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VERSION 1
Prospectus containing Merrill Portfolios
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ANNUITY SERVICE OFFICE MAILING ADDRESS
500 Boylston Street, Suite 400 Post Office Box 9230
Boston, Massachusetts 02116-3739 Boston, Massachusetts 02205-9230
(617) 663-3000
(800) 344-1029
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 Prospectus describes an annuity contract (the "CONTRACT") issued
by The Manufacturers Life Insurance Company of North America ("WE" or "US"). The
contract is a flexible purchase payment, individual, deferred,
non-participating, combination fixed and variable annuity contract.
- Contract values and annuity benefit payments are based upon
fifty-one investment options. Forty-nine options are variable
and two are fixed account options.
- Contract values (other than those allocated to one of the
fixed accounts) and variable annuity benefit payments will
vary according to the investment performance of the
sub-accounts of one of our separate accounts, The
Manufacturers Life Insurance Company of North America Separate
Account A (the "VARIABLE ACCOUNT"). Contract values may be
allocated to, and transferred among, one or more of those
sub-accounts.
- Each sub-account's assets are invested in a corresponding
portfolio of Manufacturers Investment Trust (the "TRUST") or
Merrill Lynch Variable Series Funds, Inc. ("MERRILL VARIABLE
FUNDS"). Both the Trust and the Merrill Variable Funds are
mutual funds. We will provide the contract owner ("YOU") with
prospectuses for the Trust and Merrill Variable Funds with
this Prospectus.
- We will add a "payment enhancement" to your contract for each
payment that you make under your contract. Expenses for a
contract which has a payment enhancement may be higher than
the expenses for a contract which does not have a payment
enhancement. The amount of the payment enhancement may, over
time, be more than offset by the additional fees and charges
associated with the payment enhancement.
- 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.
- Except as specifically noted here and under the caption "FIXED
ACCOUNT INVESTMENT OPTIONS" below, this Prospectus describes
only the variable portion of the contract.
- Special terms are defined in a glossary in APPENDIX A.
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 YOU SHOULD KNOW BEFORE INVESTING.
THE CONTRACTS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"). NEITHER THE SEC NOR ANY STATE HAS DETERMINED
WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
ADDITIONAL INFORMATION about the contract and the Variable Account is contained
in a Statement of Additional Information, dated the same date as this
Prospectus, which has been filed with the SEC and is incorporated herein by
reference. The Statement of Additional Information is available without charge
upon request by writing us at the address on the front cover or by telephoning
(800) 344-1029.
The SEC maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information and other information about us, the contracts and the
Variable Account.
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
General Information and History .......................................................................... 3
Performance Data.......................................................................................... 3
Services
Independent Auditors................................................................................. 9
Servicing Agent...................................................................................... 10
Principal Underwriter................................................................................ 10
Audited Financial Statements.............................................................................. 11
</TABLE>
The date of this Prospectus is May 1, 2000.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SUMMARY.................................................. 4
GENERAL INFORMATION ABOUT US,
THE VARIABLE ACCOUNT, THE TRUST AND
MERRILL VARIABLE FUNDS .................................. 11
The Manufacturers Life Insurance Company of North
America ............................................ 11
The Variable Account ............................... 12
The Trust........................................... 12
Merrill Variable Funds.............................. 17
DESCRIPTION OF THE CONTRACT ............................. 18
ACCUMULATION PERIOD PROVISIONS ....................... 18
Purchase Payments .................................. 18
Payment Enhancements................................ 19
Accumulation Units ................................. 20
Value of Accumulation Units ........................ 21
Net Investment Factor .............................. 21
Transfers Among Investment Options ................. 21
Maximum Number of Investment Options................ 22
Telephone Transactions ............................. 22
Special Transfer Services - Dollar Cost Averaging... 22
Asset Rebalancing Program........................... 22
Withdrawals......................................... 23
Special Withdrawal Services - the Income Plan ...... 24
Death Benefit During the Accumulation Period........ 24
In General....................................... 24
Amount of Death Benefit.......................... 24
Payment of Death Benefit......................... 25
PAY-OUT PERIOD PROVISIONS ............................... 26
General ............................................ 26
Annuity Options .................................... 27
Determination of Amount of the First Variable
Annuity Benefit Payment............................. 28
Annuity Units and the Determination of
Subsequent Variable Annuity Benefit Payments ....... 28
Transfers During the Pay-Out Period ................ 28
Death Benefit During the Pay-Out Period............. 28
OTHER CONTRACT PROVISIONS ............................ 29
Ten Day Right to Review ............................ 29
Ownership .......................................... 29
Annuitant .......................................... 29
Beneficiary ........................................ 30
Modification ....................................... 30
Company Approval ................................... 30
Misstatement and Proof of Age, Sex or Survival...... 30
FIXED ACCOUNT INVESTMENT OPTIONS......................... 30
Securities Registration ............................ 30
Guarantee .......................................... 30
Reinsurance ........................................ 31
Investment Options ................................. 31
Investment Accounts ................................ 31
Renewals ........................................... 31
Transfers .......................................... 31
Withdrawals ........................................ 31
Loans .............................................. 32
Fixed Annuity Options .............................. 32
CHARGES AND DEDUCTIONS .................................. 32
Withdrawal Charges ................................. 32
Reduction or Elimination of Withdrawal Charges ..... 33
Administration Fees................................. 34
</TABLE>
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<TABLE>
<S> <C>
Mortality and Expense Risks Charge ................. 34
Taxes .............................................. 34
Expenses of Distributing Contract................... 35
FEDERAL TAX MATTERS ..................................... 35
INTRODUCTION.......................................... 35
OUR TAX STATUS........................................ 35
TAXATION OF ANNUITIES IN GENERAL ..................... 35
Tax Deferral During Accumulation Period .......... 35
Non-Natural Owners .............................. 36
Loss of Interest Deduction Where Contracts are
Held by or for the Benefit of Certain
Non Natural Persons.............................. 36
Diversification Requirements .................... 36
Ownership Treatment ............................. 36
Delayed Pay-Out Periods ......................... 37
Taxation of Partial and Full Withdrawals ........... 37
Taxation of Annuity Benefit Payments ............... 38
Taxation of Death Benefit Proceeds ................. 38
Penalty Tax on Premature Distributions ............. 38
Aggregation of Contracts ........................... 39
QUALIFIED RETIREMENT PLANS .............................. 39
Direct Rollovers ................................... 40
Loans .............................................. 41
FEDERAL INCOME TAX WITHHOLDING.......................... 41
GENERAL MATTERS.......................................... 42
Performance Data.................................... 42
Asset Allocation and Timing Services................ 42
Restrictions Under The Texas Optional
Retirement Program.................................. 42
Distribution of Contracts .......................... 43
Contract Owner Inquiries............................ 43
Confirmation Statements............................. 43
Legal Proceedings .................................. 43
Year 2000 Issues.................................... 43
Cancellation of Contract............................ 43
Voting Interest..................................... 44
APPENDIX A: SPECIAL TERMS............................... A-1
APPENDIX B: TABLE OF ACCUMULATION VALUES................ B-1
APPENDIX C: EXAMPLES OF CALCULATION OF
WITHDRAWAL CHARGE........................................ C-1
APPENDIX D: STATE PREMIUM TAXES......................... D-1
APPENDIX E: PENNSYLVANIA MAXIMUM MATURITY AGE........... E-1
APPENDIX F: EXAMPLES OF PAYMENT ENHANCEMENT
CALCULATIONS ............................................ F-1
APPENDIX G: QUALIFIED PLAN TYPES ........................ G-1
</TABLE>
<PAGE> 6
SUMMARY
OVERVIEW OF THE CONTRACT. Under the contract, you make one or more payments to
us for a period of time (the "ACCUMULATION PERIOD") and then later, beginning on
the "MATURITY DATE," we make one or more payments to you (during the "PAY-OUT
PERIOD"). Contract values during the accumulation period and the amounts of
annuity benefit payments during the pay-out period may either be variable or
fixed, depending upon the investment option(s) you select. You may use the
contract to fund either a non-qualified or tax-qualified retirement plan. The
maximum age of an owner or annuitant for which a contract will be issued is age
80.
When you purchase a variable annuity for any tax-qualified retirement plan, the
variable annuity does not provide any additional tax deferred treatment of
earnings beyond the treatment provided by the plan. Consequently, you should
purchase a variable annuity for a tax qualified plan only on the basis of other
benefits offered by the variable annuity. These benefits may include lifetime
income payments, family protection through the death benefit, and guaranteed
fees.
PURCHASE PAYMENTS LIMITS. The minimum initial purchase payment is $10,000.
Subsequent purchase payments must be at least $30. Purchase payments normally
may be made at any time. If a purchase payment would cause your contract value
to exceed $1,000,000, or your contract value already exceeds $1,000,000,
however, you must obtain our approval in order to make the payment. If permitted
by state law, we may cancel your contract if you have made no payments for two
years, your contract value is less than $2,000 and your payments over the life
of your contract, minus your withdrawals over the life of the contract is less
than $2,000.
PAYMENT ENHANCEMENTS. We will add a "PAYMENT ENHANCEMENT" to your contract for
each payment that you make under your contract. The amount of the payment
enhancement depends on the cumulative amount of your purchase payments. To
receive a higher percentage than that based on the cumulative amount of your
purchase payments, you must provide satisfactory evidence that your total
payments within 13 months of the issue date will be enough to justify the higher
percentage. If your total purchase payments during the 13 month period do not
equal or exceed the amount approved, we reserve the right to recover from your
contract the excess payment enhancement added to the contract. The payment
enhancement is funded from our general account. The payment enhancement is
allocated among investment options in the same proportion as your purchase
payment. The amount available as a death benefit is reduced by payment
enhancements applied in the prior 12 month period. The amount returned if you
exercise your right to return the contract during the "ten day right to review"
period is reduced by any payment enhancements.
INVESTMENT OPTIONS. Upon issuance of the contract, purchase payments may be
allocated among up to seventeen of the available investment options (including
all fixed account investment options). After the contract is issued, there is no
limit on the number of investment options to which you may allocate purchase
payments. Currently, forty-nine Variable Account investment options and two
fixed account investment options are available under the contract. Each of the
forty-nine Variable Account investment options is a sub-account of the Variable
Account that invests in a corresponding portfolio of the Trust or the Merrill
Variable Funds. A full description of each portfolio is in the accompanying
Prospectus of the Trust or, in the case of the Merrill Variable Funds, the
accompanying prospectus of the Merrill Variable Funds. Your contract value
during the accumulation period and the amounts of annuity benefit payments will
depend upon the investment performance of the portfolio underlying each
sub-account of the Variable Account you select and/or upon the interest we
credit on each fixed account option you select. Subject to certain regulatory
limitations, we may elect to add, subtract or substitute investment options.
Allocating assets only to one or a small number of the investment options (other
than the Lifestyle Trusts) should not be considered a balanced investment
strategy. In particular, allocating assets to a small number of investment
options that concentrate their investments in a particular business or market
sector will increase the risk that the value of your contract will be more
volatile since these investment options may react similarly to business or
market specific events. Examples of business or market sectors where this risk
historically has been and may continue to be particularly high include: (a)
technology related businesses, including internet related businesses, (b) small
cap securities and (c) foreign securities. The Company does not provide advice
regarding appropriate investment allocations, please discuss this matter with
your financial adviser.
TRANSFERS. During the accumulation period, you may transfer your contract values
among any of the investment options. During the pay-out period, you may transfer
your allocations among the Variable Account investment options, but transfers
from Variable Account options to fixed account options or from fixed account
options to Variable Account options are not permitted. Transfers are free.
Transfers from
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any investment account must be at least $300 or, if less, the entire balance in
the investment account. If, after the transfer, the amount remaining in the
investment account from which the transfer is made would be less than $100, then
we will transfer the entire amount instead of the requested amount. Special
transfer privileges permit you to dollar cost average your investment in the
contract.
WITHDRAWALS. During the accumulation period, you may withdraw all or a portion
of your contract value. The amount you withdraw from any investment account must
be at least $300 or, if less, your entire balance in that investment account. If
a partial withdrawal plus any applicable withdrawal charge would reduce your
contract value to less than $300, we will treat your withdrawal request as a
request to withdraw all of your contract value. A withdrawal charge and an
administration fee may apply to your withdrawal. A withdrawal may be subject to
income tax and a 10% penalty tax. A systematic withdrawal plan service is
available under the contract.
CONFIRMATION STATEMENTS. We will send you confirmation statements for certain
transactions in your account. You should carefully review these statements to
verify their accuracy. You should immediately report any mistakes to our Annuity
Service Office (at the address or phone number shown on the cover of this
Prospectus). If you fail to notify our Annuity Service Office of any mistake
within 60 days of the mailing of the confirmation statement, you will be deemed
to have ratified the transaction.
DEATH BENEFITS. We will pay the death benefit described below to your
BENEFICIARY if you die during the accumulation period. If a contract is owned by
more than one person, then the surviving contract owner will be deemed the
beneficiary of the deceased contract owner. No death benefit is payable on the
death of any ANNUITANT (a natural person or persons whose life is used to
determine the duration of annuity benefit payments involving life
contingencies), 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 amount of the death benefit will be calculated as of the date on
which our Annuity Service Office receives written notice and proof of death and
all required claim forms. The amount of the death benefit during the first nine
contract years will be the greater of:
(a) the contract value, or
(b) the excess of
- the sum of all purchase payments over
- the sum of any partial withdrawals.
After the ninth contract year, the death benefit will be the greater of:
(a) the contract value, (A) or
(b) the excess of:
- the sum of all purchase payments over
- the sum of any amounts deducted in connection with partial
withdrawals or
(c) the death benefit on the last day of the ninth contract year, plus
the sum of all purchase payments made and any amount deducted in
connection with partial withdrawals since then.
(A) If a contract owner dies, we have the right to deduct from the death benefit
paid any payment enhancements applied to the contract in the 12 month period
prior to the date of death. However, we are currently waiving this right.
Reference to "payment enhancements" in this paragraph refers to the original
amount of payment enhancements; earnings attributable to payment enhancements
will not be deducted from the death benefit paid.
If there are any unpaid loans (including unpaid interest) under the contract,
the death benefit equals the death benefit calculated according to the
applicable formula, minus the amount of the unpaid loans. If the annuitant dies
during the pay-out period and annuity payment method selected called for
payments for a guaranteed period, we will make the remaining guaranteed payments
to the beneficiary.
ANNUITY BENEFIT PAYMENTS. We offer a variety of fixed and variable annuity
benefit payment options. Periodic annuity benefit payments will begin on the
"maturity date" (the date marking the end of the
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accumulation period and the beginning of the pay-out period). You select the
maturity date, the frequency of payment and the type of annuity benefit payment
option.
TEN DAY REVIEW. You may cancel your contract by returning it to us within 10
days of receiving it.
TAXATION. Generally, all earnings on the underlying investments are 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. Normally, a portion of each annuity
benefit payment is taxable as ordinary income. Partial and total withdrawals are
taxable as ordinary income to the extent contract value prior to the withdrawal
exceeds the purchase payments you have made, minus any prior withdrawals that
were not taxable. A penalty tax may apply to withdrawals prior to age 59 1/2.
CHARGES AND DEDUCTIONS. The following table and Example are designed to assist
you in understanding the various costs and expenses related to the contract. The
table reflects expenses of the Variable Account and the underlying portfolio of
the Trust. In addition to the items listed in the following table, premium taxes
may be applicable to certain. The items listed under "Contract Owner Transaction
Expenses" and "Separate Account Annual Expenses" are more completely described
in this Prospectus under "Charges and Deductions." The items listed under "Trust
Annual Expenses" are described in detail in the accompanying Trust Prospectus.
CONTRACT OWNER TRANSACTION EXPENSES
Deferred sales load (withdrawal charge as percentage of purchase
payments)
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS
PURCHASE PAYMENT IN CONTRACT WITHDRAWAL CHARGE PERCENTAGE
---------------------------- ----------------------------
<S> <C>
0 8.5%
1 8.5%
2 8.0%
3 7.0%
4 6.0%
5 5.0%
6 4.0%
7 3.0%
8 2.0%
9+ 0.0%
</TABLE>
<TABLE>
<S> <C>
ANNUAL CONTRACT FEE..................................................................... $40(A)
</TABLE>
(A)The $40 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.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<CAPTION>
<S> <C>
Mortality and expense risks fee......................................................... 1.25%
Administration fee...................................................................... 0.30%
Total Separate Account Annual Expense................................................... 1.55%
</TABLE>
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets for the fiscal year ended December
31, 1999)
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
TRUST PORTFOLIO FEES REIMBURSEMENT) ANNUAL EXPENSES
- --------------- ---------- -------------- ---------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets........ 0.850% 0.260% 1.110%
Internet Technologies............... 1.150% 0.136%(A) 1.286%
Science & Technology................ 1.100% 0.060% 1.160%
International Small Cap............. 1.100% 0.270% 1.370%
Aggressive Growth................... 1.000%(F) 0.130% 1.130%
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Emerging Small Company.............. 1.050% 0.070% 1.120%
Small Company Blend................. 1.050% 0.250%(A) 1.300%(E)
Dynamic Growth...................... 1.000%(F) 0.132%(A) 1.132%
Mid Cap Stock....................... 0.925% 0.100%(A) 1.025%(E)
All Cap Growth(H)................... 0.950%(F) 0.070% 1.020%
Overseas............................ 0.950% 0.260% 1.210%
International Stock................. 1.050% 0.200% 1.250%
International Value................. 1.000% 0.230%(A) 1.230%(E)
Mid Cap Blend....................... 0.850%(F) 0.060% 0.910%
Small Company Value................. 1.050% 0.170% 1.220%
Global Equity....................... 0.900% 0.160% 1.060%
Growth.............................. 0.850% 0.050% 0.900%
Large Cap Growth.................... 0.875%(F) 0.100% 0.975%
Quantitative Equity................. 0.700% 0.060% 0.760%
Blue Chip Growth.................... 0.875%(F) 0.050% 0.925%
Real Estate Securities.............. 0.700% 0.070% 0.770%
Value............................... 0.800% 0.070% 0.870%
Tactical Allocation................. 0.900% 0.127%(A) 1.027%
Growth & Income..................... 0.750% 0.050% 0.800%
U.S. Large Cap Value................ 0.875% 0.070%(A) 0.945%(E)
Equity-Income....................... 0.875%(F) 0.060% 0.935%
Income & Value...................... 0.800%(F) 0.080% 0.880%
Balanced............................ 0.800% 0.070% 0.870%
High Yield.......................... 0.775% 0.065% 0.840%
Strategic Bond...................... 0.775% 0.095% 0.870%
Global Bond......................... 0.800% 0.180% 0.980%
Total Return........................ 0.775% 0.060%(A) 0.835%(E)
Investment Quality Bond............. 0.650% 0.120% 0.770%
Diversified Bond.................... 0.750% 0.090% 0.840%
U.S. Government Securities.......... 0.650% 0.070% 0.720%
Money Market........................ 0.500% 0.050% 0.550%
Small Cap Index..................... 0.525% 0.075%(A)(G) 0.600%
International Index................. 0.550% 0.050%(A)(G) 0.600%
Mid Cap Index....................... 0.525% 0.075%(A)(G) 0.600%
Total Stock Market Index............ 0.525% 0.075%(A)(G) 0.600%
500 Index........................... 0.525% 0.039%(A)(G) 0.564%
Lifestyle Aggressive 1000(D)........ 0.075% 1.060%(B) 1.135%(C)
Lifestyle Growth 820(D)............. 0.057% 1.008%(B) 1.065%(C)
Lifestyle Balanced 640(D)........... 0.057% 0.928%(B) 0.985%(C)
Lifestyle Moderate 460(D)........... 0.066% 0.869%(B) 0.935%(C)
Lifestyle Conservative 280(D)....... 0.075% 0.780%(B) 0.855%(C)
</TABLE>
- -----------------
(A) Based on estimates to be made during the current fiscal year.
(B) Reflects expenses of the Underlying Portfolios.
(C) The investment adviser to the Trust, Manufacturers Securities Services, LLC
("MSS" or the "Adviser") has voluntarily agreed to pay certain expenses of
each Lifestyle Trust (excluding the expenses of the Underlying Portfolios)
as follows:
If total expenses of a Lifestyle Trust (absent reimbursement) exceed 0.075%, the
Adviser will reduce the advisory fee or reimburse expenses of that Lifestyle
Trust by an amount such that total expenses of the Lifestyle Trust equal 0.075%.
If the total expenses of the Lifestyle Trust (absent reimbursement) are equal to
or less than 0.075%, then no expenses will be reimbursed by the Adviser. (For
purposes of the expense reimbursement, total expenses of a Lifestyle Trust
includes the advisory fee but excludes (a) the expenses of the Underlying
Portfolios, (b) taxes, (c) portfolio brokerage, (d) interest, (e) litigation and
(f) indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Trust's business.)
This voluntary expense reimbursement may be terminated at any time. If such
expense reimbursement was not in effect, Total Trust Annual Expenses would be
higher (based on current advisory fees and the Other Expenses of the Lifestyle
Trusts for the fiscal year ended December 31, 1999) as noted in the chart below:
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<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
- --------------- ---------- -------- ---------------
<S> <C> <C> <C>
Lifestyle Aggressive 1000........... 0.075% 1.090% 1.165%
Lifestyle Growth 820................ 0.057% 1.030% 1.087%
Lifestyle Balanced 640.............. 0.057% 0.940% 0.997%
Lifestyle Moderate 460.............. 0.066% 0.900% 0.966%
Lifestyle Conservative 280.......... 0.075% 0.810% 0.885%
</TABLE>
(D) Each Lifestyle Trust will invest in shares of the Underlying Portfolios.
Therefore, each Lifestyle Trust will bear its pro rata share of the fees and
expenses incurred by the Underlying Portfolios in which it invests, and the
investment return of each Lifestyle Trust will be net of the Underlying
Portfolio expenses. Each Lifestyle Portfolio must bear its own expenses.
However, the Adviser is currently paying certain of these expenses as
described in footnote (C) above.
(E) Annualized - For the period May 1, 1999 (commencement of operations) to
December 31, 1999.
(F) Management Fees changed effective May 1, 1999. Fees shown are the current
management fees.
(G) MSS has voluntarily agreed to pay expenses of each Index Trust (excluding
the advisory fee) that exceed the following amounts: 0.050% in the case of
the International Index Trust and 500 Index Trust and 0.075% in the case of
the Small Cap Index Trust, the Mid Cap Index Trust and Total Stock Market
Index Trust. If such expense reimbursement were not in effect, it is
estimated that "Other Expenses" and "Total Trust Annual Expenses" would be
0.022% higher for the International Index Trust, 0.014% higher for the Small
Cap Index Trust, 0.060% higher for the Mid Cap Index Trust and 0.005% higher
for the Total Stock Market Index Trust. It is estimated that the expense
reimbursement will not be effective during the year end December 31, 2000
for the 500 Index Trust. The expense reimbursement may be terminated at any
time by MSS.
(H) Formerly, the Mid Cap Growth Trust.
MERRILL VARIABLE FUNDS ANNUAL EXPENSES: CLASS B SHARES
(as a percentage of average net assets and after waivers and reimbursements)
<TABLE>
<CAPTION>
TOTAL ANNUAL FUND
MANAGEMENT FEE OTHER EXPENSES OPERATING EXPENSES
(AFTER EXPENSE (AFTER EXPENSE (AFTER EXPENSE
REIMBURSEMENT 12b-1 REIMBURSEMENT REIMBURSEMENT AND
PORTFOLIO AND WAIVER) FEES AND WAIVER)(A) WAIVER)(B)
--------- -------------- ----- -------------- -----------------
<S> <C> <C> <C> <C>
Merrill Lynch Small Cap 0.75% 0.15% 0.06% 0.96%
Value Focus D
Merrill Lynch Basic Value 0.60% 0.15% 0.06% 0.81%
Focus
Merrill Lynch Developing 0.53%(C) 0.15% 0.72% 1.40%(C)
Capital Markets Focus
</TABLE>
(A) Note that these are the expenses for the fiscal year ended December 31,
1999.
(B) Merrill Lynch Asset Management, L.P. ("MLAM") and Merrill Lynch Life Agency,
Inc. have entered into a Reimbursement Agreement that limits the operating
expenses (excluding 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.
(C) During 1999, MLAM waived management fees for the Developing Capital Markets
Focus Fund in the amount totaling 0.47% of that Fund's average daily net
assets of Class B shares; absent this waiver, the management fee and the
total expenses for Class B shares of this Fund would have been 1.00% and
1.87%, respectively. This voluntary expense waiver may be terminated at any
time.
(D) Formerly, the Merrill Lynch Special Value Focus Fund.
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming no payment
enhancement and a 5% annual return on assets, if you surrendered your 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........ $106 $162 $203 $304
Internet Technologies............... 107 166 212 321
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Science & Technology................ 106 163 206 309
International Small Cap............. 108 169 216 329
Aggressive Growth .................. 106 162 204 306
Emerging Small Company.............. 106 162 204 305
Small Company Blend................. 108 167 213 322
Dynamic Growth Trust................ 106 162 204 306
Mid Cap Stock....................... 105 159 199 296
All Cap Growth (A).................. 105 159 199 295
Overseas............................ 107 164 208 313
International Stock................. 107 165 210 317
International Value................. 107 165 209 315
Mid Cap Blend ...................... 104 156 193 284
Small Company Value................. 107 165 209 314
Global Equity....................... 105 160 201 299
Growth.............................. 104 156 193 283
Large Cap Growth.................... 105 158 197 291
Quantitative Equity................. 103 152 186 269
Blue Chip Growth.................... 104 157 194 286
Real Estate Securities.............. 103 152 186 270
Tactical Allocation................. 105 159 199 296
Value............................... 104 155 191 280
Growth & Income..................... 103 153 188 273
U.S. Large Cap Value................ 104 157 195 288
Equity Income....................... 104 157 195 287
Income & Value...................... 104 155 192 281
Balanced............................ 104 155 191 280
High Yield.......................... 103 154 190 277
Strategic Bond...................... 104 155 191 280
Global Bond ........................ 105 158 197 291
Total Return........................ 103 154 190 277
Investment Quality Bond............. 103 152 186 270
Diversified Bond ................... 103 154 190 277
U.S. Government Securities.......... 102 151 184 265
Money Market........................ 101 146 175 248
Small Cap Index..................... 101 148 178 253
International Index................. 101 148 178 253
Mid Cap Index....................... 101 148 178 253
Total Stock Market Index............ 101 148 178 253
500 Index........................... 101 147 176 249
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Lifestyle Aggressive 1000........... 106 162 205 306
Lifestyle Growth 820................ 105 160 201 299
Lifestyle Balanced 640.............. 105 158 197 292
Lifestyle Moderate 460.............. 104 157 195 287
Lifestyle Conservative 280.......... 103 155 191 279
Merrill Lynch Small Cap Value Focus (B) 104 158 196 289
Merrill Lynch Basic Value Focus..... 103 153 188 274
Merrill Lynch Developing Capital
Markets Focus ...................... 108 170 218 332
</TABLE>
(A) Formerly, the Mid Cap Growth Trust
(B) Formerly, the Merrill Lynch Special Value Focus Fund
You would pay the following expenses on a $1,000 investment, assuming no payment
enhancement and a 5% annual return on assets, if you selected an annuity benefit
payment option 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........ $27 $84 $143 $304
Internet Technologies............... 29 89 152 321
Science & Technology................ 28 86 146 309
International Small Cap............. 30 92 156 329
Aggressive Growth .................. 28 85 144 306
</TABLE>
9
<PAGE> 12
<TABLE>
<S> <C> <C> <C> <C>
Emerging Small Company.............. 27 84 144 305
Small Company Blend................. 29 90 153 322
Dynamic Growth...................... 28 85 144 306
Mid Cap Stock....................... 27 82 139 296
All Cap Growth (A).................. 26 81 139 295
Overseas ........................... 28 87 148 313
International Stock................. 29 88 150 317
International Value................. 29 88 149 315
Mid Cap Blend....................... 25 78 133 284
Small Company Value................. 28 87 149 314
Global Equity....................... 27 83 141 299
Growth.............................. 25 78 133 283
Large Cap Growth ................... 26 80 137 291
Quantitative Equity................. 24 74 126 269
Blue Chip Growth.................... 26 79 134 286
Real Estate Securities.............. 24 74 126 270
Value............................... 25 77 131 280
Tactical Allocation................. 27 82 139 296
Growth & Income..................... 24 75 128 273
U. S. Large Cap Value............... 26 79 135 288
Equity-Income....................... 26 79 135 287
Income & Value...................... 25 77 132 281
Balanced............................ 25 77 131 280
High Yield.......................... 25 76 130 277
Strategic Bond...................... 25 77 131 280
Global Bond ........................ 26 80 137 291
Total Return........................ 25 76 130 277
Investment Quality Bond............. 24 74 126 270
Diversified Bond ................... 25 76 130 277
U.S. Government Securities.......... 23 72 124 265
Money Market........................ 22 67 115 248
Small Cap Index..................... 22 69 118 253
International Index................. 22 69 118 253
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Mid Cap Index....................... 22 69 118 253
Total Stock Market Index............ 22 69 118 253
500 Index........................... 22 68 116 249
Lifestyle Aggressive 1000........... 28 85 145 306
Lifestyle Growth 820................ 27 83 141 299
Lifestyle Balanced 640.............. 26 80 137 292
Lifestyle Moderate 460.............. 26 79 135 287
Lifestyle Conservative 280.......... 25 76 131 279
Merrill Lynch Small Cap Value Focus(B) 26 80 136 289
Merrill Lynch Basic Value Focus..... 24 75 128 274
Merrill Lynch Developing Capital
Markets Focus ..................... 30 93 158 332
</TABLE>
(A) Formerly, the Mid Cap Growth Trust
(B) Formerly, the Merrill Lynch Special Value Focus Fund
For purposes of presenting the foregoing Examples, we have made certain
assumptions. We have 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" and "Merrill Variable Funds
Annual Expenses" will remain the same (including any voluntary expense
reimbursement continuing in effect). Those assumptions, (each of which is
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 EXAMPLES 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.
10
<PAGE> 13
In addition, for purposes of calculating the values in the above
Example, we have translated the $40 annual administration charge listed under
"Annual Contract Fee" to a 0.047% annual asset charge based on a $85,000
estimated approximate average size of contracts of this series.
A TABLE OF ACCUMULATION UNIT VALUES RELATING TO THE CONTRACT IS
INCLUDED IN APPENDIX B TO THIS PROSPECTUS.
LOCATION OF FINANCIAL STATEMENTS OF REGISTRANT AND DEPOSITOR
Our financial statements and those of the Variable Account may be found in the
Statement of Additional Information.
GENERAL INFORMATION ABOUT US, THE VARIABLE ACCOUNT, THE TRUST AND MERRILL
VARIABLE FUNDS
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
We are an indirect subsidiary of MFC.
We are a stock life insurance company organized under the laws of
Delaware in 1979. Our principal office is located at 500 Boylston Street., Suite
400, Boston, Massachusetts 02116-3739. Our ultimate parent is Manulife Financial
Corporation ("MFC"), a publicly traded company, based in Toronto, Canada. MFC is
the holding company of The Manufacturers Life Insurance Company and its
subsidiaries, collectively known as Manulife Financial.
The Manufacturers Life Insurance Company of North America's financial ratings
are as follows:
A++ A.M. Best
Superior in financial strength; 1st category of 15
AAA Duff & Phelps
Highest in claims paying ability; 1st category of 18
AA+ Standard & Poor's
Very strong in financial strength; 2nd category of 21
Aa2 Moody's
Excellent in financial strength; 3rd category of 21
These ratings, which are current as of the date of this prospectus and are
subject to change, are assigned as a measure of The Manufacturers Life Insurance
Company of North America's ability to honor the death benefit, fixed account
guarantees, and life annuitization guarantees, but do not specifically relate to
its products, the performance (return) of these products, the value of any
investment in these products upon withdrawal or to individual securities held in
any portfolio.
THE VARIABLE ACCOUNT
The Variable Account is one of our separate accounts that invests the contract
values you allocate to it in the Trust or Merrill Variable Funds portfolio(s)
you select.
We established the Variable Account on August 24, 1984. The income,
gains and losses, whether or not realized, from assets of the Variable Account
are credited to or charged against the Variable Account without regard to our
other income, gains or losses. Nevertheless, all obligations arising under the
contracts are our general corporate obligations. Assets of the Variable Account
may not be charged with liabilities arising out of any of our other business.
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 we
determine that it would 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 if 1940 Act registration
were no longer required.
The Variable Account currently has forty-nine sub-accounts. We reserve
the right, subject to compliance with applicable law, to add other sub-accounts,
eliminate existing sub-accounts, combine sub-
11
<PAGE> 14
accounts or transfer assets in one sub-account to another sub-account that we,
or an affiliated company, may establish. We will not eliminate existing
sub-accounts or combine sub-accounts without the prior approval of the
appropriate state or federal regulatory authorities.
THE TRUST
The Trust and Merrill Variable Funds are mutual funds in which the Variable
Account invests.
The assets of each sub-account of the Variable Account (other than the
three sub-accounts invested in the Merrill Variable Funds described below) are
invested in shares of a corresponding investment portfolio of the Trust. A
description of each Trust 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
Bond Trust and the five Lifestyle Trusts which are non-diversified. The Trust
receives investment advisory services from MSS, the successor to NASL Financial
Services, Inc.
The Trust currently has nineteen subadvisers who manage all of the
portfolios, one of which subadvisers is Manufacturers Adviser Corporation
("MAC"). Both MSS and MAC are affiliates of ours.
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO
---------- ---------
<S> <C>
A I M Capital Management, Inc. Aggressive Growth Trust
All Cap Growth Trust (B)
AXA Rosenberg Investment Management LLC Small Company Value Trust
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO
---------- ---------
<S> <C>
Capital Guardian Trust Company Small Company Blend Trust
U.S. Large Cap Value Trust
Income & Value Trust
Diversified Bond Trust
Fidelity Management Trust Company Mid Cap Blend Trust
Large Cap Growth Trust
Overseas Trust
Founders Asset Management LLC International Small Cap Trust
Balanced Trust
Franklin Advisers, Inc. Emerging Small Company Trust
Janus Capital Corporation Dynamic Growth Trust
Manufacturers Adviser Corporation Pacific Rim Emerging Markets Trust
Quantitative Equity Trust
Real Estate Securities Trust
Money Market Trust
Index Trusts
Lifestyle Trusts(A)
Miller Anderson & Sherrerd, LLP Value Trust
High Yield Trust
Mitchell Hutchins Asset Management Inc. Tactical Allocation Trust
Morgan Stanley Asset Management Inc. Global Equity Trust
Munder Capital Management Internet Technologies Trust
Pacific Investment Management Company Global Bond Trust
Total Return Trust
Rowe Price-Fleming International, Inc. International Stock Trust
Salomon Brothers Asset Management Inc U.S. Government Securities Trust
Strategic Bond Trust
State Street Global Advisors Growth Trust
Lifestyle Trusts(A)
T. Rowe Price Associates, Inc. Science & Technology Trust
Blue Chip Growth Trust
Equity-Income Trust
Templeton Investment Counsel, Inc. International Value Trust
Wellington Management Company, LLP Growth & Income Trust
Investment Quality Bond Trust
Mid Cap Stock Trust
</TABLE>
(A) State Street Global Advisors provides subadvisory consulting services to
Manufacturers Adviser Corporation regarding management of the Lifestyle Trusts.
(B) Formerly, the Mid Cap Growth Trust.
13
<PAGE> 16
The Portfolios of the Trust available under the contract are as follows:
The PACIFIC RIM EMERGING MARKETS TRUST seeks long-term growth of capital by
investing in a diversified portfolio that is comprised primarily of common
stocks and equity-related securities of corporations domiciled in countries in
the Pacific Rim region.
The INTERNET TECHNOLOGIES TRUST seeks long-term capital appreciation by
investing the portfolio's assets primarily in companies engaged in
Internet-related business (such businesses also include Intranet-related
businesses).
The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital by investing at
least 65% of the portfolio's total assets in common stocks of companies expected
to benefit from the development, advancement, and use of science and technology.
Current income is incidental to the portfolio's objective.
The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by investing
primarily in securities issued by foreign companies which have total market
capitalization or annual revenues of $1 billion or less. These securities may
represent companies in both established and emerging economies throughout the
world.
The AGGRESSIVE GROWTH TRUST seeks long-term capital appreciation by investing
the portfolio's asset principally in common stocks, convertible bonds,
convertible preferred stocks and warrants of companies which in the opinion of
the subadviser are expected to achieve earnings growth over time at a rate in
excess of 15% per year. Many of these companies are in the small and
medium-sized category.
The EMERGING SMALL COMPANY TRUST seeks long-term growth of capital by investing,
under normal market conditions, at least 65% of the portfolio's total assets in
common stock equity securities of companies with market capitalizations that
approximately match the range of capitalization of the Russell 2000 Index
("small cap stocks") at the time of purchase.
The SMALL COMPANY BLEND TRUST seeks long-term growth of capital and income by
investing the portfolio's assets, under normal market conditions, primarily in
equity and equity-related securities of companies with market capitalizations
that approximately match the range of capitalization of the Russell 2000 Index
at the time of purchase.
The DYNAMIC GROWTH TRUST seeks long-term growth of capital by investing the
portfolio's assets primarily in equity securities selected for their growth
potential. Normally at least 50% of its equity assets are invested in
medium-sized companies.
The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily
in equity securities with significant capital appreciation potential, with
emphasis on medium-sized companies.
The ALL CAP GROWTH TRUST (formerly, Mid Cap Growth Trust) seeks long-term
capital appreciation by investing the portfolio's assets, under normal market
conditions, principally in common stocks of companies that are likely to benefit
from new or innovative products, services or processes, as well as those that
have experienced above-average, long-term growth in earnings and have excellent
prospects for future growth.
The OVERSEAS TRUST seeks growth of capital by investing, under normal market
conditions, at least 65% of the portfolio's assets in foreign securities
(including American Depositary Receipts (ADRs) and European Depositary Receipts
(EDRs)). The portfolio expects to invest primarily in equity securities.
The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by investing
primarily in common stocks of established, non-U.S. companies.
The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by investing,
under normal market conditions, primarily in equity securities of companies
located outside the U.S., including emerging markets.
The MID CAP BLEND TRUST seeks growth of capital by investing primarily in common
stocks of U.S. issuers and securities convertible into or carrying the right to
buy common stocks.
The SMALL COMPANY VALUE TRUST seeks long-term growth of capital by investing,
under normal circumstances, at least 65% of the portfolio's assets in common
stocks of companies with total market
14
<PAGE> 17
capitalization that approximately match the range of capitalization of the
Russell 2000 Index and are traded principally in the markets of the United
States.
The GLOBAL EQUITY TRUST seeks long-term capital appreciation by investing
primarily in equity securities throughout the world, including U.S. issuers and
emerging markets.
The GROWTH TRUST seeks long-term growth of capital by investing primarily in
large capitalization growth securities (market capitalizations of approximately
$1 billion or greater).
The LARGE CAP GROWTH TRUST seeks long-term growth of capital by investing, under
normal market conditions, at least 65% of the portfolio's assets in equity
securities of companies with large market capitalizations.
The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and long-term growth
through capital appreciation and current income by investing in common stocks
and other equity securities of well established companies with promising
prospects for providing an above average rate of return.
The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital (current
income is a secondary objective) by investing at least 65% of the portfolio's
total assets in the common stocks of large and medium-sized blue chip companies.
Many of the stocks in the portfolio are expected to pay dividends.
The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of long-term
capital appreciation and satisfactory current income by investing in real estate
related equity and debt securities.
The VALUE TRUST seeks to realize an above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in common and preferred stocks, convertible securities, rights and
warrants to purchase common stocks, ADRs and other equity securities of
companies with equity capitalizations usually greater than $300 million.
The TACTICAL ALLOCATION TRUST seeks total return, consisting of long-term
capital appreciation and current income, by allocating the portfolio's assets
between (i) a stock portion that is designed to track the performance of the S&P
500 Composite Stock Price Index, and (ii) a fixed income portion that consists
of either five-year U.S. Treasury notes or U.S. Treasury bills with remaining
maturities of 30 days.
The GROWTH & INCOME TRUST seeks long-term growth of capital and income,
consistent with prudent investment risk, by investing primarily in a diversified
portfolio of common stocks of U.S. issuers which the subadviser believes are of
high quality.
The U.S. LARGE CAP VALUE TRUST seeks long-term growth of capital and income by
investing the portfolio's assets, under normal market conditions, primarily in
equity and equity-related securities of companies with market capitalization
greater than $500 million.
The EQUITY-INCOME TRUST seeks to provide substantial dividend income and also
long-term capital appreciation by investing primarily in dividend-paying common
stocks, particularly of established companies with favorable prospects for both
increasing dividends and capital appreciation.
The INCOME & VALUE TRUST seeks the balanced accomplishment of (a) conservation
of principal and (b) long-term growth of capital and income by investing the
portfolio's assets in both equity and fixed-income securities. The subadviser
has full discretion to determine the allocation between equity and fixed income
securities.
The BALANCED TRUST seeks current income and capital appreciation by investing in
a balanced portfolio of common stocks, U.S. and foreign government obligations
and a variety of corporate fixed income securities.
15
<PAGE> 18
The HIGH YIELD TRUST seeks to realize an above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high yield debt securities, including corporate bonds and
other fixed-income securities.
