate account] without being treated as owners of the underlying assets."
As of the date of this Prospectus, no such guidance has been issued.
The ownership rights under this contract are similar to, but different
in certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the owner of this contract has the choice of many more investment
options to which to allocate premiums and contract values, and may be able to
transfer among investment options more frequently than in such rulings. These
differences could result in the contract 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 as necessary to attempt to prevent the contract
owner from being considered the owner of the assets of the Variable Account.
Delayed Maturity Dates. If the contract's maturity date occurs (or is
scheduled to occur) at a time when the annuitant has reached an advanced age,
e.g., past age 85, it is possible that the contract would not be treated as an
annuity for Federal income tax purposes. In that event, the income and gains
under the contract could be currently includible in the owner's income.
The remainder of this discussion assumes that the contract will be
treated as an annuity contract for Federal income tax purposes and that the
Company will be treated as the owner of the Variable Account assets.
TAXATION OF PARTIAL AND FULL WITHDRAWALS
In the case of a partial withdrawal, amounts received are includible in
income to the extent the contract value before the withdrawal exceeds the
"investment in the contract." In the case of a full withdrawal, amounts received
are includible in income to the extent they exceed the "investment in the
contract." For these purposes the investment in the contract at any time equals
the total of the purchase payments made under the contract to that time (to the
extent such payments were neither deductible when made nor excludible from
income as, for example, in the case of certain employer contributions to
qualified plans) less any amounts previously received from the contract which
were not included in income.
Other than in the case of certain qualified contracts, any amount
received as a loan under a contract, and any assignment or pledge (or agreement
to assign or pledge) any portion of the contract value, is treated as a
withdrawal of such amount or portion. (Loans, assignments and pledges are
permitted only in limited circumstances under qualified contracts.) The
investment in the contract is increased by the amount includible in income with
respect to such assignment or pledge, though it is not affected by any other
aspect of the assignment or pledge (including its release). If an individual
transfers his or her interest in an annuity contract without adequate
consideration to a person other than the owner's spouse (or to a former spouse
incident to divorce), the owner will be taxed on the difference between the
"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 contract provides a death benefit that in certain circumstances may
exceed the greater of the purchase payments 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 contract.
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
42
<PAGE> 47
fixed annuity option, adjusted for any period certain or refund feature, to the
total expected value of annuity payments for the term of the contract
(determined under Treasury Department regulations). A simplified method of
determining the taxable portion of annuity payments applies to contracts issued
in connection with certain qualified plans other than IRAs.
Once the total amount of the investment in the contract is excluded
using these ratios, annuity payments will be fully taxable. If annuity payments
cease because of the death of the annuitant and before the total amount of the
investment in the contract is recovered, the unrecovered amount generally will
be allowed as a deduction to the annuitant in his or her last taxable year.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a contract because of the death of an
owner or the 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 contract unless the payment is: (a) received on or after the
contract owner reaches age 59 1/2; (b) attributable to the contract owner's
becoming disabled (as defined in the tax law); (c) made to a beneficiary on or
after the death of the contract owner or, if the contract 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 an
annuity contract purchased with a single premium when the annuity starting date
(as defined in the tax law) is no later than a year from purchase of the annuity
and substantially equal periodic payments are made, not less frequently than
annually, during the annuity period; or (f) made with respect to certain
annuities issued in connection with structured settlement agreements. (A similar
penalty tax, applicable to distributions from certain qualified contracts, is
discussed below.)
AGGREGATION OF CONTRACTS
In certain circumstances, the amount of an annuity payment or a
withdrawal from a contract that is includible in income may be determined by
combining some or all of the non-qualified contracts owned by an individual. For
example, if a person purchases a contract offered by this Prospectus and also
purchases at approximately the same time an immediate annuity, the IRS may treat
the two contracts as one contract. In addition, if a person purchases two or
more deferred annuity contracts from the same insurance company (or its
affiliates) during any calendar year, all such contracts will be treated as one
contract. The effects of such aggregation are not clear; however, it could
affect the amount of a withdrawal or an annuity payment that is taxable and the
amount which might be subject to the penalty tax described above.
QUALIFIED RETIREMENT PLANS
The contracts are also designed for use in connection with certain
types of retirement plans which receive favorable treatment under the Code.
Numerous special tax rules apply to the participants in such qualified plans and
to the contracts used in connection with such qualified plans. Therefore, no
attempt is made in this Prospectus to provide more than general information
about use of the contract with the various types of qualified plans.
The tax rules applicable to qualified plans vary according to the type
of plan and the terms and conditions of the plan itself. For example, for both
withdrawals and annuity payments under certain qualified contracts, there may be
no "investment in the contract" and the total amount received may be taxable.
Also, loans from qualified contracts, where allowed, are subject to a variety of
limitations, including restrictions as to the amount that may be borrowed, the
duration of the loan, and the manner in which the loan must be repaid. (Owners
should always consult their tax advisors and retirement plan fiduciaries prior
to exercising their loan privileges.) Both the amount of the contribution that
may be made, and the tax deduction or exclusion that the owner may claim for
such contribution, are limited under qualified plans. If this contract is used
in connection with a qualified plan, the owner and
43
<PAGE> 48
annuitant must be the same individual. If a co-annuitant is named, all
distributions made while the annuitant is alive must be made to the annuitant.
Also, if a co-annuitant is named who is not the annuitant's spouse, the annuity
options which are available may be limited, depending on the difference in ages
between the annuitant and co-annuitant. Furthermore, the length of any guarantee
period may be limited in some circumstances to satisfy certain minimum
distribution requirements under the Code.
In addition, special rules apply to the time at which distributions
must commence and the form in which the distributions must be paid. For example,
failure to comply with minimum distribution requirements applicable to 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 must generally 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 arrangement (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 contract 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 will be
amended as generally necessary to conform to the requirements of the plan.
However, contract 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. 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, unless the Company consents.
QUALIFIED PLAN TYPES
Following are brief descriptions of various types of qualified plans in
connection with which the Company may issue a contract.
Individual Retirement Annuities. Section 408 of the Code permits
eligible individuals to contribute to an individual retirement program known as
an "IRA." IRAs are subject to limits on the amounts that may be contributed, 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 contract may not,
however, be used in connection with an "Education IRA" under Section 530 of the
Code.
IRAs generally may not provide life insurance coverage, but they may
provide a death benefit that equals the greater of the premiums paid and the
contract 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 contract's death benefit could be viewed as
providing life insurance coverage with the result that the contract 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
treatment of the contract's death benefit for purposes of the tax rules
governing IRAs (which would include SEP-IRAs). Employers intending to use the
contract in connection with such plans should seek competent advice.
44
<PAGE> 49
SIMPLE IRAs. Section 408(p) of the Code permits certain small employers
to establish "SIMPLE retirement accounts," including SIMPLE IRAs, for their
employees. Under SIMPLE IRAs, certain deductible contributions are made by both
employees and employers. SIMPLE IRAs are subject to various requirements,
including limits on the amounts that may be contributed, the persons who may be
eligible, and the time when distributions may commence. As discussed 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 would include SIMPLE IRAs). Employers 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
contracts 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 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 benefits that may be provided under pension and profit
sharing plans. In addition, the provision of such benefits may result in current
taxable income to participants. Employers intending to use the contract in
connection with such plans should seek competent advice.
Tax-Sheltered Annuities. Section 403(b) of the Code permits public
school employees and employees of certain types of charitable, educational and
scientific organizations specified in Section 501(c)(3) of the Code to have
their employers purchase annuity contracts for them and, subject to certain
limitations, to exclude the amount of purchase payments from gross income for
tax purposes. These annuity contracts are commonly referred to as "tax-sheltered
annuities". Purchasers of the contracts for such purposes should seek competent
advice as to eligibility, limitations on permissible amounts of purchase
payments and other tax consequences associated with the contracts. In
particular, purchasers should consider that 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 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 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 purchased by a
state or local government or a tax-exempt organization will not be treated as an
annuity contract for Federal income tax purposes. Those who intend to use the
contracts in connection with such plans should seek competent advice.
Roth IRAs. Recently enacted Section 408A of the Code permits eligible
individuals to contribute to a type of IRA known as a "Roth IRA." Roth IRAs
differ from other IRAs in several respects. Among the differences is that,
although contributions to a Roth IRA are not deductible, "qualified
distributions" from a Roth IRA will be excludable from income. Additionally, the
eligibility and mandatory distribution requirements for Roth IRAs differ from
non-Roth IRAs. 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 nontaxable transfer will be includible in
gross income. However, the 10 percent penalty tax on premature distributions
generally will not apply.
45
<PAGE> 50
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 contract is used in connection with a retirement plan that is
qualified under Sections 401(a), 403(a), or 403(b) of the Code, any "eligible
rollover distribution" from the contract will be subject to "direct rollover"
and mandatory withholding requirements. An eligible rollover distribution
generally is any taxable distribution from such qualified plans, excluding
certain amounts such as (i) minimum distributions required under Section
401(a)(9) of the Code, and (ii) certain distributions for life, life expectancy,
or for 10 years or more which are part of a "series of substantially equal
periodic payments."
Under these requirements, Federal income tax equal to 20% of the
eligible rollover distribution will be withheld from the amount of the
distribution. Unlike withholding on certain other amounts distributed from the
contract, discussed below, the owner cannot elect out of withholding with
respect to an eligible rollover distribution. However, this 20% withholding will
not apply if, instead of receiving the eligible rollover distribution, the
distributee elects to have it directly transferred to certain qualified plans.
Prior to receiving an eligible rollover distribution, a notice will be provided
explaining generally the direct rollover and mandatory withholding requirements
and how to avoid the 20% withholding by electing a direct rollover.
FEDERAL INCOME TAX WITHHOLDING
The Company will withhold and remit to the U.S. Government a part of
the taxable portion of each distribution made under a contract unless the
distributee notifies the Company at or before the time of the distribution that
he or she elects not to have any amounts withheld. In certain circumstances, the
Company may be required to withhold tax. The withholding rates applicable to the
taxable portion of periodic annuity payments 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
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 contract owners in building assets in a long-term
investment program.
46
<PAGE> 51
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 year, 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 the contract standardized
performance data will be the historical performance of the Trust portfolio from
the date the applicable sub-account of the Variable Account first became
available for investment under other contracts offered by the Company, adjusted
to reflect current contract charges. In the case of non-standardized
performance, performance figures will be the historical performance of the Trust
portfolio from the inception date of the portfolio (or in the case of the Trust
portfolios created in connection with the merger of Manulife Series Fund, Inc.
into the Trust, the inception date of the applicable predecessor Manulife Series
Fund portfolio), adjusted to reflect current contract charges. Past performance
figures quoted are not intended to indicate future performance of any
sub-account. More detailed information on the computations is set forth in the
Statement of Additional Information.
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 contract owners participating in the service.
THE COMPANY DOES NOT ENDORSE, APPROVE OR RECOMMEND SUCH SERVICES IN ANY WAY AND
CONTRACT OWNERS SHOULD BE AWARE THAT FEES PAID FOR SUCH SERVICES ARE SEPARATE
AND IN ADDITION TO FEES PAID UNDER THE CONTRACTS.