The STRATEGIC BOND TRUST seeks a high level of total return consistent with
preservation of capital by giving its subadviser broad discretion to deploy the
portfolio's assets among certain segments of the fixed income market as the
subadviser believes will best contribute to achievement of the portfolio's
investment objective.
The GLOBAL BOND TRUST seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management by investing the
portfolio's asset primarily in fixed income securities denominated in major
foreign currencies, baskets of foreign currencies (such as the ECU), and the
U.S. dollar.
The TOTAL RETURN TRUST seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management by investing, under
normal market conditions, at least 65% of the portfolio's assets in a
diversified portfolio of fixed income securities of varying maturities. The
average portfolio duration will normally vary within a three- to six-year time
frame based on the subadviser's forecast for interest rates.
The INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing
primarily in a diversified portfolio of investment grade corporate bonds and
U.S. Government bonds with intermediate to longer term maturities. The portfolio
may also invest up to 20% of its assets in non-investment grade fixed income
securities.
The DIVERSIFIED BOND TRUST seeks high total return consistent with the
conservation of capital by investing at least 75% of the portfolio's assets in
fixed income securities.
The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current income
consistent with preservation of capital and maintenance of liquidity, by
investing in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
derivative securities such as collateralized mortgage obligations backed by such
securities.
The MONEY MARKET TRUST seeks maximum current income consistent with preservation
of principal and liquidity by investing in high quality money market instruments
with maturities of 397 days or less issued primarily by U.S. entities.
The SMALL CAP INDEX TRUST seeks to approximate the aggregate total return of a
small cap U.S. domestic equity market index by attempting to track the
performance of the Russell 2000 Index.*
The INTERNATIONAL INDEX TRUST seeks to approximate the aggregate total return of
a foreign equity market index by attempting to track the performance of the
Morgan Stanley European Australian Far East Free Index (the "MSCI EAFE Index").*
The MID CAP INDEX TRUST seeks to approximate the aggregate total return of a mid
cap U.S. domestic equity market index by attempting to track the performance of
the S&P Mid Cap 400 Index.*
The TOTAL STOCK MARKET INDEX seeks to approximate the aggregate total return of
a broad U.S. domestic equity market index by attempting to track the performance
of the Wilshire 5000 Equity Index.*
The 500 INDEX TRUST seeks to approximate the aggregate total return of a broad
U.S. domestic equity market index by attempting to track the performance of the
S&P 500 Composite Stock Price Index.*
The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth of capital
(current income is not a consideration) by investing 100% of the Lifestyle
Trust's assets in other portfolios of the Trust ("Underlying Portfolios") which
invest primarily in equity securities.
The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of capital with
consideration also given to current income by investing approximately 20% of the
Lifestyle Trust's assets in Underlying Portfolios which invest primarily in
fixed income securities and approximately 80% of its assets in Underlying
Portfolios which invest primarily in equity securities.
16
<PAGE> 19
The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to capital
growth by investing approximately 40% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 60% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to current
income by investing approximately 60% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 40% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of current
income with some consideration also given to growth of capital by investing
approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and approximately 20% of its assets
in Underlying Portfolios which invest primarily in equity securities.
*"Standard & Poor's(R)," "S&P 500(R)," "Standard and Poor's 500(R)" and
"Standard and Poor's 400(R)" are trademarks of The McGraw-Hill Companies, Inc.
"Russell 2000(R)" is a trademark of Frank Russell Company. "Wilshire 5000(R)" is
a trademark of Wilshire Associates. "Morgan Stanley European Australian Far East
Free" and "EAFE(R)" are trademarks of Morgan Stanley & Co. Incorporated. None of
the Index Trusts are sponsored, endorsed, managed, advised, sold or promoted by
any of these companies, and none of these companies make any representation
regarding the advisability of investing in the Trust.
A full description of the Trust, including the investment objectives,
policies and restrictions of, and the risks relating to investment in, each
portfolio is contained in the Trust's Prospectus which we provided you along
with this Prospectus. The Trust Prospectus should be read carefully before
allocating purchase payments to a sub-account.
MERRILL VARIABLE FUNDS
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 are 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. ("MLAM"). The Merrill Variable Funds Class B shares are subject
to a Rule 12b-1 fee of up to 0.15% of a portfolio's Class B net assets. Below is
a brief description of each portfolio's investment objectives and certain
policies relating to that objective.
The MERRILL LYNCH SMALL CAP VALUE FOCUS FUND (formerly, 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 and emerging growth companies, regardless of size, that
management of Merrill Variable Funds believes have special investment value.
The MERRILL LYNCH BASIC VALUE FOCUS FUND seeks capital appreciation and,
secondarily, income by investing in securities, primarily stocks, that
management of the portfolio believes are undervalued (stock price is less than
what management of the Fund believes it is worth) 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 United States, United Kingdom, Japan and Germany. The Fund may
also invest in fixed income securities of companies and governments in these
countries. The Fund's management anticipates that under most circumstances the
Fund will have substantial investments in emerging markets.
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.
17
<PAGE> 20
PLEASE NOTE THE MERRILL VARIABLE FUNDS ARE NOT AVAILABLE FOR ERISA
GOVERNED PLANS.
If the shares of portfolio of the Trust or the Merrill Variable Funds
are no longer available for investment or in our judgment investment in a Trust
or a Merrill Variable Fund portfolio becomes inappropriate, we may eliminate the
shares of a portfolio and substitute shares of another portfolio of the Trust,
Merrill Variable Fund 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, we will make no such
substitution without first notifying you and obtaining approval of the SEC (to
the extent required by the 1940 Act).
You instruct us how to vote Trust or Merrill Variable Funds shares.
Shares of the Trust portfolios or the Merrill Variable Funds portfolios
held in the Variable Account will be voted at any shareholder meetings in
accordance with voting instructions received from the persons having the voting
interest in the contracts. We will determine the number of portfolio shares for
which voting instructions may be given not more than 90 days prior to the
meeting. Proxy materials will be distributed to each person having the voting
interest under the contract together with appropriate forms for giving voting
instructions. We will vote all portfolio shares that we hold (including our own
shares and those we hold in the Variable Account for contract owners) in
proportion to the instructions so received.
During the accumulation period, the contract owner has the voting
interest under a contract. During the pay-out period, the annuitant has the
voting interest under a contract. We reserve the right to make any changes in
the voting rights described above that may be permitted by the Federal
securities laws, regulations or interpretations thereof. For further information
on voting interests under the contract see "Voting Interests" in this
prospectus.
DESCRIPTION OF THE CONTRACT
ACCUMULATION PERIOD PROVISIONS
PURCHASE PAYMENTS
Initial purchase payments usually must be at least $10,000, subsequent ones at
least $30, and total payments no more than $1 million (without our approval).
Your purchase payments are made to us at our Annuity Service Office.
The minimum initial purchase payment is $10,000. Subsequent purchase payments
must be at least $30. Purchase payments may be made at any time. We may provide
for purchase payments to be automatically withdrawn from your bank account on a
periodic basis. If a purchase payment would cause your contract value to exceed
$1,000,000 or your contract value already exceeds $1,000,000, you must obtain
our approval in order to make the payment.
If permitted by state law, we may cancel a contract at the end of any
two consecutive contract years in which no purchase payments have been made, if
both:
- the total purchase payments made over the life of the
contract, less any withdrawals, are less than $2,000; and
- the contract value at the end of such two year period is less
than $2,000.
We may vary the cancellation of contract privileges in certain states in order
to comply with state insurance laws and regulations. If we cancel your contract,
we will pay you the contract value computed as of the valuation period during
which the cancellation occurs, minus the amount of any outstanding loan and
minus the annual $40 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").
You designate in your contract application how your purchase payments
are to be allocated among the investment options. You may change the allocation
of subsequent purchase payments at any time by notifying us in writing (or by
telephone if you comply with our telephone transfer procedures described below).
PAYMENT ENHANCEMENTS
We add 3% or more to each payment you make.
When you make a purchase payment, we will add a payment enhancement to
your contract. The payment enhancement is funded from our general account and is
allocated among investment options in the same proportion as your purchase
payment.
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We are currently offering a promotional payment enhancement for initial
and subsequent purchase payments to contracts issued on and after June 21, 1999.
Subsequent payments to contracts issued prior to June 21, 1999 continue to
receive the payment enhancement rates in effect at the time of the issuance of
the contract. The promotional payment enhancements may be terminated by us at
any time. Initial and subsequent purchase payments that do not receive the
promotional payment enhancements will receive the guaranteed payment enhancement
described in the column labeled "Guaranteed Rate" in the table below.
The payment enhancement is a percentage of your purchase payment that
varies (based upon on the cumulative amount of your purchase payments to the
date of that payment) as follows:
<TABLE>
CUMULATIVE PURCHASE PAYMENT ENHANCEMENT
PAYMENTS
GUARANTEED RATE PRIOR PROMOTIONAL RATE PROMOTIONAL RATE
(Contracts Issued on or (Contracts Issued
After January 1, 1999 but on or After June
Prior to June 21, 1999) 21, 1999)
<S> <C> <C> <C>
Less than $500,000 3.0% 4.0% 5.0%
$500,000 or more but less
than $2.5 million 4.0% 5.0% 5.5%
$2.5 million or more 5.0% 6.0% 6.0%
</TABLE>
An example of the calculation of the payment enhancement is set forth in
APPENDIX F. Payment enhancements are not considered to be "investment in the
contract" for income tax purposes (see "FEDERAL TAX MATTERS").
If you exercise your right to return your contract during the "ten day
right to review period," we will reduce the amount returned to you by the amount
of any payment enhancement applied to your initial purchase payment.
The Company expects to make a profit from the contracts. The charges
used to recoup the expense of paying the payment enhancement include the
withdrawal charge and the asset based charges.
There may be circumstances where you may be worse off for having
purchased a contract with a payment enhancement as opposed to a contract without
a payment enhancement. The Company issues a variety of variable annuities
designed to meet different retirement planning goals. Other variable annuities
issued by the Company have no payment enhancement. These contracts with no
payment enhancements have withdrawal charges and asset based charges that may
for certain contracts be lower than the charges for this contract. You and your
financial adviser should decide if you may be better off with one of our other
variable annuities. In making this determination, you and your financial adviser
should consider the following factors:
- The length of time that you plan to own your contract
- The frequency, amount and timing of any partial surrenders
- The amount of your purchase payments
In addition, if you exercise your right to return the contract within 10 days of
receiving it, we will recover the original amount of the payment enhancement
credited (including any amount credited pursuant to a Letter of Intent as
discussed below). Therefore, you bear the risk that if the market value of the
payment enhancement has declined, we will still recover the full amount of the
payment enhancement.
Using a Letter of Intent may permit you to receive a larger payment enhancement.
Letter of Intent (not available in Oregon). The next higher payment
enhancement percentage may be applied to your initial purchase payment if you
provide us with satisfactory evidence (referred to as a "Letter of Intent") that
your total purchase payments in the first 13 months would satisfy the
requirement for the higher percentage. Satisfactory evidence will require, but
is not limited to, a minimum initial purchase payment of at least 50% of the
minimum required payment for the higher percentage. We reserve the right to
recover an amount from your contract if your total purchase payments received
within 13 months from the issue date of your contract do not equal or exceed the
amount (promised in your Letter of Intent) used to determine a payment
enhancement. The amount we may recover is the amount of payment enhancement
applied to your contract minus the amount of payment enhancement that would have
been applied had you not submitted a Letter of Intent (the "excess payment
enhancement").
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IF THE VALUE OF SUCH ACCUMULATION UNITS DECLINES, WE WILL RECOVER THE
FULL AMOUNT OF THE EXCESS PAYMENT ENHANCEMENT. THEREFORE, YOU BEAR THE RISK THAT
IF YOUR LETTER OF INTENT IS NOT COMPLETED, THE VALUE OF YOUR CONTRACT MAY BE
LESS THAN HAD YOUR LETTER OF INTENT NOT BEEN EXECUTED. IF THE AMOUNT RECOVERED
EXCEEDS THE CONTRACT VALUE, WE WILL TERMINATE YOUR CONTRACT WITHOUT VALUE.
Amounts recovered will be 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.
The promotional rates applicable to the initial purchase payment under
a Letter of Intent will continue in effect for the 13 month Letter of Intent
completion period regardless of a termination generally of the promotional rates
during such a period.
IF YOU FAIL TO INFORM US THAT YOU INTEND TO SUBMIT MULTIPLE PAYMENTS
WITHIN 13 MONTHS OF YOUR CONTRACT ISSUE DATE, YOUR CONTRACT MAY RECEIVE A LOWER
PAYMENT ENHANCEMENT PERCENTAGE THAN WOULD OTHERWISE BE AVAILABLE.
If you are considering purchasing a contract in connection with certain
qualified plans, then special considerations regarding the payment enhancement
may apply. Corporate and self-employed pension and profit sharing plans, as well
as tax-sheltered annuity plans, are subject to nondiscrimination rules. The
nondiscrimination rules generally require that benefits, rights, or features of
the plan not discriminate in favor of highly compensated employees. In
evaluating whether the contract is suitable for purchase in connection with such
a qualified plan, you should consider the effect of the payment enhancement on
the plan's compliance with the applicable nondiscrimination requirements.
Violation of these nondiscrimination rules can cause loss of the plan's tax
favored status under the Code. Employers intending to use the Contract in
connection with such plans should seek competent advice. (See Appendix G -
"QUALIFIED PLAN TYPES").
ACCUMULATION UNITS
The value of an investment account is measured in "accumulation units," which
vary in value with the performance of the underlying Trust or Merrill Variable
Funds portfolio.
During the accumulation period, we will establish an "INVESTMENT
ACCOUNT" for you for each Variable Account investment option to which you
allocate a portion of your contract value. Amounts are credited to those
investment accounts in the form of "ACCUMULATION UNITS" (units of measure used
to calculate the value of the variable portion of your contract during the
accumulation period). The number of accumulation units to be credited to each
investment account is determined by dividing the amount allocated to that
investment account by the value of an accumulation unit for that investment
account next computed after the purchase payment is received at our 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 on
the business day (any date on which the New York Stock Exchange is open and the
net asset value of a Trust or Merrill Variable Funds portfolio is determined) on
which they are received at our Annuity Service Office, and in any event not
later than two business days after our receipt of all information necessary for
issuing the contract. You will be informed of any deficiencies preventing
processing if your contract cannot be issued. If the deficiencies are not
remedied within five business days after receipt, your purchase payment will be
returned promptly, unless you specifically consent to our retaining your
purchase payment until all necessary information is received. Initial purchase
payments received by wire transfer from broker-dealers will be credited on the
business day received by us if the broker-dealers have made special arrangements
with us.
VALUE OF ACCUMULATION UNITS
The value of your accumulation units will vary from one business day to
the next depending (the "VALUATION PERIOD") upon the investment results of the
investment options you select. The value of an accumulation unit for each
sub-account was arbitrarily set at $10 or $12.50 for the first business day
under other contracts we have issued. The value of an accumulation unit for any
subsequent business day is determined by multiplying the value of an
accumulation unit for the immediately preceding business day by the net
investment factor for such sub-account (described below) for the valuation
period for which the value is being determined. Accumulation units will be
valued at the end of each business day. A business day is deemed to end at the
time of the determination of the net asset value of the Trust shares.
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 may be greater or less than or
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<PAGE> 23
equal to one; therefore, the value of an accumulation unit may increase,
decrease or remain the same. 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:
- 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
- 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, a portion of
the distribution expenses, and mortality and expense risks. That factor
is equal on an annual basis to 1.55% (0.30% for administrative expenses
and 1.25% for mortality and expense risks).
TRANSFERS AMONG INVESTMENT OPTIONS
Amounts Invested may be transferred among investment options.
During the accumulation period, you may transfer amounts among the
investment options at any time upon written notice to us or by telephone if you
authorize us in writing to accept telephone transfer requests. Accumulation
units will be canceled from the investment account from which you transfer
amounts transferred and credited to the investment account to which you transfer
amounts. Your contract value on the date of the transfer will not be affected by
a transfer. You 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 we will transfer the entire amount instead of
the requested amount. We reserve the right to limit, upon notice, the maximum
number of transfers you may make to one per month or six at any time within a
contract year. In addition, we reserve the right to defer a transfer at any time
we are unable to purchase or redeem shares of the Trust portfolios. We also
reserve the right to modify or terminate the transfer privilege at any time (to
the extent permitted by applicable law).
Currently the Company imposes no charge for transfer requests. The
first twelve transfers in a contract year are free of any transfer charge. For
each additional transfer in a contract year, the Company does not currently
assess a charge but reserves the right (to the extent permitted by your
contract) to assess a reasonable charge to reimburse it for the expenses of
processing transfers.
Where permitted by law, we may accept your authorization for a third
party to make transfers for you subject to our rules. However, the contract is
not designed for professional market timing organizations or other entities or
persons engaging in programmed, frequent or large exchanges (collectively,
"market timers") to speculate on short-term movements in the market since such
activity may be disruptive to the Trust or Merrill Variable Funds portfolios and
increase their transaction costs. Therefore, in order to prevent excessive use
of the exchange privilege, we reserve the right to (a) reject or restrict any
specific purchase and exchange requests and (b) impose specific limitations with
respect to market timers, including restricting exchanges by market timers to
certain variable investment options (transfers by market timers into or out of
fixed investment options is not permitted).
MAXIMUM NUMBER OF INVESTMENT OPTIONS
Upon issuance of the contract, purchase payments may be allocated among
up to seventeen of the available investment options (including all fixed account
investment options). After the contract is issued, there is no limit on the
number of investment options to which you may allocate purchase payments.
TELEPHONE TRANSACTIONS
Telephone transfers and withdrawals are permitted.
You are permitted to request transfers and withdrawals by telephone. We
will not be liable for following instructions communicated by telephone that we
reasonably believe to be genuine. To be permitted to request a transfer or
withdrawal by telephone, you must elect the option on the Application. (If you
do not initially elect an option in the Application form, you may request
authorization by executing an appropriate authorization form that we will
provide you upon request.) We will employ reasonable
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<PAGE> 24
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 we fail to employ our procedures properly. Such procedures
include the following. Upon telephoning a request, you will be asked to provide
information that verifies that it is you calling. For both your and our
protection, we will tape record all conversations with you. All telephone
transactions will be followed by a confirmation statement of the transaction. We
reserve the right to impose maximum withdrawal amounts and other new procedural
requirements regarding transfer privileges.
SPECIAL TRANSFER SERVICES - DOLLAR COST AVERAGING
Dollar Cost Averaging and Asset Rebalancing programs are available.
We administer a Dollar Cost Averaging ("DCA") program. If you enter
into a DCA agreement, you may instruct us 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 purchase payments (and not existing contract values) may be
allocated to the DCA fixed account investment option. The DCA program is
generally suitable if you are making a substantial deposit and desire to control
the risk of investing at the top of a market cycle. The DCA program allows
investments to be made in equal installments over time in an effort to reduce
that risk. If you are interested in the DCA program, you may elect to
participate in the program on the application or by separate application. You
may obtain a separate application and full information concerning the program
and its restrictions from your securities dealer or our Annuity Service Office.
There is no charge for participation in the DCA program.
ASSET REBALANCING PROGRAM
We administer an Asset Rebalancing Program which enables you to specify
the percentage levels you would like to maintain in particular portfolios. Your
contract value will be automatically rebalanced pursuant to the schedule
described below to maintain the indicated percentages by transfers among the
portfolios. (The 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, you should monitor your use of these other programs and any other
transfers or withdrawals while the Asset Rebalancing Program is being used. If
you are interested in the Asset Rebalancing Program, you may obtain a separate
application and full information concerning the program and its restrictions
from your securities dealer or our Annuity Service Office. There is no charge
for participation in the Asset Rebalancing Program.
Asset rebalancing will only be permitted on the following time
schedules:
- 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);
- semi-annually on June 25th or December 26th (or the next
business day if these dates are not business days); or
- annually on December 26th (or the next business day if
December 26th is not a business day).
WITHDRAWALS
During the accumulation period, you may withdraw all or a portion of your
contract value upon written request (complete with all necessary information) to
our Annuity Service Office. You may make withdrawals by telephone if you have
authorized telephone withdrawals, as described above under "Telephone
Transactions." For certain qualified contracts, exercise of the withdrawal right
may require the consent of the qualified plan participant's spouse under the
Internal Revenue Code of 1986, as amended (the "CODE") and related Treasury
Department regulations. In the case of a total withdrawal, we will pay the
contract value as of the date of receipt of the request at our Annuity Service
Office, less the annual $30 administration fee if applicable, any unpaid loans
and any applicable withdrawal charge, and the contract will be canceled. In the
case of a partial withdrawal, we will pay the amount requested and cancel that
number of accumulation units credited to each investment account equal in value
to the amount withdrawn from that investment account plus any applicable
withdrawal charge deducted from such investment account (see "CHARGES AND
DEDUCTIONS").
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You may withdraw all or a portion of your contract value, but may incur
withdrawal charges and tax liability as a result.
When making a partial withdrawal, you 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 you do not specify the investment options from
which a partial withdrawal is to be taken, the withdrawal will be taken from the
variable account investment options until exhausted and then from the fixed
account investment options. 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 that variable account investment
option bears to the value of all your investments in variable account investment
options. For 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, we 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, we 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 our Annuity Service
Office, except that we reserve the right to defer the right of withdrawal or
postpone payments for any period when:
- the New York Stock Exchange is closed (other than customary
weekend and holiday closings),
- trading on the New York Stock Exchange is restricted,
- 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
- 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 trading is restricted or an
emergency exists.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax (see "FEDERAL TAX MATTERS"). Withdrawals are permitted from
contracts issued in connection with Section 403(b) qualified plans only under
limited circumstances (see Appendix G "QUALIFIED PLAN TYPES").
SPECIAL WITHDRAWAL SERVICES - THE INCOME PLAN
Systematic "Income Plan" withdrawals are available.
We administer an Income Plan ("IP") which permits you to pre-authorize
a periodic exercise of the contractual withdrawal rights described above. After
entering into an IP agreement, you may instruct us 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 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 charges. IP
withdrawals, like other withdrawals, may be subject to income tax and a 10%
penalty tax (see "FEDERAL TAX MATTERS"). If you are interested in an IP, you may
obtain a separate application and full information concerning the program and
its restrictions from your securities dealer or our Annuity Service Office.
There is no charge for participation in the IP program.
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DEATH BENEFIT DURING THE ACCUMULATION PERIOD
If you die during the accumulation period, your beneficiary will receive a death
benefit that might exceed your contract value.
IN GENERAL. The following discussion applies principally to contracts
that are not issued in connection with qualified plans, i.e., "NON-QUALIFIED
CONTRACTS." Tax law requirements applicable to qualified plans, and the tax
treatment of amounts held and distributed under such plans, are quite complex.
Accordingly, if your contract is to be used in connection with a qualified plan,
you 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, if you intend to use the contract in connection with a
qualified plan, you should consider that the contract provides a death benefit
(described below) that could be characterized as an "incidental death benefit."
There are limits on the amount of incidental benefits that may be provided under
certain qualified plans and the provision of such benefits may result in
currently taxable income to plan participants (see "FEDERAL TAX MATTERS").
AMOUNT OF DEATH BENEFIT. If any contract owner dies, the death benefit
will be determined as follows:
- The death benefit during the first nine contract years will be
the greater of:
(a) the contract value, or
(b) the excess of
- the sum of all purchase payments over
- the sum of any partial withdrawals.
- After the ninth contract year, the death benefit will be the greater
of:
(a) the contract value, or
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(b) the excess of:
- the sum of all purchase payments over
- the sum of any amounts deducted in connection with partial
withdrawals, or
(c) the death benefit on the last day of the ninth contract year, plus
the sum of all purchase payments made and any amount deducted in
connection with partial withdrawals since then.
If a contract owner dies, we have the right to deduct from the death benefit
paid any payment enhancements applied to the contract in the 12 month period
prior to the date of death. However, we are currently waiving this right.
Reference to "payment enhancements" in this paragraph refers to the original
amount of payment enhancements; earnings attributable to payment enhancements
will not be deducted from the death benefit paid.
The determination of the death benefit will be made on the date we
receive written notice and "proof of death" as well as all required claims
forms, at our Annuity Service Office. No one is entitled to the death benefit
until this time. Death benefits will be paid within 7 days of that
determination. Proof of death occurs when we receive one of the following at our
Annuity Service Office within one year of the date of death:
- a certified copy of a death certificate;
- a certified copy of a decree of a court of competent
jurisdiction as to the finding of death; or
- any other proof satisfactory to us.
If there are any unpaid loans, the death benefit equals the death benefit, as
described above, minus the amount of unpaid loans (including unpaid interest).
PAYMENT OF DEATH BENEFIT. We will pay the death benefit 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:
- The beneficiary will become the contract owner.
- 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 receipt at our Annuity
Service Office of due proof of the owner's death.
- No additional purchase payments may be made.
- If the deceased owner's spouse is the beneficiary, the spouse
continues the contract as the new owner. In such a case, the
distribution rules 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, all payments made and all amounts
deducted in connection with partial withdrawals prior to the
date of the first owner's death will not be considered in the
determination of the spouse's death benefit.
- If the beneficiary is not the deceased owner's 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. If the distribution is
not made as an annuity, upon the death of the beneficiary, the
death benefit will equal the contract value and must be
distributed immediately in a single sum.
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- 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 date as of which the contract was issued, any applicable
withdrawal charges will be assessed only upon payment of the
death benefit (so that if the death benefit is paid in a
subsequent year, a lower withdrawal charge will be
applicable).
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.
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. For purposes of subsequent calculations of the death benefit
prior to the maturity date, the contract value on the date of the change will be
treated as a payment made on that date. This treatment of contract value as a
payment is not included in cumulative purchase payments and is not eligible for
a payment enhancement. In addition, all payments made and all amounts deducted
in connection with partial withdrawals prior to the date of the change will not
be considered in the determination of the death benefit. No such change in death
benefit will be made if the person 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").
PAY-OUT PERIOD PROVISIONS
GENERAL
You have a choice of several different ways of receiving annuity benefit
payments from us.
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
DURING THE ACCUMULATION PERIOD").
Generally, we will begin paying annuity benefits under the contract on
the contract's maturity date (the date dividing the accumulation period from the
pay-out period). The maturity date is the date specified on the contract
specifications page, unless you change that date. 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. See APPENDIX E for contracts
issued in Pennsylvania. You 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 we consent. 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.
You 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, we may pay the contract value, minus any unpaid loans, in one lump sum
to the annuitant on the maturity date.
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ANNUITY OPTIONS
Annuity benefit payments are available under the contract on a fixed,
variable, or combination fixed and variable basis. Upon purchase of the
contract, and at any time during the accumulation period, you 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 payment acceptable to us. If an annuity option is not
selected, we will provide as a default option a life annuity with payments
guaranteed for 10 years as described below. Annuity payments will be determined
based on the Investment Account Value of each investment option at the maturity
date.
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. Please
read the description of each annuity option carefully. In general, a nonrefund
life annuity provides the highest level of payments. However, because 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. Annuities with payments guaranteed for a certain number of years
may also be elected but the amount of each payment will be lower than that
available under the nonrefund life annuity option.
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. Because 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. Because 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. Because 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. Because 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 we are contractually
obligated to offer at all times, we currently offer the following annuity
options. We 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. Because
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. Because 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 BENEFIT PAYMENT
The first variable annuity payment is determined by applying that
amount of the contract value
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used to purchase a variable annuity to the annuity tables contained in the
contract. The amount of the contract value will be determined as of a date not
more than ten business days prior to the maturity date. 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. Contract
value used to determine annuity payments will be reduced by any applicable
premium taxes.
The rates contained in the annuity tables vary with the annuitant's sex
and age and the annuity option selected. However, for contracts issued in
connection with certain employer-sponsored retirement plans sex-distinct tables
may not be used. Under such tables, the longer the life expectancy of the
annuitant under any life annuity option or the longer the period for which
payments are guaranteed under the option, the smaller the amount of the first
monthly variable annuity payment will be.
ANNUITY UNITS AND THE DETERMINATION OF SUBSEQUENT VARIABLE ANNUITY BENEFIT
PAYMENTS
Variable annuity benefit payments subsequent to the first will be based
on the investment performance of the sub-accounts selected during the pay-out
period. The amount of subsequent payments is determined by dividing the amount
of the first annuity payment from each sub-account by the annuity unit value of
that 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 generally remains
constant during the annuity benefit payment period.
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.
TRANSFERS DURING THE PAY-OUT PERIOD
Some transfers are permitted during the pay-out period, but subject to a few
more limitations than during the accumulation period.
Once variable annuity benefit payments have begun, you may transfer all
or part of the investment upon which those payments are based from one
sub-account to another. You must submit your transfer request to our Annuity
Service Office at least 30 days before the due date of the first annuity benefit
payment to which your transfer 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 benefit
payments will reflect changes in the value of the new annuity units. We reserve
the right to limit, upon notice, the maximum number of transfers to four per
contract year. 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, we reserve the right to
defer the transfer privilege at any time that we are unable to purchase or
redeem shares of the Trust or Merrill Variable Funds portfolios. We also reserve
the right to modify or terminate the transfer privilege at any time in
accordance with applicable law.
DEATH BENEFIT DURING THE PAY-OUT PERIOD
If an annuity option providing for payments for a guaranteed period has
been selected, and the annuitant dies during the pay-out period, we 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, we 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
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You have a ten-day right to cancel your contract.
You may cancel the contract by returning it to our Annuity Service
Office or agent at any time within 10 days after receiving it. Within 7 days of
receiving a returned contract, we will pay you the contract value (minus any
unpaid loans and any payment enhancement), computed at the end of the valuation
period during which we receive the returned contract. We will recover the
original amount of the payment enhancement credited; earnings attributable to
the payment enhancement will not be deducted from the amount paid.
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 state insurance laws and
regulations. When the contract is issued as an individual retirement annuity
under Code Sections 408 or 408A, during the first 7 days of the 10 day period,
we will return all purchase payments if this is greater than the amount
otherwise payable.
OWNERSHIP
You are entitled to exercise all rights under your contract.
The contract owner is the person entitled to exercise all rights under
the contract. The maximum age of an owner for which a contract will be issued is
age 80. Prior to the maturity date, the contract owner is the person designated
in the specifications page or as subsequently named. During the pay-out period,
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
(potentially taxable) 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 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. This
purchase payment will not be included in cumulative purchase payments and is not
eligible for a payment enhancement.
Any change of ownership or assignment must be made in writing. We must
approve any change. Any assignment and any change, if approved, will be
effective as of the date we receive the request at our Annuity Service Office.
We assume 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 us.
ANNUITANT
The "annuitant" is either you or someone you designate.
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 specifications page or in the application, unless changed. The maximum age
of an annuitant for which a contract will be issued is age 80.
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.
BENEFICIARY
The "beneficiary" is the person you designate to receive the death benefit if
you die.
The beneficiary is the person, persons or entity designated in the
contract specifications page (or as subsequently changed). 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 us, and (if approved) will be
effective as of the date on which written. We assume 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
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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, Treasury Department regulations may limit
designations of beneficiaries.
MODIFICATION
We may not modify your contract without your consent, except to the
extent 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
We reserve the right to accept or reject any contract application at
our sole discretion.
MISSTATEMENT AND PROOF OF AGE, SEX OR SURVIVAL
We 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 we have 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 (NOT AVAILABLE IN OREGON)
The fixed account investment options are not securities.
SECURITIES REGISTRATION. 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 our 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 the
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.
GUARANTEE. Pursuant to a Guarantee Agreement dated March 31, 1996, The
Manufacturers Life Insurance Company ("Manulife"), unconditionally guarantees to
us, on behalf of and for the benefit of us and owners of fixed annuity contracts
we issue, that it will, on demand, make funds available to us 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 in
this Prospectus. This Guarantee may be terminated by Manulife on notice to us.
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:
- the liability to pay contractual claims under the contracts is
assumed by another insurer, or
- we are sold and the buyer's guarantee is substituted for the
Manulife guarantee.
REINSURANCE. Effective June 30, 1995, we 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 issued prior to January 1,
1999. Under this Reinsurance Agreement, we remain liable for the contractual
obligations of the contracts' fixed accounts and Peoples agrees to reimburse us
for certain amounts and obligations in connection with the fixed accounts.
Peoples contractual liability runs solely to us, and no contract owner shall
have any right of action against Peoples. For contracts issued after January 1,
1999, The Manufacturers Life Insurance Company (U.S.A.) reinsures certain
amounts with respect to the fixed account portion of the contract under a
reinsurance agreement with substantially similar terms to the Peoples
Reinsurance Agreement.
Fixed account investment options guarantee interest of at least 3%.
INVESTMENT OPTIONS. A one-year fixed account investment option is
available under the contract. In addition, a DCA fixed investment account 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). Under the fixed account investment options, we
guarantee 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 a fixed account investment option and
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any fixed annuity benefit payments will reflect those interest and principal
guarantees. We determine the guaranteed interest rates on new amounts allocated
or transferred to a fixed investment account from time-to-time, according to
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 we may not change it.
INVESTMENT ACCOUNTS. You may allocate purchase payments, or make
transfers from the variable investment options, to the one-year fixed account
investment option at any time prior to the maturity date. We establish a
separate investment account each time you allocate or transfer amounts to the
one-year 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, you may establish a new
investment account with a one-year guarantee period at the then current interest
rate or transfer the amounts to a variable account investment option, all
without the imposition of any charge. 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 you do not specify a renewal option, we will
select the one-year fixed account investment option. In the case of a renewal
within one year of the maturity date, we will credit interest up to the maturity
date at the then current interest rate for one-year guarantee periods.
TRANSFERS. During the accumulation period, you may transfer amounts
from the fixed account investment option to the variable account investment
options at the end of the guaranteed period; however, amounts may be transferred
prior to the end of the guarantee period pursuant to the DCA program. Where
there are multiple investment accounts within the one-year fixed account
investment option, amounts must be transferred from the one-year fixed account
investment option on a first-in-first-out basis.
Withdrawals and some transfers from fixed account investment options are
permitted during the accumulation period.
WITHDRAWALS. You may make total and partial withdrawals of amounts held
in the fixed account investment options at any time during the accumulation
period. Withdrawals from the 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 the
fixed account investment options:
- We reserve the right to defer payment of amounts withdrawn
from the fixed account investment options for up to six months
from the date we receive the written withdrawal request. If a
withdrawal is deferred for more than 30 days pursuant to this
right, we will pay interest on the amount deferred at a rate
not less than 3% per year (or a higher rate if required by
applicable law).
- If there are multiple investment accounts under the fixed
account investment options, amounts must be withdrawn from
those accounts on a first-in-first-out basis.
If you do not specify the investment options from which a partial
withdrawal is to be taken, the partial withdrawal will be taken from the
variable account investment options until exhausted and then from the fixed
account investment options. Such withdrawals will be made from the investment
options beginning with the shortest guarantee period. Within such a 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 (see "FEDERAL TAX MATTERS" below). Withdrawals are permitted from
contracts issued in connection with Section 403(b) qualified plans only under
limited circumstances (see Appendix G "QUALIFIED PLAN TYPES").
LOANS. We offer 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. If you own such a contract, you may borrow from us, using your
contract as the only security for the loan, in the same manner and subject to
the same limitations as set forth under "LOANS" below.
FIXED ANNUITY OPTIONS. Subject to the distribution of death benefits
provisions (see "DEATH BENEFIT DURING THE ACCUMULATION PERIOD" above), on death,
withdrawal or the maturity date of the contract, the proceeds may be applied to
a fixed annuity option (see "ANNUITY OPTIONS" above).
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The amount of each fixed annuity payment is determined by applying the portion
of the proceeds (minus any applicable premium taxes) applied to purchase the
fixed annuity to the appropriate table in the contract. If the table we are then
using is more favorable to you, we will substitute that table. We guarantee the
dollar amount of fixed annuity payments.
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 and Merrill Variable Funds portfolios that are described in
the accompanying Prospectuses of the Trust and Merrill Variable Funds.
WITHDRAWAL CHARGES
A charge of up to 8-1/2% is deducted from some withdrawals.
If you make a withdrawal from your contract during the accumulation
period, 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 ten 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 ten complete contract years. In no event may the total
withdrawal charges exceed 8.5% of the amount invested. The amount of the
withdrawal charge and when it is assessed are discussed below:
Each withdrawal from the contract is allocated first to the "FREE
WITHDRAWAL AMOUNT" and second to "UNLIQUIDATED PURCHASED PAYMENTS." In any
contract year, the free withdrawal amount for that year is the greater of:
- 10% of total purchase payments (less all prior partial
withdrawals in that contract year), and
- the accumulated earnings of the contract (i.e., the excess of
the contract value on the date of withdrawal over the
unliquidated purchase payments).
Withdrawals of up to the free withdrawal amount may be withdrawn without the
imposition of a withdrawal charge. The free withdrawal amount will be applied
first, to withdrawals from variable account investment options and then to
withdrawals from the one-year fixed account investment option.
If the amount of a withdrawal exceeds 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, we will liquidate purchase
payments equal to the amount of the withdrawal request which exceeds the free
withdrawal amount in the order the purchase payments were made: the oldest
unliquidated purchase payment first, the next purchase payment second, etc.,
until all purchase payments have been liquidated.
Each purchase payment (or portion thereof) liquidated in connection
with a withdrawal request is subject to a withdrawal charge based on the length
of time the purchase payment has been in the contract. The amount of the
withdrawal charge is calculated by multiplying the amount of the purchase
payment being liquidated by the applicable withdrawal charge percentage obtained
from the table below.
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS
PURCHASE PAYMENT IN CONTRACT WITHDRAWAL CHARGE PERCENTAGE
---------------------------- ----------------------------
<S> <C>
0 8.5%
1 8.5%
2 8.0%
3 7.0%
4 6.0%
5 5.0%
6 4.0%
7 3.0%
8 2.0%
9+ 0.0%
</TABLE>
The total withdrawal charge will be the sum of the withdrawal charges
for the purchase payments being liquidated.
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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 minus any applicable
withdrawal charge.
There is generally no withdrawal charge on distributions made as a
result of the death of the contract owner or, if applicable, the annuitant. In
addition, no withdrawal charges are imposed on annuity benefit payments.
The amount collected from the withdrawal charge will be used to
reimburse us for the compensation we pay to broker-dealers for selling the
contracts, preparation of sales literature and other sales-related expenses.
For examples of calculation of the withdrawal charge, see APPENDIX C.
REDUCTION OR ELIMINATION OF WITHDRAWAL CHARGES
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. We will
determine entitlement to such a reduction in the withdrawal charge in the
following manner:
- 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.
- 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.
- Any prior or existing relationship with us 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.
- 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 our sales expenses.
- There may be other circumstances of which we are not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, we determine that
there will be a reduction in sales expenses, we will provide a reduction in the
withdrawal charge. In no event will reduction or elimination of the withdrawal
charge be permitted where that reduction or elimination will be unfairly
discriminatory to any person. For further information, contact your registered
representative.
ADMINISTRATION FEES
Two fees may be deducted under a contract to compensate us for our
costs of providing all administrative services attributable to the contracts and
the operations of the Variable Account.
Normally, we will deduct an administration fee of $40 each year.
However, if during the accumulation period the contract value is equal to or
greater than $100,000 at the time of the fee's assessment, we will waive the
fee. During the accumulation period, 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 that investment option bears to the
contract value. If the entire contract is withdrawn on other than the last day
of any contract year, the $40 administration fee will be deducted from the
amount paid. During the pay-out period, the fee is deducted on a pro-rata basis
from each annuity payment.
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We deduct asset-based charges totaling 1.55% on an annual basis for
administration, and mortality and expense risks.
A daily fee in an amount equal to 0.30% of the value of each variable
investment account on an annual basis is deducted from each sub-account as an
administration fee. This asset-based administration fee will not be deducted
from the fixed account investment options.
Even though administrative expenses may increase, we guarantee that we
will not increase the amount of the administration fees.
MORTALITY AND EXPENSE RISKS CHARGE
The mortality risk we assume is the risk that annuitants may live for a
longer period of time than we estimate. We assume this mortality risk by virtue
of annuity rates incorporated into the contract which cannot be changed. This
assures each annuitant that his or her longevity will not have an adverse effect
on the amount of annuity payments. We also assume mortality risks in connection
with our guarantee that, if the contract owner dies during the accumulation
period, we will pay a death benefit. The expense risk we assume is the risk that
the administration charges, distribution charge, or withdrawal charge may be
insufficient to cover actual expenses.
To compensate us for assuming these risks, we deduct 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. The rate of the mortality and
expense risks charge cannot be increased. If the charge is insufficient to cover
the actual cost of the mortality and expense risks assumed, we will bear the
loss. Conversely, if the charge proves more than sufficient, the excess will be
profit to us and will be available for any proper corporate purpose including,
among other things, payment of distribution expenses. On the Period Certain Only
Annuity Options, if you elect benefits payable on a variable basis, the
mortality and expense risks charge is assessed although we bear only the expense
risk and not the mortality risk. The mortality and expense risks charge is not
assessed against the fixed account investment options.
TAXES
We will charge you for state premium taxes to the extent we incur them and
reserve the right to charge you for new taxes we may incur.
We reserve 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 we
determine to have resulted from our:
- establishment or maintenance of the Variable Account,
- receipt of purchase payments,
- issuance of the contacts, or
- commencement or continuance of annuity payments under the
contracts.
In addition, we 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 D for a table of State Premium Taxes.
EXPENSES OF DISTRIBUTING CONTRACT
MSS, the principal underwriter for the contracts, pays compensation to
selling brokers in varying amounts which under normal circumstances are not
expected to exceed 6% of purchase payments plus 0.75% of the contract value per
year commencing one year after each purchase payment. These expenses are not
assessed against the contracts but are instead paid by MSS. See "Distribution of
Contracts" for further information.
FEDERAL TAX MATTERS
INTRODUCTION
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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. You should consult a qualified tax advisor with regard
to the application of the law to your 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.
This discussion does not address state or local tax consequences
associated with the purchase of a contract. IN ADDITION, WE MAKE NO GUARANTEE
REGARDING ANY TAX TREATMENT -- FEDERAL, STATE, OR LOCAL -- OF ANY CONTRACT OR OF
ANY TRANSACTION INVOLVING A CONTRACT.
OUR TAX STATUS
We are taxed as a life insurance company. Because the operations of the
Variable Account are a part of, and are taxed with, our operations, the Variable
Account is not separately taxed as a "regulated investment company" under the
Code. Under existing federal income tax laws, we are not taxed on the investment
income and capital gains of the Variable Account. We do not anticipate that we
will be taxed on the income and gains of the Variable Account, but if we are,
then we may impose a corresponding charge against the Variable Account in order
to make provision for that liability.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL DURING ACCUMULATION PERIOD
Gains inside the contract are usually tax-deferred until you make a withdrawal,
start receiving annuity benefit payments, or receive a death benefit payment.
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, or in some
other form of distribution. Certain requirements must be satisfied in order for
this general rule to apply, including:
- the contract must be owned by an individual (or treated as
owned by an individual),
- the investments of the Variable Account must be "adequately
diversified" in accordance with Treasury Department
regulations,
- we, rather than the contract owner, must be considered the
owner of the assets of the Variable Account for federal tax
purposes, and
- the contract must provide for appropriate amortization,
through annuity payments, of the contract's purchase payments
and earnings, e.g., the pay-out period must not occur near the
end of the annuitants life expectancy.
NON-NATURAL OWNERS. As a general rule, deferred annuity contracts held
by "non-natural persons" (such as a corporation, trust or other similar entity)
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. This special exception will not apply, however, 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.
Exceptions to the general rule for non-natural contract owners will
also apply with respect to:
- contracts acquired by an estate of a decedent by reason of the
death of the decedent,
- certain qualified contracts,
- certain contracts purchased by employers upon the termination
of certain qualified plans,
- certain contracts used in connection with structured
settlement agreements, and
- 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.
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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, otherwise deductible may not be
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 we do not control the investments of the Trust or the Merrill
Variable Funds, we expect that the Trust and Merrill Variable Funds 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 insurance company 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 "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 in the form 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, we do not know what standards
will be set forth in the regulations or rulings which the Treasury Department
has stated it expects to issue. We therefore reserve the right to modify the
contract as necessary to attempt to prevent the contract owners from being
considered the owners of the assets of the Variable Account.
DELAYED PAY-OUT PERIODS. If the contract's pay-out period commences (or
is scheduled to commence) 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 we 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
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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. In this regard, the payment
enhancements provided under a contract are not treated as purchase payments and
thus do not increase the investment in the contract.
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 a 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, we impose 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 BENEFIT PAYMENTS
A portion of each annuity payment is usually taxable as ordinary income
Normally, a portion of each annuity benefit payment is taxable as
ordinary income. The taxable portion of an annuity benefit payment 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 the payment by the
ratio of (a) to (b), where:
(a) is the investment in the contract allocated to the fixed
annuity option (adjusted for any period certain or refund
feature) and
(b) is the total expected value of fixed 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. During the accumulation period, death benefit proceeds
are includible in income as follows:
- if distributed in a lump sum, they are taxed in the same
manner as a full withdrawal, as described above, or
- if distributed under an annuity option, they are taxed in the
same manner as annuity payments, as described above.
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During the pay-out period, 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:
- 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
- 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
Withdrawals prior to age 59-1/2 may incur a 10% penalty tax.
There is a 10% penalty tax on the taxable amount of any payment from a
non-qualified contract unless the payment is:
- received on or after the contract owner reaches age 59-1/2;
- attributable to the contract owner's becoming disabled (as
defined in the tax law);
- 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);
- 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);
- 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
- 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. Similarly, if a person transfers part of his
interest in one annuity contract to purchase another annuity contract, the IRS
might 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
Special tax provisions apply to qualified plans. Consult your tax advisor prior
to using the contract with a qualified plan.
The contracts are also designed for use in connection with certain
types of retirement plans which receive favorable treatment under the Code
("QUALIFIED PLANS"). Numerous special tax rules apply to the participants in
qualified plans and to the contracts used in connection with 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.
Brief descriptions of various types of qualified plans in connection with which
we may issue a contract (and a discussion of possible consequences of certain
features of the contracts under those types of qualified plans) are contained in
APPENDIX G to this Prospectus. In particular, as noted in Appendix F, the
purchaser should consider the effects of the death benefit and the payment
enhancement on the income tax treatment of certain types of qualified plans.
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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. (You
should always consult your tax advisor and retirement plan fiduciary prior to
exercising your loan privileges.) Both the amount of the contribution that may
be made, and the tax deduction or exclusion that you may claim for that
contribution, are limited under qualified plans. If you are considering the
purchase of a contract in connection with a qualified plan, you should consider,
in evaluating the suitability of the contract, that the contract requires a
minimum initial purchase payment of $10,000. If this contract is used in
connection with a qualified plan, the owner and annuitant must be the same
individual. If a co-annuitant is named, all distributions made while the
annuitant is alive must be made to the annuitant. Also, if a co-annuitant is
named who is not the annuitant's spouse, the annuity options which are available
may be limited, depending on the difference in ages between the annuitant and
co-annuitant. Furthermore, the length of any guarantee period may be limited in
some circumstances to satisfy certain minimum distribution requirements under
federal tax laws.
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 (other than
ROTH 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:
- received on or after the contract owner reaches age 59-1/2,
- received on or after the owner's death or because of the
owner's disability (as defined in the tax law), or
- 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, the exception 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. If you wish to take a
distribution from an IRA for these purposes, you should consult your 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, 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, we will not be bound by terms
and conditions of qualified plans to the extent those terms and conditions
contradict the contract, unless we consent.
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
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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
person receiving the distribution 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.
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LOANS
We offer 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. If you are not an owner of such a contract, none of this discussion
about loans applies to your contract. If you are an owner of such a contract,
you may borrow from us, using your contract as the only security for the loan.
Loans are subject to certain tax law restrictions and to applicable retirement
program rules (collectively, "LOAN RULES"). You should consult your tax advisor
and retirement plan fiduciary prior to taking a loan under the contract.
The maximum loan value of a contract is normally 80% of the contract
value, although loan rules may serve to reduce that maximum in some cases. The
amount available for a loan at any given time is the loan value less any unpaid
prior loans. Unpaid prior loans equal the amount of any prior loans plus
interest accrued on those loans. Loans will be made only upon written request
from the owner. We will make loans within seven days of receiving a properly
completed loan application (applications are available from our Annuity Service
Office), subject to postponement under the same circumstances that payment of
withdrawals may be postponed (see "WITHDRAWALS").
When you request a loan, we will reduce your investment in the
investment accounts and transfer the amount of the loan to the "LOAN ACCOUNT," a
part of our general account. You 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
you may repay unpaid loans 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. You may designate the investment accounts to
which a repayment is to be allocated. Otherwise, the repayment will be allocated
in the same manner as your most recent purchase payment. On each contract
anniversary, we will transfer from the investment accounts to the loan account
the excess of the balance of your loan over the balance in your loan account.
We charge 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. We credit 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
unpaid loans under your contract exceed your contract value, your contract will
be in default. In such case you will receive a notice indicating the payment
needed to bring your 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, your contract may be terminated without value.
The amount of any unpaid loans will be deducted from the death benefit
otherwise payable under the contract. In addition, loans, 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 a loan is unpaid, 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 your loan
account while your loan is unpaid, your contract value will not increase as
rapidly as it would have if no loan were unpaid. If investment results are below
that rate, your contract value will be greater than it would have been had no
loan been outstanding.
FEDERAL INCOME TAX WITHHOLDING
We may be required to withhold amounts from some payments for federal income tax
payments.
We will withhold and remit to the U.S. Government a part of the taxable
portion of each distribution made under a contract unless the person receiving
the distribution notifies us at or before the time of the distribution that he
or she elects not to have any amounts withheld. In certain circumstances, we 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
PERFORMANCE DATA
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We may advertise our investment performance.
Each of the sub-accounts may quote total return figures in its
advertising and sales materials. PAST PERFORMANCE FIGURES ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE OF ANY SUB-ACCOUNT. The sub-accounts may advertise
both "standardized" and "non-standardized" total return figures. Standardized
figures will include average annual total return figures for one, five and ten
years, or from the inception date of the relevant sub-account of the Variable
Account (if that period since inception is shorter than one of those periods).
Non-standardized total return figures may be quoted including figures that do
not assume redemption at the end of the time period. Non-standardized figures
also include total return numbers from the inception date of the portfolio or
ten years, whichever period is shorter. Where the period since inception is less
than one year, the total return quoted will be the aggregate return for the
period.
Average annual total return is the average annual compounded rate of
return that equates a purchase payment to the market value of that 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 or Merrill
Variable Funds portfolio from the date the applicable sub-account of the
Variable Account first became available for investment under other contracts
that we offer, adjusted to reflect current contract charges. In the case of
non-standardized performance, performance figures will be the historical
performance of the Trust or Merrill Variable Funds 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.
ASSET ALLOCATION AND TIMING SERVICES
We are aware that certain third parties are offering asset allocation
and timing services in connection with the contracts. In certain cases we have
agreed to honor transfer instructions from such asset allocation and timing
services where we have received powers of attorney, in a form acceptable to us,
from the contract owners participating in the service. The contract is not
designed for professional market timing organizations or other entities or
persons engaging in programmed, frequent or large exchanges (collectively,
"market timers") to speculate on short-term movements in the market since such
activity may be disruptive to the Trust or Merrill Variable Funds portfolios and
increase their transaction costs. Therefore, in order to prevent excessive use
of the exchange privilege, we reserve the right to (a) reject or restrict any
specific purchase and exchange requests and (b) impose specific limitations with
respect to market timers, including restricting exchanges by market timers to
certain variable investment options (transfers by market timers into or out of
fixed investment options is not permitted). WE DO NOT ENDORSE, APPROVE OR
RECOMMEND SUCH SERVICES IN ANY WAY AND YOU SHOULD BE AWARE THAT FEES PAID FOR
SUCH SERVICES ARE SEPARATE AND IN ADDITION TO FEES PAID UNDER THE CONTRACTS.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Section 830.105 of the Texas Government Code permits participants in
the Texas Optional Retirement Program ("ORP") to withdraw their interest in a
variable annuity contract issued under the ORP only upon:
- termination of employment in the Texas public institutions of
higher education,
- retirement,
- death, or
- the participant's attainment of age 70-1/2.
Accordingly, before any amounts may be distributed from the contract, proof must
be furnished to us that one of these four events has occurred. The foregoing
restrictions on withdrawal do not apply in the event a participant in the ORP
transfers the contract value to another contract or another qualified custodian
during the period of participation in the ORP. Loans are not available under
contracts subject to the ORP.
DISTRIBUTION OF CONTRACTS
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We pay brokers-dealers to sell the Contracts.
Manufacturers Securities Services, LLC ("MSS"), a Delaware limited
liability company that we control, is the principal underwriter of the
contracts. MSS, located at 73 Tremont Street, Boston, Massachusetts 02108, also
is the investment adviser 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. (the "NASD"). MSS has entered
into a non-exclusive promotional agent agreement with Manulife Wood Logan, Inc.
("MANULIFE WOOD LOGAN"). Manulife Wood Logan is a broker-dealer registered under
the 1934 Act and a member of the NASD. Manulife Wood Logan is an indirect wholly
owned subsidiary of MFC. Sales of the contracts will be made by registered
representatives of broker-dealers authorized by MSS to sell the contracts. Those
registered representatives will also be our licensed insurance agents. Under the
promotional agent agreement, Manulife Wood Logan will recruit and provide sales
training and licensing assistance to those registered representatives. In
addition, Manulife Wood Logan will prepare sales and promotional materials for
our approval.
CONTRACT OWNER INQUIRIES
Your inquiries should be directed to our Annuity Service Office at P.O.
Box 9230, Boston, Massachusetts 02205-9230.
CONFIRMATION STATEMENTS
You will be sent confirmation statements for certain transactions in
your account. You should carefully review these statements to verify their
accuracy. Any mistakes should immediately be reported to our Company's Annuity
Service Office. If you fail to notify our Annuity Service Office of any mistake
within 60 days of the mailing of the confirmation statement, you 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 we nor MSS
are involved in any litigation that is of material importance to either, or that
relates to the Variable Account.
YEAR 2000 ISSUES
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when information
using 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect us, including those
related to customers, suppliers or other third parties, have been fully
resolved.
CANCELLATION OF CONTRACT
We may, at our option, cancel a contract at the end of any two
consecutive contract years in which no purchase payments by or on behalf of you,
have been made, if both:
- the total purchase payments made for the contract, less any
withdrawals, are less than $2,000; and
- the contract value at the end of such two year period is less
than $2,000.
We, as a matter of administrative practice, will attempt to notify you prior to
such cancellation in order to allow you 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.
VOTING INTEREST
As stated above under "Merrill Variable Funds," we will vote shares of
the Trust portfolios and the Merrill Variable Funds held in the Variable Account
at shareholder meetings according to voting instructions received from the
persons having the voting interest under the contracts.
Accumulation Period. During the accumulation period, the contract owner
has the voting interest under a contract. The number of votes for each portfolio
for which voting instructions may be given is
43
<PAGE> 46
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.
Pay-out Period. During the pay-out period, the annuitant has the voting
interest under a contract. 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. We will determine the number of
portfolio shares for which voting instructions may be given not more than 90
days prior to the meeting.
44
<PAGE> 47
APPENDIX A
SPECIAL TERMS
The following terms as used in this Prospectus have the indicated meanings:
ACCUMULATION PERIOD - The period between the issue date of the contract and the
maturity date of the contract. During this period, purchase payment(s) are
typically made to the contract by the owner.
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, unless changed.
ANNUITY OPTION - The method you select (or as specified in the contract if no
selection is made) for annuity benefit payments from us to the annuitant.
ANNUITY SERVICE OFFICE - The address of our Annuity Service Office 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 contract specification page,
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.
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 our Annuity Service Office within one year of the date of death:
(a) A certified copy of a death certificate;
(b) A certified copy of a decree of a court of competent jurisdiction as to the
finding of death; or
(c) Any other proof satisfactory to us.
Death Benefits will be paid within 7 days of receipt of due proof of death and
all required claim forms by our Annuity Service Office.
FIXED ANNUITY - An annuity option with payments which are predetermined and
guaranteed as to dollar amount.
GENERAL ACCOUNT - All our assets other than assets in separate accounts.
INVESTMENT ACCOUNT - An account we establish which represents your interest in
an investment option during the Accumulation Period.
INVESTMENT ACCOUNT VALUE - The value of your allocation to an investment
account.
INVESTMENT OPTIONS - The investment choices available to contract owners.
Currently, there are forty-nine variable account investment options and two
fixed investment options under the contract.
A-1
<PAGE> 48
LOAN ACCOUNT - The portion of the general account that is used for collateral
when a loan is taken.
MATURITY DATE - The date on which the pay-out period commences. 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.
NET PURCHASE PAYMENT - The purchase payment less the amount of premium tax, if
any, plus any applicable Payment Enhancement.
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 contract specifications page, unless
changed.
PAYMENT ENHANCEMENT - The amount in addition to your payment that we add to your
contract at the time you make a purchase payment.
PAY-OUT PERIOD - The pay-out period is the period when we make annuity benefit
payments to you.
PORTFOLIO - A separate investment portfolio of the Trust or Merrill Variable
Funds, mutual funds in which the Variable Account invests, or of any successor
mutual funds.
PURCHASE PAYMENT - An amount you pay to us 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 that we establish that is not commingled
with our 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 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 - One of our separate accounts that is used to fund the
contracts.
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.
A-2
<PAGE> 49
APPENDIX B
TABLE OF ACCUMULATION VALUES
<TABLE>
<CAPTION>
SUB-ACCOUNT UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS
START OF YEAR(A) END OF YEAR AT END OF YEAR
-------------- ----------- ---------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets
1997 $12.500000 $ 7.956465 24,331.413
1998 7.956465 7.472906 100,759.865
1999 7.472906 11.984246 1,419,029.854
Science & Technology
1997 $12.500000 $10.983380 156,835.597
1998 10.983380 15.499402 867,806.448
1999 15.499402 30.445751 6,241,520.234
International Small Cap
1997 $12.500000 $11.841960 71,206.249
1998 11.841960 13.042850 306,704.670
1999 13.042850 23.749328 744,862.852
Aggressive Growth
1997 $12.500000 $11.595531 66,641.217
1998 11.595531 11.910371 318,767.400
1999 11.910371 15.594503 1,500,019.874
Emerging Small Company
1997 $12.500000 $13.088401 88,228.592
1998 13.088401 12.896270 447,688.130
1999 12.896270 22.035674 918,232.537
Small Company Blend
1999 $12.500000 15.906411 729,933.633
Mid Cap Stock
1999 $12.500000 $12.471106 751,641.942
All Cap Growth(B)
1997 $12.500000 $12.153015 185,064.437
1998 12.153015 15.351927 1,055,511.533
1999 15.351927 21.871173 3,396,125.049
Overseas
1997 $12.500000 $11.688584 97,919.266
1998 11.688584 12.423604 463,080.520
1999 12.423604 17.203799 1,613,874.381
International Stock
1997 $12.500000 $11.346605 78,202.593
1998 11.346605 12.838403 357,481.534
1999 12.838403 16.397239 1,046,739.325
International Value
1999 $12.500000 $12.847324 644,472.090
Mid Cap Blend
1997 $12.500000 $12.479231 339,520.345
1998 12.479231 13.443090 1,557,309.071
1999 13.443090 16.909177 4,471,998.278
Small Company Value
1997 $12.500000 $11.893914 44,766.859
1998 11.893914 11.157770 660,344.943
1999 11.157770 11.864553 896,371.171
Global Equity
1997 $12.500000 $12.616506 195,153.440
1998 12.616506 13.944724 1,124,988.705
1999 13.944724 14.232856 2,778,245.240
Growth
1997 $12.500000 $12.257373 208,996.758
1998 12.257373 14.929659 995,527.438
1999 14.929659 20.209678 4,080,687.304
</TABLE>
B-1
<PAGE> 50
<TABLE>
<CAPTION>
SUB-ACCOUNT UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS
START OF YEAR(A) END OF YEAR AT END OF YEAR
-------------- ----------- ---------------
<S> <C> <C> <C>
Large Cap Growth
1997 $12.500000 $12.605559 19,303.997
1998 12.605559 14.785253 191,996.850
1999 14.785253 18.238886 2,373,174.541
Quantitative Equity
1997 $12.500000 $12.572103 66,662.192
1998 12.572103 15.640646 291,663.784
1999 15.640646 18.834509 1,707,382.198
Blue Chip Growth
1997 $12.500000 $12.831858 373,367.759
1998 12.831858 16.234822 3,048,540.169
1999 16.234822 19.091275 10,866,171.119
Real Estate Securities
1997 $12.500000 $13.563334 59,872.571
1998 13.563334 11.158599 255,677.706
1999 11.158599 10.107930 441,160.221
Value
1997 $12.500000 $12.435876 298,712.666
1998 12.435876 12.033566 1,262,760.931
1999 12.033566 11.517818 1,929,431.464
Growth & Income
1997 $12.500000 $12.692204 778,391.503
1998 12.692204 15.811724 4,876,965.282
1999 15.811724 18.506889 16,148,311.797
U.S. Large Cap Value
1999 $12.500000 $12.70863 3,259,257.566
Equity-Income
1997 $12.500000 $13.251413 411,414.749
1998 13.251413 14.249466 2,050,162.371
1999 14.249446 14.507362 5,176,955.371
Income & Value
1997 $12.500000 $12.705736 59,162.304
1998 12.705736 14.398732 277,338.588
1999 14.398732 15.408317 1,754,763,785
Balanced
1997 $12.500000 $12.798613 155,469.589
1998 12.798613 14.397307 705,998.837
1999 14.397307 13.941569 1,864,061.244
High Yield
1997 $12.500000 $12.864277 205,432.892
1998 12.864277 13.018749 1,187,037.940
1999 13.018749 13.844359 2,124,866.783
Strategic Bond
1997 $12.500000 $12.793187 201,747.245
1998 12.793187 12.761400 1,279,415.503
1999 12.761400 12.844300 1,957,762.473
Global Bond
1997 $12.500000 $12.850434 45,990.746
1998 12.850434 13.615563 184,398.545
1999 13.615563 12.511533 554,822.837
Total Return
1999 $12.500000 $12.243486 1,482,395.274
Investment Quality Bond
1997 $12.500000 $12.932971 75,627.863
1998 12.932971 13.845626 795,132.846
1999 13.845626 13.388502 2,117,952.360
Diversified Bond
1997 $12.500000 $12.768031 25,278.234
1998 12.768031 13.914540 162,214.705
1999 13.914540 13.798700 782,445.430
</TABLE>
B-2
<PAGE> 51
<TABLE>
<CAPTION>
SUB-ACCOUNT UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS
- ----------- START OF YEAR(A) END OF YEAR AT END OF YEAR
-------------- ----------- ---------------
<S> <C> <C> <C>
U.S. Government Securities
1997 $12.500000 $12.898929 49,384.296
1998 12.898929 13.651980 558,901.273
1999 13.651980 13.411398 1,669,225.469
Money Market
1997 $12.500000 $12.682927 431,878.733
1998 12.682927 13.123053 1,949,743.402
1999 13.123053 13.515626 9,877,862.311
Lifestyle Aggressive 1000
1997 $12.500000 $12.184094 54,685.065
1998 12.184094 12.579492 369,032.152
1999 12.579492 14.195565 832,851.584
Lifestyle Growth 820
1997 $12.500000 $12.418021 722,945.165
1998 12.418021 12.985550 2,996,409.085
1999 12.985550 14.903883 4,346,394.820
Lifestyle Balanced 640
1997 $12.500000 $12.545543 819,161.076
1998 12.545543 13.059244 3,939,117.609
1999 13.059244 14.456141 5,729,759.654
Lifestyle Moderate 460
1997 $12.500000 $12.686656 107,584.170
1998 12.686656 13.711730 1,295,671.881
1999 13.711730 14.566774 2,395,187.413
Lifestyle Conservative 280
1997 $12.500000 $12.839861 47,679.118
1998 12.839861 13.933826 839,361.780
1999 13.933826 14.296546 1,593,352.835
Merrill Lynch Small Cap Value Focus C
1998
1999 $12.500000 $10.568700 28,229.867
10.568700 13.943374 133,116.175
Merrill Lynch Basic Value Focus
1998
1999 $12.500000 $12.027400 29,849.178
12.027400 14.325771 407,865.075
Merrill Lynch Developing Capital Markets
Focus
1998 $12.500000 $ 9.694900 2,492.548
1999 9.694900 15.787402 24,213.964
</TABLE>
(A) Units under the series of contracts were first credited under the
sub-account on August 4, 1997, except in the following instances:
- Small Company Value Trust where units were first credited
under the sub-accounts on October 1, 1997.
- Merrill Lynch Small Cap Value Focus Fund, Merrill Lynch Basic
Value Focus Fund and Merrill Lynch Developing Capital Markets
Focus Fund where units were first credited on October 13,
1997.
- Small Company Blend, Mid Cap Stock, International Value, U.S.
Large Cap Value and Total Return Trusts where units were first
credited on May 1, 1999.
(B) Formerly, the Mid Cap Growth Trust.
(C) Formerly, the Merrill Lynch Special Value Focus Fund.
B-3
<PAGE> 52
APPENDIX C
EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE
EXAMPLE 1 - Assume:
- a single payment of $50,000 is made,
- a 3% payment enhancement of $1,500 is credited to contract
value,
- no additional payments are made and
- there are no partial withdrawals.
The table below illustrates five examples of the withdrawal charges that would
be imposed if the contract is completely withdrawn. All contract values are
hypothetical.
<TABLE>
<CAPTION>
Contract Year Hypothetical Free Withdrawal Payments Withdrawal Charge
Contract Value Amount Liquidated
- --------------------------------------------------------------------------------------------------------------------------
Percent Amount
<S> <C> <C> <C> <C> <C>
2 $55,000 $ 5,000 (a) $50,000 8.50% $4,250
4 $50,500 $ 5,000 (b) $45,500 7.00% $3,185
6 $60,000 $10,000 (c) $50,000 5.00% $2,500
8 $80,000 $30,000 (d) $50,000 3.00% $1,500
10 $70,000 $20,000 (e) $50,000 0.00% $ 0
</TABLE>
(a) During any contract year the free withdrawal amount is the greater of:
- the contract value minus unliquidated payments (accumulated
earnings), or
- 10% of total payments made under the contract minus any
partial withdrawals in that contract year.
In the second contract year the earnings under the contract are $5,000
($55,000 - $50,000 = $5,000), and 10% of payments is equal to $5,000
(0.10 x $50,000 = $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 that
liquidated payment.
(b) In the example for the fourth contract year, there were no earnings in
the contract. The free withdrawal amount therefore is equal to 10% of
payments (0.10 x $50,000 = $5,000) and the withdrawal charge is only
applied to payments liquidated.
(c) In the example for the sixth contract year, the accumulated earnings of
$10,000 is greater than 10% of payments ($5,000). The free withdrawal
amount therefore is equal to the accumulated earnings of $10,000 and
the withdrawal charge is applied to the payments liquidated.
(d) In the example for the eighth contract year, the accumulated earnings
of $30,000 is greater than 10% of payments ($5,000). The free
withdrawal amount therefore is equal to the accumulated earnings of
$30,000 and the withdrawal charge is applied to the payments
liquidated.
(e) There is no withdrawal charge on any payments that have been in the
contract for at least 10 years.
C-1
<PAGE> 53
EXAMPLE 2 - Assume:
- a single payment of $50,000 is made,
- a 3% payment enhancement of $1,500 is credited to contract
value,
- 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.
<TABLE>
<CAPTION>
Hypothetical Contract Value Partial Free Withdrawal Amount Payments Withdrawal Charge
Withdrawal Liquidated
Requested
- -------------------------------------------------------------------------------------------------------------------------
Percent Amount
<S> <C> <C> <C> <C> <C>
$65,000 $2,000 $15,000 (a) $ 0 8.00% $ 0
$49,000 $5,000 $ 3,000 (b) $2,000 8.00% $160
$52,000 $7,000 $ 4,000 (c) $3,000 8.00% $240
$44,000 $8,000 $ 0 (d) $8,000 8.00% $640
</TABLE>
(a) The free withdrawal amount during any contract year is the greater of
- the contract value minus unliquidated payments (accumulated
earnings), or
- 10% of payments minus 100% of all prior withdrawals in that
contract year.
For the first example, accumulated earnings of $15,000 ($65,000 -
$50,000 = $15,000) is the free withdrawal amount since it is greater
than 10% of payments less prior withdrawals ($5,000 - $0). The amount
requested ($2,000) is less than the free withdrawal amount. Therefore,
payments are not liquidated and no withdrawal charge applies.
(b) The contract has negative accumulated earnings ($49,000 -
$50,000 less than 0), so the free withdrawal amount is limited
to 10% of payments minus 100% of all prior withdrawals during
the contract year. Because $2,000 has already been withdrawn
in the current contract year, the remaining free withdrawal
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 will result in payments being liquidated. The
remaining unliquidated payments after the $5,000 partial
withdrawal are $48,000 ($50,000 - $2,000 = $48,000).
(c) The contract has increased in value to $52,000. The
unliquidated payments are $48,000 which results in $4,000 of
accumulated earnings ($52,000 - $48,000 = $4,000) which is
greater than 10% of payments minus prior withdrawals this
contract year ($5,000 - $2,000 - $5,000 less than 0).
Hence the free withdrawal amount is $4,000, leaving $3,000 of
the $7,000 partial withdrawal subject to a withdrawal charge.
The unliquidated payments are reduced by $3,000 to $45,000.
(d) The free withdrawal amount is zero since the contract has
negative accumulated earnings ($44,000 - $45,0000 less than
0) 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 for withdrawal requests during that
contract year.
C-2
<PAGE> 54
APPENDIX D
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 adviser
should be consulted.
<TABLE>
<CAPTION>
TAX RATE
QUALIFIED NON-QUALIFIED
STATE CONTRACTS CONTRACTS
- ----- --------- ---------
<S> <C> <C>
CALIFORNIA........................................... .50% 2.35%
MAINE................................................ .00% 2.00%
NEVADA............................................... .00% 3.50%
PUERTO RICO.......................................... 1.00% 1.00%
SOUTH DAKOTA*........................................ .00% 1.25%
WEST VIRGINIA........................................ 1.00% 1.00%
WYOMING.............................................. .00% 1.00%
</TABLE>
* Premium tax paid upon receipt of premium (no tax at annuitization if tax paid
on premium).
D-1
<PAGE> 55
APPENDIX E
PENNSYLVANIA MAXIMUM MATURITY AGE
For all contracts issued in Pennsylvania the maximum maturity age based upon the
issue age of the annuitant is as follows:
<TABLE>
<CAPTION>
ISSUE AGE MAXIMUM MATURITY AGE
--------- --------------------
<S> <C>
70 or less 85
71-75 86
76-80 88
81-85 90
86-90 93
91-93 96
94-95 98
96-97 99
98-99 101
100-101 102
102 103
103 104
104 105
105 106
</TABLE>
The annuitant must exercise a settlement annuity option no later than
the maximum maturity age stated above. For example, an annuitant who is age 60
at issue must exercise a settlement option prior to age 86. We will use the
issue age of the youngest annuitant in the determination of the required
settlement option date.
If contracts are issued with annuitants over age 80, a withdrawal
charge could be imposed if they terminate the contract rather than elect a
settlement option upon attainment of the maximum maturity age. This is a result
of the Pennsylvania restrictions in combination with the contract's 9-year
withdrawal charge schedule.
E-1
<PAGE> 56
APPENDIX F
EXAMPLES OF PAYMENT ENHANCEMENT CALCULATIONS
The payment enhancement is determined based on the cumulative amount of your
payments. The payment enhancements, as a percentage of payments, are shown in
the table below.
<TABLE>
<CAPTION>
Cumulative Payments Payment Enhancement*
------------------- --------------------
<S> <C>
$10,000 to $499,999 3.0%
$500,000 to $2,499,999 4.0%
$2,500,000 and above 5.0%
</TABLE>
Payment enhancements are payable as a percentage of the payment being made. The
two examples below demonstrate how the payment enhancement is calculated:
EXAMPLE 1 - Assume an initial payment of $400,000 and a subsequent payment of
$200,000. Payment enhancements would be determined as follows**:
- - A payment enhancement of $12,000 (3% x $400,000) would be allocated among the
investment options in proportion to the allocation of the $400,000 initial
payment.
- - A payment enhancement of $8,000 (4% x $200,000) would be allocated among the
investment options in proportion to the allocation of the $200,000 subsequent
payment.
EXAMPLE 2 - Assume an initial payment of $200,000 and a subsequent payment of
$400,000. Payment enhancements would be determined as follows**:
- - A payment enhancement of $6,000 (3% x $200,000) would be allocated among the
investment options in proportion to the allocation of the $200,000 initial
payment.
- - A payment enhancement of $16,000 (4% x $400,000) would be allocated among the
investment options in proportion to the allocation of the $400,000 subsequent
payment.
*Promotional Payment Enhancement rates that are currently in effect for new
contracts are higher. See "Description of the Contract - Payment Enhancement."
**Unless we receive a Letter of Intent from you representing that additional
purchase payments will be received within 13 months of the issue date of the
contract. If we receive a Letter of Intent, the payment enhancement will be
determined using the percentage associated with the total amount of purchase
payments indicated in the Letter of Intent (see "payment enhancements").
F-1
<PAGE> 57
APPENDIX G
QUALIFIED PLAN TYPES
Set forth below are brief descriptions of the types of qualified plans
in connection with which we will issue contract. Certain potential tax
consequences associated with use of the contract in connection with qualified
plans are also described. Persons intending to use the contract in connection
with qualified plans should consult their tax advisor.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to
an individual retirement program known as an "Individual Retirement Annuity" or
"IRA." IRAs are subject to limits on the amounts that may be contributed and
deducted, 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).
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.
ROTH IRAS
Section 408A of the Code permits eligible individuals to contribute to
a type of IRA known as a "Roth IRA." Roth IRAs are generally subject to the same
rules as non-Roth IRAs, but differ in certain respects.
Among the differences are that contributions to a Roth IRA are not
deductible and "qualified distributions" from a Roth IRA are excluded from
income. A qualified distribution is a distribution that satisfies two
requirements. First, the distribution must be made in a taxable year that is at
least five years after the first taxable year for which a contribution to any
Roth IRA established for the owner was made. Second, the distribution must be:
- made after the owner attains age 59-1/2;
- made after the owner's death;
- attributable to the owner being disabled; or
- a qualified first-time homebuyer distribution within the
meaning of Section 72(t)(2)(F) of the Code.
In addition, distributions from Roth IRAs need not commence when the
owner attains age 70-1/2. A Roth IRA may accept a "qualified rollover
contribution" from a non-Roth IRA, but a Roth IRA may not accept rollover
contributions from other qualified plans.
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).
Furthermore, the state tax
G-1
<PAGE> 58
treatment of a Roth IRA may differ from the Federal income tax treatment of a
Roth IRA. If you intend to use the contract in connection with a Roth IRA, you
should seek competent tax 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 the IRS could characterize the death benefit
as an "incidental death benefit." If so, the contract owner could be deemed to
receive currently taxable income. In addition, 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. Corporate and self-employed pension and profit
sharing plans also are subject to nondiscrimination rules. The nondiscrimination
rules generally require that benefits, rights, or features of the plan not
discriminate in favor of highly compensated employees. In evaluating whether the
contract is suitable for purchase in connection with such a plan, the effect of
the Payment Enhancement on the plan's compliance with the applicable
nondiscrimination requirements should be considered. Violation of these
nondiscrimination rules can cause loss of the plan's tax favored status under
the Code. 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 a death benefit could be characterized as an
"incidental death benefit." If so, the contract owner could be deemed to receive
currently taxable income. 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:
- contributions made pursuant to a salary reduction agreement in
years beginning after December 31, 1988,
- earnings on those contributions, and
- 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 we are 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.)
Tax-sheltered annuity plans are subject to nondiscrimination rules. The
nondiscrimination rules generally require that benefits, rights, or features of
the plan not discriminate in favor of highly compensated employees. In
evaluating whether the contract is suitable for purchase in connection with a
tax-sheltered annuity plan, the effect of the payment enhancement on the plan's
compliance with the applicable nondiscrimination requirements should be
considered. Violation of these nondiscrimination rules can cause loss of the
plan's tax favored status under the Code. Employers intending to use the
contract in connection with such plans should seek competent advice.
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. The contract will be issued in
connection with a section 457 deferred compensation plan sponsored by a state or
local government only if the plan has established a trust to hold plan assets,
including the contract.
G-2
<PAGE> 59
STATEMENT OF ADDITIONAL INFORMATION
MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA
SEPARATE ACCOUNT A
OF
THE MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA
FLEXIBLE PURCHASE PAYMENT INDIVIDUAL DEFERRED
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 mailing address of
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, 2000.
The Manufacturers Life Insurance Company of North America
500 Boylston Street, Suite 400
Boston, Massachusetts 02116-3739
(617) 663-3000
(800) 344-1029
2
<PAGE> 60
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information and History...................................... 3
Performance Data..................................................... 3
Services
Independent Auditors............................................ 9
Servicing Agent................................................. 10
Principal Underwriter........................................... 10
Audited Financial Statements......................................... 11
</TABLE>
3
<PAGE> 61
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 ("WE" or "US"). We are a stock life
insurance company organized under the laws of Delaware in 1979. Prior to October
1, 1997 we were known as North American Security Life Insurance Company. Our
principal office is located at 500 Boylston Street, Suite 400, Boston,
Massachusetts 02116-3739. Our ultimate parent is Manulife Financial Corporation
("MFC") based in Toronto, Canada. MFC is the holding company of The
Manufacturers Life Insurance Company and its subsidiaries, collectively known as
Manulife Financial.
Our financial statements which are included in this Statement of
Additional Information should be considered only as bearing on our ability to
meet our obligations under the contracts. They should not be considered as
bearing on the investment performance of the assets held in the Variable
Account.
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:
- - redemption at the end of the time period, and
- - not assuming redemption at the end of the time period.
Standardized figures include total return figures from:
- - the inception date of the sub-account of the Variable Account which
invests in the portfolio, or
- - ten years, whichever period is shorter.
Non-standardized figures include total return numbers from:
- - inception date of the portfolio, or
- - ten years, whichever period is shorter.
Such figures will always include the average annual total return for
recent one year and, when applicable, five and ten year periods, and where less
than ten years, the inception date of the sub-account, in the case of
standardized returns, and the inception date of the portfolio, in the case of
non-standardized returns. Where the period since inception is less than one
year, the total return quoted will be the aggregate return for the period. The
average annual total return is the average annual compounded rate of return that
equates a purchase payment to the market value of such purchase payment on the
last day of the period for which such return is calculated. The aggregate total
return is the percentage change (not annualized) that equates a purchase payment
to the market value of such purchase payment on the last day of the period for
which such return is calculated. For purposes of the calculations it is assumed
that an initial payment of $1,000 is made on the first day of the period for
which the return is calculated.
In calculating standardized return figures, all recurring charges (all
asset charges - mortality and expense risk fees and 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 does not reflect deduction of the annual contract fee. We believe
such non-standardized figures not reflecting redemptions at the end of
4
<PAGE> 62
the time period are useful to contract owners who wish to assess the performance
of an ongoing contract of the size that is meaningful to the individual contract
owner.
For total return figures quoted for periods prior to the commencement of
the offering of this contract, August 4, 1997, standardized performance data
will be the historical performance of the Trust or Merrill Variable Funds
portfolio from the date the applicable sub-account of the Variable Account first
became available for investment under other contracts offered by us, adjusted to
reflect current contract charges. In the case of non-standardized performance,
performance figures will be the historical performance of the Trust or Merrill
Variable Funds 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.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
CALCULATED AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS,
WHICHEVER IS INCEPTION
PORTFOLIO 1 YEAR 5 YEAR SHORTER DATE(A)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets 51.82% N/A -3.03% 01/01/97
- --------------------------------------------------------------------------------------------
Science & Technology 87.88% N/A 43.29% 01/01/97
- --------------------------------------------------------------------------------------------
International Small Cap 73.54% N/A 20.97% 03/04/96
- --------------------------------------------------------------------------------------------
Aggressive Growth 22.39% N/A 7.51% 01/01/97
- --------------------------------------------------------------------------------------------
Emerging Small Company 62.32% N/A 23.40% 01/01/97
- --------------------------------------------------------------------------------------------
Small Company Blend N/A N/A 18.70% 05/01/99
- --------------------------------------------------------------------------------------------
Mid Cap Stock N/A N/A -7.90% 05/01/99
- --------------------------------------------------------------------------------------------
All Cap Growth(C) 33.92% N/A 21.14% 03/04/96
- --------------------------------------------------------------------------------------------
Overseas 29.93% N/A 10.29% 01/09/95
- --------------------------------------------------------------------------------------------
International Stock 19.17% N/A 11.31% 01/01/97
- --------------------------------------------------------------------------------------------
International Value N/A N/A -5.15% 05/01/99
- --------------------------------------------------------------------------------------------
Mid Cap Blend 17.24% 20.89% 12.23%(B) 06/18/85
- --------------------------------------------------------------------------------------------
Small Company Value -1.90% N/A -5.53% 10/01/97
- --------------------------------------------------------------------------------------------
Global Equity -5.80% 8.66% 7.03%(B) 03/18/88
- --------------------------------------------------------------------------------------------
Growth 26.55% N/A 24.92% 07/15/96
- --------------------------------------------------------------------------------------------
Large Cap Growth 14.81% 17.28% 11.02%(B) 08/03/89
- --------------------------------------------------------------------------------------------
Quantitative Equity 11.87% N/A 22.69% 01/01/97
- --------------------------------------------------------------------------------------------
Blue Chip Growth 9.05% 22.94% 13.82% 12/11/92
- --------------------------------------------------------------------------------------------
Real Estate Securities -16.31% N/A -6.19% 01/01/97
- --------------------------------------------------------------------------------------------
Value -11.61% N/A 1.08% 01/01/97
- --------------------------------------------------------------------------------------------
Growth and Income 8.50% 23.48% 16.54% 04/23/91
- --------------------------------------------------------------------------------------------
U.S. Large Cap Value N/A N/A -6.17% 05/01/99
</TABLE>
5
<PAGE> 63
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS,
WHICHEVER IS INCEPTION
PORTFOLIO 1 YEAR 5 YEAR SHORTER DATE(A)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity-Income -6.04% 14.25% 12.03% 02/19/93
- --------------------------------------------------------------------------------------------
Income & Value -1.28% 11.42% 8.15%(B) 08/03/89
- --------------------------------------------------------------------------------------------
Balanced -10.59% N/A 5.97% 01/01/97
- --------------------------------------------------------------------------------------------
High Yield -1.89% N/A 3.63% 01/01/97
- --------------------------------------------------------------------------------------------
Strategic Bond -7.10% 6.84% 5.04% 02/19/93
- --------------------------------------------------------------------------------------------
Global Bond -15.11% 4.89% 6.36%(B) 03/18/88
- --------------------------------------------------------------------------------------------
Total Return N/A N/A -9.57% 05/01/99
- --------------------------------------------------------------------------------------------
Investment Quality Bond -10.71% 4.84% 4.52%(B) 06/18/85
- --------------------------------------------------------------------------------------------
Diversified Bond -8.45% 6.81% 5.80%(B) 08/03/89
- --------------------------------------------------------------------------------------------
U.S. Government Securities -9.31% 4.12% 5.19%(B) 03/18/88
- --------------------------------------------------------------------------------------------
Money Market -4.96% 2.37% 3.23%(B) 06/18/85
- --------------------------------------------------------------------------------------------
Lifestyle Aggressive 1000 4.30% N/A 6.04% 01/07/97
- --------------------------------------------------------------------------------------------
Lifestyle Growth 820 6.23% N/A 8.18% 01/07/97
- --------------------------------------------------------------------------------------------
Lifestyle Balanced 640 2.15% N/A 6.71% 01/07/97
- --------------------------------------------------------------------------------------------
Lifestyle Moderate 460 -1.99% N/A 6.44% 01/07/97
- --------------------------------------------------------------------------------------------
Lifestyle Conservative 280 -5.31% N/A 4.75% 01/07/97
- --------------------------------------------------------------------------------------------
Merrill Lynch Small Cap 23.38% N/A -0.88% 10/13/97
Value Focus - Class B D
- --------------------------------------------------------------------------------------------
Merrill Lynch Basic Value 10.56% N/A 4.67% 10/13/97
Focus - Class B
- --------------------------------------------------------------------------------------------
Merrill Lynch Developing
Capital Markets Focus - 54.30% N/A -6.46% 10/13/97
Class B
- --------------------------------------------------------------------------------------------
</TABLE>
(A) Inception date of the sub-account of the Variable Account which invests in
the portfolio.