DISTRIBUTION OF CONTRACTS
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 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 a non-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 will be
made by registered representatives of broker-dealers authorized by MSS to sell
the contracts. 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 and 0.75% of the contract value per
year beginning in the second contract 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.
CONTRACT OWNER INQUIRIES
47
<PAGE> 52
All contract 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 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............................................. 16
Servicing Agent.................................................. 16
Principal Underwriter............................................ 16
Cancellation of Contract................................................ 16
Financial Statements.................................................... 17
48
<PAGE> 53
APPENDIX A
EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE*
EXAMPLE 1 - Assume a single payment of $50,000 is made into the contract, 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 is completely withdrawn, based on
hypothetical contract values.
CONTRACT HYPOTHETICAL FREE WITHDRAWAL
YEAR CONTRACT WITHDRAWAL PAYMENTS CHARGE
VALUE AMOUNT LIQUIDATED -----------------
PERCENT AMOUNT
----------------------------------------------------------------------
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
- ----------
(a) During any contract year the free withdrawal amount is the greater of
accumulated earnings, or 10% of the total payments made under the
contract less any prior partial withdrawals in that contract year. In
the second contract 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 contract 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 contract 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 into the contract, no
transfers are made, no additional payments are made and there are a series of
four partial withdrawals made during the third contract year of $2,000, $5,000,
$7,000, and $8,000.
HYPOTHETICAL PARTIAL WITHDRAWAL
CONTRACT WITHDRAWAL WITHDRAWAL PAYMENTS CHARGE
VALUE REQUESTED AMOUNT LIQUIDATED -----------------
PERCENT AMOUNT
----------------------------------------------------------------------
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
- ----------
(a) The free withdrawal amount during any contract y ear is the greater of
the contract value less the unliquidated payment s (accumulated
earnings), or 10% of payments less 100% of all prior withdrawals in
that contract year. For the first example, accum ulated earnings of
$15,000 is the free withdrawal amount since it i s 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.
49
<PAGE> 54
(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
contract year, the remaining free withdrawal amount during the third
contract 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(less than)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 contract year the full 10% of payments would
be available again for withdrawal requests during that year.
*Example does not illustrate withdrawal charges applicable to Ven 7, Ven 3 or
Ven 1 contracts.
50
<PAGE> 55
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.
TAX RATE
QUALIFIED NON-QUALIFIED
STATE CONTRACTS CONTRACTS
- --------------------------------------------------------------------------------
CALIFORNIA....................................... 0.50% 2.35%
DISTRICT OF COLUMBIA............................. 2.25% 2.25%
KENTUCKY......................................... 2.00% 2.00%
MAINE............................................ 0.00% 2.00%
NEVADA........................................... 0.00% 3.50%
PUERTO RICO...................................... 1.00% 1.00%
SOUTH DAKOTA*.................................... 0.00% 1.25%
WEST VIRGINIA.................................... 1.00% 1.00%
WYOMING.......................................... 0.00% 1.00%
* Premium tax paid upon receipt of premium (no tax at annuitization if tax paid
on premium at issue).
51
<PAGE> 56
APPENDIX C
PRIOR CONTRACTS
The Company has a class of variable annuity contract which is no longer
being issued, except in the states of Oregon and Maryland, but under which
purchase payments may continue to be made ("prior contract" or "Ven 7
contracts"), which were sold during the period from August, 1989 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.
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% under the prior contract. 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 contract; (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 contract year.
Notwithstanding application of the market value adjustment factor
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 nonforfeiture 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.
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, 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 contract years. There
is never a withdrawal charge with respect to earnings accumulated in the
contract, certain other free withdrawal amounts described below or purchase
payments that have been in the contract more than six complete contract years.
In no event may the total withdrawal charges exceed 6% of the total purchase
payments. The amount of the withdrawal charge and when it is assessed is
discussed below:
52
<PAGE> 57
1. Each withdrawal is allocated first to the "free withdrawal amount"
and second to "unliquidated purchase payments." In any contract year, the free
withdrawal amount for that year is the greater of (1) the excess of the contract
value on the date of withdrawal over the unliquidated purchase payments (the
accumulated earnings on the contract) or (2) 10% of total purchase payments less
any prior partial withdrawals in that contract 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.
NUMBER OF COMPLETE YEARS WITHDRAWAL CHARGE
PURCHASE PAYMENT IN CONTRACT PERCENTAGE
-------------------------------------------------------
0 6%
1 6%
2 5%
3 4%
4 3%
5 2%
6+ 0%
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 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.
ADMINISTRATION FEES
The prior contract makes no provision for the waiver of the $30 annual
administration fee when prior to the maturity date the 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 the contract as the 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.)
53
<PAGE> 58
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
contract is a non-qualified contract, 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 contract is a non-qualified
contract, 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 the contract as the 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.
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 will become the owner of the contract. If the contract 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 the contract as the 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 contract
has more than one individual owner, death benefits must be paid as provided in
the prior 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 contract 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 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 contract has both an individual and a non-individual
owner, death benefits must be paid as provided in the prior 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 contract years will be
equal to the greater of: (a) the 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 payments made, less any amount deducted
in connection with partial withdrawals. During any subsequent six contract year
period, the minimum death benefit will be the greater of (a) the 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 contract year period plus any purchase payments made and
less any amount deducted in connection with partial withdrawals 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 contract value on the date due
proof of death and all required claim forms are received at the Company's
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 maturity date is the later of the first
day of the month following the 85th birthday of the annuitant or the sixth
contract 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
54
<PAGE> 59
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. The beneficiary may be changed during the
lifetime of the annuitant 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
contract owner or the contract 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, regulations promulgated by the Treasury Department
prescribe certain limitations on the designation of a beneficiary.
GUARANTEED RETIREMENT INCOME PROGRAM
The Guaranteed Retirement Income Program is not available for Ven 7
contracts.
TABLE OF ACCUMULATION UNIT VALUES
Ven 7 Contracts
<TABLE>
<CAPTION>
UNIT VALUE UNIT VALUE NUMBER OF UNITS
SUB-ACCOUNT AT START OF YEAR* AT END OF YEAR AT END OF YEAR
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets
1997.............................. $12.500000 $ 8.180904 202,690.129
Science & Technology
1997.............................. $12.500000 $13.647195 1,305,934.962
International Small Cap
1996.............................. $12.500000 $13.493094 3,114,351
1997.............................. 13.493094 13.410016 2,651,586.537
Emerging Growth
1997.............................. $12.500000 $14.574077 901,316.946
Pilgrim Baxter Growth
1997.............................. $12.500000 12.327066 1,038,009.080
Small/Mid Cap
1996.............................. $12.500000 $13.215952 5,250,942
1997.............................. 13.215952 15.020670 5,346,448.712
International Stock
1997.............................. $12.500000 $12.652231 767,902.981
Worldwide Growth
1997.............................. $12.500000 $13.965674 360,126.496
</TABLE>
55
<PAGE> 60
<TABLE>
<CAPTION>
UNIT VALUE UNIT VALUE NUMBER OF UNITS
SUB-ACCOUNT AT START OF YEAR* AT END OF YEAR AT END OF YEAR
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity
1989.............................. $10.038462 12.259530 1,599,855
1990.............................. 12.259530 10.827724 3,216,667
1991.............................. 10.827724 12.044260 4,968,734
1992.............................. 12.044260 11.790318 7,560,807
1993.............................. 11.790318 15.450341 18,493,192
1994.............................. 15.450341 15.500933 28,273,754
1995 15.500933 16.459655 25,947,632
1996 16.459655 18.276450 23,363,742
1997.............................. 18.276450 21.770913 21,385,412.929
Small Company Value
1997.............................. $12.500000 $11.898363 476,303.358
Equity
1989.............................. $ 9.695125 $12.208846 1,443,222
1990.............................. 12.208846 10.618693 1,044,365
1991.............................. 10.618693 12.349952 3,238,479
1992.............................. 12.349952 13.143309 10,082,924
1993.............................. 13.143309 15.075040 18,691,511
1994.............................. 15.075040 14.786831 27,046,973
1995.............................. 14.786831 20.821819 31,264,936
1996.............................. 20.821819 24.664354 30,156,559
1997.............................. 24.664354 29.002593 25,510,715.815
Growth
1996 $12.500000 $13.727312 1,704,337
1997.............................. 13.727312 16.968111 2,322,586.639
Quantitative Equity
1997.............................. $12.500000 $16.107191 445,182.268
Blue Chip Growth
1992.............................. $10.000000 $ 9.923524 2,614,367
1993.............................. 9.923524 9.413546 8,733,734
1994.............................. 9.413546 8.837480 12,682,151
1995.............................. 8.837480 11.026969 16,013,892
1996.............................. 11.026969 13.688523 16,253,601
1997.............................. 13.688523 17.134232 17,295,177.170
Real Estate Securities
1997.............................. $12.500000 $14.949140 686,708.699
Value
1997.............................. $12.500000 $15.057118 1,318,055.200
International Growth and Income
1995.............................. $10.000000 $10.554228 4,340,859
1996.............................. 10.554228 11.718276 6,310,744
1997.............................. 11.718276 11.545714 5,349,536.965
Growth and Income
1991.............................. $10.874875 $10.973500 3,689,377
1992.............................. 10.973500 11.927411 8,573,365
1993.............................. 11.927411 12.893007 16,816,664
1994.............................. 12.893007 13.076664 22,827,949
1995.............................. 13.076640 16.660889 25,312,482
1996.............................. 16.660889 20.178770 26,519,026
1997.............................. 20.178770 26.431239 26,673,244.207
</TABLE>
56
<PAGE> 61
<TABLE>
<CAPTION>
UNIT VALUE UNIT VALUE NUMBER OF UNITS
SUB-ACCOUNT AT START OF YEAR* AT END OF YEAR AT END OF YEAR
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity-Income
1993.............................. $10.000000 $11.175534 5,061,871
1994.............................. 11.175534 11.107620 13,006,071
1995.............................. 11.107620 13.548849 16,254,844
1996.............................. 13.548849 16.011513 17,199,292
1997.............................. 16.011513 20,479412 17,462,811.390
Balanced
1997.............................. $12.500000 $14.609853 277,653.746
Aggressive Asset Allocation
1989.............................. $10.000000 $ 9.824046 7,476,667
1990.............................. 9.824046 8.982210 3,434,253
1991.............................. 8.982210 10.891189 5,038,265
1992.............................. 10.891189 11.623893 6,990,120
1993.............................. 11.623893 12.642493 8,147,578
1994.............................. 12.642493 12.381395 9,915,078
1995.............................. 12.381395 14.990551 9,004,834
1996.............................. 14.990551 16.701647 7,824,895
1997.............................. 16.701647 19.614359 6,709,014.040
High Yield
1997.............................. $12.500000 $13.890491 948,500.843
Moderate Asset Allocation
1989.............................. $10.000000 $ 9.973206 2,137,590
1990.............................. 9.973206 9.221559 11,521,935
1991.............................. 9.221559 11.023964 15,739,307
1992 ............................. 11.023964 11.772128 21,949,044
1993.............................. 11.772128 12.775798 30,338,231
1994.............................. 12.775798 12.396295 31,579,176
1995.............................. 12.396295 14.752561 28,508,685
1996.............................. 14.752561 15.995076 23,443,602
1997.............................. 15.995076 18.276161 19,090,743.242
Conservative Asset Allocation
1989.............................. $10.000000 $10.052759 11,861,277
1990.............................. 10.052759 9.531831 5,005,473
1991.............................. 9.531831 11.166459 6,075,773
1992.............................. 11.166459 11.821212 9,218,954
1993.............................. 11.821212 12.705196 12,271,114
1994.............................. 12.705196 12.298940 11,519,563
1995.............................. 12.298940 14.320582 10,207,673
1996.............................. 14.320582 15.113142 8,273,488
1997.............................. 15.113142 16.607511 6,909,670.281
Strategic Bond
1993.............................. $10.000000 $10.750617 3,628,986
1994.............................. 10.750617 9.965972 6,059,065
1995.............................. 9.965972 11.716972 6,153,987
1996.............................. 11.716972 13.250563 7,575,451
1997.............................. 13.250563 14.500997 8,237,089.984
</TABLE>
57
<PAGE> 62
<TABLE>
<CAPTION>
UNIT VALUE UNIT VALUE NUMBER OF UNITS
SUB-ACCOUNT AT START OF YEAR* AT END OF YEAR AT END OF YEAR
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Government Bond
1989.............................. $10.097842 $10.404562 300,163
1990.............................. 10.404562 11.642912 503,123
1991.............................. 11.642912 13.302966 1,406,253
1992.............................. 13.302966 13.415849 3,990,936
1993.............................. 13.415849 15.741586 9,235,552
1994.............................. 15.741586 14.630721 10,820,359
1995.............................. 14.630721 17.772344 9,377,776
1996.............................. 17.772344 19.803954 8,200,560
1997.............................. 19.803954 20.104158 6,513,293.863
Capital Growth Bond
1997.............................. $12.500000 $13.475788 35,558.021
Investment Quality Bond
1989.............................. $10.937890 $12.008936 1,924,256
1990.............................. 12.008936 11.517610 226,591
1991.............................. 11.517610 13.183268 1,133,721
1992.............................. 13.183268 13.936240 2,633,165
1993.............................. 13.936240 15.118716 4,666,274
1994.............................. 15.118716 14.216516 5,662,391
1995.............................. 14.216516 16.751499 5,445,294
1996.............................. 16.751499 16.943257 4,762,551
1997.............................. 16.943257 16.943257 4,300,212.219
U.S. Government Securities
1990.............................. $10.826483 $11.596537 515,572
1991.............................. 11.596537 13.037076 1,496,429
1992.............................. 13.037076 13.651495 7,034,773
1993.............................. 13.651495 14.490734 11,566,348
1994.............................. 14.490734 14.111357 9,903,906
1995.............................. 14.111357 16.083213 8,402,470
1996.............................. 16.083213 16.393307 6,673,517
1997.............................. 16.393307 17.535478 5,731,746.842
Money Market
1989.............................. $10.865066 $11.634481 1,480,696
1990.............................. 11.634481 12.364687 2,465,280
1991.............................. 12.364687 12.890414 3,340,971
1992.............................. 12.890414 13.137257 4,636,753
1993.............................. 13.137257 13.303085 7,413,316
1994.............................. 13.303085 13.623292 12,741,277
1995.............................. 13.623292 14.190910 9,721,732
1996.............................. 14.190910 14.699636 10,149,260
1997.............................. 14.699636 15.241915 8,439,006.345
</TABLE>
58
<PAGE> 63
<TABLE>
<CAPTION>
UNIT VALUE UNIT VALUE NUMBER OF UNITS
SUB-ACCOUNT AT START OF YEAR* AT END OF YEAR AT END OF YEAR
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lifestyle Aggressive 1000
1997.............................. $12.500000 $13.669625 718,339.885
Lifestyle Growth 820
1997.............................. $12.500000 $14.033299 2,724,148.772
Lifestyle Balanced 640
1997.............................. $12.500000 $14.066417 1,897,381.650
Lifestyle Moderate 460
1997.............................. $12.500000 $14.016704 679,087.722
Lifestyle Conservative 280
1997.............................. $12.500000 $13.825120 162,279.781
Merrill Lynch Special Value Focus
1997.............................. $12.500000 $27.655848 506.421
Merrill Lynch Basic Value Focus
1997.............................. $12.500000 $15.792005 596.419
Merrill Lynch Developing Capital Markets Focus
1997.............................. $12.500000 $ 9.191866 0.002
</TABLE>
* Units under this series of contracts were first credited under the
sub-accounts on August 7, 1989, except in the case of Growth and Income where
units were first credited on April 23, 1991, Blue Chip Growth where units were
first credited on December 11, 1992, Equity-Income and Strategic Bond where
units were first credited on February 19, 1993, 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, 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 where units were first credited on
October 22, 1997.
59
<PAGE> 64
APPENDIX D
PRIOR CONTRACTS
Prior to October, 1993, the Company issued two classes of variable
annuity contracts which are no longer being issued but under which purchase
payments may continue to be made ("prior contracts" or "Ven 3 contracts"), which
were sold during the period from November, 1986 until October, 1993 and "Ven 1
contracts", which were sold during the period from June, 1985 until June, 1987.
The principal differences between the contract offered by this
Prospectus and the prior contracts relate to the investment options available
under the contracts, charges made by the Company and death benefit provisions.
EXPENSE SUMMARY
The following table and Example are designed to assist contract owners
in understanding the various costs and expenses that contract owners bear
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 contracts. The items
listed under "Contract Owner Transaction Expenses" and "Separate Account Annual
Expenses" are more completely described in this Appendix (see "Other Contract
Charges") and in the 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.
CONTRACT OWNERS TRANSACTION EXPENSES
Ven 1 and Ven 3 Contracts
Deferred sales load (as percentage of purchase payments)
NUMBER OF COMPLETE YEARS WITHDRAWAL CHARGE
PURCHASE PAYMENT IN PERCENTAGE
CONTRACT
-----------------------------------------------------------------
0 5%
1 5%
2 5%
3 5%
4 5%
5+ 0%
Ven 1 and Ven 3 Contracts
ANNUAL CONTRACT FEE.................................................. $30
Ven 1 Contracts
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and expense risk fees...................................... 1.30%
Total Separate Account Annual Expenses............................... 1.30%
60
<PAGE> 65
Ven 3 Contracts
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%
Ven 1 and Ven 3 Contracts
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets)
See "SUMMARY - TRUST ANNUAL EXPENSES" in the Prospectus.
Ven 1 Contracts
EXAMPLE
A contract owner would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets, if the contract owner
surrendered the contract at the end of the applicable time period:
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity.............................. $69 $118 $167 $252
Investment Quality Bond............. 68 116 164 246
Money Market........................ 66 110 154 225
</TABLE>
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>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity ............................. $22 $68 $117 $252
Investment Quality Bond............. 22 67 114 246
Money Market........................ 20 60 104 225
</TABLE>
Ven 3 Contracts
EXAMPLE
A contract owner would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets, if the contract owner
surrendered the contract at the end of the applicable time period:
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS* 10 YEARS*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets........ $75 $138 $203 $323
Science & Technology................ 74 134 195 308
International Small Cap............. 74 135 198 312
Emerging Growth..................... 72 129 188 293
Pilgrim Baxter Growth............... 73 131 191 300
Small/Mid Cap....................... 72 128 185 287
International Stock................. 75 137 201 319
Worldwide Growth.................... 74 135 198 313
Global Equity....................... 72 127 183 283
</TABLE>
61
<PAGE> 66
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS* 10 YEARS*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small Company Value................. 73 131
Equity.............................. 70 121 172 262
Growth.............................. 71 125 180 277
Quantitative Equity................. 69 120 171 259
Blue Chip Growth.................... 71 126 181 280
Real Estate Securities.............. 69 120 171 259
Value............................... 71 125 180 278
International Growth and Income..... 73 130 188 294
Growth and Income................... 69 120 172 261
Equity-Income....................... 70 122 175 267
Balanced............................ 70 123 176 270
Aggressive Asset Allocation......... 70 123 177 272
High Yield.......................... 70 123 177 271
Moderate Asset Allocation........... 70 122 175 267
Conservative Asset Allocation....... 70 123 177 271
Strategic Bond...................... 70 123 176 270
Global Government Bond.............. 71 124 179 275
Capital Growth Bond................. 69 119 169 255
Investment Quality Bond............. 69 119 169 256
U.S. Government Securities.......... 69 118 168 254
Money Market........................ 67 113 159 235
Lifestyle Aggressive 1000........... 73 130 188 294
Lifestyle Growth 820................ 72 128 185 287
Lifestyle Balanced 640.............. 71 125 180 277
Lifestyle Moderate 460.............. 70 122 175 267
Lifestyle Conservative 280.......... 69 118 168 253
</TABLE>
* The example of expenses for the Small Company Value Trust contains figures for
only one and three years since it is a newly created portfolio.
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>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS* 10 YEARS*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets........ $29 $90 $153 $323
Science & Technology................ 28 85 145 308
International Small Cap............. 28 87 148 312
Emerging Growth..................... 26 81 138 293
Pilgrim Baxter Growth............... 27 83 141 300
Small/Mid Cap....................... 26 79 135 287
International Stock................. 29 89 151 319
Worldwide Growth.................... 28 87 148 313
Global Equity....................... 25 78 133 283
Small Company Value................. 27 82
Equity.............................. 23 71 122 262
Growth.............................. 25 76 130 277
Quantitative Equity................. 23 71 121 259
Blue Chip Growth.................... 25 77 131 280
Real Estate Securities.............. 23 71 121 259
Value............................... 25 76 130 278
International Growth and Income..... 26 81 138 294
Growth and Income................... 23 71 122 261
Equity-Income....................... 24 73 125 267
Balanced............................ 24 74 126 270
Aggressive Asset Allocation......... 24 74 127 272
</TABLE>
62
<PAGE> 67
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS* 10 YEARS*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High Yield.......................... 24 74 127 271
Moderate Asset Allocation........... 24 73 125 267
Conservative Asset Allocation....... 24 74 127 271
Strategic Bond...................... 24 74 126 270
Global Government Bond.............. 24 75 129 275
Capital Growth Bond................. 22 69 119 255
Investment Quality Bond............. 23 70 119 256
U.S. Government Securities.......... 22 69 118 254
Money Market........................ 21 64 109 235
Lifestyle Aggressive 100............ 26 81 138 294
Lifestyle Growth 820................ 26 79 135 287
Lifestyle Balanced 640.............. 25 76 130 277
Lifestyle Moderate 460.............. 24 73 125 267
Lifestyle Conservative 280.......... 22 69 118 253
</TABLE>
* The example of expenses for the Small Company Value Trust contains figures for
only one and three years since it is a newly created portfolio.
INVESTMENT OPTIONS
The Ven 3 and Ven 1 contracts do not provide for a fixed-dollar
accumulation prior to the maturity date. Thus the descriptions in this
Prospectus of the Fixed Account Investment Options, Loans and the transfer and
Dollar Cost Averaging provisions, to the extent that they relate to the fixed
account investment options, are not applicable to the prior contracts. Ven 1
differs further in that only three of the thirty-five sub-accounts of the
Variable Account are available for the investment of contract values, namely,
the Equity Trust, the Investment Quality Bond Trust and the Money Market Trust.