(B) 10 year average annual return.
(C) Formerly, Mid Cap Growth Trust.
(D) Formerly, Merrill Lynch Special Value Focus Fund
6
<PAGE> 64
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
(ASSUMING REDEMPTION AT THE END OF THE TIME PERIOD)
CALCULATED AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS,
WHICHEVER IS INCEPTION
PORTFOLIO 1 YEAR 5 YEAR SHORTER DATE
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets(A) 51.82% 1.83% 0.75% 10/04/94
Science & Technology 87.88% N/A 43.29% 01/01/97
International Small Cap 73.54% N/A 20.97% 03/04/96
Aggressive Growth 22.39% N/A 7.51% 01/01/97
Emerging Small Company 62.32% N/A 23.40% 01/01/97
Small Company Blend N/A N/A 18.70% 01/01/99
Mid Cap Stock N/A N/A -7.90% 01/01/99
All Cap Growth(C) 33.92% N/A 21.14% 03/04/96
Overseas 29.93% N/A 10.29% 01/09/95
International Stock 19.17% N/A 11.31% 01/01/97
International Value N/A N/A -5.15% 05/01/99
Mid Cap Blend 17.24% 20.89% 12.23%(B) 06/18/85
Small Company Value -1.90% N/A -5.53% 10/01/97
Global Equity -5.80% 8.66% 7.03%(B) 03/18/88
Growth 26.55% N/A 24.92% 07/15/96
Large Cap Growth 14.81% 17.28% 11.02%(B) 08/03/89
Quantitative Equity(A) 11.87% 22.56% 14.15%(B) 04/30/87
Blue Chip Growth 9.05% 22.94% 13.82% 12/11/92
Real Estate Securities(A) -16.31% 4.46% 8.91%(B) 04/30/87
Value -11.61% N/A 1.08% 01/01/97
Growth and Income 8.50% 23.48% 16.54% 04/23/91
U.S. Large Cap Value N/A N/A -6.17% 05/01/99
Equity-Income -6.04% 14.25% 12.03% 02/19/93
Income & Value -1.28% 11.42% 8.15%(B) 08/03/89
Balanced 10.59% N/A 5.97% 01/01/97
High Yield -1.89% N/A 3.63% 01/01/97
Strategic Bond -7.10% 6.84% 5.04% 02/19/93
Global Bond -15.11% 4.89% 6.36%(B) 03/18/88
Total Return N/A N/A -9.57% 05/01/99
Investment Quality Bond -10.71% 4.84% 4.52%(B) 06/18/85
</TABLE>
7
<PAGE> 65
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS,
WHICHEVER IS INCEPTION
PORTFOLIO 1 YEAR 5 YEAR SHORTER DATE
<S> <C> <C> <C> <C>
Diversified Bond -8.45% 6.81% 5.80%(B) 08/03/89
- ---------------------------------------------------------------------------------------------
U.S. Government Securities -9.31% 4.12% 5.19%(B) 03/18/88
- ---------------------------------------------------------------------------------------------
Money Market -4.96% 2.37% 3.23%(B) 06/18/85
- ---------------------------------------------------------------------------------------------
Lifestyle Aggressive 1000 4.30% N/A 6.04% 01/07/97
- ---------------------------------------------------------------------------------------------
Lifestyle Growth 820 6.23% N/A 8.18% 01/07/97
- ---------------------------------------------------------------------------------------------
Lifestyle Balanced 640 2.15% N/A 6.71% 01/07/97
- ---------------------------------------------------------------------------------------------
Lifestyle Moderate 460 -1.99% N/A 6.44% 01/07/97
- ---------------------------------------------------------------------------------------------
Lifestyle Conservative 280 -5.31% N/A 4.75% 01/07/97
- ---------------------------------------------------------------------------------------------
Merrill Lynch Small Cap 23.38% N/A -0.88% 10/13/97
Value Focus - Class B(D)
- ---------------------------------------------------------------------------------------------
Merrill Lynch Basic 10.56% N/A 4.67% 10/13/97
Value Focus - Class B
- ---------------------------------------------------------------------------------------------
Merrill Lynch 54.30% N/A -6.46% 10/13/97
Developing Capital
Markets Focus - Class B
- ---------------------------------------------------------------------------------------------
</TABLE>
(A) Performance for each of these sub-accounts is based upon 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 for each of these sub-accounts is based on the historical
performance of the respective predecessor Manulife Series Fund, Inc.
portfolio for periods prior to December 31, 1996.
(B) 10 year average annual return.
(C) Formerly, Mid Cap Growth Trust.
(D) Formerly, Merrill Lynch Special Value Focus Fund
8
<PAGE> 66
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
(ASSUMING NO REDEMPTION AT THE END OF THE TIME PERIOD)
CALCULATED AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS,
WHICHEVER IS INCEPTION
PORTFOLIO 1 YEAR 5 YEAR SHORTER DATE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets(A) 60.37% 2.98% 1.71% 10/04/94
- --------------------------------------------------------------------------------------------
Science & Technology 96.43% N/A 44.62% 01/01/97
- --------------------------------------------------------------------------------------------
International Small Cap 82.09% N/A 22.08% 03/04/96
- --------------------------------------------------------------------------------------------
Aggressive Growth 30.93% N/A 9.82% 01/01/97
- --------------------------------------------------------------------------------------------
Emerging Small Company 70.87% N/A 25.17% 01/01/97
- --------------------------------------------------------------------------------------------
Small Company Blend N/A N/A 27.25% 05/01/99
- --------------------------------------------------------------------------------------------
Mid Cap Stock N/A N/A -0.23% 05/01/99
- --------------------------------------------------------------------------------------------
All Cap Growth(C) 42.47% N/A 22.24% 03/04/96
- --------------------------------------------------------------------------------------------
Overseas 38.48% N/A 11.14% 01/09/95
- --------------------------------------------------------------------------------------------
International Stock 27.72% N/A 13.47% 01/01/97
- --------------------------------------------------------------------------------------------
International Value N/A N/A 2.78% 05/01/99
- --------------------------------------------------------------------------------------------
Mid Cap Blend 25.78% 21.48% 12.27% 06/18/85
- --------------------------------------------------------------------------------------------
Small Company Value 6.33% N/A -2.29% 10/01/97
- --------------------------------------------------------------------------------------------
Global Equity 2.07% 9.54% 7.07%(B) 03/18/88
- --------------------------------------------------------------------------------------------
Growth 35.09% N/A 26.11% 07/15/96
- --------------------------------------------------------------------------------------------
Large Cap Growth 23.36% 17.94% 11.06%(B) 08/03/89
- --------------------------------------------------------------------------------------------
Quantitative Equity(A) 20.42% 23.12% 14.18%(B) 04/30/87
- --------------------------------------------------------------------------------------------
Blue Chip Growth 17.59% 23.49% 14.05% 12/11/92
- --------------------------------------------------------------------------------------------
Real Estate Securities(A) -9.42% 5.49% 8.94%(B) 04/30/87
- --------------------------------------------------------------------------------------------
Value -4.29% N/A 3.67% 01/01/97
- --------------------------------------------------------------------------------------------
Growth and Income 17.05% 24.02% 16.65% 04/23/91
- --------------------------------------------------------------------------------------------
U.S. Large Cap Value N/A N/A 1.67% 05/01/99
- --------------------------------------------------------------------------------------------
Equity-Income 1.81% 14.98% 12.36% 02/19/93
- --------------------------------------------------------------------------------------------
Income & Value 7.01% 12.22% 8.18%(B) 08/03/89
- --------------------------------------------------------------------------------------------
Balanced -3.17% N/A 8.34% 01/01/97
- --------------------------------------------------------------------------------------------
High Yield 6.34% N/A 6.10% 01/01/97
- --------------------------------------------------------------------------------------------
Strategic Bond 0.65% 7.78% 5.51% 02/19/93
- --------------------------------------------------------------------------------------------
Global Bond -8.11% 5.90% 6.39%(B) 03/18/88
- --------------------------------------------------------------------------------------------
Total Return N/A N/A -2.05% 05/01/99
- --------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 67
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS,
WHICHEVER IS INCEPTION
PORTFOLIO 1 YEAR 5 YEAR SHORTER DATE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Quality Bond -3.30% 5.86% 4.56%(B) 06/18/85
- --------------------------------------------------------------------------------------------
Diversified Bond -0.83% 7.76% 5.84%(B) 08/03/89
- --------------------------------------------------------------------------------------------
U.S. Government Securities -1.76% 5.16% 5.22%(B) 03/18/88
- --------------------------------------------------------------------------------------------
Money Market 2.99% 3.49% 3.27%(B) 06/18/85
- --------------------------------------------------------------------------------------------
Lifestyle Aggressive 1000 12.85% N/A 8.42% 01/07/97
- --------------------------------------------------------------------------------------------
Lifestyle Growth 820 14.77% N/A 10.47% 01/07/97
- --------------------------------------------------------------------------------------------
Lifestyle Balanced 640 10.70% N/A 9.06% 01/07/97
- --------------------------------------------------------------------------------------------
Lifestyle Moderate 460 6.24% N/A 8.80% 01/07/97
- --------------------------------------------------------------------------------------------
Lifestyle Conservative 280 2.60% N/A 7.19% 01/07/97
- --------------------------------------------------------------------------------------------
Merrill Lynch Small Cap 31.93% N/A 2.62% 10/13/97
Value Focus - Class B(D)
- --------------------------------------------------------------------------------------------
Merrill Lynch Basic 19.11% N/A 8.09% 10/13/97
Value Focus - Class B
- --------------------------------------------------------------------------------------------
Merrill Lynch Developing 62.84% N/A -3.19% 10/13/97
Capital Markets Focus -
Class B
- --------------------------------------------------------------------------------------------
</TABLE>
(A) Performance for each of these sub-accounts is based upon 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 for each of these sub-accounts is based on the historical
performance of the respective predecessor Manulife Series Fund, Inc.
portfolio for periods prior to December 31, 1996.
(B) 10 year average annual return.
(C) Formerly, Mid Cap Growth Trust.
(D) Formerly, Merrill Lynch Special Value Focus Fund
* * * * *
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 or Merrill Variable Funds may include in their
advertising and sales literature general discussions of economic theories,
including but not limited to, discussions on how demographic and political
trends can affect the financial markets. Further, the Trust may also include in
its advertising and sales literature specific information on each of the Trust's
subadvisers, including but not limited to, research capabilities of a
subadviser, assets under management, information relating to other clients of a
subadviser, and other generalized information.
SERVICES
INDEPENDENT AUDITORS
The consolidated financial statements of the Company at December 31, 1999
and 1998 and for each of the three years in the period ended December 31, 1999
and for the Variable Separate Account at December 31, 1999 and for each of the
two years in the period then ended December 31, 1999 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 on such reports given upon the authority of such firm
as experts in accounting and auditing.
10
<PAGE> 68
SERVICING AGENT
Computer Sciences Corporation Financial Services Group ("CSC FSG")
provides to us 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 transaction
- agent production and commissions;
- - semimonthly commission statements;
- - monthly summaries of agent production and daily transaction reports; o
semiannual statements for contract owners; and o annual contract owner tax
reports.
We pay CSC FSG approximately $7.80 per policy per year, plus certain other fees
for the services provided.
PRINCIPAL UNDERWRITER
Manufacturers Securities Services, LLC ("MSS"), the successor to NASL
Financial Services, Inc., is a Delaware limited liability company controlled by
us. It serves as principal underwriter of the contracts. Contracts are offered
on a continuous basis. The aggregate dollar amounts of underwriting commissions
paid to MSS in 1999, 1998 and 1997 were $183,494,116, $122,828,714 and
$29,615,342 respectively. MSS did not retain any of these amounts during such
periods.
11
<PAGE> 69
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
Years ended December 31, 1999, 1998 and 1997
<PAGE> 70
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
Report of Independent Auditors.............................................1
Audited Consolidated Financial Statements
Consolidated Balance Sheets...........................................2
Consolidated Statements of Income.....................................3
Consolidated Statements of Changes in Shareholder's Equity............4
Consolidated Statements of Cash Flows.................................5
Notes to Consolidated Financial Statements.................................6
<PAGE> 71
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 (the Company) as of
December 31, 1999 and 1998, and the related consolidated statements of income,
changes in shareholder's equity, and cash flows for each of the three years in
the period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
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 consolidated 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, 1999 and
1998, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
Boston, Massachusetts
February 28, 2000 Ernst & Young LLP
1
<PAGE> 72
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at December 31
ASSETS ($ thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENTS:
Fixed-maturity securities available-for-sale, at fair value (note 3) $ 152,922 $ 157,743
(amortized cost: 1999 $156,382; 1998 $152,969)
Short-term investments 41,311 34,074
Policy loans 7,049 5,175
- --------------------------------------------------------------------------------------------------------------------
Total investments $ 201,282 $ 196,992
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 27,790 $ 10,320
Accrued investment income 2,630 3,132
Deferred acquisition costs (note 5) 655,294 449,332
Other assets 19,341 6,360
Due from reinsurers 797,746 641,858
Separate account assets 16,022,215 12,188,420
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 17,726,298 $ 13,496,414
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY ($ thousands)
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Policyholder liabilities and accruals $ 139,764 $ 102,252
Payable to affiliates 10,267 4,388
Notes payable to affiliates (note 10) 311,100 241,000
Deferred income taxes (note 6) 46,533 23,777
Other liabilities 50,577 26,655
Due to reinsurers 808,599 655,892
Separate account liabilities 16,022,215 12,188,420
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 17,389,055 $ 13,242,384
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY:
Common stock (note 8) $ 2,600 $ 2,600
Additional paid-in capital (note 8) 207,102 179,053
Retained earnings 130,145 70,293
Accumulated other comprehensive (loss) income (2,604) 2,084
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDER'S EQUITY $ 337,243 $ 254,030
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 17,726,298 $ 13,496,414
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
2
<PAGE> 73
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
- --------------------------------------------------------------- ----------------- ------------------- ----------------
<S> <C> <C> <C>
REVENUES:
Fees from separate accounts and policyholder funds $ 218,231 $ 166,498 $ 126,636
Advisory fees and other distribution revenues 122,662 94,821 67,678
Premiums 175 - -
Net investment income (note 3) 12,721 12,178 7,906
Net realized investment (losses) gains (note 3) (266) 719 531
- --------------------------------------------------------------- ----------------- ------------------- ----------------
TOTAL REVENUE $ 353,523 $ 274,216 $ 202,751
- --------------------------------------------------------------- ----------------- ------------------- ----------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 6,735 $ 4,885 $ 4,986
Amortization of deferred acquisition costs (note 5) 44,554 53,499 40,649
Other insurance expenses (note 11) 192,834 135,624 100,385
Financing costs 16,842 12,497 14,268
- --------------------------------------------------------------- ----------------- ------------------- ----------------
TOTAL BENEFITS AND EXPENSES $ 260,965 $ 206,505 $ 160,288
- --------------------------------------------------------------- ----------------- ------------------- ----------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES $ 92,558 $ 67,711 $ 42,463
- --------------------------------------------------------------- ----------------- ------------------- ----------------
- --------------------------------------------------------------- ----------------- ------------------- ----------------
INCOME TAX EXPENSE (NOTE 6) $ 32,706 $ 23,873 $ 15,044
- --------------------------------------------------------------- ----------------- ------------------- ----------------
- --------------------------------------------------------------- ----------------- ------------------- ----------------
NET INCOME FROM CONTINUING OPERATIONS $ 59,852 $ 43,838 $ 27,419
- --------------------------------------------------------------- ----------------- ------------------- ----------------
Discontinued operations (note 15):
Loss from operations, net of tax $ - $ - $ (141)
Gain on disposal, net of tax $ - $ 582 $ 5,955
- --------------------------------------------------------------- ----------------- ------------------- ----------------
NET INCOME $ 59,852 $ 44,420 $ 33,233
- --------------------------------------------------------------- ----------------- ------------------- ----------------
</TABLE>
See accompanying notes.
3
<PAGE> 74
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER TOTAL
COMMON ADDITIONAL EARNINGS COMPREHENSIVE SHAREHOLDER'S
($thousands) STOCK PAID-IN CAPITAL (DEFICIT) (LOSS) INCOME EQUITY
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $2,600 $131,322 $(7,360) $ 509 $ 127,071
Capital contribution (note 8) - 47,731 - - 47,731
Comprehensive income (note 4) - - 33,233 691 33,924
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $2,600 $179,053 $25,873 $ 1,200 $ 208,726
Comprehensive income (note 4) - - 44,420 884 45,304
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $2,600 $179,053 $70,293 $ 2,084 $ 254,030
Capital contribution (note 8) - 28,049 - - 28,049
Comprehensive income (loss) (note 4) - - 59,852 (4,688) 55,164
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $2,600 $207,102 $130,145 $ (2,604) $ 337,243
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
4
<PAGE> 75
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
- ---------------------------------------------------------------------------- -------------- ---------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 59,852 $ 44,420 $ 33,233
Adjustments to reconcile net income to net cash used in operating
activities:
Amortization of bond discount and premium 747 685 401
Benefits to policyholders 6,735 4,885 4,986
Provision for deferred income tax 24,269 6,872 15,767
Net realized investment losses (gains) 266 (719) (531)
Amortization of deferred acquisition costs 44,554 53,499 40,649
Amortization of deferred acquisition costs included in discontinued - - 1,707
operations
Policy acquisition costs deferred (248,483) (138,527) (123,965)
Gain on disposal of discontinued operations - - (9,394)
Changes in assets and liabilities:
Accrued investment income 502 (491) (835)
Other assets (12,981) 3,266 (1,396)
Receivable from affiliates - 4,605 (4,605)
Payable to affiliates 5,879 4,644 (1,462)
Other liabilities 23,922 (1,882) 6,642
- ---------------------------------------------------------------------------- -------------- ---------- -----------
Net cash used in operating activities $ (94,738) $(18,743) $(38,803)
- ---------------------------------------------------------------------------- -------------- ---------- -----------
INVESTING ACTIVITIES:
Fixed-maturity securities sold, matured or repaid $ 95,139 $ 37,694 $ 74,626
Fixed-maturity securities purchased (99,565) (50,056) (118,765)
Equity securities sold - - 1
Equity securities purchased - - (250)
Foreclosed real estate sold - - 2,268
Disposal of discontinued operations - - 16,338
Net change in short-term investments (7,237) (19,082) (10,697)
Policy loans advanced, net (1,874) (1,899) (2,639)
- ---------------------------------------------------------------------------- -------------- ---------- -----------
Cash used in investing activities $ (13,537) $(33,343) $ (39,118)
- ---------------------------------------------------------------------------- -------------- ---------- -----------
FINANCING ACTIVITIES:
Net reinsurance consideration $ (3,181) $ (7,014) $ (5,443)
Deposits to policyholder funds 50,351 15,551 20,607
Return of policyholder funds (19,574) (10,934) (15,462)
Increase in notes payable to affiliates 70,100 57,464 25,754
Capital contribution by Parent 28,049 - 47,731
- ---------------------------------------------------------------------------- -------------- ---------- -----------
Cash provided by financing activities $ 125,745 $ 55,067 $ 73,187
- ---------------------------------------------------------------------------- -------------- ---------- -----------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the year 17,470 2,981 (4,734)
Balance, beginning of year 10,320 7,339 12,073
- ---------------------------------------------------------------------------- -------------- ---------- -----------
BALANCE, END OF YEAR $ 27,790 $ 10,320 $ 7,339
- ---------------------------------------------------------------------------- -------------- ---------- -----------
</TABLE>
See accompanying notes.
5
<PAGE> 76
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(IN THOUSANDS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company of North America (hereinafter
referred to as "MNA"), is a wholly-owned subsidiary of Manulife-Wood
Logan Holding Co., Inc. (hereinafter referred to as "MWLH"). MWLH is an
indirect wholly-owned subsidiary of The Manufacturers Life Insurance
Company ("MLI"); prior to June 1, 1999, MLI indirectly owned 85% of
MWLH, and minority shareholders associated with MWLH owned the
remaining 15%. MLI is a wholly-owned subsidiary of Manulife Financial
Corporation, a publicly traded company. Manulife Financial Corporation
and its subsidiaries are known collectively as "Manulife Financial."
MNA owns 100% of The Manufacturers Life Insurance Company of New York
(hereinafter referred to as "MNY") and is the managing member with a
90% interest in Manufacturers Securities Services, LLC ("MSS"). MNY
owns a 10% interest in MSS. MNA, MNY and MSS are hereinafter referred
to collectively as "the Company."
MNA issues individual and group annuity contracts in forty-eight
states, excluding New York and New Hampshire. Prior to July 1, 1998,
MNA also issued individual variable life insurance contracts. MNY
issues individual and group annuity contracts and individual life
insurance contracts in New York. Amounts invested in the fixed portion
of the contracts are allocated to the general accounts of the Company
or noninsulated separate accounts of the Company. Amounts invested in
the variable portion of the contracts are allocated to the separate
accounts of the Company. Each of these separate accounts invests in
shares of the various portfolios of the Manufacturers Investment Trust
(hereinafter referred to as "MIT"), a no-load, open-end investment
management company organized as a Massachusetts business trust, or in
open-end investment management companies offered and managed by
unaffiliated third parties.
Prior to October 1, 1997, NASL Financial Services Inc. ("NASL
Financial"), a subsidiary of MNA, acted as investment adviser to MIT
and as principal underwriter of the variable contracts issued by the
Company. Effective October 1, 1997, MSS, the successor to NASL
Financial, replaced NASL Financial as the investment adviser to MIT and
as the principal underwriter of all variable contracts issued by MNA.
MSS also acts as the principal underwriter for the variable contracts
and is the exclusive distributor for all contracts issued by MNY.
On October 31, 1998, MNA transferred a 10% interest in the members'
equity of MSS to MNY as a contribution of capital valued at $175.
6
<PAGE> 77
2. SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have
been prepared in conformity with generally accepted accounting
principles ("GAAP") in the United States and include the accounts and
operations, after intercompany eliminations, of the Company and its
majority and wholly-owned subsidiaries, MSS and MNY.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those
estimates.
B) RECENT ACCOUNTING STANDARDS
i) In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging
activities. Contracts that contain embedded derivatives, such as
certain insurance contracts, are also addressed by the Statement. SFAS
No. 133 requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and
measure those instruments at fair value. In July 1999, the FASB issued
Statement 137, which delayed the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. The Company is evaluating
the accounting implications of SFAS No. 133 and has not determined its
potential impact on the Company's results of operations or its
financial condition.
ii) In December 1997, the American Institute of Certified Public
Accountant's Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments." SOP 97-3 provides
guidance on the recognition and measurement of liabilities for various
assessments related to insurance activities, including those by state
guaranty funds. The Company adopted SOP 97-3 during 1999. Prior to the
adoption of SOP 97-3, the Company expensed and recognized liabilities
for such assessments on a "pay-as-you-go" basis. The effect of adopting
SOP 97-3 did not have a material impact on the results of operations
and financial condition of the Company for the year ended December 31,
1999.
iii) In March 1998, AcSEC issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires the capitalization of certain costs incurred in connection
with developing or obtaining internal-use software. The Company adopted
SOP 98-1 during 1999. Prior to the adoption of SOP 98-1, the Company
expensed internal-use software-related costs as incurred. The effect of
adopting the SOP 98-1 was to increase net income by $1,039 for the year
ended December 31, 1999.
7
<PAGE> 78
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C) INVESTMENTS
The Company classifies all of its fixed-maturity securities as
available-for-sale and records these securities at fair value. Realized
gains and losses on sales of securities classified as
available-for-sale are recognized in net income using the
specific-identification method. Changes in the fair value of securities
available-for-sale are reflected directly in accumulated other
comprehensive income after adjustments for deferred taxes and deferred
acquisition costs. Discounts and premiums on investments are amortized
using the effective-interest method.
The cost of fixed-maturity securities is adjusted for the amortization
of premiums and accretion of discounts using the interest method. This
amortization or accretion is included in net investment income.
For the mortgage-backed bond portion of the fixed-maturity securities
portfolio, the Company recognizes amortization using a constant
effective yield based on anticipated prepayments and the estimated
economic life of the securities. When actual prepayments differ
significantly from anticipated prepayments, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the security is adjusted to the amount
that would have existed had the new effective yield been applied since
the acquisition of the security. That adjustment is included in net
investment income.
Policy loans are reported at aggregate unpaid balances, which
approximate fair value.
Short-term investments, which include investments with maturities of
less than one year and greater than 90 days at the date of acquisition,
are reported at amortized cost, which approximates fair value.
D) CASH EQUIVALENTS
The Company considers all liquid debt instruments purchased with a
maturity date of three months or less at acquisition to be cash
equivalents. Cash equivalents are stated at cost plus accrued interest,
which approximates fair value.
8
<PAGE> 79
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E) DEFERRED ACQUISITION COSTS (DAC)
Commissions, net of commission allowances for reinsurance ceded, and
other expenses which vary with, and are primarily related to the
production of new business are deferred to the extent recoverable and
included as an asset. Acquisition costs associated with annuity
contracts and investment pension contracts are being amortized
generally in proportion to the present value of expected gross profits
from surrender charges and investment, mortality and expense margins.
The amortization is adjusted retrospectively when estimates of current
or future gross profits are revised. DAC associated with traditional
nonparticipating individual insurance policies is charged to expense
over the premium-paying period of the related policies. DAC is adjusted
for the impact on estimated future gross profits, assuming the
unrealized gains or losses on securities had been realized at year end.
The impact of any such adjustments is included in net unrealized gains
(losses) in accumulated other comprehensive income. DAC is reviewed
annually to determine recoverability from future income and, if not
recoverable, it is immediately expensed.
F) POLICYHOLDER LIABILITIES
Policyholder liabilities equal the policyholder account value for the
fixed portions of annuity, variable life and investment pension
contracts with no substantial mortality or morbidity risk. Account
values are increased for deposits received and interest credited, and
are reduced by withdrawals. For traditional nonparticipating life
insurance policies, policyholder liabilities are computed using the net
level premium method and are based upon estimates as to future
mortality, persistency, maintenance expenses and interest rate yields
that are applicable in the year of issue. The assumptions include a
provision for adverse deviation.
G) SEPARATE ACCOUNTS
Separate account assets and liabilities that are reported in the
accompanying balance sheets represent investments in MIT, which are
mutual funds that are separately administered for the exclusive benefit
of the policyholders of the Company and its affiliates, or open-end
investment management companies offered and managed by unaffiliated
third parties, which are mutual funds that are separately administered
for the benefit of the Company's policyholders and other contract
owners. These assets and liabilities are reported at fair value. The
policyholders, rather than the Company, bear the investment risk. The
operations of the separate accounts are not included in the
accompanying financial statements. Fees charged on separate account
policyholder funds are included in revenues.
9
<PAGE> 80
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H) REVENUE RECOGNITION
Fee income from separate accounts, annuity contracts and investment
pension contracts consists of charges for mortality, expenses, and
surrender and administration charges that have been assessed against
the policyholder account balances. Premiums on traditional
nonparticipating life insurance policies are recognized as revenue when
due. Investment income is recorded as revenue when due.
MSS and formerly NASL Financial (collectively the Adviser) are
responsible for managing the corporate and business affairs of MIT and
act as investment adviser to MIT. As compensation for its investment
advisory services, the Adviser receives advisory fees based on the
daily average net assets of the portfolios. The Adviser, as part of its
advisory services, is responsible for selecting and compensating
subadvisers 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 subadviser compensation
from the North American Funds ("NAF") through October 1, 1997, the date
the Company sold NAF. Subadviser compensation for MIT is included in
other insurance expenses.
I) POLICYHOLDER BENEFITS AND CLAIMS
Benefits for annuity contracts and investment pension contracts include
interest credited to policyholder account balances and benefit claims
incurred during the period in excess of policyholder account balances.
J) FINANCING AGREEMENTS
MNA has entered into various financing agreements with reinsurers and
an affiliated company. All assets and liabilities related to these
contracts are reported on a gross basis. Due to the nature of MNA's
products, these agreements are accounted for under the deposit method
whereby the net premiums paid to the reinsurers are recorded as
deposits.
K) 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." Under this method, deferred tax assets
and liabilities are determined based on differences between the
financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that likely will be in
effect when the differences are expected to reverse. The measurement of
deferred tax assets is reduced by a valuation allowance if, based upon
the available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized.
10
<PAGE> 81
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
L) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
3. INVESTMENTS AND INVESTMENT INCOME
A) FIXED-MATURITY SECURITIES
At December 31, 1999, the amortized cost and fair value of
fixed-maturity securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST UNREALIZED UNREALIZED LOSSES FAIR VALUE
AS AT DECEMBER 31, GAINS
($ thousands) 1999 1998 1999 1998 1999 1998 1999 1998
------------------------------ ---------- ---------- -------- ------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government $ 28,634 $ 18,266 $ 94 $1,144 $ (740) $ (28) $ 27,988 $ 19,382
Corporate 92,532 100,705 122 3,376 (2,486) (35) 90,168 104,046
Mortgage-backed 28,234 16,812 27 131 (406) (68) 27,855 16,875
Foreign governments 5,924 16,129 23 151 - (8) 5,947 16,272
States/political subdivisions 1,058 1,057 - 111 94) - 964 1,168
------------------------------ ---------- ---------- -------- ------- --------- -------- --------- ---------
TOTAL FIXED-MATURITY $ 156,382 $152,969 $ 266 $4,913 $(3,726) $(139) $152,922 $157,743
SECURITIES
------------------------------ ---------- ---------- -------- ------- --------- ------- --------- ---------
</TABLE>
Proceeds from sales of fixed-maturity securities during 1999 were
$81,874 (1998, $23,780; 1997, $53,325).
The contractual maturities of fixed-maturity securities at December 31,
1999 are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. Corporate
requirements and investment strategies may result in the sale of
investments before maturity.
<TABLE>
<CAPTION>
($ thousands) AMORTIZED COST FAIR VALUE
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
FIXED-MATURITY SECURITIES
One year or less $ 42,477 $ 42,567
Greater than 1; up to 5 years 49,172 48,582
Greater than 5; up to 10 years 18,299 17,505
Due after 10 years 18,200 16,413
Mortgage-backed securities 28,234 27,855
-----------------------------------------------------------------------------------------------------------
TOTAL FIXED-MATURITY SECURITIES $156,382 $152,922
-----------------------------------------------------------------------------------------------------------
</TABLE>
Fixed-maturity securities with a fair value of $6,108 and $6,105 at
December 31, 1999 and 1998, respectively, were on deposit with, or in
custody accounts on behalf of, state insurance departments to satisfy
regulatory requirements.
11
<PAGE> 82
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
B) INVESTMENT INCOME AND NET REALIZED INVESTMENT GAINS
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed-maturity securities $9,945 $ 9,904 $7,250
Short-term investments 2,960 2,503 1,126
Other invested assets - 19 -
-----------------------------------------------------------------------------------------------------------
Gross investment income 12,905 12,426 8,376
-----------------------------------------------------------------------------------------------------------
Investment expenses (184) (248) (470)
-----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $12,721 $ 12,178 $7,906
-----------------------------------------------------------------------------------------------------------
</TABLE>
The gross realized gains and losses on the sales of investments were as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed-maturity securities:
Gross realized gains $311 $724 $788
Gross realized losses (577) (5) (7)
Equity securities
Gross realized losses - - (250)
-----------------------------------------------------------------------------------------------------------
NET REALIZED (LOSS) GAIN ($266) $719 $531
-----------------------------------------------------------------------------------------------------------
</TABLE>
4. COMPREHENSIVE INCOME
Total comprehensive income was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
---------------------------------------------------------------- -------------- ------------ -------------
<S> <C> <C> <C>
NET INCOME $ 59,852 $ 44,420 $ 33,233
---------------------------------------------------------------- -------------- ------------ -------------
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:
Unrealized holding (losses) gains arising during the period (4,861) 1,351 1,036
Less:
Reclassification adjustment for realized (losses) gains
included In net income (173) 467 345
---------------------------------------------------------------- -------------- ------------ -------------
Other comprehensive (loss) income (4,688) 884 691
---------------------------------------------------------------- -------------- ------------ -------------
COMPREHENSIVE INCOME $ 55,164 $ 45,304 $ 33,924
---------------------------------------------------------------- -------------- ------------ -------------
</TABLE>
Other comprehensive (loss) income is reported net of income taxes
(benefit) of $(1,513), $476, and $372 for 1999, 1998, and 1997,
respectively.
12
<PAGE> 83
5. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
----------------------------------------------- -------------------- ------------------- ------------------
<S> <C> <C> <C>
Balance at January 1 $ 449,332 $ 364,983 $ 290,610
Capitalization 248,483 138,527 123,965
Amortization (44,554) (53,499) (40,649)
Amortization included in discontinued - - (1,707)
operations
Amortization included in gain on disposal of - - (6,943)
discontinued operations
Effect of net unrealized losses (gains) on 2,033 (679) (293)
securities available-for-sale
----------------------------------------------- -------------------- ------------------- ------------------
BALANCE AT DECEMBER 31 $ 655,294 $ 449,332 $ 364,983
----------------------------------------------- -------------------- ------------------- ------------------
</TABLE>
6. INCOME TAXES
The components of income tax expense from continuing operations were as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
----------------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Current expense (benefit) $ 8,437 $ 17,001 $ (723)
Deferred expense 24,269 6,872 15,767
----------------------------------------------------- ----------------- ----------------- -----------------
TOTAL EXPENSE $ 32,706 $ 23,873 $15,044
----------------------------------------------------- ----------------- ----------------- -----------------
</TABLE>
Significant components of the Company's net deferred tax liability are
as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
AS AT DECEMBER 31
($ thousands) 1999 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Financing arrangements $ 136 $ 1,289
Unrealized losses on securities available for sale 1,048 -
-----------------------------------------------------------------------------------------------------------
Gross deferred tax assets 1,184 1,289
Valuation allowance (657) -
-----------------------------------------------------------------------------------------------------------
Net deferred tax assets 527 1,289
-----------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Deferred policy acquisition costs (43,559) (22,017)
Unrealized gains on securities available-for-sale - (1,122)
Other (3,501) (1,927)
-----------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (47,060) (25,066)
-----------------------------------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITY $ (46,533) $ (23,777)
-----------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1999, the Company had $3,460 of unrealized capital
losses in its available-for-sale portfolio. Under federal tax law,
utilization of these capital losses, when realized, is limited to use
as an offset against capital gains. The Company believes that it is
more likely than not that it will be unable to realize the benefit of
the full deferred tax asset related to the net unrealized capital
losses. The Company has therefore, established a valuation allowance
for the amount in excess of the available capital gains. The Company
believes that it will realize the full benefit of its remaining
deferred tax assets.
13
<PAGE> 84
6. INCOME TAXES (CONTINUED)
The Company is a member of the MWLH-affiliated group, filing a
consolidated federal income tax return. MNA and MNY file separate state
income tax returns. The method of allocation between the companies is
subject to a written tax-sharing agreement under which the tax
liability is allocated to each member of the group on a pro rata basis
based on the relationship that the member's tax liability (computed on
a separate-return basis) bears to the tax liability of the consolidated
group. The tax charge to MNA or MNY will not be more than either
company would have paid on a separate-return basis. Settlements of
taxes are made through an increase or reduction to the payable to
parent, subsidiaries and affiliates, which are settled periodically.
The Company made estimated tax payments of $11,077, $12,516 and $531 in
1999, 1998 and 1997, respectively.
7. FINANCING AND REINSURANCE AGREEMENTS
The financing agreements entered into with reinsurance companies relate
primarily to the products sold by MNA. Most of MNA'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.
The Company has entered into two indemnity coinsurance agreements to
reinsure 100% of all contractual liabilities arising from the fixed
portion of both in-force and new variable annuity business written by
the Company. Under these agreements, each reinsurer, one unaffiliated
and one affiliated, receives the fixed portion of all premiums and
transfers received by the Company. Each reinsurer reimburses the
Company for all claims and provides expense allowances to cover
commissions and other costs associated with the reinsured business.
The Company has modified coinsurance agreements with two unaffiliated
life insurance companies. The treaties cover the quota share of all
elements of risk under the variable portion of certain variable annuity
policy forms. Another treaty, recaptured in 1999, with an unaffiliated
life insurance company covered the variable portion of certain annuity
contracts written prior to December 31, 1996.
The Company has treaties with three reinsurers, two unaffiliated and
one affiliated, to reinsure its Minimum Death Benefit Guarantee risk.
In addition, the Company reinsures a portion of its risk related to
waiving surrender charges at death. 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.
14
<PAGE> 85
7. FINANCING AND REINSURANCE AGREEMENTS (CONTINUED)
The Company has a treaty with an unaffiliated reinsurer to reinsure a
quota share of the variable portion of the Company's variable life
insurance contracts. In addition, the reinsurer assumes the product's
net amount at risk in excess of the Company's retention limit on a
yearly renewable term basis.
During 1998, MNY entered into reinsurance agreements with various
reinsurers to reinsure face amounts in excess of $100 for its
traditional nonparticipating insurance product. To date, there have
been no reinsurance recoveries under these agreements.
In the event of insolvency of a reinsurer, the Company remains
primarily liable to its policyholders. Failure of reinsurers to honor
their obligations could result in losses to the Company and,
accordingly, the Company periodically monitors the financial condition
of its reinsurers.
The Company has not entered into any reinsurance agreements in which
the reinsurer may unilaterally cancel any reinsurance for reasons other
than nonpayment of premiums or other similar credits or a significant
change in the ownership of the Company. The Company does not have any
reinsurance agreements in effect under which the amount of losses paid
or accrued through December 31, 1999 would result in a payment to the
reinsurer of amounts which, in the aggregate and allowing for offset of
mutual credits from other reinsurance agreements with the same
reinsurer, exceed the total direct premiums collected under the
reinsured policies.
8. SHAREHOLDER'S EQUITY
The Company has one class of capital stock:
<TABLE>
<CAPTION>
AS AT DECEMBER 31:
($ thousands) 1999 1998
---------------------------------------------------------------- -------------------------- ----------------
<S> <C> <C>
AUTHORIZED:
3,000 Common shares, par value $1,000
ISSUED AND OUTSTANDING:
2,600 Common shares $ 2,600 $2,600
---------------------------------------------------------------- -------------------------- ----------------
</TABLE>
15
<PAGE> 86
8. SHAREHOLDER'S EQUITY (CONTINUED)
In December 1999, the Company received a capital contribution of
$28,049 from MWLH.
In October 1997, the Company received a capital contribution of $47,731
from MWLH to support expansion of its New York operations.
The net assets of MNA and MNY available to MWLH as dividends are
generally limited to, and cannot be made except from, earned statutory
basis profits. The maximum amount of dividends that may be paid by life
insurance companies without prior approval of the Insurance
Commissioners of the States of Delaware and New York is subject to
restrictions relating to statutory surplus and net gain from operations
on a statutory basis.
Net (loss) income and capital and surplus, as determined in accordance
with statutory accounting principles for MNA and MNY were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MNA:
Net (loss) income $ (2,524) $ 28,067 $ 22,259
Net capital and surplus 171,094 157,940 139,171
MNY:
Net income (loss) 932 (5,678) (1,562)
Net capital and surplus 63,470 62,881 68,336
-----------------------------------------------------------------------------------------------------------
</TABLE>
State regulatory authorities prescribe statutory accounting practices
that differ in certain respects from accounting principles generally
accepted in the United States followed by stock life insurance
companies. The significant differences relate to investments, deferred
acquisition costs, deferred income taxes, nonadmitted asset balances
and reserve calculation assumptions.