The portfolios of Merrill Variable Funds are not available for investment for
Ven 1 and Ven 3 contract owners.
WITHDRAWAL CHARGES
The withdrawal charges under the prior contracts differ from the
withdrawal charges described in this Prospectus.
Ven 3 Withdrawal Charge.
The withdrawal charge assessed under the Ven 3 contract is as follows:
If a withdrawal is made from the contract before the maturity date, a
5% withdrawal charge (contingent deferred sales charge) may be assessed. The
amount of the withdrawal charge and when it is assessed are discussed below:
1. Withdrawals are allocated to purchase payments on a
first-in-first-out basis. Each time a contract owner requests a withdrawal,
whether or not a withdrawal charge is assessed, the Company will liquidate
purchase payments equal to the amount requested 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.
Once all purchase payments have been liquidated, additional withdrawals will be
allocated to the remaining contract value.
2. A withdrawal charge will be assessed against purchase payments
liquidated in excess of the free withdrawal amount. The free withdrawal amount
in any contract year is the greater of: (i) 10% of the contract value at the
beginning of the contract year, or (ii) 10% of the total purchase payments made
in the current contract year and the preceding 4 contract years plus the amount
of all unliquidated purchase payments made 5 or more contract years prior to the
current contract year. Therefore, no withdrawal charge will apply to any
purchase payment that has been in the contract for at least 5 years. After all
purchase payments have been liquidated, any remaining contract value
(accumulated earnings) may be withdrawn free of charge.
3. The withdrawal charge is deducted from the contract value remaining
after the contract owner is paid the amount requested, except in the case of a
complete withdrawal when it is deducted from the amount otherwise payable. The
withdrawal charge is deducted from the contract value by canceling accumulation
units of a value equal to the charge and is deducted from each investment
account ("subdivision") in proportion to the amount withdrawn from each
investment account. 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.
63
<PAGE> 68
4. Under no circumstances will the total of all withdrawal charges
exceed 5% of total purchase payments.
There is no withdrawal charge on distributions made as a result of the
death of the annuitant or contract owner. There is also no withdrawal charge on
amounts applied to an annuity option at the maturity date, as provided in the
contract.
Ven 1 Withdrawal Charge.
The withdrawal charge ("surrender charge") assessed under the Ven 1
contract is as follows:
If a contract is surrendered, in whole or in part, before the maturity
date, a withdrawal charge may be assessed. The amount of the withdrawal charge
and when it is assessed are discussed below:
The withdrawal charge is 5% of the lesser of (1) the amount surrendered
or (2) the total of all purchase payments made within the sixty months
immediately preceding the date of surrender. The charge is deducted from the
contract value remaining after the contract owner is paid the amount requested,
except in the case of a complete surrender when it is deducted from the amount
otherwise payable. After the first contract year, no withdrawal charge will be
made on that part of the first surrender in any contract year which does not
exceed 10% of the contract value computed as of the date of such surrender. The
right to surrender up to 10% of the contract value free of any withdrawal charge
does not apply to qualified contracts issued as tax-sheltered annuities under
Section 403(b) of the Internal Revenue Code. There is no withdrawal charge on
distributions made as a result of the death of the annuitant or contract owner.
Under no circumstances will the total of all withdrawal charges exceed 9% of
total purchase payments.
The withdrawal charge will be deducted from the contract value by
canceling accumulation units of a value equal to the charge. It will be made
from each investment account in proportion to the amount withdrawn from such
investment account.
OTHER CONTRACT CHARGES
The Ven 1 contract provides for the deduction from each sub-account
each valuation period of a charge at an effective annual rate of 1.30% of the
contract reserves allocated to such sub-account, consisting of .8% for the
mortality risk assumed by the Company and .5% for the expense risk assumed by
the Company. However, there is no administration charge under the Ven 1 contract
other than the $30 annual administration fee. The Ven 1 and Ven 3 contracts make
no provision for the waiver of the $30 annual administration fee when prior to
the maturity date the contract value equals or exceeds $100,000 at the time of
the fee's assessment.
DEATH BENEFIT PROVISIONS
Ven 3 Death Benefit Provisions
The provisions governing the death benefit prior to the maturity date
under the Ven 3 contract are as follows:
Death of Owner. The Company will pay a minimum death benefit to the
beneficiary if the contract owner is the annuitant and dies before the maturity
date. If the contract owner is not the annuitant and the contract owner dies
before the annuitant and before the maturity date (or the contract owner is the
annuitant and there is a surviving co-annuitant), instead of a minimum death
benefit, the Company will distribute the contract owner's entire interest in the
contract (the contract value determined on the date due proof of death and all
required claim forms are received at the Company's Annuity Service Office) to
the contract owner's estate or to a successor owner. Distributions to a
beneficiary, successor owner, or estate, as appropriate, will be made no later
than 5 years after the contract owner's death, unless (1) the contract owner's
spouse is the beneficiary or successor owner (in which case the spouse will be
treated as the owner and distribution will be made no later than the date on
which distribution would be required in accordance with this paragraph after the
death of the spouse), or (2) the distribution is made to the beneficiary or
successor owner who is an individual, begins not later than a year after the
contract owner's death, and is made over a period not greater than the life
expectancy of that beneficiary or successor owner.
Death of Annuitant. A minimum death benefit will be paid to the
beneficiary if the contract owner is not the annuitant and the annuitant dies
before the contract owner and before the maturity date. If there is a
co-annuitant, the minimum death benefit will be paid on the death of the last
surviving co-annuitant.
Entity as Owner. If the contract is not owned by an individual, for
example, if it is owned by a corporation or a trust, the special rules stated in
this paragraph apply. A change in the annuitant shall be treated as the death of
the owner for purposes of these special distribution rules and the Company will
distribute the contract owner's entire interest in the contract. Distributions
to the contract owner or to the beneficiary, as appropriate, will be made not
later than 5 years after the annuitant's death, unless (1) the annuitant's
spouse is the
64
<PAGE> 69
beneficiary (in which case the spouse will be treated as the contract owner and
distribution will be made no later than the date on which distribution would be
required in accordance with this paragraph after the death of the spouse), or
(2) the distribution is made to a beneficiary who is an individual, begins not
later than a year after the annuitant's death, and is made over a period not
greater than the life expectancy of that beneficiary.
General Provisions. If there is more than one individual contract
owner, death benefits must be paid as provided in the contract upon the death of
any such contract owner.
If there is both an individual and a non-individual contract owner,
death benefits must be paid as provided in the contract upon the death of the
annuitant or any individual contract owner, whichever occurs earlier.
Due proof of death and all required claim forms are required upon the
death of the contract owner or annuitant.
During the first five contract years, the minimum death benefit payable
to a beneficiary upon death of the annuitant is the greater of (a) the 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 payments
made, less any amount deducted in connection with partial withdrawals. During
any subsequent five contract year period, the minimum death benefit will be the
greater of (a) the 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 determined in accordance with these provisions as
of the last day of the previous five contract year period plus any purchase
payments made and less any amount deducted in connection with partial
withdrawals since then. The death benefit 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.
Ven 1 Death Benefit Provisions
The death benefit provisions of the Ven 1 contract are as described
above for the Ven 3 contract except that (i) the Ven 1 contract does not provide
for the designation of successor owners or co-annuitants or changes of
annuitants and (ii) the Ven 1 contract does not make special adjustments to the
minimum death benefit for subsequent five contract year periods.
OTHER CONTRACT PROVISIONS
Transfers
Under Ven 3 and Ven 1 contracts, owners may transfer all or part of
their contract value to a fixed annuity contract issued by the Company at any
time. In such case, the Company will waive any withdrawal charge that would
otherwise be applicable under the terms of the contract. Similarly, the Company
will permit holders of such fixed contracts to transfer certain contract values
to the Variable Account. In such case, the contract values transferred will be
attributable to certain purchase payments made under the fixed contract. For
purposes of calculating the withdrawal charge under the contract, the contract
date will be deemed to be the date of the earliest purchase payment transferred
from the fixed contract and the date of other purchase payments transferred will
be deemed to be the dates actually made under the fixed contract. A transfer of
all or a part of the contract value from one contract to another may be treated
as a distribution of all or a part of the contract value for Federal tax
purposes.
Under the Ven 1 contract, a contract owner may transfer prior to the
maturity date amounts among investment accounts of the contract without charge,
but such transfers cannot be made on more than two occasions in any contract
year. After annuity payments have been made for at least 12 months under a Ven 1
contract, all or a portion of the assets held in a sub-account with respect to
the contract may be transferred by the annuitant to one or more other
sub-accounts. Such transfers can be made only once each 12 months upon notice to
the Company at least 30 days before the due date of the first annuity payment to
which the change will apply.
Annuity Option Provisions
Under Ven 3 and Ven 1 contracts, there is no prescribed maturity date
that will govern in the absence of contract owner selection. The owner must
select a maturity date in the application. If no annuity option is selected by
the owner of a Ven 3 or Ven 1 contract, the automatic option will be on a
variable, not fixed, basis.
Ven 3 and Ven 1 contracts require a minimum contract value in order to
effect an annuity -- $2,000 for a Ven 3 contract and $5,000 for a Ven 1
contract, except for certain qualified Ven 1 contracts where the minimum is
$3,500. Ven 3 and Ven 1 contracts prescribe no minimum amount for the first
annuity payment but reserve the right to change the frequency of annuity
payments if the first annuity payment would be less than $50.
65
<PAGE> 70
Purchase Payments
The provisions governing purchase payments under Ven 1 contracts are as
follows: For qualified contracts, the minimum purchase payment is $25. For
non-qualified contracts, the minimum initial purchase payment is $5,000 and the
minimum subsequent purchase payment is $300. The Company may refuse to accept
any purchase payment in excess of $10,000 per contract year.
Annuity Rates
The annuity rates guaranteed in the Ven 1 contract differ from those
guaranteed in the contract described in the Prospectus for annuitants of certain
ages.
Annuity Tables Assumed Interest Rate
A 4% assumed interest rate is built into the annuity tables in the Ven
1 and Ven 3 contracts used to determine the first variable annuity payment to be
made under those contracts.
Beneficiary
Under the Ven 3 and Ven 1 contracts certain provisions relating to
beneficiary are as follows:
The beneficiary is the person, persons, or entity designated in the
application or as subsequently named. The beneficiary may be changed during the
lifetime of the annuitant 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
contract owner or the contract 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, regulations promulgated by the Treasury Department
prescribe certain limitations on the designation of a beneficiary.
GUARANTEED RETIREMENT INCOME PROGRAM
The Guaranteed Retirement Income Program is not available for Ven 3 or
Ven 1 contracts.
TABLE OF ACCUMULATION UNIT VALUES
Ven 3 Contracts
<TABLE>
<CAPTION>
UNIT VALUE UNIT VALUE NUMBER OF UNITS
SUB-ACCOUNT AT START OF YEAR* AT END OF YEAR AT END OF YEAR
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets
1997.............................. $12.500000 $ 8.180904 10,161.117
Science & Technology
1997.............................. $12.500000 $13.647195 40,748.263
International Small Cap
1996.............................. $12.500000 $13.493094 227,222.471
1997.............................. 13.493094 13.410016 169,875.665
Emerging Growth
1997.............................. $12.500000 $14.574077 16,351.863
Pilgrim Baxter Growth
1997.............................. $12.500000 $12.327066 49,468.887
Small/Mid Cap(Double Dagger)
1996.............................. $12.500000 $13.215952 293,765.467
1997.............................. 13.215952 15.020670 272,918.809
International Stock
1997.............................. $12.500000 $12.652231 69,740.167
Worldwide Growth
1997.............................. $12.500000 $13.965674 4,388.541
</TABLE>
66
<PAGE> 71
<TABLE>
<CAPTION>
UNIT VALUE UNIT VALUE NUMBER OF UNITS
SUB-ACCOUNT AT START OF YEAR* AT END OF YEAR AT END OF YEAR
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity
1988.............................. $10.000000 $10.038462 187,978.790
1989.............................. 10.038462 12.259530 1,599,855.768
1990.............................. 12.259530 10.827724 2,578,853.673
1991.............................. 10.827724 12.044260 2,395,298.635
1992.............................. 12.044260 11.790318 2,262,222.969
1993.............................. 11.790318 15.450341 3,100,733.209
1994.............................. 15.450341 15.500933 3,543,341.154
1995.............................. 15.500933 16.459655 2,642,703.724
1996.............................. 16.459655 18.276450 2,070,671.367
1997.............................. 18.276450 21.770913 1,665,275.671
Small Company Value
1997.............................. $12.500000 $11.898363 9,967.306
Equity
1987.............................. $10.000000 $ 8.144663 4,242,221.369
1988.............................. 8.144663 9.695125 13,563,655.062
1989.............................. 9.695125 12.208846 1,443,222.778
1990 ............................. 12.208846 10.618693 2,192,929.561
1991.............................. 10.618693 12.349952 3,748,439.163
1992.............................. 12.349952 13.143309 4,354,245.114
1993.............................. 13.143309 15.075040 4,165,733.576
1994.............................. 15.075040 14.786831 2,684,785.345
1995.............................. 14.786831 20.821819 2,572,695.681
1996.............................. 20.821819 24.664354 2,196,812.816
1997.............................. 24.664354 29.002593 1,634,482.536
Growth
1996.............................. $12.500000 $13.727312 79,415.926
1997.............................. 13.727312 16.968111 109,553.070
Quantitative Equity
1997.............................. $12.500000 $16.107191 14,117.858
Blue Chip Growth
1992.............................. $10.000000 $ 9.923524 356,487.848
1993.............................. 9.923524 9.413546 586,908.649
1994.............................. 9.413546 8.837480 576,875.573
1995.............................. 8.837480 11.026969 683,051.399
1996.............................. 11.026969 13.688523 731,368.138
1997.............................. 13.688523 17.134232 706,018.373
Real Estate Securities
1997.............................. $12.500000 $14.949140 38,437.470
Value
1997.............................. $12.500000 $15.057118 51,361.154
International Growth and Income
1995.............................. $10.000000 $10.554228 227,050.855
1996.............................. 10.554228 11.718276 281,119.474
1997.............................. 11.718276 11.545714 269,571.860
Growth and Income
1991.............................. $10.000000 $10.973500 1,530,130.493
1992.............................. 10.973500 11.927411 2,211,083.415
1993.............................. 11.927411 12.893007 2,248,648.359
1994.............................. 12.893007 13.076664 2,043,186.985
1995.............................. 13.076664 16.660889 2,105,056.205
1996.............................. 16.660889 20.178770 1,828,514.772
1997.............................. 20.178770 26.431239 1,673,047.924
</TABLE>
67
<PAGE> 72
<TABLE>
<CAPTION>
UNIT VALUE UNIT VALUE NUMBER OF UNITS
SUB-ACCOUNT AT START OF YEAR* AT END OF YEAR AT END OF YEAR
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity-Income
1993.............................. $10.000000 $11.175534 251,822.076
1994.............................. 11.175534 11.107620 562,603.632
1995.............................. 11.107620 13.548849 818,646.261
1996.............................. 13.548849 16.011513 751,884.340
1997.............................. 16.011513 20.479412 736,770.570
Balanced
1997.............................. $12.500000 $14.609853 6,353.152
Aggressive Asset Allocation
1989.............................. $10.000000 $ 9.824046 7,476,667.034
1990.............................. 9.824046 8.982210 6,387,718.448
1991.............................. 8.982210 10.891189 6,407,235.310
1992.............................. 10.891189 11.623893 6,026,587.849
1993.............................. 11.623893 12.642493 5,042,331.574
1994.............................. 12.642493 12.381395 3,562,197.567
1995.............................. 12.381395 14.990551 2,708,444.950
1996.............................. 14.990551 16.701647 2,195,447.490
1997.............................. 16.701647 19.614359 1,834,275.557
High Yield
1997................................ $12.500000 $13.890491 37,067.803
Moderate Asset Allocation
1989.............................. $10.000000 $ 9.973206 2,137,590.858
1990.............................. 9.973206 9.221559 23,978,405.670
1991.............................. 9.221559 11.023964 22,330,124.078
1992.............................. 11.023964 11.772128 20,887,367.134
1993.............................. 11.772128 12.775798 17,512,695.707
1994.............................. 12.775798 12.396295 12,484,174.615
1995.............................. 12.396295 14.752561 9,042,096.910
1996.............................. 14.752561 15.995076 7,206,776.711
1997.............................. 15.995076 18.276161 5,667,799.061
Conservative Asset Allocation
1989.............................. $10.000000 $10.052759 11,861,277.612
1990.............................. 10.052759 9.531831 10,705,080.076
1991.............................. 9.531831 11.166459 8,708,253.007
1992.............................. 11.166459 11.821212 7,777,630.143
1993.............................. 11.821212 12.705196 6,463,981.799
1994.............................. 12.705196 12.298940 4,556,265.387
1995.............................. 12.298940 14.320582 3,177,786.472
1996.............................. 14.320582 15.113142 2,507,618.496
1997.............................. 15.113142 16.607511 1,928,258.300
Strategic Bond
1993.............................. $10.000000 $10.750617 163,195.638
1994.............................. 10.750617 9.965972 181,540.594
1995.............................. 9.965972 11.716972 211,267.468
1996.............................. 11.716972 13.250563 258,026.189
1997.............................. 13.250563 14.500997 306,407.827
</TABLE>
68
<PAGE> 73
<TABLE>
<CAPTION>
UNIT VALUE UNIT VALUE NUMBER OF UNITS
SUB-ACCOUNT AT START OF YEAR* AT END OF YEAR AT END OF YEAR
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Government Bond
1988.............................. $10.000000 $10.097842 108,831.804
1989.............................. 10.097842 10.404562 300,163.262
1990.............................. 10.404562 11.642912 470,980.068
1991.............................. 11.642912 13.302966 692,920.988
1992.............................. 13.302966 13.415849 976,794.214
1993.............................. 13.415849 15.741586 1,551,958.318
1994.............................. 15.741586 14.630721 1,018,783.920
1995.............................. 14.630721 17.772344 793,225.829
1996.............................. 17.772344 19.803954 648,725.739
1997.............................. 19.803954 20.104158 460,365.576
Capital Growth Bond
1997.............................. $12.500000 $13.475788 0.001
Investment Quality Bond
1987.............................. $10.000000 $10.357400 2,234,030.945
1988.............................. 10.357400 10.937890 10,253,483.698
1989.............................. 10.937890 12.008936 1,924,256.679
1990.............................. 12.008936 11.517610 1,423,403.443
1991.............................. 11.517610 13.183268 1,720,219.933
1992.............................. 13.183268 13.936240 1,572,065.442
1993.............................. 13.936240 15.118716 1,119,425.316
1994.............................. 15.118716 14.216516 841,610.498
1995.............................. 14.216516 16.751499 734,994.414
1996.............................. 16.751499 16.943257 597,720.778
1997.............................. 16.943257 18.336912 514,787.776
U.S. Government Securities
1988.............................. $10.000000 $ 9.702201 10,203.403
1989.............................. 9.702201 10.826483 300,163.430
1990.............................. 10.826483 11.596537 366,010.353
1991.............................. 11.596537 13.037076 720,491.624
1992.............................. 13.037076 13.651495 1,938,232.553
1993.............................. 13.651495 14.490734 1,478,270.571
1994.............................. 14.490734 14.111357 909,659.824
1995.............................. 14.111357 16.083213 954,067.593
1996.............................. 16.083213 16.393307 710,502.942
1997.............................. 16.393307 17.535478 763,521.806
Money Market
1987.............................. $10.000000 $10.317570 510,079.365
1988.............................. 10.317570 10.865066 983,327.102
1989.............................. 10.865066 11.634481 1,480,696.936
1990.............................. 11.634481 12.364687 4,430,249.555
1991.............................. 12.364687 12.890414 2,754,467.033
1992.............................. 12.890414 13.137257 2,138,783.498
1993.............................. 13.137257 13.303085 1,659,478.414
1994.............................. 13.303085 13.623292 3,357,660.681
1995.............................. 13.623292 14.190910 2,370,449.919
1996.............................. 14.190910 14.699636 1,577,496.585
1997.............................. 14.699636 15.241915 778,379.937
Lifestyle Aggressive 1000
1997.............................. $12.500000 $13.669625 33,037.747
Lifestyle Growth 820
1997.............................. $12.500000 $14.033299 110,354.900
Lifestyle Balanced 640
1997.............................. $12.500000 $14.016704 11,640.415
</TABLE>
69
<PAGE> 74
<TABLE>
<CAPTION>
UNIT VALUE UNIT VALUE NUMBER OF UNITS
SUB-ACCOUNT AT START OF YEAR* AT END OF YEAR AT END OF YEAR
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lifestyle Moderate 460
1997.............................. $12.500000 $13.825120 9,407.923
Lifestyle Conservative 280
1997.............................. $12.500000 $11.898363 9,967.306
</TABLE>
* Units under this series of contracts were first credited under the
sub-accounts on November, 1986, except in the case of Investment Quality Bond
and Money Market where units were first credited on May 4, 1987, Global Equity,
Global Government Bond and U.S. Government Securities where units were first
credited on March 18, 1988, Aggressive Asset Allocation, Moderate Asset
Allocation and Conservative Asset Allocation where units were first credited on
August 3, 1989, Growth and Income where units were first credited on April 23,
1991, Blue Chip Growth where units were first credited on December 11, 1992,
Equity-Income and Strategic Bond where units were first credited on February 19,
1993, 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.