MNA's broker dealer subsidiary, MSS, is subject to the Securities and
Exchange Commission's (SEC) "Net Capital Rule" as defined under rule
15c3-1. At December 31, 1999 and 1998, the net capital of the broker
dealer exceeded the SEC's minimum capital requirements.
9. RELATED-PARTY TRANSACTIONS
The Company utilized various services provided by MLI in 1999, 1998 and
1997, such as legal, personnel, investment accounting and other
corporate services. The charges for these services were approximately
$11,751, $12,752 and $8,229 in 1999, 1998 and 1997, respectively. At
December 31, 1999 and 1998, the Company had a net liability to MLI for
these services and interest accrued on notes payable of $8,341 and
$180, respectively. At December 31, 1999 and 1998, the payable is
offset by a receivable from MIT and MLI for expenses paid on their
behalf of $434 and $792, respectively. In addition, the Company has an
intercompany payable to MWLH relating to federal income taxes of $2,360
and $5,000 reflected in the intercompany payable at December 31, 1999
and 1998, respectively.
16
<PAGE> 87
9. RELATED-PARTY TRANSACTIONS (CONTINUED)
The financial statements have been prepared from the records maintained
by the Company and may not necessarily be indicative of the financial
conditions or results of operations that would have occurred if the
Company had been operated as an unaffiliated corporation (see also
Notes 1, 6, 7, 8, 10, 12, 13 and 14 for additional related-party
transactions).
10. NOTES PAYABLE TO AFFILIATES AND LINES OF CREDIT
MNA has promissory notes from The Manufacturers Life Insurance Company
(U.S.A.) ("ManUSA") for $291,100 including an additional borrowing of
$70,100 during 1999. Interest on the loan is calculated at a
fluctuating rate equal to LIBOR plus 32.5 basis points and is payable
in quarterly installments. Principal and accrued interest are payable
within 45 days of demand. Accrued interest payable at December 31, 1999
and 1998 is $834 and $419, respectively.
MNA has a surplus note of $20,000 with interest at 8% due to ManUSA.
The note and accrued interest are subordinated to payments due to
policyholders and other claimants. Principal and interest payments and
interest accruals can be made only upon prior approval of the Insurance
Department of the State of Delaware.
MNA and MNY have unsecured lines of credit with State Street Bank and
Trust Company totaling $15,000, bearing interest at the bank's money
market rate plus 50 basis points. There were no outstanding advances
under the lines of credit at December 31, 1999 and 1998.
Interest expense and interest paid in 1999 were $15,546 and $15,250,
respectively (1998 $13,506 and $16,861; 1997 $10,887 and $9,354).
11. OTHER INSURANCE EXPENSES
Other insurance expenses were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Selling and administrative expenses $69,757 $49,732 $42,581
Subadvisory fees 53,118 38,701 26,364
General operating expenses 69,959 47,191 31,440
-----------------------------------------------------------------------------------------------------------
TOTAL
$192,834 $135,624 $100,385
-----------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 88
12. EMPLOYEE BENEFITS
A) EMPLOYEE RETIREMENT PLAN
Prior to July 1, 1998, MNA and MNY, participated in a noncontributory
defined benefit pension plan (the Nalaco Plan) sponsored by MLI,
covering its employees. A similar plan (the Manulife Plan) also existed
for ManUSA. Both plans provided pension benefits based on length of
service and final average earnings. Vested benefits were fully funded;
current pension costs were funded as they accrue.
Effective July 1, 1998, the Nalaco Plan was merged into the Manulife
Plan as approved by the Board of Directors of MLI. The merged plan was
then restated as a cash balance pension plan entitled "The Manulife
Financial U.S. Cash Balance Pension Plan" (Cash Balance Plan).
Participants in the two prior plans ceased accruing benefits under the
old plan effective June 30, 1998, and became participants in the Cash
Balance Plan on July 1, 1998. Also effective July 1, ManUSA became the
sponsor of the Cash Balance Plan. Each participant who was a
participant in one of the prior plans received an opening account
balance equal to the present value of their June 30, 1998 accrued
benefit under the prior plan, using Pension Benefit Guaranty
Corporation rates (PBCG). Future contribution credits under the Cash
Balance Plan vary by service, and interest credits are a function of
the interest rate levels. Pension benefits are provided to those
participants after three years of vesting service, and the normal
retirement benefit is actuarially equivalent to the cash balance
account at normal retirement date. The normal form of payment under the
Cash Balance Plan is a life annuity, with various optional forms
available.
Actuarial valuation of accumulated plan benefits are based on projected
salaries and best estimates of investment yields on plan assets,
mortality of participants, employee termination and ages at retirement.
Pension costs relating to current service and amortization of
experience gains and losses are amortized to income over the estimated
average remaining service lives of the participants. No pension expense
was recognized by the sponsor in 1999, 1998 or 1997 because the plan
was subject to the full funding limitation under the Internal Revenue
Code.
At December 31, 1999, the projected benefit obligation based on an
assumed interest rate of 7.5% was $68,410. The fair value of plan
assets invested in ManUSA's general fund deposit administration
insurance contracts was $86,777.
Prior to July 1, 1998, MNA also participated in an unfunded
Supplemental Executive Retirement Plan (Manulife SERP) sponsored by MLI
for executives. This was a non-qualified plan that provides defined
pension benefits in excess of limits imposed by the law to those
retiring after age 50 with 10 or more years of vesting service, and the
pension benefit is a final average benefit based on the executive's
highest 5-year average earnings. Compensation was not limited by, and
benefits were not restricted by the Internal Revenue Code Section 415.
18
<PAGE> 89
12. EMPLOYEE BENEFITS (CONTINUED)
A) EMPLOYEE RETIREMENT PLAN (CONTINUED)
Effective July 1, 1998, the Manulife SERP was restated to become a
supplemental cash balance plan, and each participant in the SERP who
became a participant in the restated plan was provided with an opening
account balance equal to the present value of their June 30, 1998
accrued benefit under the SERP, using PBGC rates. Future contribution
credits vary by service, and interest credits are a function of
interest rate levels. These annual contribution credits are made in
respect of the participant's compensation that is in excess of the
limit in Internal Revenue Code Section 401(a)(17). In addition, a one
time contribution may be made for a participant if it is determined at
the time of their termination of employment that the participant's
pension benefit under the Cash Balance Plan is limited by Internal
Revenue Code Section 415. Together, these contributions serve to
restore to the participant the benefit that they would have been
entitled to under the Cash Balance Plan's benefit formula but for the
limitation in Internal Revenue Code Sections 401(a)(17) and 415.
Benefits are provided to participants after three years. The default
form of payment under the plan is a lump sum although participants may
elect to receive payment in the form of an annuity provided that such
election is made within the time period prescribed in the plan. If an
annuity form of payment is elected, the amount payable is equal the
actuarial equivalent of the participant's balance under the
supplemental Cash Balance Plan, using the factors and assumptions for
determining immediate annuity amounts applicable to the participant
under the qualified Cash Balance Plan.
B) 401(K) PLAN
Prior to July 1, 1998, the Company also sponsored a defined
contribution plan, the North American Security Life 401(k) Savings
Plan, which was subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA). A similar plan, the Manulife
Financial 401K Savings Plan, also existed for employees of ManUSA.
These two plans were merged on July 1, 1998 into one defined
contribution plan sponsored by ManUSA, as approved by the Board of
Directors on March 26, 1998. The Company contributed $300, $285 and
$353 in 1999, 1998 and 1997, respectively.
C) OTHER POSTRETIREMENT BENEFIT PLAN
In addition to the retirement plan, the Company participates in the
other postretirement benefit plan of ManUSA which provides retiree
medical and life insurance benefits to those who have attained age 55
with ten or more years of service. The plan provides the medical
coverage for retirees and spouses under age 65. When the retirees or
the covered dependents reach age 65, Medicare provides primary coverage
and the plan provides secondary coverage. There is no contribution for
post-age 65, coverage and no contributions are required for retirees
for life insurance coverage. The plan is unfunded.
The other postretirement benefit cost of the Company, which includes
the expected cost of postretirement benefits for newly eligible
employees and for vested employees, interest cost, and gains and losses
arising from differences between actuarial assumptions and actual
experience is accounted for by the plan sponsor, ManUSA.
19
<PAGE> 90
13. LEASES
In January 1999, ManUSA entered into a new sublease agreement on behalf
of the Company. In September 1999, the Company surrendered its old
office space and was released from its lease commitment. The Company
moved into the new office space in September 1999 with payments to the
landlord commencing January 1, 2000. The free rent from September to
December 1999 is being amortized over the term of the lease. For the
years ended December 31, 1999, 1998 and 1997, the Company incurred rent
expenses of $3,105, $1,617 and, $1,316, respectively. The Company also
leases various office equipment under operating lease agreements.
The minimum lease payments associated with the office space and various
office equipment under operating lease agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDED: MINIMUM LEASE PAYMENTS
------------------------------------------------------
<S> <C>
2000 4,028
2001 4,012
2002 4,008
2003 3,994
2004 and after 19,234
------------------------------------------------------
Total $35,276
------------------------------------------------------
</TABLE>
14. 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 MNA. The guarantee covers the
outstanding fixed portion of variable annuity contracts, including
those issued prior to the date of the guarantee agreement.
15. DISCONTINUED OPERATIONS
On May 6, 1997, MNA signed a letter of intent to sell its 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, required 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. In 1998, related to the
sale, the Company received a contingent payment of $1,000, before
income taxes, less an adjustment of $105 to the final settlement of the
purchase price. For 1998 and 1997, the Company realized a gain of $895
and $9,161, before applicable taxes of $313 and $3,206, respectively.
Included in the gain for 1997 is a provision of $10, before applicable
taxes of $3, for the loss from continuing operations during the
phase-out period. Expenses of $223 in 1997 were incurred on the sale
and netted against the realized gain.
20
<PAGE> 91
15. DISCONTINUED OPERATIONS (CONTINUED)
The operating results related to discontinued operations are summarized
as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
($ thousands) 1997
------------------------------------------ -------------------
<S> <C>
Advisory fees, commissions
and distribution revenues $ 4,605
------------------------------------------ -------------------
Loss from operations before income tax $ (217)
benefit
Income tax benefit 76
------------------------------------------ -------------------
Loss from operations, net of tax $ (141)
------------------------------------------ -------------------
</TABLE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------- ----------------------------- -------------------------------
($ thousands) CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
---------------------------------------- ---------------- ------------ ----------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Fixed-maturity securities 152,922 152,922 157,743 157,743
Short-term investments 41,311 41,311 34,074 34,074
Policy loans 7,049 7,049 5,175 5,175
Cash and cash equivalents 27,790 27,790 10,320 10,320
Due from reinsurers 797,746 797,746 641,858 641,858
Separate account assets 16,022,215 16,022,215 12,188,420 12,188,420
LIABILITIES:
Policyholder liabilities and 139,764 137,717 102,252 98,312
accruals
Due to reinsurers 808,599 808,599 655,892 655,892
Notes payable to affiliates 311,100 311,100 241,000 241,000
Separate account liabilities 16,022,215 16,022,215 12,188,420 12,188,420
---------------------------------------- ----------- ----------- ----------- ------------
</TABLE>
The following methods and assumptions were used by the Company in
estimating the fair value disclosures for financial instruments:
Fixed-Maturity Securities: Fair values for fixed-maturity securities
are obtained from an independent pricing service.
Short-Term Investments and Cash and Cash Equivalents: Carrying values
approximate fair values.
Policy Loans: Carrying values approximate fair values.
21
<PAGE> 92
16. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Due from Reinsurers: Fair value is equal to deposits made under the
contract and approximates the carrying value.
Separate Account Assets and Liabilities: The carrying amounts in the
balance sheet for separate account assets and liabilities approximate
their fair value.
Policyholder Liabilities and Accruals: Fair values of the Company's
liabilities under contracts not involving significant mortality risk
(deferred annuities) are estimated to be the cash surrender value, or
the cost the Company would incur to extinguish the liability.
Due 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.
17. CONTINGENCIES
The Company is subject to various lawsuits that have arisen in the
course of its business. Contingent liabilities arising from litigation,
income taxes and other matters are not considered material in relation
to the financial position of the Company.
22
<PAGE> 93
AUDITED FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT A
Years ended December 31, 1999 and 1998
<PAGE> 94
The Manufacturers Life Insurance Company of North America
Separate Account A
Audited Financial Statements
Years ended December 31, 1999 and 1998
CONTENTS
Report of Independent Auditors................................................1
Audited Financial Statements
Statement of Assets and Contract Owners' Equity...............................2
Statements of Operations and Changes in Contract Owners' Equity...............4
Notes to Financial Statements................................................19
<PAGE> 95
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 of The Manufacturers Life Insurance Company of North America
as of December 31, 1999, 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Manufacturers Life
Insurance Company of North America Separate Account A at December 31, 1999, 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 accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 15, 2000
1
<PAGE> 96
The Manufacturers Life Insurance Company of North America
Separate Account A
Statement of Assets and Contract Owners' Equity
December 31, 1999
<TABLE>
<S> <C>
ASSETS
Investments at market value:
Sub-accounts held by Manufacturers Investment Trust:
Mid Cap Blend Portfolio--65,729,135 shares (cost $1,267,408,277) $1,439,468,050
Investment Quality Bond Portfolio--18,866,533 shares (cost $226,060,734) 218,851,779
Growth and Income Portfolio--84,573,096 shares (cost $1,992,453,797) 2,763,003,036
Blue Chip Growth Portfolio--66,175,463 shares (cost $1,130,509,788) 1,432,037,014
Money Market Portfolio--87,199,520 shares (cost $871,995,200) 871,995,200
Global Equity Portfolio--39,047,614 shares (cost $705,363,023) 733,704,675
Global Bond Portfolio--11,832,771 shares (cost $152,950,552) 137,260,140
U.S. Government Securities Portfolio--17,391,094 shares (cost $233,276,680) 230,258,080
Diversified Bond Portfolio--14,571,220 shares (cost $160,288,296) 157,660,602
Income & Value Portfolio--46,224,569 shares (cost $549,978,606) 596,759,183
Large Cap Growth Portfolio--20,739,517 shares (cost $296,005,542) 357,341,870
Equity-Income Portfolio--47,843,723 shares (cost $781,387,327) 815,735,481
Strategic Bond Portfolio--22,452,974 shares (cost $262,767,771) 250,126,128
Overseas Portfolio--19,953,323 shares (cost $249,056,453) 317,656,908
Growth Portfolio--18,940,379 shares (cost $396,795,271) 509,117,400
Mid Cap Growth Portfolio--23,114,951 shares (cost $406,781,895) 575,331,123
International Small Cap Portfolio--6,499,140 shares (cost $112,015,695) 183,015,794
Pacific Rim Emerging Markets Portfolio--6,220,744 shares (cost $57,924,402) 67,681,694
Science & Technology Portfolio--25,024,745 shares (cost $647,828,449) 905,145,043
Emerging Small Company Portfolio--2,789,537 shares (cost $76,485,645) 113,645,728
Aggressive Growth Portfolio--6,470,337 shares (cost $86,725,579) 112,195,642
International Stock Portfolio--6,362,311 shares (cost $88,511,635) 98,170,464
Quantitative Equity Portfolio--6,985,304 shares (cost $174,265,768) 196,706,168
Value Trust Portfolio--9,342,873 shares (cost $138,659,120) 123,606,206
Real Estate Securities Portfolio--2,324,186 shares (cost $34,875,077) 29,958,758
Balanced Portfolio--5,518,702 shares (cost $102,541,513) 98,343,272
High Yield Portfolio--11,198,777 shares (cost $150,059,901) 143,792,293
Lifestyle Aggressive 1000 Portfolio--3,780,611 shares (cost $49,539,440) 54,970,082
Lifestyle Growth 820 Portfolio--18,884,819 shares (cost $259,812,929) 286,671,549
Lifestyle Balanced 640 Portfolio--20,650,896 shares (cost $276,213,083) 294,068,753
Lifestyle Moderate 460 Portfolio--9,496,242 shares (cost $128,936,221) 134,181,905
Lifestyle Conservative 280 Portfolio--6,344,330 shares (cost $83,329,291) 83,427,946
Small Company Value Portfolio--4,766,424 shares (cost $52,201,014) 58,484,021
US Large Cap Value Portfolio--9,186,453 shares (cost $113,163,494) 117,954,060
Mid Cap Stock Portfolio--2,161,880 shares (cost $26,330,859) 27,239,687
Small Company Blend Portfolio--2,402,094 shares (cost $32,641,242) 37,857,001
International Value Trust Portfolio--2,175,349 shares (cost $26,432,131) 28,236,032
Total Return Portfolio--5,294,711 shares (cost $65,544,878) 65,495,571
</TABLE>
2
<PAGE> 97
The Manufacturers Life Insurance Company of North America
Separate Account A
Statement of Assets, Liabilities and Contract Owners' Equity (continued)
December 31, 1999
<TABLE>
<S> <C>
ASSETS (CONTINUED)
Investments at market value (continued):
Sub-accounts held by Merrill Lynch Variable Series Funds, Inc.:
Basic Value Focus Portfolio--1,402,863 shares (cost $19,814,327) $ 19,050,878
Developing Capital Markets Focus Portfolio--127,061 shares (cost $1,053,733) 1,312,542
Special Value Focus Portfolio--197,764 shares (cost $3,968,589) 4,617,790
----------------
Total assets $ 14,692,135,548
================
CONTRACT OWNERS' EQUITY
Variable annuity contracts $ 14,670,567,844
Annuity reserves 21,567,704
----------------
Total contract owners' equity $ 14,692,135,548
================
</TABLE>
See accompanying notes.
3
<PAGE> 98
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in
Contract Owners' Equity
<TABLE>
<CAPTION>
SUB-ACCOUNT
--------------------------------------------------------------------------------------------------
MID CAP BLEND (1) INVESTMENT QUALITY BOND GROWTH AND INCOME
--------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 153,929,397 $ 262,896,468 $ 11,715,866 $ 9,380,173 $ 80,203,495 $ 104,185,784
Expenses:
Mortality and expense risk
and administrative charges 18,761,395 19,254,747 3,235,250 2,619,222 34,879,668 24,518,612
--------------------------------------------------------------------------------------------------
Net investment income (loss) 135,168,002 243,641,721 8,480,616 6,760,951 45,323,827 79,667,172
Net realized gain (loss) (26,061,804) 31,286,927 855,077 3,524,700 192,498,787 120,361,648
Unrealized appreciation
(depreciation) during the
period 199,725,097 (174,185,950) (16,830,922) 2,142,373 149,108,797 182,367,957
--------------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 308,831,295 100,742,698 (7,495,229) 12,428,024 386,931,411 382,396,777
Changes from principal
transactions:
Purchase payments 93,411,927 94,757,279 40,597,928 34,025,800 379,342,825 248,202,994
Transfers between sub-
accounts and the
Company (148,189,886) (73,281,664) (152,399) 27,481,604 201,840,782 109,065,836
Withdrawals (180,603,372) (127,824,175) (29,033,342) (18,664,400) (262,999,113) (142,936,147)
Annual contract fee (578,783) (627,094) (67,743) (56,911) (798,850) (612,633)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions (235,960,114) (106,975,654) 11,344,444 42,786,093 317,385,644 213,720,050
--------------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 72,871,181 (6,232,956) 3,849,215 55,214,117 704,317,055 596,116,827
Contract owners' equity at
beginning of period 1,366,596,869 1,372,829,825 215,002,564 159,788,447 2,058,685,981 1,462,569,154
--------------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $1,439,468,050 $1,366,596,869 $218,851,779 $215,002,564 $2,763,003,036 $2,058,685,981
==================================================================================================
</TABLE>
(1) On May 3, 1999, the Equity Sub-Account was renamed Mid Cap Blend through a
vote of the Board of Directors.
See accompanying notes.
4
<PAGE> 99
The Manufacturers Life Insurance Company of North America
Separate Account A
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,
1999 1998 1999 1998 1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 48,024,156 $ 13,929,066 $ 29,316,220 $ 21,461,471 $ 84,963,853 $ 59,603,230
Expenses:
Mortality and expense risk
and administrative charges 17,072,171 10,658,625 9,381,472 6,194,641 11,225,268 12,014,172
----------------------------------------------------------------------------------------------
Net investment income (loss) 30,951,985 3,270,441 19,934,748 15,266,830 73,738,585 47,589,058
Net realized gain (loss) 92,356,233 61,124,930 (37,631) 192,043 34,261,905 27,283,864
Unrealized appreciation
(depreciation) during the
period 80,600,837 123,565,136 0 0 (93,110,046) 6,192,769
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 203,909,055 187,960,507 19,897,117 15,458,873 14,890,444 81,065,691
Changes from principal transactions:
Purchase payments 267,993,066 142,511,048 374,293,200 280,358,533 51,092,502 61,937,777
Transfers between sub-
accounts and the
Company 99,970,099 70,636,247 302,685,947 (41,216,927) (84,444,789) (27,166,058)
Withdrawals (122,015,658) (50,972,213) (291,230,505) (115,055,612) (98,792,707) (71,777,066)
Annual contract fee (388,548) (266,440) (159,194) (111,391) (331,275) (372,022)
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 245,558,959 161,908,642 385,589,448 123,974,603 (132,476,269) (37,377,369)
----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 449,468,014 349,869,149 405,486,565 139,433,476 (117,585,825) 43,688,322
Contract owners' equity at
beginning of period 982,569,000 632,699,851 466,508,635 327,075,159 851,290,500 807,602,178
----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $1,432,037,014 $ 982,569,000 $ 871,995,200 $ 466,508,635 $ 733,704,675 $851,290,500
==============================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 100
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
GLOBAL BOND (2) U.S. GOVERNMENT SECURITIES DIVERSIFIED BOND (3)
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 15,950,596 $ 18,973,842 $ 10,287,189 $ 9,103,890 $ 16,986,531 $ 17,570,424
Expenses:
Mortality and expense risk
and administrative charges 2,249,622 2,750,057 3,564,976 2,945,305 2,451,082 2,625,650
-----------------------------------------------------------------------------------------------
Net investment income (loss) 13,700,974 16,223,785 6,722,213 6,158,585 14,535,449 14,944,774
Net realized gain (loss) (7,723,870) 898,854 1,192,111 4,428,098 541,478 3,497,458
Unrealized appreciation
(depreciation) during the
period (20,175,181) (5,780,204) (12,050,024) 1,035,564 (16,277,262) (1,878,860)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations (14,198,077) 11,342,435 (4,135,700) 11,622,247 (1,200,335) 16,563,372
Changes from principal
transactions:
Purchase payments 8,221,045 9,584,824 37,846,882 40,913,770 14,089,233 7,937,011
Transfers between sub-
accounts and the
Company (17,128,037) (21,994,571) (4,058,550) 19,072,298 (9,493,700) (6,943,504)
Withdrawals (26,084,516) (18,770,928) (36,511,642) (23,285,802) (31,237,206) (26,555,234)
Annual contract fee (60,363) (77,219) (72,992) (66,701) (81,266) (92,857)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions (35,051,871) (31,257,894) (2,796,302) 36,633,565 (26,722,939) (25,654,584)
-----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity (49,249,948) (19,915,459) (6,932,002) 48,255,812 (27,923,274) (9,091,212)
Contract owners' equity at
beginning of period 186,510,088 206,425,547 237,190,082 188,934,270 185,583,876 194,675,088
-----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 137,260,140 $ 186,510,088 $ 230,258,080 $ 237,190,082 $ 157,660,602 $ 185,583,876
===============================================================================================
</TABLE>
(2) On May 3, 1999, the Global Government Bond Sub-Account was renamed Global
Bond through a vote of the Board of Directors.
(3) On May 3, 1999, the Conservative Asset Allocation Sub-Account was renamed
Diversified Bond through a vote of the Board of Directors.
See accompanying notes.
6
<PAGE> 101
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
INCOME & VALUE (4) LARGE CAP GROWTH (5) EQUITY INCOME
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 64,728,819 $ 64,146,035 $ 25,595,630 $ 26,290,872 $ 61,583,673 $ 50,288,949
Expenses:
Mortality and expense risk
and administrative charges 8,356,583 8,092,103 3,917,259 3,191,540 12,388,373 12,044,210
-----------------------------------------------------------------------------------------------
Net investment income (loss) 56,372,236 56,053,932 21,678,371 23,099,332 49,195,300 38,244,739
Net realized gain (loss) 14,156,297 14,458,530 23,897,802 9,700,147 60,838,721 45,466,323
Unrealized appreciation
(depreciation) during the
period (30,559,573) 2,472,822 19,560,682 3,631,032 (93,256,752) (23,107,903)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 39,968,960 72,985,284 65,136,855 36,430,511 16,777,269 60,603,159
Changes from principal
transactions:
Purchase payments 37,755,830 18,958,426 58,029,084 10,964,443 89,380,630 103,523,597
Transfers between sub-
accounts and the
Company 29,853,674 (17,040,289) 32,067,415 (5,795,331) (80,590,017) (18,384,431)
Withdrawals (89,782,808) (71,094,567) (36,367,472) (24,226,715) (100,634,351) (60,748,536)
Annual contract fee (304,235) (329,687) (154,449) (156,682) (292,444) (292,490)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions (22,477,539) (69,506,117) 53,574,578 (19,214,285) (92,136,182) 24,098,140
-----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 17,491,421 3,479,167 118,711,433 17,216,226 (75,358,913) 84,701,299
Contract owners' equity at
beginning of period 579,267,762 575,788,595 238,630,437 221,414,211 891,094,394 806,393,095
-----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 596,759,183 $ 579,267,762 $ 357,341,870 $ 238,630,437 $ 815,735,481 $ 891,094,394
===============================================================================================
</TABLE>
(4) On May 3, 1999, the Moderate Asset Allocation Sub-Account was renamed Income
& Value through a vote of the Board of Directors.
(5) On May 3, 1999, the Aggressive Asset Allocation Sub-Account was renamed
Large Cap Growth through a vote of the Board of Directors.
See accompanying notes.
7
<PAGE> 102
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
STRATEGIC BOND OVERSEAS (6) GROWTH
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 20,390,856 $ 19,762,976 $ 0 $ 10,783,616 $ 14,178,869 $ 6,498,283
Expenses:
Mortality and expense risk
and administrative charges 3,938,500 4,220,177 3,241,956 2,772,206 4,962,443 2,460,324
-----------------------------------------------------------------------------------------------
Net investment income (loss) 16,452,356 15,542,799 (3,241,956) 8,011,410 9,216,426 4,037,959
Net realized gain (loss) (3,762,853) 5,827,370 23,772,499 (4,242,482) 31,512,124 7,868,700
Unrealized appreciation
(depreciation) during the
period (11,027,718) (22,293,148) 64,760,081 6,890,254 74,478,633 23,267,491
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 1,661,785 (922,979) 85,290,624 10,659,182 115,207,183 35,174,150
Changes from principal
transactions:
Purchase payments 22,725,716 59,587,164 28,374,515 22,213,738 89,248,445 46,724,068
Transfers between sub-
accounts and the
Company (40,829,510) (16,016,161) 34,421,895 (9,290,437) 107,317,349 20,642,796
Withdrawals (34,305,856) (21,651,946) (23,065,572) (13,365,800) (27,547,360) (9,558,754)
Annual contract fee (83,834) (81,880) (76,048) (72,465) (102,141) (54,268)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions (52,493,484) 21,837,177 39,654,790 (514,964) 168,916,293 57,753,842
-----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity (50,831,699) 20,914,198 124,945,414 10,144,218 284,123,476 92,927,992
Contract owners' equity at
beginning of period 300,957,827 280,043,629 192,711,494 182,567,276 224,993,924 132,065,932
-----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 250,126,128 $ 300,957,827 $ 317,656,908 $ 192,711,494 $ 509,117,400 $ 224,993,924
===============================================================================================
</TABLE>
(6) On May 3, 1999, the International Growth & Income Sub-Account was renamed
Overseas through a vote of the Board of Directors.
See accompanying notes.
8
<PAGE> 103
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
----------------------------------------------------------------------------------------------
MID CAP GROWTH (7) INTERNATIONAL SMALL CAP PACIFIC RIM EMERGING MARKETS
----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 48,276,292 $ 0 $ 358,697 $ 336,534 $ 1,026,291 $ 0
Expenses:
Mortality and expense risk
and administrative charges 5,718,870 3,976,254 1,573,338 1,517,775 446,217 137,686
----------------------------------------------------------------------------------------------
Net investment income (loss) 42,557,422 (3,976,254) (1,214,641) (1,181,241) 580,074 (137,686)
Net realized gain (loss) 28,008,220 20,349,494 15,671,103 6,105,663 7,368,690 (2,090,591)
Unrealized appreciation
(depreciation) during the
period 94,166,019 51,762,373 65,010,127 5,595,158 9,147,024 1,949,020
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 164,731,661 68,135,613 79,466,589 10,519,580 17,095,788 (279,257)
Changes from principal
transactions:
Purchase payments 73,220,832 46,950,104 12,518,161 11,129,043 17,899,189 3,553,787
Transfers between sub-
accounts and the
Company 23,827,468 8,700,217 (3,519,893) (11,727,965) 23,572,852 1,253,352
Withdrawals (33,080,407) (17,277,732) (10,366,665) (6,285,382) (2,407,322) (497,351)
Annual contract fee (133,217) (102,955) (40,229) (42,473) (9,223) (3,324)
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 63,834,676 38,269,634 (1,408,626) (6,926,777) 39,055,496 4,306,464
----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 228,566,337 106,405,247 78,057,963 3,592,803 56,151,284 4,027,207
Contract owners' equity at
beginning of period 346,764,786 240,359,539 104,957,831 101,365,028 11,530,410 7,503,203
----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 575,331,123 $ 346,764,786 $ 183,015,794 $ 104,957,831 $ 67,681,694 $ 11,530,410
==============================================================================================
</TABLE>
(7) On May 3, 1999, the Small Mid Cap Sub-Account was renamed Mid Cap Growth
through a vote of the Board of Directors.
See accompanying notes.
9
<PAGE> 104
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
----------------------------------------------------------------------------------------------
SCIENCE & TECHNOLOGY EMERGING SMALL COMPANY AGGRESSIVE GROWTH (8)
----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 61,919,386 $ 0 $ 759,177 $ 606,644 $ 0 $ 0
Expenses:
Mortality and expense risk
and administrative charges 5,761,991 1,202,138 873,992 644,336 924,547 725,112
----------------------------------------------------------------------------------------------
Net investment income (loss) 56,157,395 (1,202,138) (114,815) (37,692) (924,547) (725,112)
Net realized gain (loss) 55,024,474 2,838,592 7,884,062 (840,697) 4,579,079 302,011
Unrealized appreciation
(depreciation) during the
period 227,736,042 32,860,184 35,160,887 754,323 21,518,364 2,526,128
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 338,917,911 34,496,638 42,930,134 (124,066) 25,172,896 2,103,027
Changes from principal
transactions:
Purchase payments 207,053,560 34,212,705 15,034,166 16,370,893 26,876,986 12,805,688
Transfers between sub-
accounts and the
Company 249,768,296 16,789,653 5,408,633 532,221 5,696,610 514,103
Withdrawals (27,264,960) (4,130,388) (4,232,298) (2,520,170) (4,347,279) (2,807,192)
Annual contract fee (118,939) (26,696) (20,646) (12,785) (20,633) (17,850)
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 429,437,957 46,845,274 16,189,855 14,370,159 28,205,684 10,494,749
----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 768,355,868 81,341,912 59,119,989 14,246,093 53,378,580 12,597,776
Contract owners' equity at
beginning of period 136,789,175 55,447,263 54,525,739 40,279,646 58,817,062 46,219,286
----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 905,145,043 $ 136,789,175 $ 113,645,728 $ 54,525,739 $ 112,195,642 $ 58,817,062
==============================================================================================
</TABLE>
(8) On May 3, 1999, the Pilgrim Baxter Growth Sub-Account was renamed Aggressive
Growth through a vote of the Board of Directors.
See accompanying notes.
10
<PAGE> 105
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------
INTERNATIONAL STOCK WORLDWIDE GROWTH (9) QUANTITATIVE EQUITY
-----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 8,108,456 $ 862,935 $ 319,615 $ 172,999 $ 10,516,654 $ 4,541,776
Expenses:
Mortality and expense risk
and administrative charges 1,061,361 674,016 177,079 395,448 2,042,760 640,582
-----------------------------------------------------------------------------------------
Net investment income (loss) 7,047,095 188,919 142,536 (222,449) 8,473,894 3,901,194
Net realized gain (loss) 8,135,854 2,364,955 3,255,622 525,371 4,998,960 449,434
Unrealized appreciation
(depreciation) during the
period 7,613,413 3,503,979 (1,523,409) 1,343,334 14,982,816 6,170,135
-----------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 22,796,362 6,057,853 1,874,749 1,646,256 28,455,670 10,520,763
Changes from principal
transactions:
Purchase payments 23,670,823 13,225,216 2,628,319 11,495,901 48,763,678 20,771,816
Transfers between sub-
accounts and the
Company 1,405,970 2,851,294 (37,474,479) 2,347,570 63,401,411 12,619,124
Withdrawals (5,184,070) (2,491,971) (1,108,247) (1,286,241) (11,480,477) (2,437,925)
Annual contract fee (20,859) (13,680) (3,338) (7,427) (35,712) (11,798)
-----------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 19,871,864 13,570,859 (35,957,745) 12,549,803 100,648,900 30,941,217
-----------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 42,668,226 19,628,712 (34,082,996) 14,196,059 129,104,570 41,461,980
Contract owners' equity at
beginning of period 55,502,238 35,873,526 34,082,996 19,886,937 67,601,598 26,139,618
-----------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 98,170,464 $ 55,502,238 $ 0 $ 34,082,996 $ 196,706,168 $ 67,601,598
=========================================================================================
</TABLE>
(9) On April 30, 1999, the Worldwide Growth Sub-Account ceased operations and
was merged with the Global Equity Sub-Account through a vote of the Board of
Directors.
See accompanying notes.
11
<PAGE> 106
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
--------------------------------------------------------------------------------------------
VALUE TRUST REAL ESTATE SECURITIES BALANCED
--------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 3,906,842 $ 4,638,914 $ 1,606,291 $ 4,863,628 $ 7,083,393 $ 4,362,693
Expenses:
Mortality and expense risk
and administrative charges 1,922,443 1,782,489 467,023 550,805 1,443,252 638,257
--------------------------------------------------------------------------------------------
Net investment income (loss) 1,984,399 2,856,425 1,139,268 4,312,823 5,640,141 3,724,436
Net realized gain (loss) (2,588,397) 1,138,053 (6,927,167) (902,342) (1,412,831) 247,184
Unrealized appreciation
(depreciation) during the
period (5,159,090) (10,157,046) 2,714,591 (10,990,491) (6,552,341) 1,131,212
--------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations (5,763,088) (6,162,568) (3,073,308) (7,580,010) (2,325,031) 5,102,832
Changes from principal
transactions:
Purchase payments 18,406,894 49,908,355 4,080,168 11,906,485 29,779,086 26,732,376
Transfers between sub-
accounts and the
Company (18,344,695) 14,640,406 (5,881,514) 2,566,730 5,388,722 22,894,698
Withdrawals (11,460,776) (5,344,005) (3,461,863) (2,469,360) (9,245,498) (2,463,299)
Annual contract fee (41,689) (29,966) (11,688) (10,774) (27,011) (9,365)
--------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions (11,440,266) 59,174,790 (5,274,897) 11,993,081 25,895,299 47,154,410
--------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity (17,203,354) 53,012,222 (8,348,205) 4,413,071 23,570,268 52,257,242
Contract owners' equity at
beginning of period 140,809,560 87,797,338 38,306,963 33,893,892 74,773,004 22,515,762
--------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 123,606,206 $ 140,809,560 $ 29,958,758 $ 38,306,963 $ 98,343,272 $ 74,773,004
============================================================================================
</TABLE>
See accompanying notes.
12
<PAGE> 107
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
--------------------------------------------------------------------------------------------
HIGH YIELD CAPITAL GROWTH BOND (10) LIFESTYLE AGGRESSIVE 1000
--------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 11,545,406 $ 8,887,481 $ 864,902 $ 264,547 $ 2,722,018 $ 2,636,383
Expenses:
Mortality and expense risk
and administrative charges 1,997,783 1,432,205 55,062 95,375 708,426 723,027
--------------------------------------------------------------------------------------------
Net investment income (loss) 9,547,623 7,455,276 809,840 169,172 2,013,592 1,913,356
Net realized gain (loss) (2,257,195) 308,573 (660,734) 135,919 (1,222,067) 809,716
Unrealized appreciation
(depreciation) during the
period 1,227,151 (7,507,180) (267,578) 156,238 5,251,865 (1,147,651)
--------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 8,517,579 256,669 (118,472) 461,329 6,043,390 1,575,421
Changes from principal transactions:
Purchase payments 29,744,338 57,459,954 1,787,667 3,886,790 15,435,696 21,969,123
Transfers between sub-
accounts and the
Company (6,333,119) 15,683,299 (12,288,805) 3,612,080 (21,418,342) (1,521,360)
Withdrawals (12,946,674) (5,903,448) (285,298) (227,645) (3,918,302) (3,165,862)
Annual contract fee (31,743) (17,792) (620) (891) (35,402) (25,491)
--------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 10,432,802 67,222,013 (10,787,056) 7,270,334 (9,936,350) 17,256,410
--------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 18,950,381 67,478,682 (10,905,528) 7,731,663 (3,892,960) 18,831,831
Contract owners' equity at
beginning of period 124,841,912 57,363,230 10,905,528 3,173,865 58,863,042 40,031,211
--------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 143,792,293 $ 124,841,912 $ 0 $ 10,905,528 $ 54,970,082 $ 58,863,042
============================================================================================
</TABLE>
(10) On April 30, 1999, the Capital Growth Bond Sub-Account ceased operations
and was merged with the Investment Quality Bond Sub-Account through a vote
of the Board of Directors.
See accompanying notes.
13
<PAGE> 108
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
LIFESTYLE GROWTH 820 LIFESTYLE BALANCED 640 LIFESTYLE MODERATE 460
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 14,858,795 $ 14,111,619 $ 17,810,957 $ 13,670,797 $ 7,506,470 $ 3,839,085
Expenses:
Mortality and expense risk
and administrative charges 3,749,541 3,455,069 4,121,828 3,423,557 1,849,094 1,151,712
-----------------------------------------------------------------------------------------------
Net investment income (loss) 11,109,254 10,656,550 13,689,129 10,247,240 5,657,376 2,687,373
Net realized gain (loss) 1,685,669 2,139,936 (859,793) 1,544,172 1,153,420 878,683
Unrealized appreciation
(depreciation) during the
period 23,446,478 (2,785,080) 16,069,672 (3,124,500) 1,095,396 2,974,288
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 36,241,401 10,011,406 28,899,008 8,666,912 7,906,192 6,540,344
Changes from principal
transactions:
Purchase payments 70,193,502 110,072,582 61,122,566 136,038,997 28,704,487 54,357,743
Transfers between sub-
accounts and the
Company (94,123,645) 5,245,489 (82,208,600) 14,223,902 (8,341,574) 14,002,683
Withdrawals (19,561,667) (10,385,720) (20,076,098) (12,460,337) (9,811,239) (3,921,846)
Annual contract fee (123,215) (72,269) (106,632) (51,951) (41,995) (13,485)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions (43,615,025) 104,860,082 (41,268,764) 137,750,611 10,509,679 64,425,095
-----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity (7,373,624) 114,871,488 (12,369,756) 146,417,523 18,415,871 70,965,439
Contract owners' equity at
beginning of period 294,045,173 179,173,685 306,438,509 160,020,986 115,766,034 44,800,595
-----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 286,671,549 $ 294,045,173 $ 294,068,753 $ 306,438,509 $ 134,181,905 $ 115,766,034
===============================================================================================
</TABLE>
See accompanying notes.
14
<PAGE> 109
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------
US LARGE CAP
LIFESTYLE CONSERVATIVE 280 SMALL COMPANY VALUE VALUE (11)
-----------------------------------------------------------------------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31
-----------------------------------------------------------------------------------
1999 1998 1999 1998 1999
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income:
Dividends $ 5,216,443 $ 1,713,067 $ 38,016 $ 19,377 $ 0
Expenses:
Mortality and expense risk
and administrative charges 1,128,310 556,830 809,959 606,307 626,565
-----------------------------------------------------------------------------------
Net investment income (loss) 4,088,133 1,156,237 (771,943) (586,930) (626,565)
Net realized gain (loss) 544,159 271,648 (5,255,135) (582,960) (193,257)
Unrealized appreciation
(depreciation) during the
period (2,519,013) 2,119,282 9,035,272 (2,538,730) 4,790,566
-----------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 2,113,279 3,547,167 3,008,194 (3,708,620) 3,970,744
Changes from principal transactions:
Purchase payments 23,265,220 33,166,004 8,866,509 28,591,491 57,292,554
Transfers between sub-
accounts and the
Company (1,927,268) 14,381,167 (13,624,996) 25,105,906 58,617,615
Withdrawals (6,127,892) (2,280,020) (4,843,069) (1,762,784) (1,920,575)
Annual contract fee (18,295) (4,485) (18,019) (8,494) (6,278)
-----------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 15,191,765 45,262,666 (9,619,575) 51,926,119 113,983,316
-----------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 17,305,044 48,809,833 (6,611,381) 48,217,499 117,954,060
Contract owners' equity at
beginning of period 66,122,902 17,313,069 65,095,402 16,877,903 0
-----------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 83,427,946 $ 66,122,902 $ 58,484,021 $ 65,095,402 $ 117,954,060
===================================================================================
</TABLE>
See accompanying notes.