TABLE OF ACCUMULATION UNIT VALUES
Ven 1 Contracts
<TABLE>
<CAPTION>
UNIT VALUE UNIT VALUE NUMBER OF UNITS
SUB-ACCOUNT AT START OF YEAR AT END OF YEAR AT END OF YEAR
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity*
1985.............................. $10.000000 $10.734987 385.265
1986.............................. 10.734987 12.558028 4,651.489
1987.............................. 12.558028 13.248428 179,246.825
1988.............................. 13.248428 15.787546 146,228.732
1989.............................. 15.787546 19.902359 108,382.617
1990.............................. 19.902359 17.329021 93,278.975
1991.............................. 17.329021 20.176180 88,873.664
1992.............................. 20.176180 21.495619 39,451.366
1993.............................. 21.495619 24.681624 29,876.682
1994.............................. 24.681624 24.235928 24,893.636
1995.............................. 24.235928 34.164256 18,792.722
1996.............................. 34.164256 40.513296 18,983.608
1997.............................. 40.513296 47.690851 17,422.710
Investment Quality Bond**
1985.............................. $10.000000 $10.455832 157.237
1986.............................. 10.455832 11.689643 2,426.738
1987.............................. 11.689643 11.841366 164,289.054
1988.............................. 11.841366 12.518584 157,248.809
1989.............................. 12.518585 13.759270 113,311.078
1990.............................. 13.759270 13.210721 100,560.220
1991.............................. 13.210721 15.137617 75,660.271
1992.............................. 15.137617 16.019604 38,307.149
1993.............................. 16.019604 17.397685 25,428.550
1994.............................. 17.397685 16.377174 17,796.020
1995.............................. 16.377174 19.318272 13,340.073
1996.............................. 19.318272 19.560775 11,512.775
1997.............................. 19.560775 21.192677 10,088.494
</TABLE>
70
<PAGE> 75
<TABLE>
<CAPTION>
UNIT VALUE UNIT VALUE NUMBER OF UNITS
SUB-ACCOUNT AT START OF YEAR AT END OF YEAR AT END OF YEAR
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market***
1985.............................. $10.000000 $10.199136 108.287
1986.............................. 10.199136 10.647679 116.902
1987.............................. 10.647679 11.156548 69,537.264
1988.............................. 11.156548 11.761294 40,025.230
1989.............................. 11.761294 12.607783 43,520.107
1990.............................. 12.607783 13.413682 41,671.105
1991.............................. 13.413682 13.999175 35,261.861
1992.............................. 13.999175 14.282708 9,873.140
1993.............................. 14.282708 14.478685 5,683.780
1994.............................. 14.478685 14.843213 4,598.398
1995.............................. 14.843213 15.478376 7,968.626
1996.............................. 15.478376 16.050779 5,920.354
1997.............................. 16.050779 16.660935 5,228.240
</TABLE>
* Commencement of operations July 1, 1985
** Commencement of operations August 6, 1985
*** Commencement of operations August 23, 1985
71
<PAGE> 76
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 77
- --------------------------------------------------------------------------------
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 PURCHASE PAYMENT INDIVIDUAL DEFERRED
COMBINATION FIXED AND VARIABLE 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
<PAGE> 78
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
General Information and History.................................. 3
Performance Data................................................. 3
Services
Independent Auditors....................................... 16
Servicing Agent............................................ 16
Principal Underwriter...................................... 16
Cancellation of Contract......................................... 16
Financial Statements............................................. 17
<PAGE> 79
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 name Manulife.
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, administrative fees)) are
reflected, and the asset charges are reflected in changes in unit values.
Standardized total return figures will be quoted assuming redemption at the end
of the period. Non-standardized total return figures reflecting redemption at
the end of the time period are calculated on the same basis as the standardized
returns. Non-standardized total return figures not reflecting redemption at the
end of the time period are calculated on the same basis as the standardized
returns except that the calculations assume no redemption at the end of the
period and do not reflect deduction of the annual contract fee. The Company
believes such non-standardized figures not reflecting redemptions at the end of
the time period are useful to contract owners who wish to assess the performance
of an ongoing contract of the size that is meaningful to the individual contract
owner.
For total return figures quoted for periods prior to the commencement
of the offering of the contract standardized performance data will be the
historical performance of the Trust portfolio from the date the applicable
sub-account of the Variable Account first became available for investment under
other contracts offered by the Company; adjusted to reflect current contract
charges. In the case of non-standardized performance, performance figures will
be the historical performance of the Trust portfolio from the inception date of
the portfolio (or in the case of the Trust portfolios created in connection with
the merger of Manulife Series Fund, Inc. into the Trust, the inception date of
the applicable predecessor Manulife Series Fund, Inc. portfolio), adjusted to
reflect current contract charges.
3
<PAGE> 80
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
CALCULATED AS OF DECEMBER 31, 1997#
<TABLE>
<CAPTION>
==============================================================================================================================
TRUST PORTFOLIO 1 YEAR 5 YEAR 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%[Dagger] 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 & 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> 81
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
TRUST PORTFOLIO 1 YEAR 5 YEAR SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE*
WHICHEVER IS
SHORTER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Quality Bond 2.27% 4.93% 5.42%[Dagger] 06/18/85
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities -1.09% 4.41% 5.82% 03/18/88
- ------------------------------------------------------------------------------------------------------------------------------
Money Market -1.99% 2.23% 3.93%[Dagger] 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 - Class B N/A N/A -17.45% 10/13/97
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Focus - Class B N/A N/A -12.29% 10/13/97
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Developing Capital Markets
Focus - Class B N/A N/A -22.04% 10/13/97
==============================================================================================================================
</TABLE>
*Inception date of the sub-account of the Variable Account which invests in the
portfolio.
[Dagger] 10 year average annual return.
#See charts below for Ven 7 total return figures.
5
<PAGE> 82
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 YEAR SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE
WHICHEVER IS PORTFOLIO
SHORTER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets* -38.40% 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%[Dagger] 06/18/85
- ------------------------------------------------------------------------------------------------------------------------------
Growth 17.55% N/A 19.40% 07/15/96
- ------------------------------------------------------------------------------------------------------------------------------
Quantitative Equity* 21.97% 14.40% 13.48%[Dagger] 04/30/87
- ------------------------------------------------------------------------------------------------------------------------------
Blue Chip Growth 19.11% 10.96% 10.78% 12/11/92
- ------------------------------------------------------------------------------------------------------------------------------
Real Estate Securities* 10.70% 14.83% 14.22%[Dagger] 04/30/87
- ------------------------------------------------------------------------------------------------------------------------------
Value N/A N/A 14.39% 01/01/97
- ------------------------------------------------------------------------------------------------------------------------------
International Growth & 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
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 83
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
TRUST PORTFOLIO 1 YEAR 5 YEAR SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE
WHICHEVER IS PORTFOLIO
SHORTER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Bond* 1.31% 4.99% 6.97%[Dagger] 06/26/84
- ------------------------------------------------------------------------------------------------------------------------------
Investment Quality Bond 2.27% 4.93% 5.42%[Dagger] 06/18/85
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities 1.09% 4.41% 5.82% 03/18/88
- ------------------------------------------------------------------------------------------------------------------------------
Money Market -1.99% 2.23% 3.93%[Dagger] 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 - Class B N/A N/A -17.45% 10/13/97
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Focus - Class B N/A N/A -12.29% 10/13/97
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Developing Capital Markets
Focus - Class B N/A N/A -22.04% 10/13/97
==============================================================================================================================
</TABLE>
*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.
[Dagger] 10 year average annual return.
#See charts below for Ven 7 total return figures.
7
<PAGE> 84
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 YEAR SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE
WHICHEVER IS PORTFOLIO
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%[Dagger] 06/18/85
- ------------------------------------------------------------------------------------------------------------------------------
Growth 23.61% N/A 23.23% 07/15/96
- ------------------------------------------------------------------------------------------------------------------------------
Quantitative Equity* 28.03% 14.92% 13.52%[Dagger] 04/30/87
- ------------------------------------------------------------------------------------------------------------------------------
Blue Chip Growth 25.17% 11.54% 11.23% 12/11/92
- ------------------------------------------------------------------------------------------------------------------------------
Real Estate Securities* 16.76% 15.34% 14.27%[Dagger] 04/30/87
- ------------------------------------------------------------------------------------------------------------------------------
Value N/A N/A 20.46% 01/01/97
- ------------------------------------------------------------------------------------------------------------------------------
International Growth & 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
- ------------------------------------------------------------------------------------------------------------------------------
Global Government Bond 1.52% 8.43% 7.36% 03/18/88
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 85
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
TRUST PORTFOLIO 1 YEAR 5 YEAR SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE
WHICHEVER IS PORTFOLIO
SHORTER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Bond* 7.20% 5.70% 7.02%[Dagger] 06/26/84
- ------------------------------------------------------------------------------------------------------------------------------
Investment Quality Bond 8.23% 5.64% 5.47%[Dagger] 06/18/85
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities 6.97% 5.14% 5.87% 03/18/88
- ------------------------------------------------------------------------------------------------------------------------------
Money Market 3.69% 3.02% 3.98%[Dagger] 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 - Class B N/A N/A -12.76% 10/13/97
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Focus - Class B N/A N/A -7.27% 10/13/97
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Developing Capital Markets
Focus - Class B N/A N/A -17.64% 10/13/97
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*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.
[Dagger] 10 year average annual return.
#See charts below for Ven 7 total return figures.
9
<PAGE> 86
VEN 7 STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
CALCULATED AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
==============================================================================================================================
TRUST PORTFOLIO 1 YEAR 5 YEAR 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% 12.63% 8.18% 03/18/88
- ------------------------------------------------------------------------------------------------------------------------------
Small Company Value N/A N/A -9.98% 10/01/97
- ------------------------------------------------------------------------------------------------------------------------------
Equity 11.53% 16.78% 13.50%[Dagger] 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% 11.09% 10.91% 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 & Income -6.84% N/A 3.33% 01/09/95
- ------------------------------------------------------------------------------------------------------------------------------
Growth and Income 24.92% 16.88% 15.57% 04/23/91
- ------------------------------------------------------------------------------------------------------------------------------
Equity-Income 21.84% N/A 15.47% 02/19/93
- ------------------------------------------------------------------------------------------------------------------------------
Balanced N/A N/A 10.82% 01/01/97
- ------------------------------------------------------------------------------------------------------------------------------
Aggressive Asset Allocation 11.38% 10.58% 8.51% 08/03/89
- ------------------------------------------------------------------------------------------------------------------------------
High Yield N/A N/A 5.06% 01/01/97
- ------------------------------------------------------------------------------------------------------------------------------
Moderate Asset Allocation 8.20% 8.71% 7.51% 08/03/89
- ------------------------------------------------------------------------------------------------------------------------------
Conservative Asset Allocation 3.84% 6.52% 6.21% 08/03/89
- ------------------------------------------------------------------------------------------------------------------------------
Strategic Bond 3.41% N/A 7.41% 02/19/93
- ------------------------------------------------------------------------------------------------------------------------------
Global Government Bond -4.03% 7.93% 7.31% 03/18/88
- ------------------------------------------------------------------------------------------------------------------------------
Capital Growth Bond N/A N/A 1.88% 01/01/97
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 87
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
TRUST PORTFOLIO 1 YEAR 5 YEAR SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE*
WHICHEVER IS
SHORTER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Quality Bond 2.27% 5.10% 5.42%[Dagger] 06/18/85
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities 1.09% 4.58% 5.82% 03/18/88
- ------------------------------------------------------------------------------------------------------------------------------
Money Market -1.99% 2.42% 3.93%[Dagger] 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 - Class B N/A N/A -17.45% 10/13/97
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Focus - Class B N/A N/A -12.29% 10/13/97
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Developing Capital Markets
Focus - Class B N/A N/A -22.04% 10/13/97
==============================================================================================================================
</TABLE>
*Inception date of the sub-account of the Variable Account which invests in the
portfolio.
[Dagger] 10 year average annual return.
11
<PAGE> 88
VEN 7 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 YEAR SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE
WHICHEVER IS PORTFOLIO
SHORTER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets* -38.40% N/A -10.33% 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% 12.63% 8.18% 03/18/88
- ------------------------------------------------------------------------------------------------------------------------------
Small Company Value N/A N/A -9.98% 10/01/97
- ------------------------------------------------------------------------------------------------------------------------------
Equity 11.53% 16.78% 13.50%[Dagger] 06/18/85
- ------------------------------------------------------------------------------------------------------------------------------
Growth 17.55% N/A 19.40% 07/15/96
- ------------------------------------------------------------------------------------------------------------------------------
Quantitative Equity* 21.97% 14.52% 13.48%[Dagger] 04/30/87
- ------------------------------------------------------------------------------------------------------------------------------
Blue Chip Growth 19.11% 11.09% 10.91% 12/11/92
- ------------------------------------------------------------------------------------------------------------------------------
Real Estate Securities* 10.70% 14.95% 14.22%[Dagger] 04/30/87
- ------------------------------------------------------------------------------------------------------------------------------
Value N/A N/A 14.39% 01/01/97
- ------------------------------------------------------------------------------------------------------------------------------
International Growth & Income -6.84% N/A 3.33% 01/09/95
- ------------------------------------------------------------------------------------------------------------------------------
Growth and Income 24.92% 16.88% 15.57% 04/23/91
- ------------------------------------------------------------------------------------------------------------------------------
Equity-Income 21.84% N/A 15.47% 02/19/93
- ------------------------------------------------------------------------------------------------------------------------------
Balanced N/A N/A 10.82% 01/01/97
- ------------------------------------------------------------------------------------------------------------------------------
Aggressive Asset Allocation 11.38% 10.58% 8.51% 08/03/89
- ------------------------------------------------------------------------------------------------------------------------------
High Yield N/A N/A 5.06% 01/01/97
- ------------------------------------------------------------------------------------------------------------------------------
Moderate Asset Allocation 8.20% 8.71% 7.51% 08/03/89
- ------------------------------------------------------------------------------------------------------------------------------
Conservative Asset Allocation 3.84% 6.52% 6.21% 08/03/89
- ------------------------------------------------------------------------------------------------------------------------------
Strategic Bond 3.41% N/A 7.41% 02/19/93
- ------------------------------------------------------------------------------------------------------------------------------
Global Government Bond -4.03% 7.93% 7.31% 03/18/88
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 89
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
TRUST PORTFOLIO 1 YEAR 5 YEAR SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE
WHICHEVER IS PORTFOLIO
SHORTER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Bond* 1.31% 5.15% 6.97%[Dagger] 06/26/84
- ------------------------------------------------------------------------------------------------------------------------------
Investment Quality Bond 2.27% 5.10% 5.42%[Dagger] 06/18/85
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities 1.09% 4.58% 5.82% 03/18/88
- ------------------------------------------------------------------------------------------------------------------------------
Money Market -1.99% 2.42% 3.93%[Dagger] 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 - Class B N/A N/A -17.45% 10/13/97
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Focus - Class B N/A N/A -12.29% 10/13/97
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Developing Capital Markets
Focus - Class B N/A N/A -22.04% 10/13/97
==============================================================================================================================
</TABLE>
*On December 31, 1996, Manulife Series Fund, Inc. merged with the Trust.
Performance presented for these sub-accounts is based upon the performance of
the respective predecessor Manulife Series Fund, Inc. portfolio for periods
prior to December 31, 1996. Performance for each of these sub-accounts is based
on the historical expenses and performance of the predecessor Manulife Series
Fund, Inc. portfolio, adjusted to reflect current contract charges, and,
therefore, does not reflect for periods prior to December 31, 1996 the current
Trust portfolio expenses that an investor would incur as a holder of units of
the sub-account.
[Dagger] 10 year average annual return.
13
<PAGE> 90
VEN 7 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 YEAR SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE
WHICHEVER IS PORTFOLIO
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% 10/01/97
- ------------------------------------------------------------------------------------------------------------------------------
Equity 17.59% 17.15% 13.54%[Dagger] 06/18/85
- ------------------------------------------------------------------------------------------------------------------------------
Growth 23.61 N/A 23.23% 07/15/96
- ------------------------------------------------------------------------------------------------------------------------------
Quantitative Equity* 28.03% 14.92% 13.52%[Dagger] 04/30/87
- ------------------------------------------------------------------------------------------------------------------------------
Blue Chip Growth 25.17% 11.54% 11.23% 12/11/92
- ------------------------------------------------------------------------------------------------------------------------------
Real Estate Securities* 16.76% 15.34% 14.27%[Dagger] 04/30/87
- ------------------------------------------------------------------------------------------------------------------------------
Value N/A N/A 20.46% 01/01/97
- ------------------------------------------------------------------------------------------------------------------------------
International Growth & 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
- ------------------------------------------------------------------------------------------------------------------------------
Global Government Bond 1.52% 8.43% 7.36% 03/18/88
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 91
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
TRUST PORTFOLIO 1 YEAR 5 YEAR SINCE INCEPTION INCEPTION
OR 10 YEARS, DATE
WHICHEVER IS PORTFOLIO
SHORTER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Bond* 7.20% 5.70% 7.02%[Dagger] 06/26/84
- ------------------------------------------------------------------------------------------------------------------------------
Investment Quality Bond 8.23% 5.64% 5.47%[Dagger] 06/18/85
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities 6.97% 5.14% 5.87% 03/18/88
- ------------------------------------------------------------------------------------------------------------------------------
Money Market 3.69% 3.02% 3.98%[Dagger] 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 - Class B N/A N/A -12.76% 10/13/97
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Focus - Class B N/A N/A -7.27% 10/13/97
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Developing Capital Markets
Focus - Class B N/A N/A -17.64% 10/13/97
==============================================================================================================================
</TABLE>
*On December 31, 1996, Manulife Series Fund, Inc. merged with the Trust.
Performance presented for these sub-accounts is based upon the performance of
the respective predecessor Manulife Series Fund, Inc. portfolio for periods
prior to December 31, 1996. Performance for each of these sub-accounts is based
on the historical expenses and performance of the predecessor Manulife Series
Fund, Inc. portfolio, adjusted to reflect current contract charges, and,
therefore, does not reflect for periods prior to December 31, 1996 the current
Trust portfolio expenses that an investor would incur as a holder of units of
the sub-account.
[Dagger] 10 year average annual return.
* * * * *
In addition to the non-standardized returns quoted above, each of the
sub-accounts may from time to time quote aggregate non-standardized total
returns calculated in the same manner as set forth above for other time periods.
From time to time the Trust may include in its advertising and sales literature
general discussions of economic theories, including but not limited to,
discussions on how demographic and political trends can affect the financial
markets. Further, the Trust may also include in its advertising and sales
literature specific information on each of the Trust's subadvisers, including
but not limited to, research capabilities of a subadviser, assets under
management, information relating to other clients of a subadviser, and other
generalized information.
15
<PAGE> 92
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 CONTRACT
The Company may, at its option, cancel a contract at the end of any two
consecutive contract years in which no purchase payments by or on behalf of the
contract owner have been made, if both (i) the total purchase payments made for
the contract, less any withdrawals, are less than $2,000; and (ii) the contract
value 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 contract owner prior
to such cancellation in order to allow the contract owner to make the necessary
purchase payment to keep the contract in force. The cancellation of contract
provisions may vary in certain states in order to comply with the requirements
of insurance laws and regulations in such states.
16
<PAGE> 93
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> 94
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> 95
[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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
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> 104
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> 105
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> 106
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> 107
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> 108
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> 109
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> 110
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> 111
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> 112
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> 113
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> 114
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> 115
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> 116
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> 117
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> 118
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> 119
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> 120
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> 121
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> 122
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> 123
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> 124
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> 125
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> 126
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> 127
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> 128
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> 129
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> 130
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> 131
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> 132
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> 133
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> 134
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> 135
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> 136
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> 137
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> 138
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> 139
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> 140
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> 141
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> 142
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> 143
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> 144
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> 145
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> 146
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> 147
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> 148
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> 149
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> 150
PART C
OTHER INFORMATION
<PAGE> 151
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 -- Previously filed as Exhibit
(b)(1)(i) to post-effective amendment no. 4
to Form N-4 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 April 29,
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 April 29,
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 -- Previously filed as
Exhibit (b)(1)(v) to post-effective
amendment no. 4 to Form N-4 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) -- Previously filed as
Exhibit (b)(3)(i) to post-effective
amendment no. 4 to Form N-4 filed February
25, 1998.
(ii) Promotional Agent Agreement between NASL
Financial Services, Inc. (Underwriter),
North American Security Life Insurance
Company (Depositor), Wood Logan Associates,
Inc. (Promotional Agent) and NAWL Holding
Company, Inc. -- Previously filed as Exhibit
(b)(3)(ii) to post-effective amendment no. 3
to Form N-4 filed April 29, 1997.
(iii) Amendment to Promotional Agent Agreement -
Previously filed as Exhibit (b)(3)(iii) to
post-effective amendment no. 4 to Form N-4
filed February 25, 1998.
<PAGE> 152
(iv) Form of Selling Agreement between The
Manufacturers Life Insurance Company of
North America, Manufacturers Securities
Services, LLC, Selling Broker-Dealer and
General Agent-- Previously filed as Exhibit
(b)(3)(iv) to post-effective amendment no.
4 to Form N-4 filed February 25, 1998.
(4) (i) (A) Specimen Flexible Purchase Payment
Individual Deferred Combination Fixed
and Variable Annuity Contract,
Non-Participating (v20/21) --
Previously filed as Exhibit
(b)(4)(i)(A) to post-effective
amendment no. 4 to Form N-4 filed
February 25, 1998.
(B) Specimen Flexible Purchase Payment
Individual Deferred Combination Fixed
and Variable Annuity Contract,
Non-Participating (v7) -- Previously
filed as Exhibit (b)(4)(i)(B) to
post-effective amendment no. 4 to Form
N-4 filed February 25, 1998.
(ii) (A) (1) Specimen Endorsements to
Contract (v20/21): (i)
Individual Retirement Annuity
Endorsement; (ii) ERISA Tax
Sheltered Annuity Endorsement;
(iii) Tax-sheltered Annuity
Endorsement; (iv) Qualified
Plan Endorsement Section 401
Plans -- Previously filed as
Exhibit (b)(4)(ii)(A)(1) to
post-effective amendment no. 4
to Form N-4 filed February 25,
1998.
(2) Specimen Endorsements to
Contract (v20/21): (i) ERISA
Tax Sheltered Annuity
Endorsement; (ii) Tax-sheltered
Annuity Endorsement; (iii)
Qualified Plan Endorsement
Section 401 Plans, (iv) Simple
Individual Retirement Annuity
Endorsement; (v) Fixed Account
Endorsement; (vi) Death Benefit
Endorsement -- Previously filed
as Exhibit (b)(4)(ii)(A)(2) to
post-effective amendment no. 4
to Form N-4 filed February 25,
1998.
(B) (1) Specimen Death Benefit
Endorsement to Flexible
Purchase Payment Individual
Deferred Variable Annuity
Contract, Non-Participating
(v7) -- Previously filed as
Exhibit (b)(4)(ii)(B)(1) to
post-effective amendment no. 4
to Form N-4 filed February 25,
1998.