15
<PAGE> 110
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------
MID CAP STOCK (11) SMALL COMPANY INTERNATIONAL
BLEND (11) VALUE (11)
-----------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1999
-----------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends $ 0 $ 720,294 $ 0
Expenses:
Mortality and expense risk
and administrative charges 122,937 164,934 136,693
-----------------------------------------------------------------
Net investment income (loss) (122,937) 555,360 (136,693)
Net realized gain (loss) (173,237) 257,693 33,013
Unrealized appreciation
(depreciation) during the
period 908,828 5,215,759 1,803,901
-----------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 612,654 6,028,812 1,700,221
Changes from principal
transactions:
Purchase payments 15,399,144 15,336,609 11,603,890
Transfers between sub-
accounts and the
Company 11,691,592 16,834,296 15,682,172
Withdrawals (461,893) (340,818) (748,816)
Annual contract fee (1,810) (1,898) (1,435)
-----------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 26,627,033 31,828,189 26,535,811
-----------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 27,239,687 37,857,001 28,236,032
Contract owners' equity at
beginning of period 0 0 0
-----------------------------------------------------------------
Contract owners' equity at end
of period $ 27,239,687 $ 37,857,001 $ 28,236,032
=================================================================
</TABLE>
(11) From commencement of operations, May 3, 1999.
See accompanying notes.
16
<PAGE> 111
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-------------------------------------------------------------------------------------
DEVELOPING CAPITAL MARKETS
TOTAL RETURN (11) BASIC VALUE FOCUS FOCUS
-------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1998 1999 1998
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income:
Dividends $ 0 $ 2,014,871 $ 53,970 $ 11,709 $ 388
Expenses:
Mortality and expense risk
and administrative charges 322,526 133,444 21,001 7,049 1,933
-------------------------------------------------------------------------------------
Net investment income (loss) (322,526) 1,881,427 32,969 4,660 (1,545)
Net realized gain (loss) (54,031) (18,709) (18,194) 19,139 (7,758)
Unrealized appreciation
(depreciation) during the
period (49,306) (842,689) 80,592 295,033 (46,006)
-------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations (425,863) 1,020,029 95,367 318,832 (55,309)
Changes from principal
transactions:
Purchase payments 28,361,631 10,559,719 2,636,532 597,141 279,236
Transfers between sub-
accounts and the
Company 39,133,059 4,408,752 331,091 281,489 (12,556)
Withdrawals (1,570,783) (317,296) (27,056) (125,800) (2,025)
Annual contract fee (2,473) (4,087) (92) (248) (6)
-------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 65,921,434 14,647,088 2,940,475 752,582 264,649
-------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 65,495,571 15,667,117 3,035,842 1,071,414 209,340
Contract owners' equity at
beginning of period 0 3,383,761 347,919 241,128 31,788
-------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 65,495,571 $ 19,050,878 $ 3,383,761 $ 1,312,542 $ 241,128
=====================================================================================
</TABLE>
(11) From commencement of operations, May 3, 1999.
See accompanying notes.
17
<PAGE> 112
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
--------------------------------------------------------------------------------
SPECIAL VALUE FOCUS TOTAL
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income:
Dividends $ 250,560 $ 57,259 $ 845,296,685 $ 760,515,175
Expenses:
Mortality and expense risk
and administrative charges 31,506 10,495 178,004,548 140,724,000
--------------------------------------------------------------------------------
Net investment income (loss) 219,054 46,764 667,292,137 619,791,175
Net realized gain (loss) (63,717) (77,295) 555,229,763 367,566,677
Unrealized appreciation
(depreciation) during the
period 704,186 (50,244) 825,926,613 198,898,651
--------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 859,523 (80,775) 2,048,448,513 1,186,256,503
Changes from principal transactions:
Purchase payments 2,095,665 1,000,154 2,452,701,028 1,890,721,447
Transfers between sub-
accounts and the
Company 665,403 117,665 643,567,683 174,920,177
Withdrawals (275,556) (10,841) (1,597,183,118) (886,646,495)
Annual contract fee (1,270) (76) (4,430,769) (3,754,865)
--------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 2,484,242 1,106,902 1,494,654,824 1,175,240,264
--------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 3,343,765 1,026,127 3,543,103,337 2,361,496,767
Contract owners' equity at
beginning of period 1,274,025 247,898 11,149,032,211 8,787,535,444
--------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 4,617,790 $ 1,274,025 $ 14,692,135,548 $ 11,149,032,211
================================================================================
</TABLE>
See accompanying notes.
18
<PAGE> 113
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements
December 31, 1999
1. ORGANIZATION
The Manufacturers Life Insurance Company of North America Separate Account A
(the Account) is a separate account established by The Manufacturers Life
Insurance Company of North America (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-eight sub-accounts of Manufacturers Investment
Trust (the Trust) and three sub-accounts 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 twenty-six contracts,
distinguished principally by the level of expenses and surrender charges. These
twenty-six contracts are as follows: Venture Variable Annuity 1, 3, 7, 8, 17,
18, 20, 21, 22, 23, 25, 26, 27, 30, 31 and 34 (VEN 1, 3, 7, 8, 17, 18, 20, 21,
22, 23, 25, 26, 27, 30, 31 and 34), Venture Vantage Annuity 20, 21, 22, 23, 25
(VTG20, 21, 22, 23, 25), Venture Vision Variable Annuity 5, 6, 25 and 26 (VIS 5,
6, 25 and 26) and Venture No-load Rollover Annuity (MRP).
The Company is a wholly-owned subsidiary of Manulife Wood Logan Holding Company,
Inc. (MWLH). MWLH is 78.4% owned by The Manufacturers Life Insurance Company
(USA), (ManUSA) and 21.6% by MRL Holding LLC, (MRL). ManUSA and MRL are indirect
wholly-owned subsidiaries of the Manufacturers Life Insurance Company (MLI),
which in turn is a wholly-owned subsidiary of Manulife Financial Corporation.
Manulife Financial Corporation and its subsidiaries are known collectively as
Manulife Financial.
On May 3, 1999, five new sub-accounts, Small Company Blend, Total Return,
International Value, US Large Cap Value and Mid Cap Stock commenced operations.
On April 30, 1999, two sub-accounts, Capital Growth Bond and Worldwide Growth,
ceased operations and were merged into the Investment Quality Bond and Global
Equity sub-accounts, respectively.
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.
19
<PAGE> 114
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
Actual results could differ from reported results using those estimates.
20
<PAGE> 115
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
3. AFFILIATED COMPANY TRANSACTIONS
The Company has an Administrative Services Agreement with Manulife Financial,
whereby Manulife Financial or its designee, with the consent of the Company,
performs certain services on behalf of the Company necessary for the operation
of the separate account. The Company has an underwriting and distribution
agreements with its affiliate, Manufacturers Securities Services LLC (MSS). MSS
is owned 90% by the Company and 10% by The Manufacturers Life Insurance Company
of New York (MNY). MNY is a wholly owned subsidiary of the Company.
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:
(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,
30, 31, 34): 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 (VEN 25, 26, 27): offered in Merrill Lynch Series
Funds only (Basic Value Focus, Developing Capital Markets Focus and
Special Value Focus portfolios): 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.
21
<PAGE> 116
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
4. CONTRACT CHARGES (CONTINUED)
(iv) Current Contract Series (VIS 5,6, 25, 26): 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.
(i) Current Contract Series (VTG20, 21, 22, 23, 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 1.15% of the contract value, respectively.
(vi) Current Contract Series (MRP): 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 .85% 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, 1999:
<TABLE>
<CAPTION>
PURCHASES SALES
------------------------------------
<S> <C> <C>
Mid Cap Blend $326,353,442 $427,145,554
Investment Quality Bond Portfolio 103,324,875 83,499,815
Growth and Income Portfolio 748,865,292 386,155,821
Blue Chip Growth Portfolio 591,383,750 314,872,806
Money Market Portfolio 2,549,392,949 2,143,868,753
Global Equity Portfolio 588,186,069 646,923,753
Global Bond Portfolio 50,588,524 71,939,421
U.S. Government Securities Portfolio 133,569,431 129,643,520
Diversified Bond Allocation Portfolio 51,328,952 63,516,442
Income & Value Portfolio 170,745,338 136,850,641
Large Cap Growth Portfolio 231,014,038 155,761,089
Equity-Income Portfolio 247,368,634 290,309,516
Strategic Bond Portfolio 69,523,298 105,564,426
Overseas Portfolio 380,837,141 344,424,307
Growth Portfolio 281,014,445 102,881,726
Mid Cap Growth Portfolio 233,388,727 126,996,629
</TABLE>
22
<PAGE> 117
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
5. PURCHASES AND SALES OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
PURCHASES SALES
---------------------------------
<S> <C> <C>
International Small Cap Portfolio $ 123,004,361 $ 125,627,627
Pacific Rim Emerging Markets Portfolio 179,053,815 139,418,246
Science & Technology Portfolio 634,748,848 149,153,496
Emerging Small Company Portfolio 113,235,700 97,160,660
Aggressive Growth Portfolio 115,965,778 88,684,641
International Stock Portfolio 373,033,926 346,114,967
Worldwide Growth Portfolio 14,975,888 50,791,097
Quantitative Equity Portfolio 156,567,797 47,445,003
Value Trust Portfolio 55,041,981 64,497,848
Real Estate Securities Portfolio 19,050,260 23,185,889
Balanced Portfolio 76,804,994 45,269,554
High Yield Portfolio 102,362,334 82,381,909
Capital Growth Bond Portfolio 4,586,526 14,563,742
Lifestyle Aggressive 1000 Portfolio 24,724,045 32,646,803
Lifestyle Growth 820 Portfolio 90,261,683 122,767,454
Lifestyle Balanced 640 Portfolio 92,501,212 120,080,847
Lifestyle Moderate 460 Portfolio 54,442,620 38,275,565
Lifestyle Conservative 280 Portfolio 50,735,991 31,456,093
Small Company Value Portfolio 33,013,909 43,405,427
Total Return Portfolio 75,358,181 9,759,272
US Large Cap Value Portfolio 126,164,709 12,807,958
International Value Trust Portfolio 48,638,006 22,238,888
Mid Cap Stock Portfolio 31,573,764 5,069,668
Small Company Blend Portfolio 35,802,685 3,419,136
Basic Value Focus Portfolio 17,696,840 1,168,325
Developing Capital Markets Focus Portfolio 3,471,451 768,155
Special Value Focus Portfolio 947,250 190,008
---------------------------------
Total $9,410,649,459 $7,248,702,497
=================================
</TABLE>
23
<PAGE> 118
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES
A summary of the accumulation unit values at December 31, 1999 and 1998 and the
accumulation units and dollar values outstanding at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- ---------------------------------------------------
<S> <C> <C> <C> <C>
Mid Cap Blend Sub-Account:
VEN 1 Contracts 51.507214 64.95498 12,707 $ 825,409
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 31.289551 39.416089 32,325,962 1,274,163,008
VIS 5,6,25 and 26 Contracts 22.973151 28.867552 3,038,413 87,711,548
VTG20 Contracts 13.443090 16.909177 4,464,769 75,495,561
MRP Contracts 12.103394 15.307946 877 13,422
--------------------------------------
39,842,728 1,438,208,948
Investment Quality Bond Sub-Account:
VEN 1 Contracts 22.746879 22.052785 4,129 91,059
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 19.660365 19.039807 8,787,934 167,320,569
VIS 5,6,25 and 26 Contracts 13.299876 12.847911 1,766,908 22,701,077
VTG20 Contracts 13.845626 13.388502 2,078,881 27,833,097
MRP Contracts 13.269922 12.902584 1,630 21,025
--------------------------------------
12,639,482 217,966,827
Growth and Income Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 32.976967 38.655938 57,740,268 2,232,004,220
VIS 5,6,25 and 26 Contracts 26.056725 30.467742 7,534,499 229,559,163
VTG20 Contracts 15.811724 18.506889 16,079,923 297,589,355
MRP Contracts 13.924321 16.387611 12,932 211,921
-----------------------------------------------------
81,367,622 2,759,364,659
Blue Chip Growth Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 21.710674 25.568866 42,817,809 1,094,802,822
VIS 5,6,25 and 26 Contracts 22.573222 26.51836 4,836,159 128,246,994
VTG20 Contracts 16.234822 19.091275 10,790,218 205,999,017
MRP Contracts 14.123586 16.700133 10,829 180,841
--------------------------------------
58,455,015 1,429,229,674
</TABLE>
24
<PAGE> 119
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
------------- ---------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
------------- ---------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Sub-Account:
VEN 1 Contracts 17.283692 17.846774 4,228 $ 75,456
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 15.794513 16.291417 38,239,225 622,971,156
VIS 5,6,25 and 26 Contracts 11.811952 12.153141 9,394,304 114,170,305
VTG20 Contracts 13.123053 13.515626 9,661,872 130,586,252
MRP Contracts 12.872909 13.331106 78,627 1,048,181
--------------------------------------
57,378,256 868,851,350
Global Equity Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 24.098970 24.633827 25,688,362 632,802,659
VIS 5,6,25 and 26 Contracts 18.706100 19.073534 3,181,382 60,680,189
VTG20 Contracts 13.944724 14.232856 2,766,110 39,369,646
MRP Contracts 12.195410 12.516028 553 6,922
--------------------------------------
31,636,407 732,859,416
Global Bond Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 21.333144 19.632749 6,071,768 119,205,498
VIS 5,6,25 and 26 Contracts 14.814388 13.599529 810,534 11,022,877
VTG20 Contracts 13.615563 12.511533 539,336 6,747,926
--------------------------------------
7,421,638 136,976,301
U.S. Government Securities Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 18.587049 18.286918 10,165,983 185,904,501
VIS 5,6,25 and 26 Contracts 12.999698 12.757839 1,711,219 21,831,460
VTG20 Contracts 13.651980 13.411398 1,654,589 22,190,357
MRP Contracts 13.159699 12.999097 4,333 56,327
--------------------------------------
13,536,124 229,982,645
</TABLE>
25
<PAGE> 120
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------------- -----------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
Diversified Bond Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 18.125951 18.002047 7,516,672 $135,315,483
VIS 5,6,25 and 26 Contracts 14.663990 14.527388 783,368 11,380,292
VTG20 Contracts 13.914540 13.7987 782,445 10,796,730
MRP Contracts 13.161158 13.123588 544 7,134
--------------------------------------
9,083,029 157,499,639
Income & Value Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 20.742457 22.230152 24,075,423 535,200,302
VIS 5,6,25 and 26 Contracts 16.824988 17.986686 1,897,189 34,124,143
VTG20 Contracts 14.398732 15.408317 1,751,346 26,985,288
MRP Contracts 13.179250 14.181104 1,702 24,134
--------------------------------------
27,725,660 596,333,867
Large Cap Growth Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 23.040505 28.465074 10,369,256 295,161,628
VIS 5,6,25 and 26 Contracts 18.982681 23.393391 797,949 18,666,730
VTG20 Contracts 14.785253 18.238886 2,373,175 43,284,060
MRP Contracts 13.271688 16.46198 329 5,422
--------------------------------------
13,540,709 357,117,840
Equity-Income Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 22.054902 22.487758 29,513,793 663,699,024
VIS 5,6,25 and 26 Contracts 20.794388 21.14957 3,549,615 75,072,828
VTG20 Contracts 14.249466 14.507362 5,116,706 74,229,906
MRP Contracts 12.464044 12.759601 27,275 348,019
--------------------------------------
38,207,389 813,349,777
</TABLE>
26
<PAGE> 121
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
1998 1999
--------------- -----------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
Strategic Bond Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.486687 14.602672 13,422,186 $195,999,784
VIS 5,6,25 and 26 Contracts 14.243718 14.321908 2,000,055 28,644,610
VTG20 Contracts 12.761400 12.8443 1,950,430 25,051,911
MRP Contracts 12.280627 12.428556 316 3,924
--------------------------------------
17,372,987 249,700,229
Overseas Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 12.290162 17.044524 15,431,151 263,016,625
VIS 5,6,25 and 26 Contracts 12.168562 16.833813 1,593,099 26,817,931
VTG20 Contracts 12.423604 17.203799 1,571,610 27,037,669
MRP Contracts 11.720466 16.319479 216 3,517
--------------------------------------
18,596,076 316,875,742
Growth Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 20.739989 28.060585 13,675,398 383,739,682
VIS 5,6,25 and 26 Contracts 20.612746 27.818889 1,531,097 42,593,413
VTG20 Contracts 14.959659 20.209678 4,080,687 82,469,376
MRP Contracts 13.655376 18.549262 6,215 115,293
--------------------------------------
19,293,397 508,917,764
Mid-Cap Growth Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 19.002856 27.113084 16,588,508 449,765,600
VIS 5,6,25 and 26 Contracts 18.869029 26.855 1,884,223 50,600,809
VTG20 Contracts 15.351927 21.871173 3,358,970 73,464,619
MRP Contract 13.903872 19.917321 3,240 64,535
--------------------------------------
21,834,941 573,895,563
</TABLE>
27
<PAGE> 122
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------------- -----------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
International Small Cap Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.792077 26.974754 5,445,119 $146,880,743
VIS 5,6,25 and 26 Contracts 14.687879 26.718058 677,004 18,088,222
VTG20 Contracts 13.042850 23.749328 744,863 17,689,992
MRP Contracts 12.202690 22.341682 6,651 148,600
--------------------------------------
6,873,637 182,807,557
Pacific Rim Emerging Markets Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 7.695249 12.359297 3,719,990 45,976,459
VIS 5,6,25 and 26 Contracts 7.656925 12.2671 382,168 4,688,087
VTG20 Contracts 7.472906 11.984246 1,419,030 17,006,003
MRP 18.168886 224 4,078
--------------------------------------
5,521,412 67,674,627
Science & Technology Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 19.287390 37.943261 16,967,094 643,786,890
VIS 5,6,25 and 26 Contracts 19.191525 37.660683 1,876,212 70,659,428
VTG20 Contracts 15.499402 30.445751 6,240,095 189,984,367
MRP Contracts 15.503436 30.621118 15,089 462,031
--------------------------------------
25,098,490 904,892,716
Emerging Small Company Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.381705 24.610648 3,384,328 83,290,514
VIS 5,6,25 and 26 Contracts 14.310172 24.427201 409,471 10,002,229
VTG20 Contracts 12.896270 22.035674 918,233 20,233,873
MRP Contracts 11.312902 19.436616 1,703 33,091
--------------------------------------
4,713,735 113,559,707
</TABLE>
28
<PAGE> 123
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- ---------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive Growth Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 12.680777 16.628126 4,630,976 $ 77,004,445
VIS 5,6,25 and 26 Contracts 12.617679 16.504105 712,544 11,759,901
VTG20 Contracts 11.910371 15.594503 1,500,020 23,392,064
MRP Contracts 12.027610 15.83478 325 5,148
--------------------------------------
6,843,865 112,161,558
International Stock Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.337171 18.338932 3,652,874 66,989,812
VIS 5,6,25 and 26 Contracts 14.265882 18.202233 760,297 13,839,100
VTG20 Contracts 12.838403 16.397239 1,046,587 17,161,143
16.253406 390 6,339
--------------------------------------
5,460,148 97,996,394
Quantitative Equity Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 20.068624 24.202942 5,781,734 139,934,976
VIS 5,6,25 and 26 Contracts 19.968902 24.022598 1,020,245 24,508,931
VTG20 Contracts 15.640646 18.834509 1,707,382 32,157,705
MRP Contracts 14.006399 16.959503 5,575 94,552
--------------------------------------
8,514,936 196,696,164
Value Trust Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.591878 13.987433 5,992,312 83,817,066
VIS 5,6,25 and 26 Contracts 14.519332 13.883152 1,253,382 17,400,899
VTG20 Contracts 12.033566 11.517818 1,927,798 22,204,025
MRP Contracts 11.207507 10.786297 291 3,139
--------------------------------------
9,173,783 123,425,129
</TABLE>
29
<PAGE> 124
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- ---------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate Securities Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 12.317190 11.174188 1,920,244 $21,457,172
VIS 5,6,25 and 26 Contracts 12.255908 11.090818 360,400 3,997,132
VTG20 Contracts 11.158599 10.10793 441,160 4,459,217
MRP Contracts 10.417728 9.488883 1,069 10,139
--------------------------------------
2,722,873 29,923,660
Balanced Sub-Account;
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 16.459454 15.96237 3,662,011 58,454,381
VIS 5,6,25 and 26 Contracts 16.377624 15.843343 866,999 13,736,155
VTG20 Contracts 14.397307 13.941569 1,863,512 25,980,277
MRP Contracts 13.203432 12.856009 1,913 24,592
--------------------------------------
6,394,435 98,195,405
High Yield Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.078376 14.993652 6,044,506 90,629,226
VIS 5,6,25 and 26 Contracts 14.008370 14.88185 1,590,415 23,668,318
VTG20 Contracts 13.018749 13.844359 2,121,022 29,364,184
MRP Contracts 12.279967 13.130722 2,176 28,579
--------------------------------------
9,758,119 143,690,307
Lifestyle Aggressive 1000 Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.134419 15.974195 2,511,100 40,112,804
VIS 5,6,25 and 26 Contracts 14.064128 15.855076 190,056 3,013,346
VTG20 Contracts 12.579492 14.195565 832,852 11,822,799
MRP Contracts 11.895710 13.497935 1,566 21,133
--------------------------------------
3,535,574 54,970,082
</TABLE>
30
<PAGE> 125
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- ---------------------------------------------------
<S> <C> <C> <C> <C>
Lifestyle Growth 820 Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.696667 16.893101 11,564,148 $195,354,327
VIS 5,6,25 and 26 Contracts 14.623605 16.767184 1,577,729 26,454,079
VTG20 Contracts 12.985550 14.903883 4,346,395 64,778,160
MRP Contracts 12.159849 14.033145 5,144 72,190
--------------------------------------
17,493,416 286,658,756
Lifestyle Balanced 640 Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.664362 16.257312 11,049,450 179,634,356
VIS 5,6,25 and 26 Contracts 14.591457 16.136115 1,938,056 31,272,696
VTG20 Contracts 13.059244 14.456141 5,693,341 82,303,734
MRP Contracts 12.282889 13.671696 11,202 153,148
--------------------------------------
18,692,049 293,363,934
Lifestyle Moderate 460 Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 15.171965 16.142259 4,878,939 78,757,090
VIS 5,6,25 and 26 Contracts 15.096548 16.021927 1,272,100 20,381,491
VTG20 Contracts 13.711730 14.566774 2,395,187 34,890,154
MRP Contracts 12.868825 13.746687 11,142 153,170
--------------------------------------
8,557,368 134,181,905
Lifestyle Conservative 280 Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 15.025549 15.439823 3,085,032 47,632,353
VIS 5,6,25 and 26 Contracts 14.950846 15.324704 847,076 12,981,193
VTG20 Contracts 13.933826 14.296546 1,593,353 22,779,442
MRP Contracts 13.175636 13.593172 2,572 34,958
--------------------------------------
5,528,033 83,427,946
</TABLE>
31
<PAGE> 126
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------------- -----------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
Total Return Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 12.255674 3,467,956 $42,502,137
VIS 5,6,25 and 26 Contracts 12.235367 395,881 4,843,748
VTG20 Contracts 12.243486 1,482,395 18,149,686
--------------------------------------
5,346,232 65,495,571
Small Company Value Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 11.178700 11.904646 3,361,623 40,018,928
VIS 5,6,25 and 26 Contracts 11.143828 11.83789 658,008 7,789,430
VTG20 Contracts 11.157770 11.864553 887,824 10,533,632
--------------------------------------
4,907,455 58,341,990
U.S. Large Cap Value Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 12.721279 5,189,158 66,012,721
VIS 5,6,25 and 26 Contracts 12.700198 806,506 10,242,789
VTG20 Contracts 12.70863 3,259,258 41,420,698
--------------------------------------
MRP 9,254,922 117,676,208
Mid Cap Stock Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 12.48352 1,289,051 16,091,892
VIS 5,6,25 and 26 Contracts 12.462837 142,342 1,773,989
VTG20 Contracts 12.471106 751,642 9,373,806
--------------------------------------
2,183,035 27,239,687
Small Company Blend Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 15.922213 1,517,759 24,166,076
VIS 5,6,25 and 26 Contracts 15.895877 130,739 2,078,216
VTG20 Contracts 15.906411 729,934 11,610,624
--------------------------------------
2,378,432 37,854,916
</TABLE>
32
<PAGE> 127
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- ---------------------------------------------------
<S> <C> <C> <C> <C>
International Value Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 12.86011 1,412,579 $ 18,165,918
VIS 5,6,25 and 26 Contracts 12.83881 138,371 1,776,514
VTG20 Contracts 12.847324 644,472 8,279,742
--------------------------------------
2,195,422 28,222,174
Basic Value Focus Sub-Account:
VEN 25,26 and 27 Contracts 17.018200 20.300779 650,610 13,207,896
Venture/Vantage 12.027400 14.325771 407,865 5,842,982
--------------------------------------
1,058,475 19,050,878
Developing Capital Market Focus Sub-Account:
VEN 25,26 and 27 Contracts 6.389100 10.419795 89,279 930,266
Venture/Vantage 9.694900 15.787402 24,214 382,276
--------------------------------------
113,493 1,312,542
Special Value Focus Sub-Account:
VEN 25,26 and 27 Contracts 25.494200 33.685273 81,985 2,761,701
Venture/Vantage 10.568700 13.943374 133,116 1,856,089
--------------------------------------
215,101 4,617,790
-------------------
TOTAL $14,670,567,844
===================
</TABLE>
33
<PAGE> 128
The Manufacturers Life Insurance Company of North America
Separate Account A
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.
34
<PAGE> 129
VERSION 2
Prospectus not containing Merrill portfolios
<PAGE> 130
ANNUITY SERVICE OFFICE MAILING ADDRESS
500 Boylston Street, Suite 400 Post Office Box 9230
Boston, Massachusetts 02116-3739 Boston, Massachusetts 02205-9230
(617) 663-3000
(800) 344-1029
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 Prospectus describes an annuity contract (the "CONTRACT") issued by
The Manufacturers Life Insurance Company of North America ("we" or "us"). The
contract is a flexible purchase payment, individual, deferred,
non-participating, combination fixed and variable annuity contract.
- - Contract values and annuity benefit payments are based upon forty-eight
investment options. Forty-six options are variable and two are fixed
account options.
- - Contract values (other than those allocated to one of the fixed accounts)
and variable annuity benefit payments will vary according to the
investment performance of the sub-accounts of one of our separate
accounts, The Manufacturers Life Insurance Company of North America
Separate Account A (the "Variable Account"). Contract values may be
allocated to, and transferred among, one or more of those sub-accounts.
- - Each sub-account's assets are invested in a corresponding portfolio of a
mutual fund, Manufacturers Investment Trust (the "Trust"). We will provide
the contract owner ("you") with prospectuses for the Trust with this
Prospectus.
- - We will add a "payment enhancement" to your contract for each payment that
you make under your contract. Expenses for a contract which has a payment
enhancement may be higher than the expenses for a contract which does not
have a payment enhancement. The amount of the payment enhancement may,
over time, be more than offset by the additional fees and charges
associated with the payment enhancement.
- - SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY.
- - Except as specifically noted here and under the caption "FIXED ACCOUNT
INVESTMENT OPTIONS" below, this Prospectus describes only the variable
portion of the contract.
- - Special terms are defined in a glossary in APPENDIX A.
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 YOU SHOULD KNOW BEFORE INVESTING.
THE CONTRACTS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"). NEITHER THE SEC NOR ANY STATE HAS DETERMINED
WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 131
ADDITIONAL INFORMATION about the contract and the Variable Account is contained
in a Statement of Additional Information, dated the same date as this
Prospectus, which has been filed with the SEC and is incorporated herein by
reference. The Statement of Additional Information is available without charge
upon request by writing us at the address on the front cover or by telephoning
(800) 344-1029.
The SEC maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information and other information about us, the contracts and the
Variable Account.
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
General Information and History ........................................ 3
Performance Data........................................................ 3
Services
Independent Auditors................................................. 9
Servicing Agent...................................................... 10
Principal Underwriter................................................ 10
Audited Financial Statements............................................ 11
</TABLE>
The date of this Prospectus is May 1, 2000.
VANTAGE PRO5/00
<PAGE> 132
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SUMMARY................................ 4
GENERAL INFORMATION ABOUT US,
THE VARIABLE ACCOUNT AND THE TRUST..... 11
The Manufacturers Life Insurance
Company of North America .......... 11
The Variable Account ............... 11
The Trust........................... 12
DESCRIPTION OF THE CONTRACT ........... 17
ACCUMULATION PERIOD PROVISIONS ..... 17
Purchase Payments .................. 17
Payment Enhancements................ 17
Accumulation Units ................. 19
Value of Accumulation Units ........ 19
Net Investment Factor .............. 19
Transfers Among Investment Options . 20
Maximum Number of Investment Options 20
Telephone Transactions ............. 20
Special Transfer Services -
Dollar Cost Averaging .............. 21
Asset Rebalancing Program........... 21
Withdrawals......................... 21
Special Withdrawal Services -
the Income Plan .................... 22
Death Benefit During the
Accumulation Period ................ 23
In General....................... 23
Amount of Death Benefit.......... 23
Payment of Death Benefit......... 24
PAY-OUT PERIOD PROVISIONS ............. 25
General ............................ 25
Annuity Options .................... 25
Determination of Amount of the
First Variable
Annuity Benefit Payment............. 26
Annuity Units and the Determination
of Subsequent Variable Annuity
Benefit Payments ................... 26
Transfers During the Pay-Out Period 27
Death Benefit During the
Pay-Out Period 27
OTHER CONTRACT PROVISIONS ............. 27
Ten Day Right to Review ............ 27
Ownership .......................... 27
Annuitant .......................... 28
Beneficiary ........................ 28
Modification ....................... 28
Company Approval ................... 28
Misstatement and Proof of Age,
Sex or Survival .................... 28
FIXED ACCOUNT INVESTMENT OPTIONS....... 29
Securities Registration ............ 29
Guarantee .......................... 29
Reinsurance ........................ 29
Investment Options ................. 29
Investment Accounts ................ 29
Renewals ........................... 29
Transfers .......................... 30
Withdrawals ........................ 30
Loans .............................. 30
Fixed Annuity Options .............. 30
CHARGES AND DEDUCTIONS ................ 30
Withdrawal Charges ................. 31
Reduction or Elimination of
Withdrawal Charges ................. 32
Administration Fees................. 32
Mortality and Expense Risks Charge . 33
Taxes .............................. 33
Expenses of Distributing Contract... 33
FEDERAL TAX MATTERS ................... 34
INTRODUCTION........................ 34
OUR TAX STATUS...................... 34
TAXATION OF ANNUITIES IN GENERAL ... 34
Tax Deferral During Accumulation
Period .......................... 34
Non-Natural Owners .............. 34
Loss of Interest Deduction Where
Contracts are Held by or for the
Benefit of Certain Non-
Natural Persons.................. 35
Diversification Requirements .... 35
Ownership Treatment ............. 35
Delayed Pay-Out Periods ......... 35
Taxation of Partial and Full
Withdrawals ..................... 36
Taxation of Annuity Benefit
Payments ........................ 36
Taxation of Death Benefit
Proceeds ........................ 37
Penalty Tax on Premature
Distributions ................... 37
Aggregation of Contracts ........ 37
QUALIFIED RETIREMENT PLANS ............ 38
Direct Rollovers ................... 39
Loans .............................. 39
FEDERAL INCOME TAX WITHHOLDING......... 40
GENERAL MATTERS........................ 40
Performance Data.................... 40
Asset Allocation and Timing
Services ........................... 41
Restrictions Under The Texas
Optional Retirement Program......... 41
Distribution of Contracts .......... 41
Contract Owner Inquiries............ 41
Confirmation Statements............. 42
</TABLE>
<PAGE> 133
<TABLE>
<S> <C>
Legal Proceedings .................. 42
Year 2000 Issues.................... 42
Cancellation of Contract............ 42
Voting Interest..................... 42
APPENDIX A: SPECIAL TERMS............. A-1
APPENDIX B: TABLE OF ACCUMULATION VALUES B-1
APPENDIX C: EXAMPLES OF CALCULATION OF
WITHDRAWAL CHARGE.......... C-1
APPENDIX D: STATE PREMIUM TAXES....... D-1
APPENDIX E: PENNSYLVANIA MAXIMUM
MATURITY AGE E-1
APPENDIX F: EXAMPLES OF PAYMENT
ENHANCEMENT CALCULATIONS F-1
APPENDIX G: QUALIFIED PLAN TYPES ...... G-1
</TABLE>
<PAGE> 134
SUMMARY
OVERVIEW OF THE CONTRACT. Under the contract, you make one or more payments to
us for a period of time (the "ACCUMULATION PERIOD") and then later, beginning on
the "MATURITY DATE," we make one or more payments to you (during the "PAY-OUT
period"). Contract values during the accumulation period and the amounts of
annuity benefit payments during the pay-out period may either be variable or
fixed, depending upon the investment option(s) you select. You may use the
contract to fund either a non-qualified or tax-qualified retirement plan. The
maximum age of an owner or annuitant for which a contract will be issued is age
80.
When you purchase a variable annuity for any tax-qualified retirement plan, the
variable annuity does not provide any additional tax deferred treatment of
earnings beyond the treatment provided by the plan. Consequently, you should
purchase a variable annuity for a tax qualified plan only on the basis of other
benefits offered by the variable annuity. These benefits may include lifetime
income payments, family protection through the death benefit, and guaranteed
fees.
PURCHASE PAYMENTS LIMITS. The minimum initial purchase payment is $10,000.
Subsequent purchase payments must be at least $30. Purchase payments normally
may be made at any time. If a purchase payment would cause your contract value
to exceed $1,000,000, or your contract value already exceeds $1,000,000,
however, you must obtain our approval in order to make the payment. If permitted
by state law, we may cancel your contract if you have made no payments for two
years, your contract value is less than $2,000 and your payments over the life
of your contract, minus your withdrawals over the life of the contract is less
than $2,000.
PAYMENT ENHANCEMENTS. We will add a "PAYMENT ENHANCEMENT" to your contract for
each payment that you make under your contract. The amount of the payment
enhancement depends on the cumulative amount of your purchase payments. To
receive a higher percentage than that based on the cumulative amount of your
purchase payments, you must provide satisfactory evidence that your total
payments within 13 months of the issue date will be enough to justify the higher
percentage. If your total purchase payments during the 13 month period do not
equal or exceed the amount approved, we reserve the right to recover from your
contract the excess payment enhancement added to the contract. The payment
enhancement is funded from our general account. The payment enhancement is
allocated among investment options in the same proportion as your purchase
payment. The amount returned if you exercise your right to return the contract
during the "ten day right to review" period is reduced by any payment
enhancements.
INVESTMENT OPTIONS. Upon issuance of the contract, purchase payments may be
allocated among up to seventeen of the available investment options (including
all fixed account investment options). After the contract is issued, there is no
limit on the number of investment options to which you may allocate purchase
payments. Currently, forty-six Variable Account investment options and two fixed
account investment options are available under the contract. Each of the
forty-six Variable Account investment options is a sub-account of the Variable
Account that invests in a corresponding portfolio of the Trust. A full
description of each portfolio is in the accompanying Prospectus of the Trust.
Your contract value during the accumulation period and the amounts of annuity
benefit payments will depend upon the investment performance of the portfolio
underlying each sub-account of the Variable Account you select and/or upon the
interest we credit on each fixed account option you select. Subject to certain
regulatory limitations, we may elect to add, subtract or substitute investment
options.
Allocating assets only to one or a small number of the investment options (other
than the Lifestyle Trusts) should not be considered a balanced investment
strategy. In particular, allocating assets to a small number of investment
options that concentrate their investments in a particular business or market
sector will increase the risk that the value of your contract will be more
volatile since these investment options may react similarly to business or
market specific events. Examples of business or market sectors where this risk
historically has been and may continue to be particularly high include: (a)
technology related businesses, including internet related businesses, (b) small
cap securities and (c) foreign securities. The Company does not provide advice
regarding appropriate investment allocations, please discuss this matter with
your financial adviser.
TRANSFERS. During the accumulation period, you may transfer your contract values
among any of the investment options. During the pay-out period, you may transfer
your allocations among the Variable Account investment options, but transfers
from Variable Account options to fixed account options or from fixed account
options to Variable Account options are not permitted. Transfers are free.
Transfers from any investment account must be at least $300 or, if less, the
entire balance in the investment account. If, after the transfer, the amount
remaining in the investment account from which the transfer is made would
4
<PAGE> 135
be less than $100, then we will transfer the entire amount instead of the
requested amount. Special transfer privileges permit you to dollar cost average
your investment in the contract.
WITHDRAWALS. During the accumulation period, you may withdraw all or a portion
of your contract value. The amount you withdraw from any investment account must
be at least $300 or, if less, your entire balance in that investment account. If
a partial withdrawal plus any applicable withdrawal charge would reduce your
contract value to less than $300, we will treat your withdrawal request as a
request to withdraw all of your contract value. A withdrawal charge and an
administration fee may apply to your withdrawal. A withdrawal may be subject to
income tax and a 10% penalty tax. A systematic withdrawal plan service is
available under the contract.
CONFIRMATION STATEMENTS. We will send you confirmation statements for certain
transactions in your account. You should carefully review these statements to
verify their accuracy. You should immediately report any mistakes to our Annuity
Service Office (at the address or phone number shown on the cover of this
Prospectus). If you fail to notify our Annuity Service Office of any mistake
within 60 days of the mailing of the confirmation statement, you will be deemed
to have ratified the transaction.
DEATH BENEFITS. We will pay the death benefit described below to your
BENEFICIARY if you die during the accumulation period. If a contract is owned by
more than one person, then the surviving contract owner will be deemed the
beneficiary of the deceased contract owner. No death benefit is payable on the
death of any ANNUITANT (a natural person or persons whose life is used to
determine the duration of annuity benefit payments involving life
contingencies), 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 amount of the death benefit will be calculated as of the date on which
our Annuity Service Office receives written notice and proof of death and all
required claim forms. The amount of the death benefit during the first nine
contract years will be the greater of:
(a) the contract value, or
(b) the excess of
- the sum of all purchase payments over
- the sum of any partial withdrawals.
After the ninth contract year, the death benefit will be the greater of:
(a) the contract value, or
(b) the excess of:
- the sum of all purchase payments over
- the sum of any amounts deducted in connection with partial
withdrawals or
(c)the death benefit on the last day of the ninth contract year, plus the
sum of all purchase payments made and any amount deducted in connection
with partial withdrawals since then.
If a contract owner dies, we have the right to deduct from the death benefit
paid any payment enhancements applied to the contract in the 12 month period
prior to the date of death. However, we are currently waiving this right.
Reference to "payment enhancements" in this paragraph refers to the original
amount of payment enhancements; earnings attributable to payment enhancements
will not be deducted from the death benefit paid.
If there are any unpaid loans (including unpaid interest) under the contract,
the death benefit equals the death benefit calculated according to the
applicable formula, minus the amount of the unpaid loans. If the annuitant dies
during the pay-out period and annuity payment method selected called for
payments for a guaranteed period, we will make the remaining guaranteed payments
to the beneficiary.
ANNUITY BENEFIT PAYMENTS. We offer a variety of fixed and variable annuity
benefit payment options. Periodic annuity benefit payments will begin on the
"maturity date" (the date marking the end of the accumulation period and the
beginning of the pay-out period). You select the maturity date, the frequency of
payment and the type of annuity benefit payment option.
5
<PAGE> 136
TEN DAY REVIEW. You may cancel your contract by returning it to us within 10
days of receiving it.
TAXATION. Generally, all earnings on the underlying investments are 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. Normally, a portion of each annuity
benefit payment is taxable as ordinary income. Partial and total withdrawals are
taxable as ordinary income to the extent contract value prior to the withdrawal
exceeds the purchase payments you have made, minus any prior withdrawals that
were not taxable. A penalty tax may apply to withdrawals prior to age 59 -1/2.
CHARGES AND DEDUCTIONS. The following table and Example are designed to assist
you in understanding the various costs and expenses related to the contract. The
table reflects expenses of the Variable Account and the underlying portfolio of
the Trust. In addition to the items listed in the following table, premium taxes
may be applicable to certain. The items listed under "Contract Owner Transaction
Expenses" and "Separate Account Annual Expenses" are more completely described
in this Prospectus under "Charges and Deductions." The items listed under "Trust
Annual Expenses" are described in detail in the accompanying Trust Prospectus.
CONTRACT OWNER TRANSACTION EXPENSES
Deferred sales load (withdrawal charge as percentage of purchase payments)
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS
PURCHASE PAYMENT IN CONTRACT WITHDRAWAL CHARGE PERCENTAGE
<S> <C>
0 8.5%
1 8.5%
2 8.0%
3 7.0%
4 6.0%
5 5.0%
6 4.0%
7 3.0%
8 2.0%
9+ 0.0%
</TABLE>
ANNUAL CONTRACT FEE......................................... $40(A)
(A)The $40 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.