(2) Specimen Endorsements to
Contract (v7): (i) Individual
Retirement Annuity Endorsement;
(ii) Retirement Equity Act
Endorsement; (iii)
Tax-sheltered Annuity
Endorsement; (iv) Qualified
Plan Endorsement Section 401
Plans -- Previously filed as
Exhibit (b)(4)(ii)(B)(2) to
post-effective amendment no. 4
to Form N-4 filed February 25,
1998.
(C) Specimen Death Benefit Endorsement to
Venture 3 Contract, Non-Participating
-- Previously filed as Exhibit
(b)(4)(ii)(C) to post-effective
amendment no. 4 to Form N-4 filed
February 25, 1998.
(D) 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.
(iii) Guaranteed Income Rider (v20/21) --
Previously filed as Exhibit (b)(4)(iii) to
post-effective amendment no. 4 to Form N-4
filed February 25, 1998.
<PAGE> 153
(5) (A) Specimen Application for Flexible Purchase
Payment Individual Deferred Combination
Fixed and Variable Annuity Contract,
Non-Participating (v20/21) -- Previously
filed as Exhibit (b)(5)(A) to post-effective
amendment no. 4 to Form N-4 filed February
25, 1998.
(B) Specimen Application for Flexible Purchase
Payment Individual Deferred Combination
Fixed and Variable Annuity Contract,
Non-Participating (v7) -- Previously filed
as Exhibit (b)(5)(B) to post-effective
amendment no. 4 to Form N-4 filed February
25, 1998.
(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 thereto -- Previously filed as
Exhibit (b)(7)(i) to post-effective
amendment no. 4 to Form N-4 filed February
25, 1998.
(ii) (A) Contract of reinsurance in connection
with variable annuity contracts being
offered - Reinsurance and Guaranteed
Death Benefits Agreement between North
American Security Life Insurance
Company and Connecticut General Life
Insurance Company, effective July 1,
1995 (v20/21) -- Previously filed as
Exhibit (b)(7)(ii) to post-effective
amendment no. 2 to Form N-4, file
number 33-76162 filed March 1, 1996.
<PAGE> 154
(B) Contract of reinsurance in connection
with 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 (v7) --
Previously filed as Exhibit (b)(7)(i)
to post-effective amendment no. 9 to
Form N-4, file number 33-28455 filed
March 1, 1996.
(C) Contract of reinsurance in connection
with variable annuity contracts being
offered - Variable Annuity Guaranteed
Death Benefit Reinsurance Contract Ven
3 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. 9 to Form
N-4, file number 33-28455 filed
March 1, 1996.
(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)(iii) to post-effective
amendment no. 2 to Form N-4, file number
33-76162 filed March 1, 1996.
(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)(iv) to
post-effective amendment no. 2 to Form N-4,
file number 33-76162 filed March 1, 1996.
(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 --
Previously filed as Exhibit (b)(7)(v) to
post-effective amendment no. 4 to Form N-4
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. 2 to Form N-4, file number
33-76162 filed April 29, 1997.
(9) (A) Opinion of Counsel and consent to its use as
to the legality of the securities being
registered (v20/21) (June 28, 1994) --
Previously filed as Exhibit (b)(9)(A) to
post-effective amendment no. 4 to Form N-4
filed February 25, 1998.
(B) Opinion of Counsel and consent to its use as
to the legality of the securities being
registered (v7) (April 24, 1989) --
Previously filed as Exhibit (b)(9)(B) to
post-effective amendment no. 4 to Form N-4
filed February 25, 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.
<PAGE> 155
(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) (A) Schedules of computations (v20/21) --
Previously filed as Exhibit (b)(13) to
post-effective amendment no. 2 to Form N-4,
file number 33-76162 filed March 1, 1996.
(B) Schedules of computations (v7) -- Previously
filed as Exhibit (b)(13) to post-effective
amendment no. 9 to Form N-4, file number
33-28455 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 (15)(iii) to
post-effective amendment no. 2 to Form N-4,
file number 33-76162 filed April 29, 1997.
(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 Hutchison
(Director, The Manufacturers Life Insurance
Company of North America) -- Previously
filed as Exhibit (b)(15)(iii) to
post-effective amendment no. 4 to Form N-4
filed February 25, 1998.
<PAGE> 156
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR.
OFFICERS AND DIRECTORS OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH
AMERICA
<TABLE>
<CAPTION>
Name and Principal
Business Address Position with Manulife North America
- ---------------- ------------------------------------
<S> <C>
John D. Richardson Director and Chairman of the Board of
200 Bloor Street East Directors
North Tower, 11th Floor
Toronto, Ontario
Canada M4W-1E5
Peter S. Hutchison Director
200 Bloor Street East
North Tower, 7th Floor
Toronto, Ontario
Canada M4W-1E5
John D. DesPrez III President & 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 & 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 Accumulation Life
116 Huntington Avenue 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
Robert Boyda Vice President, Investment Management Services
73 Tremont Street
Boston, MA 01208
</TABLE>
<PAGE> 157
<TABLE>
<CAPTION>
Name and Principal
Business Address Position with Manulife North America
- ---------------- ------------------------------------
<S> <C>
David W. Libbey Vice President, Treasurer & Chief
73 Tremont Street Financial Officer
Boston, MA 02108
</TABLE>
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR
REGISTRANT.
THE MANUFACTURERS LIFE INSURANCE COMPANY
Manulife Corporate Organization as at December 31, 1997
The Manufacturers Life Insurance Company (Canada)
1. Cantay Holdings Inc. - Ontario (100%)
2. 484551 Ontario Limited - Ontario (100%)
a. 911164 Ontario Inc. - Ontario (100%)
3. Churchill Lifestyles Corp. (100%)
4. 495603 Ontario Limited - Ontario (100%)
5. 1198183 Ontario Limited - Ontario (100%)
6. 1198184 Ontario Limited - Ontario (100%)
7. 1235434 Ontario Limited - Ontario (100%)
8. 576986 Ontario Inc. - Ontario (100%)
9. Balmoral Developments Inc. - Ontario (100%)
10. Manulife Bank of Canada - Canada (100%)
11. Manulife Securities International Ltd. - Canada (100%)
12. Family Realty First Corp. - Ontario (100%)
13. NAL Resources Limited - Alberta (100%)
14. Manulife International Capital Corporation Limited - Ontario (100%)
a. Regional Power Inc. - Ontario (100%)
i. La Regionale Power (Port Cartier) Inc. - Ontario
(100%)
ii. La Regionale Power Angliers Inc. - Ontario (100%)
iii. Addalam Power Corporation - Philippines (100%)
15. Peel-de Maisonneuve Investments Ltd. - Canada (100%)
a. 2932121 Canada Inc. - Canada (100%)
16. FNA Financial Inc. - Canada (100%)
a. NAL Trustco Inc. - Ontario (100%)
b. First North American Insurance Company - Canada (100%)
c. Elliott & Page Limited - Ontario (100%)
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%)
<PAGE> 158
(2) The Manufacturers Life Insurance Company of
America - Michigan (100%)
(a) Manulife Holding Corporation -
Delaware (100%)
(i) Manufacturers Adviser
Corporation - Colorado
(100%)
(ii) Succession Plainning
International, Inc. -
Wisconsin (100%)
(iii) ManEquity, Inc. - Colorado
(100%)
(iv) Manulife Property
Management of Washington,
D.C. Inc. - Washington,
D.C. (100%)
(v) ManuLife Service
Corporation - Colorado
(100%)
(vi) Manulife Leasing Company,
LLC - Delaware (80%)
(3) Capitol Bankers Life Insurance Company -
Michigan (100%)
(4) Ennal, Inc. - Ohio (100%)
(5) Manulife-Wood Logan Holding Co. Inc. -
Delaware (62.5%)
(a) Wood Logan Associates, Inc. -
Connecticut (100%)
(i) Wood Logan Distributors,
Inc. - Connecticut (100%)
(b) The Manufacturers Life Insurance
Company of North America - Delaware
(100%)
(i) Manufacturers Securities
Services, LLC -
Massachusetts (100%)
(ii) The Manufacturers Life
Insurance Company of
New York - New York (100%)
ii. Manulife Reinsurance Limited - Bermuda (100%)
(1) MRL Holding, LLC - Delaware (99%)
(a) Manulife-Wood Logan Holding Co. Inc.
- Delaware (22.5%)
iii. MRL Holding, LLC - Delaware (1%)
24. Manulife International Investment Management Limited - U.K. (100%)
a. Manulife International Fund Management Limited - U.K. (100%)
25. WT(SW) Properties Ltd. - U.K. (100%)
26. Manulife Europe Ruckversicherungs-Aktiengesellschaft - Germany (100%)
27. Manulife International Holdings Limited - Bermuda (100%)
a. Manulife (International) Limited - Bermuda (100%)
i. Zhong Hong Life Insurance Co., Ltd. - China (51%)
ii. The Manufacturers (Pacific Asia) Insurance Company
Limited - H.K. (100%)
iii. Newtime Consultants Limited - H.K. (100%)
28. Manulife (International) Reinsurance Limited - Bermuda (100%)
a. Manulife (International) P & C Limited - Bermuda (100%)
b. Manufacturers P & C Limited - Barbados (100%)
c. Manufacturers Life Reinsurance Limited - Barbados (100%)
29. Chinfon-Manulife Insurance Company Limited - Bermuda (100%)
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%)
<PAGE> 159
Item 27. NUMBER OF CONTRACT OWNERS.
As of March 31, 1998, the following table lists the number of qualified and
non-qualified contracts of the series offered hereby outstanding.
Contract Qualified Non-Qualified
-------- --------- -------------
Ven 1 18 14
Ven 3 3,232 4,803
Ven 7 31,940 40,721
Ven 20/21 24,620 29,236
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.
<PAGE> 160
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 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.
Item 29. PRINCIPAL UNDERWRITERS.
a. Name of Investment Company Capacity in which acting
-------------------------- ------------------------
Manufacturers Investment Trust Investment Adviser
<PAGE> 161
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.
<PAGE> 162
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> 163
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C>
/s/ JOHN D. DESPREZ III Director and President April 28, 1998
- ------------------------------ (Principal Executive (Date)
John D. DesPrez III Officer)
* Director April 28, 1998
- ------------------------------ (Date)
Peter S. Hutchinson
* Director and Chairman April 28, 1998
- ------------------------------ of the Board (Date)
John D. Richardson
/s/ DAVID W. LIBBEY Vice President and April 28, 1998
- ------------------------------ Treasurer (Principal (Date)
David W. Libbey Financial and Accounting
Officer)
*By: /s/ JAMES D. GALLAGHER April 28, 1998
------------------------ (Date)
James D. Gallagher
Attorney-in-Fact
Pursuant to Powers
of Attorney
</TABLE>
<PAGE> 164
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 Manufacturers Life Insurance
Company of North America and February 5, 1998 with respect to the financial
statements of The Manufacturers Life Insurance Company of North America
Separate Account A, in Post Effective Amendment No. 5 to the Registration
Statement (form N-4 File No. 33-76162) 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 and Amendment No. 17 to
this Registration Statement under the Investment Company Act of 1940 on Form N-4
(File No. 33-76162) 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