<TABLE>
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<S> <C>
Mortality and expense risks fee............................. 1.25%
Administration fee.......................................... 0.30%
Total Separate Account Annual Expense....................... 1.55%
</TABLE>
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets for the fiscal year ended December
31, 1999)
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
TRUST PORTFOLIO FEES REIMBURSEMENT) ANNUAL
EXPENSES
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging
Markets ................ 0.850% 0.260% 1.110%
Internet Technologies... 1.150% 0.136%(A) 1.286%
Science & Technology.... 1.100% 0.060% 1.160%
International Small Cap. 1.100% 0.270% 1.370%
Aggressive Growth....... 1.000%(F) 0.130% 1.130%
Emerging Small Company.. 1.050% 0.070% 1.120%
Small Company Blend..... 1.050% 0.250%(A) 1.300%(E)
</TABLE>
6
<PAGE> 137
<TABLE>
<S> <C> <C> <C>
Dynamic Growth.......... 1.000%(F) 0.132%(A) 1.132%
Mid Cap Stock........... 0.925% 0.100%(A) 1.025%(E)
All Cap Growth(H)......... 0.950%(F) 0.070% 1.020%
Overseas................ 0.950% 0.260% 1.210%
International Stock..... 1.050% 0.200% 1.250%
International Value..... 1.000% 0.230%(A) 1.230%(E)
Mid Cap Blend........... 0.850%(F) 0.060% 0.910%
Small Company Value..... 1.050% 0.170% 1.220%
Global Equity........... 0.900% 0.160% 1.060%
Growth.................. 0.850% 0.050% 0.900%
Large Cap Growth........ 0.875%(F) 0.100% 0.975%
Quantitative Equity..... 0.700% 0.060% 0.760%
Blue Chip Growth........ 0.875%(F) 0.050% 0.925%
Real Estate Securities.. 0.700% 0.070% 0.770%
Value................... 0.800% 0.070% 0.870%
Tactical Allocation..... 0.900% 0.127%(A) 1.027%
Growth & Income......... 0.750% 0.050% 0.800%
U.S. Large Cap Value.... 0.875% 0.070%(A) 0.945%(E)
Equity-Income........... 0.875%(F) 0.060% 0.935%
Income & Value.......... 0.800%(F) 0.080% 0.880%
Balanced................ 0.800% 0.070% 0.870%
High Yield.............. 0.775% 0.065% 0.840%
Strategic Bond.......... 0.775% 0.095% 0.870%
Global Bond............. 0.800% 0.180% 0.980%
Total Return............ 0.775% 0.060%(A) 0.835%(E)
Investment Quality Bond. 0.650% 0.120% 0.770%
Diversified Bond........ 0.750% 0.090% 0.840%
U.S. Government
Securities ............. 0.650% 0.070% 0.720%
Money Market............ 0.500% 0.050% 0.550%
Small Cap Index......... 0.525% 0.075%(AG) 0.600%
International Index..... 0.550% 0.050%(AG) 0.600%
Mid Cap Index........... 0.525% 0.075%(AG) 0.600%
Total Stock Market Index 0.525% 0.075%(AG) 0.600%
500 Index............... 0.525% 0.039%(AG) 0.564%
Lifestyle Aggressive
1000D .................. 0.075% 1.060%(B) 1.135%(C)
Lifestyle Growth 820D... 0.057% 1.008%(B) 1.065%(C)
Lifestyle Balanced 640D. 0.057% 0.928%(B) 0.985%(C)
Lifestyle Moderate 460D. 0.066% 0.869%(B) 0.935%(C)
Lifestyle Conservative
280D ................... 0.075% 0.780%(B) 0.855%(C)
</TABLE>
- -----------------
(A) Based on estimates to be made during the current fiscal year.
(B) Reflects expenses of the Underlying Portfolios.
(C) The investment adviser to the Trust, Manufacturers Securities Services,
LLC ("MSS" or the "Adviser") has voluntarily agreed to pay certain
expenses of each Lifestyle Trust (excluding the expenses of the Underlying
Portfolios) as follows:
If total expenses of a Lifestyle Trust (absent reimbursement) exceed 0.075%,
the Adviser will reduce the advisory fee or reimburse expenses of that
Lifestyle Trust by an amount such that total expenses of the Lifestyle Trust
equal 0.075%. If the total expenses of the Lifestyle Trust (absent
reimbursement) are equal to or less than 0.075%, then no expenses will be
reimbursed by the Adviser. (For purposes of the expense reimbursement, total
expenses of a Lifestyle Trust includes the advisory fee but excludes (a) the
expenses of the Underlying Portfolios, (b) taxes, (c) portfolio brokerage, (d)
interest, (e) litigation and (f) indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Trust's
business.)
This voluntary expense reimbursement may be terminated at any time. If such
expense reimbursement was not in effect, Total Trust Annual Expenses would be
higher (based on current advisory fees and the Other Expenses of the Lifestyle
Trusts for the fiscal year ended December 31, 1999) as noted in the chart
below:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL TRUST
<S> <C> <C> <C>
</TABLE>
7
<PAGE> 138
<TABLE>
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
<S> <C> <C> <C>
Lifestyle Aggressive 1000 ... 0.075% 1.090% 1.165%
Lifestyle Growth 820. ....... 0.057% 1.030% 1.087%
Lifestyle Balanced 640 ...... 0.057% 0.940% 0.997%
Lifestyle Moderate 460 ...... 0.066% 0.900% 0.966%
Lifestyle Conservative 280 .. 0.075% 0.810% 0.885%
</TABLE>
(D) Each Lifestyle Trust will invest in shares of the Underlying Portfolios.
Therefore, each Lifestyle Trust will bear its pro rata share of the fees and
expenses incurred by the Underlying Portfolios in which it invests, and the
investment return of each Lifestyle Trust will be net of the Underlying
Portfolio expenses. Each Lifestyle Portfolio must bear its own expenses.
However, the Adviser is currently paying certain of these expenses as
described in footnote ( C ) above.
(E) Annualized - For the period May 1, 1999 (commencement of operations) to
December 31, 1999.
(F) Management Fees changed effective May 1, 1999. Fees shown are the current
management fees.
(G) MSS has voluntarily agreed to pay expenses of each Index Trust (excluding
the advisory fee) that exceed the following amounts: 0.050% in the case of
the International Index Trust and 500 Index Trust and 0.075% in the case of
the Small Cap Index Trust, the Mid Cap Index Trust and Total Stock Market
Index Trust. If such expense reimbursement were not in effect, it is
estimated that "Other Expenses" and "Total Trust Annual Expenses" would be
0.022% higher for the International Index Trust, 0.014% higher for the Small
Cap Index Trust, 0.060% higher for the Mid Cap Index Trust and 0.005% higher
for the Total Stock Market Index Trust. It is estimated that the expense
reimbursement will not be effective during the year end December 31, 2000
for the 500 Index Trust. The expense reimbursement may be terminated at any
time by MSS.
(H) Formerly, the Mid Cap Growth Trust.
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming no payment
enhancement and a 5% annual return on assets, if you surrendered your 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. $106 $162 $203 $304
Internet Technologies........ 107 166 212 321
Science & Technology......... 106 163 206 309
International Small Cap...... 108 169 216 329
Aggressive Growth ........... 106 162 204 306
Emerging Small Company....... 106 162 204 305
Small Company Blend.......... 108 167 213 322
Dynamic Growth Trust......... 106 162 204 306
Mid Cap Stock................ 105 159 199 296
All Cap Growth A............. 105 159 199 295
Overseas..................... 107 164 208 313
International Stock.......... 107 165 210 317
International Value.......... 107 165 209 315
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Mid Cap Blend .......... 104 156 193 284
Small Company Value..... 107 165 209 314
Global Equity........... 105 160 201 299
Growth.................. 104 156 193 283
Large Cap Growth........ 105 158 197 291
Quantitative Equity..... 103 152 186 269
Blue Chip Growth........ 104 157 194 286
Real Estate Securities.. 103 152 186 270
Tactical Allocation..... 105 159 199 296
Value................... 104 155 191 280
Growth & Income......... 103 153 188 273
U.S. Large Cap Value.... 104 157 195 288
Equity Income........... 104 157 195 287
Income & Value.......... 104 155 192 281
Balanced................ 104 155 191 280
High Yield.............. 103 154 190 277
</TABLE>
8
<PAGE> 139
<TABLE>
<S> <C> <C> <C> <C>
Strategic Bond.......... 104 155 191 280
Global Bond ............ 105 158 197 291
Total Return............ 103 154 190 277
Investment Quality Bond. 103 152 186 270
Diversified Bond ....... 103 154 190 277
U.S. Government Securities 102 151 184 265
Money Market............ 101 146 175 248
Small Cap Index......... 101 148 178 253
International Index..... 101 148 178 253
Mid Cap Index........... 101 148 178 253
Total Stock Market Index 101 148 178 253
500 Index............... 101 147 176 249
Lifestyle Aggressive 1000 106 162 205 306
Lifestyle Growth 820.... 105 160 201 299
Lifestyle Balanced 640.. 105 158 197 292
Lifestyle Moderate 460.. 104 157 195 287
Lifestyle Conservative 280 103 155 191 279
</TABLE>
(A) Formerly, the Mid Cap Growth Trust
You would pay the following expenses on a $1,000 investment, assuming no payment
enhancement and a 5% annual return on assets, if you selected an annuity benefit
payment option 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 ................ $27 $84 $143 $304
Internet Technologies... 29 89 152 321
Science & Technology.... 28 86 146 309
International Small Cap. 30 92 156 329
Aggressive Growth ...... 28 85 144 306
Emerging Small Company.. 27 84 144 305
Small Company Blend..... 29 90 153 322
Dynamic Growth.......... 28 85 144 306
Mid Cap Stock........... 27 82 139 296
All Cap Growth A ....... 26 81 139 295
Overseas ............... 28 87 148 313
International Stock..... 29 88 150 317
International Value..... 29 88 149 315
Mid Cap Blend........... 25 78 133 284
Small Company Value..... 28 87 149 314
Global Equity........... 27 83 141 299
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO ................. 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Growth..................... 25 78 133 283
Large Cap Growth .......... 26 80 137 291
Quantitative Equity........ 24 74 126 269
Blue Chip Growth........... 26 79 134 286
Real Estate Securities..... 24 74 126 270
Value...................... 25 77 131 280
Tactical Allocation........ 27 82 139 296
Growth & Income............ 24 75 128 273
U. S. Large Cap Value...... 26 79 135 288
Equity-Income.............. 26 79 135 287
Income & Value............. 25 77 132 281
Balanced................... 25 77 131 280
High Yield................. 25 76 130 277
Strategic Bond............. 25 77 131 280
Global Bond ............... 26 80 137 291
Total Return............... 25 76 130 277
Investment Quality Bond.... 24 74 126 270
Diversified Bond .......... 25 76 130 277
U.S. Government Securities. 23 72 124 265
Money Market............... 22 67 115 248
Small Cap Index............ 22 69 118 253
</TABLE>
9
<PAGE> 140
<TABLE>
<S> <C> <C> <C> <C>
International Index........ 22 69 118 253
Mid Cap Index.............. 22 69 118 253
Total Stock Market Index... 22 69 118 253
500 Index.................. 22 68 116 249
Lifestyle Aggressive 1000.. 28 85 145 306
Lifestyle Growth 820....... 27 83 141 299
Lifestyle Balanced 640..... 26 80 137 292
Lifestyle Moderate 460..... 26 79 135 287
Lifestyle Conservative 280. 25 76 131 279
</TABLE>
(A) Formerly, the Mid Cap Growth Trust
For purposes of presenting the foregoing Examples, we have made certain
assumptions. We have 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
(including any voluntary expense reimbursement continuing in effect). Those
assumptions, (each of which is 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
EXAMPLES 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,
we have translated the $40 annual administration charge listed under "Annual
Contract Fee" to a 0.047% annual asset charge based on a $85,000 estimated
approximate average size of contracts of this series.
A TABLE OF ACCUMULATION UNIT VALUES RELATING TO THE CONTRACT IS INCLUDED
IN APPENDIX B TO THIS PROSPECTUS.
LOCATION OF FINANCIAL STATEMENTS OF REGISTRANT AND DEPOSITOR
Our financial statements and those of the Variable Account may be found in
the Statement of Additional Information.
GENERAL INFORMATION ABOUT US, THE VARIABLE ACCOUNT AND THE TRUST
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
We are an indirect subsidiary of MFC.
We are a stock life insurance company organized under the laws of Delaware
in 1979. Our principal office is located at 500 Boylston Street., Suite 400,
Boston, Massachusetts 02116-3739. Our ultimate parent is Manulife Financial
Corporation ("MFC"), a publicly traded company, based in Toronto, Canada. MFC is
the holding company of The Manufacturers Life Insurance Company and its
subsidiaries, collectively known as Manulife Financial.
The Manufacturers Life Insurance Company of North America's financial
ratings are as follows:
A++ A.M. Best
Superior in financial strength; 1st category of 15
AAA Duff & Phelps
Highest in claims paying ability; 1st category of 18
AA+ Standard & Poor's
Very strong in financial strength; 2nd category of 21
Aa2 Moody's
Excellent in financial strength; 3rd category of 21
These ratings, which are current as of the date of this prospectus and are
subject to change, are assigned as a measure of The Manufacturers Life Insurance
Company of North America's ability to honor the death benefit, fixed account
guarantees, and life annuitization guarantees, but do not specifically relate to
its
10
<PAGE> 141
products, the performance (return) of these products, the value of any
investment in these products upon withdrawal or to individual securities held in
any portfolio.
THE VARIABLE ACCOUNT
The Variable Account is one of our separate accounts that invests the contract
values you allocate to it in the Trusts portfolio(s) you select.
We established the Variable Account on August 24, 1984. The income, gains
and losses, whether or not realized, from assets of the Variable Account are
credited to or charged against the Variable Account without regard to our other
income, gains or losses. Nevertheless, all obligations arising under the
contracts are our general corporate obligations. Assets of the Variable Account
may not be charged with liabilities arising out of any of our other business.
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 we
determine that it would 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 if 1940 Act registration
were no longer required.
The Variable Account currently has forty-six sub-accounts. We reserve the
right, subject to compliance with applicable law, to add other sub-accounts,
eliminate existing sub-accounts, combine sub-accounts or transfer assets in one
sub-account to another sub-account that we, or an affiliated company, may
establish. We will not eliminate existing sub-accounts or combine sub-accounts
without the prior approval of the appropriate state or federal regulatory
authorities.
THE TRUST
The Trust are mutual funds in which the Variable Account invests.
The assets of each sub-account of the Variable Account are invested in
shares of a corresponding investment portfolio of the Trust. A description of
each Trust 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 Bond Trust and
the five Lifestyle Trusts which are non-diversified. The Trust receives
investment advisory services from MSS, the successor to NASL Financial Services,
Inc.
The Trust currently has nineteen subadvisers who manage all of the
portfolios, one of which subadvisers is Manufacturers Adviser Corporation
("MAC"). Both MSS and MAC are affiliates of ours.
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO
<S> <C>
A I M Capital Management, Inc. Aggressive Growth Trust
All Cap Growth Trust(B)
AXA Rosenberg Investment Management LLC Small Company Value Trust
Capital Guardian Trust Company Small Company Blend Trust
U.S. Large Cap Value Trust
Income & Value Trust
Diversified Bond Trust
Fidelity Management Trust Company Mid Cap Blend Trust
Large Cap Growth Trust
Overseas Trust
Founders Asset Management LLC International Small Cap Trust
Balanced Trust
Franklin Advisers, Inc. Emerging Small Company Trust
Janus Capital Corporation Dynamic Growth Trust
Manufacturers Adviser Corporation Pacific Rim Emerging Markets
Trust
Quantitative Equity Trust
Real Estate Securities Trust
</TABLE>
11
<PAGE> 142
<TABLE>
<S> <C>
Money Market Trust
Index Trusts
Lifestyle Trusts(A)
Miller Anderson & Sherrerd, LLP Value Trust
High Yield Trust
Mitchell Hutchins Asset Management Inc. Tactical Allocation Trust
Morgan Stanley Asset Management Inc. Global Equity Trust
Munder Capital Management Internet Technologies Trust
Pacific Investment Management Company Global Bond Trust
Total Return Trust
Rowe Price-Fleming International, Inc. International Stock Trust
Salomon Brothers Asset Management Inc U.S. Government Securities Trust
Strategic Bond Trust
State Street Global Advisors Growth Trust
Lifestyle Trusts(A)
</TABLE>
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO
<S> <C>
T. Rowe Price Associates, Inc. Science & Technology Trust
Blue Chip Growth Trust
Equity-Income Trust
Templeton Investment Counsel, Inc. International Value Trust
Wellington Management Company, LLP Growth & Income Trust
Investment Quality Bond Trust
Mid Cap Stock Trust
</TABLE>
(A) State Street Global Advisors provides subadvisory consulting services to
Manufacturers Adviser Corporation regarding management of the Lifestyle
Trusts.
(B) Formerly, the Mid Cap Growth Trust.
The Portfolios of the Trust available under the contract are as follows:
The PACIFIC RIM EMERGING MARKETS TRUST seeks long-term growth of capital by
investing in a diversified portfolio that is comprised primarily of common
stocks and equity-related securities of corporations domiciled in countries in
the Pacific Rim region.
The INTERNET TECHNOLOGIES TRUST seeks long-term capital appreciation by
investing the portfolio's assets primarily in companies engaged in
Internet-related business (such businesses also include Intranet-related
businesses).
The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital by investing at
least 65% of the portfolio's total assets in common stocks of companies expected
to benefit from the development, advancement, and use of science and technology.
Current income is incidental to the portfolio's objective.
The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by investing
primarily in securities issued by foreign companies which have total market
capitalization or annual revenues of $1 billion or less. These securities may
represent companies in both established and emerging economies throughout the
world.
The AGGRESSIVE GROWTH TRUST seeks long-term capital appreciation by investing
the portfolio's asset principally in common stocks, convertible bonds,
convertible preferred stocks and warrants of companies which in the opinion of
the subadviser are expected to achieve earnings growth over time at a rate in
excess of 15% per year. Many of these companies are in the small and
medium-sized category.
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The EMERGING SMALL COMPANY TRUST seeks long-term growth of capital by investing,
under normal market conditions, at least 65% of the portfolio's total assets in
common stock equity securities of companies with market capitalizations that
approximately match the range of capitalization of the Russell 2000 Index
("small cap stocks") at the time of purchase.
The SMALL COMPANY BLEND TRUST seeks long-term growth of capital and income by
investing the portfolio's assets, under normal market conditions, primarily in
equity and equity-related securities of companies with market capitalizations
that approximately match the range of capitalization of the Russell 2000 Index
at the time of purchase.
The DYNAMIC GROWTH TRUST seeks long-term growth of capital by investing the
portfolio's assets primarily in equity securities selected for their growth
potential. Normally at least 50% of its equity assets are invested in
medium-sized companies.
The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily
in equity securities with significant capital appreciation potential, with
emphasis on medium-sized companies
The ALL CAP GROWTH TRUST (formerly, Mid Cap Growth Trust) seeks long-term
capital appreciation by investing the portfolio's assets, under normal market
conditions, principally in common stocks of companies that are likely to benefit
from new or innovative products, services or processes, as well as those that
have experienced above-average, long-term growth in earnings and have excellent
prospects for future growth.
The OVERSEAS TRUST seeks growth of capital by investing, under normal market
conditions, at least 65% of the portfolio's assets in foreign securities
(including American Depositary Receipts (ADRs) and European Depositary Receipts
(EDRs)). The portfolio expects to invest primarily in equity securities.
The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by investing
primarily in common stocks of established, non-U.S. companies.
The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by investing,
under normal market conditions, primarily in equity securities of companies
located outside the U.S., including emerging markets.
The MID CAP BLEND TRUST seeks growth of capital by investing primarily in common
stocks of U.S. issuers and securities convertible into or carrying the right to
buy common stocks.
The SMALL COMPANY VALUE TRUST seeks long-term growth of capital by investing,
under normal circumstances, at least 65% of the portfolio's assets in common
stocks of companies with total market capitalization that approximately match
the range of capitalization of the Russell 2000 Index and are traded principally
in the markets of the United States.
The GLOBAL EQUITY TRUST seeks long-term capital appreciation by investing
primarily in equity securities throughout the world, including U.S. issuers and
emerging markets.
The GROWTH TRUST seeks long-term growth of capital by investing primarily in
large capitalization growth securities (market capitalizations of approximately
$1 billion or greater).
The LARGE CAP GROWTH TRUST seeks long-term growth of capital by investing, under
normal market conditions, at least 65% of the portfolio's assets in equity
securities of companies with large market capitalizations.
The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and long-term growth
through capital appreciation and current income by investing in common stocks
and other equity securities of well established companies with promising
prospects for providing an above average rate of return.
The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital (current
income is a secondary objective) by investing at least 65% of the portfolio's
total assets in the common stocks of large and medium-sized blue chip companies.
Many of the stocks in the portfolio are expected to pay dividends.
The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of long-term
capital appreciation and satisfactory current income by investing in real estate
related equity and debt securities.
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The VALUE TRUST seeks to realize an above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in common and preferred stocks, convertible securities, rights and
warrants to purchase common stocks, ADRs and other equity securities of
companies with equity capitalizations usually greater than $300 million.
The TACTICAL ALLOCATION TRUST seeks total return, consisting of long-term
capital appreciation and current income, by allocating the portfolio's assets
between (i) a stock portion that is designed to track the performance of the S&P
500 Composite Stock Price Index, and (ii) a fixed income portion that consists
of either five-year U.S. Treasury notes or U.S. Treasury bills with remaining
maturities of 30 days.
The GROWTH & INCOME TRUST seeks long-term growth of capital and income,
consistent with prudent investment risk, by investing primarily in a diversified
portfolio of common stocks of U.S. issuers which the subadviser believes are of
high quality.
The U.S. LARGE CAP VALUE TRUST seeks long-term growth of capital and income by
investing the portfolio's assets, under normal market conditions, primarily in
equity and equity-related securities of companies with market capitalization
greater than $500 million.
The EQUITY-INCOME TRUST seeks to provide substantial dividend income and also
long-term capital appreciation by investing primarily in dividend-paying common
stocks, particularly of established companies with favorable prospects for both
increasing dividends and capital appreciation.
The INCOME & VALUE TRUST seeks the balanced accomplishment of (a) conservation
of principal and (b) long-term growth of capital and income by investing the
portfolio's assets in both equity and fixed-income securities. The subadviser
has full discretion to determine the allocation between equity and fixed income
securities.
The BALANCED TRUST seeks current income and capital appreciation by investing in
a balanced portfolio of common stocks, U.S. and foreign government obligations
and a variety of corporate fixed income securities.
The HIGH YIELD TRUST seeks to realize an above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high yield debt securities, including corporate bonds and
other fixed-income securities.
The STRATEGIC BOND TRUST seeks a high level of total return consistent with
preservation of capital by giving its subadviser broad discretion to deploy the
portfolio's assets among certain segments of the fixed income market as the
subadviser believes will best contribute to achievement of the portfolio's
investment objective.
The GLOBAL BOND TRUST seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management by investing the
portfolio's asset primarily in fixed income securities denominated in major
foreign currencies, baskets of foreign currencies (such as the ECU), and the
U.S. dollar.
The TOTAL RETURN TRUST seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management by investing, under
normal market conditions, at least 65% of the portfolio's assets in a
diversified portfolio of fixed income securities of varying maturities. The
average portfolio duration will normally vary within a three- to six-year time
frame based on the subadviser's forecast for interest rates.
The INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing
primarily in a diversified portfolio of investment grade corporate bonds and
U.S. Government bonds with intermediate to longer term maturities. The portfolio
may also invest up to 20% of its assets in non-investment grade fixed income
securities.
The DIVERSIFIED BOND TRUST seeks high total return consistent with the
conservation of capital by investing at least 75% of the portfolio's assets in
fixed income securities.
The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current income
consistent with preservation of capital and maintenance of liquidity, by
investing in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
derivative securities such as collateralized mortgage obligations backed by such
securities.
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The MONEY MARKET TRUST seeks maximum current income consistent with preservation
of principal and liquidity by investing in high quality money market instruments
with maturities of 397 days or less issued primarily by U. S. entities.
The SMALL CAP INDEX TRUST seeks to approximate the aggregate total return of a
small cap U.S. domestic equity market index by attempting to track the
performance of the Russell 2000 Index.*
The INTERNATIONAL INDEX TRUST seeks to approximate the aggregate total return of
a foreign equity market index by attempting to track the performance of the
Morgan Stanley European Australian Far East Free Index (the "MSCI EAFE Index").*
The MID CAP INDEX TRUST seeks to approximate the aggregate total return of a mid
cap U.S. domestic equity market index by attempting to track the performance of
the S&P Mid Cap 400 Index.*
The TOTAL STOCK MARKET INDEX seeks to approximate the aggregate total return of
a broad U.S. domestic equity market index by attempting to track the performance
of the Wilshire 5000 Equity Index.*
The 500 INDEX TRUST seeks to approximate the aggregate total return of a broad
U.S. domestic equity market index by attempting to track the performance of the
S&P 500 Composite Stock Price Index.*
The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth of capital
(current income is not a consideration) by investing 100% of the Lifestyle
Trust's assets in other portfolios of the Trust ("Underlying Portfolios") which
invest primarily in equity securities.
The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of capital with
consideration also given to current income by investing approximately 20% of the
Lifestyle Trust's assets in Underlying Portfolios which invest primarily in
fixed income securities and approximately 80% of its assets in Underlying
Portfolios which invest primarily in equity securities.
The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to capital
growth by investing approximately 40% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 60% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to current
income by investing approximately 60% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 40% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of current
income with some consideration also given to growth of capital by investing
approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and approximately 20% of its assets
in Underlying Portfolios which invest primarily in equity securities.
*"Standard & Poor's(R)," "S&P 500(R)," "Standard and Poor's 500(R)" and
"Standard and Poor's 400(R)" are trademarks of The McGraw-Hill Companies, Inc.
"Russell 2000(R)" is a trademark of Frank Russell Company. "Wilshire 5000(R)" is
a trademark of Wilshire Associates. "Morgan Stanley European Australian Far East
Free" and "EAFE(R)" are trademarks of Morgan Stanley & Co. Incorporated. None of
the Index Trusts are sponsored, endorsed, managed, advised, sold or promoted by
any of these companies, and none of these companies make any representation
regarding the advisability of investing in the Trust.
A full description of the Trust, including the investment objectives,
policies and restrictions of, and the risks relating to investment in, each
portfolio is contained in the Trust's Prospectus which we provided you along
with this Prospectus. The Trust Prospectus should be read carefully before
allocating purchase payments to a sub-account.
If the shares of portfolio of the Trust are no longer available for
investment or in our judgment investment in a Trust portfolio becomes
inappropriate, we may eliminate the shares of a portfolio and
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<PAGE> 146
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, we
will make no such substitution without first notifying you and obtaining
approval of the SEC (to the extent required by the 1940 Act).
You instruct us how to vote Trust shares.
Shares of the Trust portfolios held in the Variable Account will be voted
at any shareholder meetings in accordance with voting instructions received from
the persons having the voting interest in the contracts. We will determine the
number of portfolio shares for which voting instructions may be given not more
than 90 days prior to the meeting. Proxy materials will be distributed to each
person having the voting interest under the contract together with appropriate
forms for giving voting instructions. We will vote all portfolio shares that we
hold (including our own shares and those we hold in the Variable Account for
contract owners) in proportion to the instructions so received.
During the accumulation period, the contract owner has the voting interest
under a contract. During the pay-out period, the annuitant has the voting
interest under a contract. We reserve the right to make any changes in the
voting rights described above that may be permitted by the Federal securities
laws, regulations or interpretations thereof. For further information on voting
interests under the contract see "Voting Interests" in this prospectus.
DESCRIPTION OF THE CONTRACT
ACCUMULATION PERIOD PROVISIONS
Initial purchase payments usually must be at least $10,000, subsequent ones at
least $30, and total payments no more than $1 million (without our approval).
PURCHASE PAYMENTS
Your purchase payments are made to us at our Annuity Service Office. The
minimum initial purchase payment is $10,000. Subsequent purchase payments must
be at least $30. Purchase payments may be made at any time. We may provide for
purchase payments to be automatically withdrawn from your bank account on a
periodic basis. If a purchase payment would cause your contract value to exceed
$1,000,000 or your contract value already exceeds $1,000,000, you must obtain
our approval in order to make the payment.
If permitted by state law, we may cancel a contract at the end of any two
consecutive contract years in which no purchase payments have been made, if
both:
- the total purchase payments made over the life of the contract, less
any withdrawals, are less than $2,000; and
- the contract value at the end of such two year period is less than
$2,000.
We may vary the cancellation of contract privileges in certain states in order
to comply with state insurance laws and regulations. If we cancel your contract,
we will pay you the contract value computed as of the valuation period during
which the cancellation occurs, minus the amount of any outstanding loan and
minus the annual $40 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").
You designate in your contract application how your purchase payments are
to be allocated among the investment options. You may change the allocation of
subsequent purchase payments at any time by notifying us in writing (or by
telephone if you comply with our telephone transfer procedures described below).
PAYMENT ENHANCEMENTS
We add 3% or more to each payment you make.
When you make a purchase payment, we will add a payment enhancement to
your contract. The payment enhancement is funded from our general account and is
allocated among investment options in the same proportion as your purchase
payment.
We are currently offering a promotional payment enhancement for initial
and subsequent purchase payments to contracts issued on and after June 21, 1999.
Subsequent payments to contracts issued prior to June 21, 1999 continue to
receive the payment enhancement rates in effect at the time of the issuance of
the contract. The promotional payment enhancements may be terminated by us at
any time. Initial and subsequent purchase payments that do not receive the
promotional payment enhancements will receive the guaranteed payment enhancement
described in the column labeled "Guaranteed Rate" in the table below.
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<PAGE> 147
The payment enhancement is a percentage of your purchase payment that
varies (based upon on the cumulative amount of your purchase payments to the
date of that payment) as follows:
<TABLE>
<CAPTION>
CUMULATIVE PURCHASE PAYMENT ENHANCEMENT
PAYMENTS
GUARANTEED PRIOR PROMOTIONAL PROMOTIONAL
RATE RATE RATE
(Contracts Issued (Contracts
on or After January Issued on or
1, 1999 but Prior After June
to June 21, 1999) 21, 1999)
<S> <C> <C> <C>
Less than $500,000 3.0% 4.0% 5.0%
$500,000 or more
but less than $2.5
million 4.0% 5.0% 5.5%
$2.5 million or
more 5.0% 6.0% 6.0%
</TABLE>
An example of the calculation of the payment enhancement is set forth in
APPENDIX F. Payment enhancements are not considered to be "investment in the
contract" for income tax purposes (see "FEDERAL TAX MATTERS").
If you exercise your right to return your contract during the "ten day
right to review period," we will reduce the amount returned to you by the amount
of any payment enhancement applied to your initial purchase payment.
The Company expects to make a profit from the contracts. The charges used
to recoup the expense of paying the payment enhancement include the withdrawal
charge and the asset based charges.
There may be circumstances where you may be worse off for having purchased
a contract with a payment enhancement as opposed to a contract without a payment
enhancement. The Company issues a variety of variable annuities designed to meet
different retirement planning goals. Other variable annuities issued by the
Company have no payment enhancement. These contracts with no payment
enhancements have withdrawal charges and asset based charges that may for
certain contracts be lower than the charges for this contract. You and your
financial adviser should decide if you may be better off with one of our other
variable annuities. In making this determination, you and your financial adviser
should consider the following factors:
- The length of time that you plan to own your contract
- The frequency, amount and timing of any partial surrenders
- The amount of your purchase payments
In addition, if you exercise your right to return the contract within 10 days of
receiving it, we will recover the original amount of the payment enhancement
credited (including any amount credited pursuant to a Letter of Intent as
discussed below). Therefore, you bear the risk that if the market value of the
payment enhancement has declined, we will still recover the full amount of the
payment enhancement.
Using a Letter of Intent may permit you to receive a larger payment enhancement.
Letter of Intent (not available in Oregon). The next higher payment
enhancement percentage may be applied to your initial purchase payment if you
provide us with satisfactory evidence (referred to as a "Letter of Intent") that
your total purchase payments in the first 13 months would satisfy the
requirement for the higher percentage. Satisfactory evidence will require, but
is not limited to, a minimum initial purchase payment of at least 50% of the
minimum required payment for the higher percentage. We reserve the right to
recover an amount from your contract if your total purchase payments received
within 13 months from the issue date of your contract do not equal or exceed the
amount (promised in your Letter of Intent) used to determine a payment
enhancement. The amount we may recover is the amount of payment enhancement
applied to your contract minus the amount of payment enhancement that would have
been applied had you not submitted a Letter of Intent (the "excess payment
enhancement").
IF THE VALUE OF SUCH ACCUMULATION UNITS DECLINES, WE WILL RECOVER THE FULL
AMOUNT OF THE EXCESS PAYMENT ENHANCEMENT. THEREFORE, YOU BEAR THE RISK THAT IF
YOUR LETTER OF INTENT IS NOT COMPLETED, THE VALUE OF YOUR CONTRACT MAY BE LESS
THAN HAD YOUR LETTER OF INTENT NOT BEEN EXECUTED. IF THE AMOUNT RECOVERED
EXCEEDS THE CONTRACT VALUE, WE WILL TERMINATE YOUR CONTRACT WITHOUT VALUE.
Amounts recovered will be 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.
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The promotional rates applicable to the initial purchase payment under a
Letter of Intent will continue in effect for the 13 month Letter of Intent
completion period regardless of a termination generally of the promotional rates
during such a period.
IF YOU FAIL TO INFORM US THAT YOU INTEND TO SUBMIT MULTIPLE PAYMENTS
WITHIN 13 MONTHS OF YOUR CONTRACT ISSUE DATE, YOUR CONTRACT MAY RECEIVE A LOWER
PAYMENT ENHANCEMENT PERCENTAGE THAN WOULD OTHERWISE BE AVAILABLE.
If you are considering purchasing a contract in connection with certain
qualified plans, then special considerations regarding the payment enhancement
may apply. Corporate and self-employed pension and profit sharing plans, as well
as tax-sheltered annuity plans, are subject to nondiscrimination rules. The
nondiscrimination rules generally require that benefits, rights, or features of
the plan not discriminate in favor of highly compensated employees. In
evaluating whether the contract is suitable for purchase in connection with such
a qualified plan, you should consider the effect of the payment enhancement on
the plan's compliance with the applicable nondiscrimination requirements.
Violation of these nondiscrimination rules can cause loss of the plan's tax
favored status under the Code. Employers intending to use the Contract in
connection with such plans should seek competent advice. - See Appendix G.
ACCUMULATION UNITS
The value of an investment account is measured in "accumulation units," which
vary in value with the performance of the underlying Trust portfolio.
During the accumulation period, we will establish an "INVESTMENT ACCOUNT"
for you for each Variable Account investment option to which you allocate a
portion of your contract value. Amounts are credited to those investment
accounts in the form of "ACCUMULATION UNITS" (units of measure used to calculate
the value of the variable portion of your contract during the accumulation
period). The number of accumulation units to be credited to each investment
account is determined by dividing the amount allocated to that investment
account by the value of an accumulation unit for that investment account next
computed after the purchase payment is received at our 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 on the
business day (any date on which the New York Stock Exchange is open and the net
asset value of a Trust or portfolio is determined) on which they are received at
our Annuity Service Office, and in any event not later than two business days
after our receipt of all information necessary for issuing the contract. You
will be informed of any deficiencies preventing processing if your contract
cannot be issued. If the deficiencies are not remedied within five business days
after receipt, your purchase payment will be returned promptly, unless you
specifically consent to our retaining your purchase payment until all necessary
information is received. Initial purchase payments received by wire transfer
from broker-dealers will be credited on the business day received by us if the
broker-dealers have made special arrangements with us.
VALUE OF ACCUMULATION UNITS
The value of your accumulation units will vary from one business day to
the next depending (the "VALUATION PERIOD") upon the investment results of the
investment options you select. The value of an accumulation unit for each
sub-account was arbitrarily set at $10 or $12.50 for the first business day
under other contracts we have issued. The value of an accumulation unit for any
subsequent business day is determined by multiplying the value of an
accumulation unit for the immediately preceding business day by the net
investment factor for such sub-account (described below) for the valuation
period for which the value is being determined. Accumulation units will be
valued at the end of each business day. A business day is deemed to end at the
time of the determination of the net asset value of the Trust shares.
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 may be greater or less than or equal to one; therefore, the
value of an accumulation unit may increase, decrease or remain the same. 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:
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Where (a) is:
- 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
- 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, a portion of the
distribution expenses, and mortality and expense risks. That factor is
equal on an annual basis to 1.55% (0.30% for administrative expenses and
1.25% for mortality and expense risks).
TRANSFERS AMONG INVESTMENT OPTIONS
Amounts Invested may be transferred among investment options.
During the accumulation period, you may transfer amounts among the
investment options at any time upon written notice to us or by telephone if you
authorize us in writing to accept telephone transfer requests. Accumulation
units will be canceled from the investment account from which you transfer
amounts transferred and credited to the investment account to which you transfer
amounts. Your contract value on the date of the transfer will not be affected by
a transfer. You 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 we will transfer the entire amount instead of
the requested amount. We reserve the right to limit, upon notice, the maximum
number of transfers you may make to one per month or six at any time within a
contract year. In addition, we reserve the right to defer a transfer at any time
we are unable to purchase or redeem shares of the Trust portfolios. We also
reserve the right to modify or terminate the transfer privilege at any time (to
the extent permitted by applicable law).
Currently the Company imposes no charge for transfer requests. The first twelve
transfers in a contract year are free of any transfer charge. For each
additional transfer in a contract year, the Company does not currently assess a
charge but reserves the right (to the extent permitted by your contract) to
assess a reasonable charge to reimburse it for the expenses of processing
transfers.
Where permitted by law, we may accept your authorization for a third party to
make transfers for you subject to our rules. However, the contract is not
designed for professional market timing organizations or other entities or
persons engaging in programmed, frequent or large exchanges (collectively,
"market timers") to speculate on short-term movements in the market since such
activity may be disruptive to the Trust portfolios and increase their
transaction costs. Therefore, in order to prevent excessive use of the exchange
privilege, we reserve the right to (a) reject or restrict any specific purchase
and exchange requests and (b) impose specific limitations with respect to market
timers, including restricting exchanges by market timers to certain variable
investment options (transfers by market timers into or out of fixed investment
options is not permitted).
MAXIMUM NUMBER OF INVESTMENT OPTIONS
Upon issuance of the contract, purchase payments may be allocated among up
to seventeen of the available investment options (including all fixed account
investment options). After the contract is issued, there is no limit on the
number of investment options to which you may allocate purchase payments.
Telephone transfers and withdrawals are permitted.
TELEPHONE TRANSACTIONS
You are permitted to request transfers and withdrawals by telephone. We
will not be liable for following instructions communicated by telephone that we
reasonably believe to be genuine. To be permitted to request a transfer or
withdrawal by telephone, you must elect the option on the Application. (If you
do not initially elect an option in the Application form, you may request
authorization by executing an appropriate authorization form that we will
provide you upon request.) We 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 we fail to
employ our procedures properly. Such procedures include the following. Upon
telephoning a request, you will be asked to provide
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<PAGE> 150
information that verifies that it is you calling. For both your and our
protection, we will tape record all conversations with you. All telephone
transactions will be followed by a confirmation statement of the transaction. We
reserve the right to impose maximum withdrawal amounts and other new procedural
requirements regarding transfer privileges.
SPECIAL TRANSFER SERVICES - DOLLAR COST AVERAGING
Dollar Cost Averaging and Asset Rebalancing programs are available.
We administer a Dollar Cost Averaging ("DCA") program. If you enter into a
DCA agreement, you may instruct us 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 purchase payments (and not existing contract values) may be allocated to
the DCA fixed account investment option. The DCA program is generally suitable
if you are making a substantial deposit and desire to control the risk of
investing at the top of a market cycle. The DCA program allows investments to be
made in equal installments over time in an effort to reduce that risk. If you
are interested in the DCA program, you may elect to participate in the program
on the application or by separate application. You may obtain a separate
application and full information concerning the program and its restrictions
from your securities dealer or our Annuity Service Office. There is no charge
for participation in the DCA program.
ASSET REBALANCING PROGRAM
We administer an Asset Rebalancing Program which enables you to specify
the percentage levels you would like to maintain in particular portfolios. Your
contract value will be automatically rebalanced pursuant to the schedule
described below to maintain the indicated percentages by transfers among the
portfolios. (The 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, you should monitor your use of these other programs and any other
transfers or withdrawals while the Asset Rebalancing Program is being used. If
you are interested in the Asset Rebalancing Program, you may obtain a separate
application and full information concerning the program and its restrictions
from your securities dealer or our Annuity Service Office. There is no charge
for participation in the Asset Rebalancing Program.
Asset rebalancing will only be permitted on the following time schedules:
- 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);
- semi-annually on June 25th or December 26th (or the next business
day if these dates are not business days); or
- annually on December 26th (or the next business day if December 26th
is not a business day).
WITHDRAWALS
During the accumulation period, you may withdraw all or a portion of your
contract value upon written request (complete with all necessary information)
to our Annuity Service Office. You may make withdrawals by telephone if you
have authorized telephone withdrawals, as described above under "Telephone
Transactions." For certain qualified contracts, exercise of the withdrawal
right may require the consent of the qualified plan participant's spouse under
the Internal Revenue Code of 1986, as amended (the "CODE") and related Treasury
Department regulations. In the case of a total withdrawal, we will pay the
contract value as of the date of receipt of the request at our Annuity Service
Office, less the annual $30 administration fee if applicable, any unpaid loans
and any applicable withdrawal charge, and the contract will be canceled. In the
case of a partial withdrawal, we will pay the amount requested and cancel that
number of accumulation units credited to each investment account equal in value
to the amount withdrawn from that investment account plus any applicable
withdrawal charge deducted from such investment account (see "CHARGES AND
DEDUCTIONS").
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You may withdraw all or a portion of your contract value, but may incur
withdrawal charges and tax liability as a result.
When making a partial withdrawal, you 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 you do not specify the investment options from
which a partial withdrawal is to be taken, the withdrawal will be taken from the
variable account investment options until exhausted and then from the fixed
account investment options. 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 that variable account investment
option bears to the value of all your investments in variable account investment
options. For 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, we 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, we 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 our Annuity Service Office,
except that we reserve the right to defer the right of withdrawal or postpone
payments for any period when:
- the New York Stock Exchange is closed (other than customary weekend
and holiday closings),
- trading on the New York Stock Exchange is restricted,
- 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
- 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 trading is restricted or an emergency
exists.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax (see "FEDERAL TAX MATTERS"). Withdrawals are permitted from
contracts issued in connection with Section 403(b) qualified plans only under
limited circumstances (see Appendix G "QUALIFIED PLAN TYPES").
SPECIAL WITHDRAWAL SERVICES - THE INCOME PLAN
Systematic "Income Plan" withdrawals are available.
We administer an Income Plan ("IP") which permits you to pre-authorize a
periodic exercise of the contractual withdrawal rights described above. After
entering into an IP agreement, you may instruct us 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 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 charges. IP
withdrawals, like other withdrawals, may be subject to income tax and a 10%
penalty tax (see "FEDERAL TAX MATTERS"). If you are interested in an IP, you may
obtain a separate application and full information concerning the program and
its restrictions from your securities dealer or our Annuity Service Office.
There is no charge for participation in the IP program.
DEATH BENEFIT DURING THE ACCUMULATION PERIOD
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If you die during the accumulation period, your beneficiary will receive a death
benefit that might exceed your contract value.
IN GENERAL. The following discussion applies principally to contracts
that are not issued in connection with qualified plans, i.e., "NON-QUALIFIED
CONTRACTS." Tax law requirements applicable to qualified plans, and the tax
treatment of amounts held and distributed under such plans, are quite complex.
Accordingly, if your contract is to be used in connection with a qualified plan,
you 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, if you intend to use the contract in connection with a
qualified plan, you should consider that the contract provides a death benefit
(described below) that could be characterized as an "incidental death benefit."
There are limits on the amount of incidental benefits that may be provided under
certain qualified plans and the provision of such benefits may result in
currently taxable income to plan participants (see "FEDERAL TAX MATTERS").
AMOUNT OF DEATH BENEFIT. If any contract owner dies, the death benefit
will be determined as follows:
- The death benefit during the first nine contract years will be
the greater of:
(a) the contract value, (A) or
(b) the excess of
- the sum of all purchase payments over
- the sum of any partial withdrawals.
- After the ninth contract year, the death benefit will be the
greater of:
(a) the contract value, (A) or
(b) the excess of:
- the sum of all purchase payments over
- the sum of any amounts deducted in connection with
partial withdrawals, or
(c) the death benefit on the last day of the ninth contract
year, plus the sum of all purchase payments made and any
amount deducted in connection with partial withdrawals since
then.
If a contract owner dies, we have the right to deduct from the death benefit
paid any payment enhancements applied to the contract in the 12 month period
prior to the date of death. However, we are currently waiving this right.
Reference to "payment enhancements" in this paragraph refers to the original
amount of payment enhancements; earnings attributable to payment enhancements
will not be deducted from the death benefit paid.
The determination of the death benefit will be made on the date we
receive written notice and "proof of death" as well as all required claims
forms, at our Annuity Service Office. No one is entitled to the death benefit
until this time. Death benefits will be paid within 7 days of that
determination. Proof of death occurs when we receive one of the following at our
Annuity Service Office within one year of the date of death:
- a certified copy of a death certificate;
- a certified copy of a decree of a court of competent jurisdiction
as to the finding of death; or
- any other proof satisfactory to us.
If there are any unpaid loans, the death benefit equals the death benefit, as
described above, minus the amount of unpaid loans (including unpaid interest).
PAYMENT OF DEATH BENEFIT. We will pay the death benefit 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.
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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:
- The beneficiary will become the contract owner.
- 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 receipt at our Annuity
Service Office of due proof of the owner's death.
- No additional purchase payments may be made.
- If the deceased owner's spouse is the beneficiary, the spouse
continues the contract as the new owner. In such a case, the
distribution rules 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,
all payments made and all amounts deducted in connection with
partial withdrawals prior to the date of the first owner's death
will not be considered in the determination of the spouse's death
benefit.
- If the beneficiary is not the deceased owner's 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. If the distribution is not made as
an annuity, upon the death of the beneficiary, the death benefit
will equal the contract value and must be distributed immediately
in a single sum.
- 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 date as of which the contract
was issued, any applicable withdrawal charges will be assessed
only upon payment of the death benefit (so that if the death
benefit is paid in a subsequent year, a lower withdrawal charge
will be applicable).
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.
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. For purposes of subsequent calculations of the death benefit
prior to the maturity date, the contract value on the date of the change will be
treated as a payment made on that date. This treatment of contract value as a
payment is not included in cumulative purchase payments and is not eligible for
a payment enhancement. In addition, all payments made and all amounts deducted
in connection with partial withdrawals prior to the date of the change will not
be considered in the determination of the death benefit. No such change in death
benefit will be made if the person 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").
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PAY-OUT PERIOD PROVISIONS
You have a choice of several different ways of receiving annuity benefit
payments from us.
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
DURING THE ACCUMULATION PERIOD").
Generally, we will begin paying annuity benefits under the contract on
the contract's maturity date (the date dividing the accumulation period from the
pay-out period). The maturity date is the date specified on the contract
specifications page, unless you change that date. 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. See APPENDIX E for contracts
issued in Pennsylvania. You 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 we consent. 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.
You 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, we may pay the contract value, minus any unpaid loans, in one lump sum
to the annuitant on the maturity date.
ANNUITY OPTIONS
Annuity benefit payments are available under the contract on a fixed,
variable, or combination fixed and variable basis. Upon purchase of the
contract, and at any time during the accumulation period, you 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 payment acceptable to us. If an annuity option is not
selected, we will provide as a default option a life annuity with payments
guaranteed for 10 years as described below. Annuity payments will be determined
based on the Investment Account Value of each investment option at the maturity
date.
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. Please
read the description of each annuity option carefully. In general, a nonrefund
life annuity provides the highest level of payments. However, because 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. Annuities with payments guaranteed for a certain number of years
may also be elected but the amount of each payment will be lower than that
available under the nonrefund life annuity option.
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. Because 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(a): 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. Because 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. Because 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. Because payments are guaranteed for 10 years,
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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 we are contractually
obligated to offer at all times, we currently offer the following annuity
options. We 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. Because
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. Because 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 BENEFIT PAYMENT
The first variable annuity payment is determined by applying that
amount of the contract value used to purchase a variable annuity to the annuity
tables contained in the contract. The amount of the contract value will be
determined as of a date not more than ten business days prior to the maturity
date. 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. Contract value used to determine annuity payments will
be reduced by any applicable premium taxes.
The rates contained in the annuity tables vary with the annuitant's sex
and age and the annuity option selected. However, for contracts issued in
connection with certain employer-sponsored retirement plans sex-distinct tables
may not be used. Under such tables, the longer the life expectancy of the
annuitant under any life annuity option or the longer the period for which
payments are guaranteed under the option, the smaller the amount of the first
monthly variable annuity payment will be.
ANNUITY UNITS AND THE DETERMINATION OF SUBSEQUENT VARIABLE ANNUITY BENEFIT
PAYMENTS
Variable annuity benefit payments subsequent to the first will be based
on the investment performance of the sub-accounts selected during the pay-out
period. The amount of subsequent payments is determined by dividing the amount
of the first annuity payment from each sub-account by the annuity unit value of
that 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 generally remains
constant during the annuity benefit payment period.
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.
TRANSFERS DURING THE PAY-OUT PERIOD
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Some transfers are permitted during the pay-out period, but subject to a few
more limitations than during the accumulation period.
Once variable annuity benefit payments have begun, you may transfer all
or part of the investment upon which those payments are based from one
sub-account to another. You must submit your transfer request to our Annuity
Service Office at least 30 days before the due date of the first annuity benefit
payment to which your transfer 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 benefit
payments will reflect changes in the value of the new annuity units. We reserve
the right to limit, upon notice, the maximum number of transfers to four per
contract year. 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, we reserve the right to
defer the transfer privilege at any time that we are unable to purchase or
redeem shares of the Trust portfolios. We also reserve the right to modify or
terminate the transfer privilege at any time in accordance with applicable law.
DEATH BENEFIT DURING THE PAY-OUT PERIOD
If an annuity option providing for payments for a guaranteed period has
been selected, and the annuitant dies during the pay-out period, we 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, we 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
You have a ten-day right to cancel your contract.
You may cancel the contract by returning it to our Annuity Service
Office or agent at any time within 10 days after receiving it. Within 7 days of
receiving a returned contract, we will pay you the contract value (minus any
unpaid loans and any payment enhancement), computed at the end of the valuation
period during which we receive the returned contract. We will recover the
original amount of the payment enhancement credited; earnings attributable to
the payment enhancement will not be deducted from the amount paid.
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 state insurance laws and
regulations. When the contract is issued as an individual retirement annuity
under Code Sections 408 or 408A, during the first 7 days of the 10 day period,
we will return all purchase payments if this is greater than the amount
otherwise payable.
OWNERSHIP
You are entitled to exercise all rights under your contract.
The contract owner is the person entitled to exercise all rights under
the contract. The maximum age of an owner for which a contract will be issued is
age 80. Prior to the maturity date, the contract owner is the person designated
in the specifications page or as subsequently named. During the pay-out period,
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
(potentially taxable) 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 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. This
purchase payment will not be included in cumulative purchase payments and is not
eligible for a payment enhancement.
Any change of ownership or assignment must be made in writing. We must
approve any change. Any assignment and any change, if approved, will be
effective as of the date we receive the request at our Annuity Service Office.
We assume 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.
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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 us.
ANNUITANT
The "annuitant" is either you or someone you designate.
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 specifications page or in the application, unless changed. The maximum age
of an annuitant for which a contract will be issued is age 80.
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.
BENEFICIARY
The "beneficiary" is the person you designate to receive the death benefit if
you die.
The beneficiary is the person, persons or entity designated in the
contract specifications page (or as subsequently changed). 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 us, and (if approved) will be
effective as of the date on which written. We assume 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, Treasury Department
regulations may limit designations of beneficiaries.
MODIFICATION
We may not modify your contract without your consent, except to the
extent 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
We reserve the right to accept or reject any contract application at
our sole discretion.
MISSTATEMENT AND PROOF OF AGE, SEX OR SURVIVAL
We 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 we have 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 (NOT AVAILABLE IN OREGON)
The fixed account investment options are not securities.
SECURITIES REGISTRATION. 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 our 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 the
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.
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GUARANTEE. Pursuant to a Guarantee Agreement dated March 31, 1996, The
Manufacturers Life Insurance Company ("Manulife"), unconditionally guarantees to
us, on behalf of and for the benefit of us and owners of fixed annuity contracts
we issue, that it will, on demand, make funds available to us 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 in
this Prospectus. This Guarantee may be terminated by Manulife on notice to us.
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:
- the liability to pay contractual claims under the contracts is
assumed by another insurer, or
- we are sold and the buyer's guarantee is substituted for the
Manulife guarantee.
REINSURANCE. Effective June 30, 1995, we 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 issued prior to January 1,
1999. Under this Reinsurance Agreement, we remain liable for the contractual
obligations of the contracts' fixed accounts and Peoples agrees to reimburse us
for certain amounts and obligations in connection with the fixed accounts.
Peoples contractual liability runs solely to us, and no contract owner shall
have any right of action against Peoples. For contracts issued after January 1,
1999, The Manufacturers Life Insurance Company (U.S.A.) reinsures certain
amounts with respect to the fixed account portion of the contract under a
reinsurance agreement with substantially similar terms to the Peoples
Reinsurance Agreement.
Fixed account investment options guarantee interest of at least 3%.
INVESTMENT OPTIONS. A one-year fixed account investment option is
available under the contract. In addition, a DCA fixed investment account 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). Under the fixed account investment options, we
guarantee 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 a fixed account investment option and any fixed
annuity benefit payments will reflect those interest and principal guarantees.
We determine the guaranteed interest rates on new amounts allocated or
transferred to a fixed investment account from time-to-time, according to 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 we may not change it.
INVESTMENT ACCOUNTS. You may allocate purchase payments, or make
transfers from the variable investment options, to the one-year fixed account
investment option at any time prior to the maturity date. We establish a
separate investment account each time you allocate or transfer amounts to the
one-year 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, you may establish a new
investment account with a one-year guarantee period at the then current interest
rate or transfer the amounts to a variable account investment option, all
without the imposition of any charge. 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 you do not specify a renewal option, we will
select the one-year fixed account investment option. In the case of a renewal
within one year of the maturity date, we will credit interest up to the maturity
date at the then current interest rate for one-year guarantee periods.
TRANSFERS. During the accumulation period, you may transfer amounts
from the fixed account investment option to the variable account investment
options at the end of the guaranteed period; however, amounts may be transferred
prior to the end of the guarantee period pursuant to the DCA program. Where
there are multiple investment accounts within the one-year fixed account
investment option, amounts must be transferred from the one-year fixed account
investment option on a first-in-first-out basis.
Withdrawals and some transfers from fixed account investment options are
permitted during the accumulation period.
WITHDRAWALS. You may make total and partial withdrawals of amounts held
in the fixed account investment options at any time during the accumulation
period. Withdrawals from the 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 the
fixed account investment options:
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- We reserve the right to defer payment of amounts withdrawn from
the fixed account investment options for up to six months from
the date we receive the written withdrawal request. If a
withdrawal is deferred for more than 30 days pursuant to this
right, we will pay interest on the amount deferred at a rate not
less than 3% per year (or a higher rate if required by applicable
law).
- If there are multiple investment accounts under the fixed account
investment options, amounts must be withdrawn from those accounts
on a first-in-first-out basis.
If you do not specify the investment options from which a partial
withdrawal is to be taken, the partial withdrawal will be taken from the
variable account investment options until exhausted and then from the fixed
account investment options. Such withdrawals will be made from the investment
options beginning with the shortest guarantee period. Within such a 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 (see "FEDERAL TAX MATTERS" below). Withdrawals are permitted from
contracts issued in connection with Section 403(b) qualified plans only under
limited circumstances (see Appendix G"Qualified Plan Types")
LOANS. We offer 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. If you own such a contract, you may borrow from us, using your
contract as the only security for the loan, in the same manner and subject to
the same limitations as set forth under "LOANS" below.
FIXED ANNUITY OPTIONS. Subject to the distribution of death benefits
provisions (see "DEATH BENEFIT DURING THE ACCUMULATION PERIOD" above), on death,
withdrawal or the maturity date of the contract, the proceeds may be applied to
a fixed annuity option (see "ANNUITY OPTIONS" above). The amount of each fixed
annuity payment is determined by applying the portion of the proceeds (minus any
applicable premium taxes) applied to purchase the fixed annuity to the
appropriate table in the contract. If the table we are then using is more
favorable to you, we will substitute that table. We guarantee the dollar amount
of fixed annuity payments.
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
Prospectuses of the Trust.
WITHDRAWAL CHARGES
A charge of up to 8-1/2% is deducted from some withdrawals.
If you make a withdrawal from your contract during the accumulation
period, 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 ten 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 ten complete contract years. In no event may the total
withdrawal charges exceed 8.5% of the amount invested. The amount of the
withdrawal charge and when it is assessed are discussed below:
Each withdrawal from the contract is allocated first to the "FREE
WITHDRAWAL AMOUNT" and second to "UNLIQUIDATED PURCHASED PAYMENTS." In any
contract year, the free withdrawal amount for that year is the greater of:
- 10% of total purchase payments (less all prior partial
withdrawals in that contract year), and
- the accumulated earnings of the contract (i.e., the excess of the
contract value on the date of withdrawal over the unliquidated
purchase payments).
Withdrawals of up to the free withdrawal amount may be withdrawn without the
imposition of a withdrawal charge. The free withdrawal amount will be applied
first, to withdrawals from variable account investment options and then to
withdrawals from the one-year fixed account investment option.
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If the amount of a withdrawal exceeds 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, we will liquidate purchase
payments equal to the amount of the withdrawal request which exceeds the free
withdrawal amount in the order the purchase payments were made: the oldest
unliquidated purchase payment first, the next purchase payment second, etc.,
until all purchase payments have been liquidated.
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 CONTRACT WITHDRAWAL CHARGE PERCENTAGE
0 8.5%
1 8.5%
2 8.0%
3 7.0%
4 6.0%
5 5.0%
6 4.0%
7 3.0%
8 2.0%
9+ 0.0%
The total withdrawal charge will be the sum of the withdrawal charges
for the purchase payments being liquidated.
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 minus any applicable
withdrawal charge.
There is generally no withdrawal charge on distributions made as a
result of the death of the contract owner or, if applicable, the annuitant. In
addition, no withdrawal charges are imposed on annuity benefit payments.
The amount collected from the withdrawal charge will be used to
reimburse us for the compensation we pay to broker-dealers for selling the
contracts, preparation of sales literature and other sales-related expenses.
For examples of calculation of the withdrawal charge, see APPENDIX C.
REDUCTION OR ELIMINATION OF WITHDRAWAL CHARGES
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. We will
determine entitlement to such a reduction in the withdrawal charge in the
following manner:
- 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.
- 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.
- Any prior or existing relationship with us 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.
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- 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 our sales expenses.
- There may be other circumstances of which we are not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, we determine that
there will be a reduction in sales expenses, we will provide a reduction in the
withdrawal charge. In no event will reduction or elimination of the withdrawal
charge be permitted where that reduction or elimination will be unfairly
discriminatory to any person. For further information, contact your registered
representative.
ADMINISTRATION FEES
Two fees may be deducted under a contract to compensate us for our
costs of providing all administrative services attributable to the contracts and
the operations of the Variable Account.
Normally, we will deduct an administration fee of $40 each year.
However, if during the accumulation period the contract value is equal to or
greater than $100,000 at the time of the fee's assessment, we will waive the
fee. During the accumulation period, 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 that investment option bears to the
contract value. If the entire contract is withdrawn on other than the last day
of any contract year, the $40 administration fee will be deducted from the
amount paid. During the pay-out period, the fee is deducted on a pro-rata basis
from each annuity payment.
We deduct asset-based charges totaling 1.55% on an annual basis for
administration, and mortality and expense risks.
A daily fee in an amount equal to 0.30% of the value of each variable
investment account on an annual basis is deducted from each sub-account as an
administration fee. This asset-based administration fee will not be deducted
from the fixed account investment options.
Even though administrative expenses may increase, we guarantee that we
will not increase the amount of the administration fees.
MORTALITY AND EXPENSE RISKS CHARGE
The mortality risk we assume is the risk that annuitants may live for a
longer period of time than we estimate. We assume this mortality risk by virtue
of annuity rates incorporated into the contract which cannot be changed. This
assures each annuitant that his or her longevity will not have an adverse effect
on the amount of annuity payments. We also assume mortality risks in connection
with our guarantee that, if the contract owner dies during the accumulation
period, we will pay a death benefit. The expense risk we assume is the risk that
the administration charges, distribution charge, or withdrawal charge may be
insufficient to cover actual expenses.
To compensate us for assuming these risks, we deduct 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. The rate of the mortality and
expense risks charge cannot be increased. If the charge is insufficient to cover
the actual cost of the mortality and expense risks assumed, we will bear the
loss. Conversely, if the charge proves more than sufficient, the excess will be
profit to us and will be available for any proper corporate purpose including,
among other things, payment of distribution expenses. On the Period Certain Only
Annuity Options, if you elect benefits payable on a variable basis, the
mortality and expense risks charge is assessed although we bear only the expense
risk and not the mortality risk. The mortality and expense risks charge is not
assessed against the fixed account investment options.
TAXES
We will charge you for state premium taxes to the extent we incur them and
reserve the right to charge you for new taxes we may incur.
We reserve 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 we
determine to have resulted from our:
- establishment or maintenance of the Variable Account,
- receipt of purchase payments,
- issuance of the contacts, or
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- commencement or continuance of annuity payments under the
contracts.
In addition, we 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 D for a table of State Premium Taxes.
EXPENSES OF DISTRIBUTING CONTRACT
MSS, the principal underwriter for the contracts, pays compensation to
selling brokers in varying amounts which under normal circumstances are not
expected to exceed 6% of purchase payments plus 0.75% of the contract value per
year commencing one year after each purchase payment. These expenses are not
assessed against the contracts but are instead paid by MSS. See "Distribution of
Contracts" for further information.
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. You should consult a qualified tax advisor with regard
to the application of the law to your 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.
This discussion does not address state or local tax consequences
associated with the purchase of a contract. IN ADDITION, WE MAKE NO GUARANTEE
REGARDING ANY TAX TREATMENT -- FEDERAL, STATE, OR LOCAL -- OF ANY CONTRACT OR OF
ANY TRANSACTION INVOLVING A CONTRACT.
OUR TAX STATUS
We are taxed as a life insurance company. Because the operations of the
Variable Account are a part of, and are taxed with, our operations, the Variable
Account is not separately taxed as a "regulated investment company" under the
Code. Under existing federal income tax laws, we are not taxed on the investment
income and capital gains of the Variable Account. We do not anticipate that we
will be taxed on the income and gains of the Variable Account, but if we are,
then we may impose a corresponding charge against the Variable Account in order
to make provision for that liability.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL DURING ACCUMULATION PERIOD
Gains inside the contract are usually tax-deferred until you make a withdrawal,
start receiving annuity benefit payments, or receive a death benefit payment.
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, or in some
other form of distribution. Certain requirements must be satisfied in order for
this general rule to apply, including:
- the contract must be owned by an individual (or treated as owned
by an individual),
- the investments of the Variable Account must be "adequately
diversified" in accordance with Treasury Department regulations,
- we, rather than the contract owner, must be considered the owner
of the assets of the Variable Account for federal tax purposes,
and
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- the contract must provide for appropriate amortization, through
annuity payments, of the contract's purchase payments and
earnings, e.g., the pay-out period must not occur near the end of
the annuitants life expectancy.
NON-NATURAL OWNERS. As a general rule, deferred annuity contracts held
by "non-natural persons" (such as a corporation, trust or other similar entity)
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. This special exception will not apply, however, 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.
Exceptions to the general rule for non-natural contract owners will
also apply with respect to:
- contracts acquired by an estate of a decedent by reason of the
death of the decedent,
- certain qualified contracts,
- certain contracts purchased by employers upon the termination of
certain qualified plans,
- certain contracts used in connection with structured settlement
agreements, and
- 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, otherwise deductible may not be
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 we do not control the investments of the Trust, we expect 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 insurance company 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 "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 in the form 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.
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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, we do not know what standards
will be set forth in the regulations or rulings which the Treasury Department
has stated it expects to issue. We therefore reserve the right to modify the
contract as necessary to attempt to prevent the contract owners from being
considered the owners of the assets of the Variable Account.
DELAYED PAY-OUT PERIODS. If the contract's pay-out period commences (or
is scheduled to commence) 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 we 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. In this regard, the payment enhancements provided
under a contract are not treated as purchase payments and thus do not increase
the investment in the contract.
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 a 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, we impose 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 BENEFIT PAYMENTS
A portion of each annuity payment is usually taxable as ordinary income.
Normally, a portion of each annuity benefit payment is taxable as
ordinary income. The taxable portion of an annuity benefit payment 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 the payment by the
ratio of (a) to (b), where:
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(a) is the investment in the contract allocated to the fixed annuity
option (adjusted for any period certain or refund feature) and
(b) is the total expected value of fixed 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. During the accumulation period, death benefit proceeds
are includible in income as follows:
- if distributed in a lump sum, they are taxed in the same manner
as a full withdrawal, as described above, or
- if distributed under an annuity option, they are taxed in the
same manner as annuity payments, as described above.
During the pay-out period, 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:
- 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
- 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
Withdrawals prior to age 59-1/2 may incur a 10% penalty tax.
There is a 10% penalty tax on the taxable amount of any payment from a
non-qualified contract unless the payment is:
- received on or after the contract owner reaches age 59-1/2;
- attributable to the contract owner's becoming disabled (as
defined in the tax law);
- 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);
- 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);
- 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
- 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.
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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. Similarly, if a person transfers part of his
interest in one annuity contract to purchase another annuity contract, the IRS
might 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
Special tax provisions apply to qualified plans. consult your tax advisor prior
to using the contract with a qualified plan.
The contracts are also designed for use in connection with certain
types of retirement plans which receive favorable treatment under the Code
("QUALIFIED PLANS"). Numerous special tax rules apply to the participants in
qualified plans and to the contracts used in connection with 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.
Brief descriptions of various types of qualified plans in connection with which
we may issue a contract (and a discussion of possible consequences of certain
features of the contracts under those types of qualified plans) are contained in
APPENDIX G to this Prospectus. In particular, as noted in Appendix F, the
purchaser should consider the effects of the death benefit and the payment
enhancement on the income tax treatment of certain 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. (You
should always consult your tax advisor and retirement plan fiduciary prior to
exercising your loan privileges.) Both the amount of the contribution that may
be made, and the tax deduction or exclusion that you may claim for that
contribution, are limited under qualified plans. If you are considering the
purchase of a contract in connection with a qualified plan, you should consider,
in evaluating the suitability of the contract, that the contract requires a
minimum initial purchase payment of $10,000. If this contract is used in
connection with a qualified plan, the owner and annuitant must be the same
individual. If a co-annuitant is named, all distributions made while the
annuitant is alive must be made to the annuitant. Also, if a co-annuitant is
named who is not the annuitant's spouse, the annuity options which are available
may be limited, depending on the difference in ages between the annuitant and
co-annuitant. Furthermore, the length of any guarantee period may be limited in
some circumstances to satisfy certain minimum distribution requirements under
federal tax laws.
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 (other than
ROTH 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:
- received on or after the contract owner reaches age 59-1/2,
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<PAGE> 167
- received on or after the owner's death or because of the owner's
disability (as defined in the tax law), or
- 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, the exception 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. If you wish to take a
distribution from an IRA for these purposes, you should consult your 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, 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, we will not be bound by terms
and conditions of qualified plans to the extent those terms and conditions
contradict the contract, unless we consent.
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
person receiving the distribution 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.
LOANS
We offer 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. If you are not an owner of such a contract, none of this discussion
about loans applies to your contract. If you are an owner of such a contract,
you may borrow from us, using your contract as the only security for the loan.
Loans are subject to certain tax law restrictions and to applicable retirement
program rules (collectively, "LOAN RULES"). You should consult your tax advisor
and retirement plan fiduciary prior to taking a loan under the contract.
The maximum loan value of a contract is normally 80% of the contract
value, although loan rules may serve to reduce that maximum in some cases. The
amount available for a loan at any given time is the loan value less any unpaid
prior loans. Unpaid prior loans equal the amount of any prior loans plus
interest accrued on those loans. Loans will be made only upon written request
from the owner. We will make loans within seven days of receiving a properly
completed loan application (applications are available from our Annuity Service
Office), subject to postponement under the same circumstances that payment of
withdrawals may be postponed (see "WITHDRAWALS").
When you request a loan, we will reduce your investment in the
investment accounts and transfer the amount of the loan to the "LOAN ACCOUNT," a
part of our general account. You 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
you may repay unpaid loans 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
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<PAGE> 168
repaid, the amount of the repayment will be transferred from the loan account to
the investment accounts. You may designate the investment accounts to which a
repayment is to be allocated. Otherwise, the repayment will be allocated in the
same manner as your most recent purchase payment. On each contract anniversary,
we will transfer from the investment accounts to the loan account the excess of
the balance of your loan over the balance in your loan account.
We charge 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. We credit 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
unpaid loans under your contract exceed your contract value, your contract will
be in default. In such case you will receive a notice indicating the payment
needed to bring your 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, your contract may be terminated without value.
The amount of any unpaid loans will be deducted from the death benefit
otherwise payable under the contract. In addition, loans, 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 a loan is unpaid, 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 your loan
account while your loan is unpaid, your contract value will not increase as
rapidly as it would have if no loan were unpaid. If investment results are below
that rate, your contract value will be greater than it would have been had no
loan been outstanding.
FEDERAL INCOME TAX WITHHOLDING
We may be required to withhold amounts from some payments for federal income tax
payments.
We will withhold and remit to the U.S. Government a part of the taxable
portion of each distribution made under a contract unless the person receiving
the distribution notifies us at or before the time of the distribution that he
or she elects not to have any amounts withheld. In certain circumstances, we 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
PERFORMANCE DATA
We may advertise our investment performance.
Each of the sub-accounts may quote total return figures in its
advertising and sales materials. PAST PERFORMANCE FIGURES ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE OF ANY SUB-ACCOUNT. The sub-accounts may advertise
both "standardized" and "non-standardized" total return figures. Standardized
figures will include average annual total return figures for one, five and ten
years, or from the inception date of the relevant sub-account of the Variable
Account (if that period since inception is shorter than one of those periods).
Non-standardized total return figures may be quoted including figures that do
not assume redemption at the end of the time period. Non-standardized figures
also include total return numbers from the inception date of the portfolio or
ten years, whichever period is shorter. Where the period since inception is less
than one year, the total return quoted will be the aggregate return for the
period.
Average annual total return is the average annual compounded rate of
return that equates a purchase payment to the market value of that 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 that we offer, adjusted to
reflect current contract charges. In the case of non-standardized performance,
performance figures will be the historical performance of the Trust or 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
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<PAGE> 169
inception date of the applicable predecessor Manulife Series Fund portfolio),
adjusted to reflect current contract charges.
ASSET ALLOCATION AND TIMING SERVICES
We are aware that certain third parties are offering asset allocation
and timing services in connection with the contracts. In certain cases we have
agreed to honor transfer instructions from such asset allocation and timing
services where we have received powers of attorney, in a form acceptable to us,
from the contract owners participating in the service. The contract is not
designed for professional market timing organizations or other entities or
persons engaging in programmed, frequent or large exchanges (collectively,
"market timers") to speculate on short-term movements in the market since such
activity may be disruptive to the Trust portfolios and increase their
transaction costs. Therefore, in order to prevent excessive use of the exchange
privilege, we reserve the right to (a) reject or restrict any specific purchase
and exchange requests and (b) impose specific limitations with respect to market
timers, including restricting exchanges by market timers to certain variable
investment options (transfers by market timers into or out of fixed investment
options is not permitted). WE DO NOT ENDORSE, APPROVE OR RECOMMEND SUCH SERVICES
IN ANY WAY AND YOU SHOULD BE AWARE THAT FEES PAID FOR SUCH SERVICES ARE SEPARATE
AND IN ADDITION TO FEES PAID UNDER THE CONTRACTS.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Section 830.105 of the Texas Government Code permits participants in
the Texas Optional Retirement Program ("ORP") to withdraw their interest in a
variable annuity contract issued under the ORP only upon:
- termination of employment in the Texas public institutions of
higher education,
- retirement,
- death, or
- the participant's attainment of age 70-1/2.
Accordingly, before any amounts may be distributed from the contract, proof must
be furnished to us that one of these four events has occurred. The foregoing
restrictions on withdrawal do not apply in the event a participant in the ORP
transfers the contract value to another contract or another qualified custodian
during the period of participation in the ORP. Loans are not available under
contracts subject to the ORP.
DISTRIBUTION OF CONTRACTS
We pay brokers-dealers to sell the contracts.
Manufacturers Securities Services, LLC ('MSS"), a Delaware limited
liability company that we control, is the principal underwriter of the
contracts. MSS, located at 73 Tremont Street, Boston, Massachusetts 02108, also
is the investment adviser 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. (the "NASD"). MSS has entered
into a non-exclusive promotional agent agreement with Manulife Wood Logan, Inc.
("MANULIFE WOOD LOGAN"). Manulife Wood Logan is a broker-dealer registered under
the 1934 Act and a member of the NASD. Manulife Wood Logan is an indirect wholly
owned subsidiary of MFC. Sales of the contracts will be made by registered
representatives of broker-dealers authorized by MSS to sell the contracts. Those
registered representatives will also be our licensed insurance agents. Under the
promotional agent agreement, Manulife Wood Logan will recruit and provide sales
training and licensing assistance to those registered representatives. In
addition, Manulife Wood Logan will prepare sales and promotional materials for
our approval.
CONTRACT OWNER INQUIRIES
Your inquiries should be directed to our Annuity Service Office at P.O.
Box 9230, Boston, Massachusetts 02205-9230.
CONFIRMATION STATEMENTS
You will be sent confirmation statements for certain transactions in
your account. You should carefully review these statements to verify their
accuracy. Any mistakes should immediately be reported to our Company's Annuity
Service Office. If you fail to notify our Annuity Service Office of any mistake
within 60 days of the mailing of the confirmation statement, you will be deemed
to have ratified the transaction.
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<PAGE> 170
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 we nor MSS
are involved in any litigation that is of material importance to either, or that
relates to the Variable Account.
YEAR 2000 ISSUES
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when information
using 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect us, including those
related to customers, suppliers or other third parties, have been fully
resolved.
CANCELLATION OF CONTRACT
We may, at our option, cancel a contract at the end of any two
consecutive contract years in which no purchase payments by or on behalf of you,
have been made, if both:
- the total purchase payments made for the contract, less any
withdrawals, are less than $2,000;
and
- the contract value at the end of such two year period is less
than $2,000.
We, as a matter of administrative practice, will attempt to notify you prior to
such cancellation in order to allow you 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.
VOTING INTEREST
As stated above under "The Trust," we will vote shares of the Trust
portfolios held in the Variable Account at shareholder meetings according to
voting instructions received from the persons having the voting interest under
the contracts.
Accumulation Period. During the accumulation period, the contract owner
has the voting interest under a contract. The number of votes for 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.
Pay-out Period. During the pay-out period, the annuitant has the voting
interest under a contract. 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. We will determine the number of
portfolio shares for which voting instructions may be given not more than 90
days prior to the meeting.
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<PAGE> 171
APPENDIX A
SPECIAL TERMS
The following terms as used in this Prospectus have the indicated meanings:
ACCUMULATION PERIOD - The period between the issue date of the contract and the
maturity date of the contract. During this period, purchase payment(s) are
typically made to the contract by the owner.
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, unless changed.
ANNUITY OPTION - The method you select (or as specified in the contract if no
selection is made) for annuity benefit payments from us to the annuitant.
ANNUITY SERVICE OFFICE - The address of our Annuity Service Office 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 contract specification page,
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.
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 our Annuity Service Office within one year of the date of death:
(a) A certified copy of a death certificate;
(b) A certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or
(c) Any other proof satisfactory to us.
Death Benefits will be paid within 7 days of receipt of due proof of death and
all required claim forms by our Annuity Service Office.
FIXED ANNUITY - An annuity option with payments which are predetermined and
guaranteed as to dollar amount.
GENERAL ACCOUNT - All our assets other than assets in separate accounts.
INVESTMENT ACCOUNT - An account we establish which represents your interest in
an investment option during the Accumulation Period.
INVESTMENT ACCOUNT VALUE - The value of your allocation to an investment
account.
INVESTMENT OPTIONS - The investment choices available to contract owners.
Currently, there are forty-six variable account investment options and two fixed
investment options under the contract.
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LOAN ACCOUNT - The portion of the general account that is used for collateral
when a loan is taken.
MATURITY DATE - The date on which the pay-out period commences. 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.
NET PURCHASE PAYMENT - The purchase payment less the amount of premium tax, if
any, plus any applicable Payment Enhancement.
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 contract specifications page, unless
changed.
PAYMENT ENHANCEMENT - The amount in addition to your payment that we add to your
contract at the time you make a purchase payment.
PAY-OUT PERIOD - The pay-out period is the period when we make annuity benefit
payments to you.
PORTFOLIO - A separate investment portfolio of the Trust, mutual funds in which
the Variable Account invests, or of any successor mutual funds.
PURCHASE PAYMENT - An amount you pay to us 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 that we establish that is not commingled
with our 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 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 - One of our separate accounts that is used to fund the
contracts.
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.
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APPENDIX B
TABLE OF ACCUMULATION VALUES
<TABLE>
<CAPTION>
SUB-ACCOUNT UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS
START OF YEAR(A) END OF YEAR AT END OF YEAR
<S> <C> <C> <C>
Pacific Rim Emerging Markets
1997 $12.500000 $ 7.956465 24,331.413
1998 7.956465 7.472906 100,759.865
1999 7.472906 11.984246 1,419,029.854
Science & Technology
1997 $12.500000 $10.983380 156,835.597
1998 10.983380 15.499402 867,806.448
1999 15.499402 30.445751 6,241,520.234
International Small Cap
1997 $12.500000 $11.841960 71,206.249
1998 11.841960 13.042850 306,704.670
1999 13.042850 23.749328 744,862.852
Aggressive Growth
1997 $12.500000 $11.595531 66,641.217
1998 11.595531 11.910371 318,767.400
1999 11.910371 15.594503 1,500,019.874
Emerging Small Company
1997 $12.500000 $13.088401 88,228.592
1998 13.088401 12.896270 447,688.130
1999 12.896270 22.035674 918,232.537
Small Company Blend
1999 $12.500000 15.906411 729,933.633
Mid Cap Stock
1999 $12.500000 $12.471106 751,641.942
All Cap Growth(B)
1997 $12.500000 $12.153015 185,064.437
1998 12.153015 15.351927 1,055,511.533
1999 15.351927 21.871173 3,396,125.049
Overseas
1997 $12.500000 $11.688584 97,919.266
1998 11.688584 12.423604 463,080.520
1999 12.423604 17.203799 1,613,874.381
International Stock
1997 $12.500000 $11.346605 78,202.593
1998 11.346605 12.838403 357,481.534
1999 12.838403 16.397239 1,046,739.325
International Value
1999 $12.500000 $12.847324 644,472.090
Mid Cap Blend
1997 $12.500000 $12.479231 339,520.345
1998 12.479231 13.443090 1,557,309.071
1999 13.443090 16.909177 4,471,998.278
Small Company Value
1997 $12.500000 $11.893914 44,766.859
1998 11.893914 11.157770 660,344.943
1999 11.157770 11.864553 896,371.171
Global Equity
1997 $12.500000 $12.616506 195,153.440
1998 12.616506 13.944724 1,124,988.705
1999 13.944724 14.232856 2,778,245.240
Growth
1997 $12.500000 $12.257373 208,996.758
1998 12.257373 14.929659 995,527.438
1999 14.929659 20.209678 4,080,687.304
</TABLE>
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<PAGE> 174
<TABLE>
<CAPTION>
SUB-ACCOUNT UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS
START OF YEAR(A) END OF YEAR AT END OF YEAR
<S> <C> <C> <C>
Large Cap Growth
1997 $12.500000 $12.605559 19,303.997
1998 12.605559 14.785253 191,996.850
1999 14.785253 18.238886 2,373,174.541
Quantitative Equity
1997 $12.500000 $12.572103 66,662.192
1998 12.572103 15.640646 291,663.784
1999 15.640646 18.834509 1,707,382.198
Blue Chip Growth
1997 $12.500000 $12.831858 373,367.759
1998 12.831858 16.234822 3,048,540.169
1999 16.234822 19.091275 10,866,171.119
Real Estate Securities
1997 $12.500000 $13.563334 59,872.571
1998 13.563334 11.158599 255,677.706
1999 11.158599 10.107930 441,160.221
Value
1997 $12.500000 $12.435876 298,712.666
1998 12.435876 12.033566 1,262,760.931
1999 12.033566 11.517818 1,929,431.464
Growth & Income
1997 $12.500000 $12.692204 778,391.503
1998 12.692204 15.811724 4,876,965.282
1999 15.811724 18.506889 16,148,311.797
U.S. Large Cap Value
1999 $12.500000 $12.70863 3,259,257.566
Equity-Income
1997 $12.500000 $13.251413 411,414.749
1998 13.251413 14.249466 2,050,162.371
1999 14.249446 14.507362 5,176,955.371
Income & Value
1997 $12.500000 $12.705736 59,162.304
1998 12.705736 14.398732 277,338.588
1999 14.398732 15.408317 1,754,763,785
Balanced
1997 $12.500000 $12.798613 155,469.589
1998 12.798613 14.397307 705,998.837
1999 14.397307 13.941569 1,864,061.244
High Yield
1997 $12.500000 $12.864277 205,432.892
1998 12.864277 13.018749 1,187,037.940
1999 13.018749 13.844359 2,124,866.783
Strategic Bond
1997 $12.500000 $12.793187 201,747.245
1998 12.793187 12.761400 1,279,415.503
1999 12.761400 12.844300 1,957,762.473
Global Bond
1997 $12.500000 $12.850434 45,990.746
1998 12.850434 13.615563 184,398.545
1999 13.615563 12.511533 554,822.837
Total Return
1999 $12.500000 $12.243486 1,482,395.274
Investment Quality Bond
1997 $12.500000 $12.932971 75,627.863
1998 12.932971 13.845626 795,132.846
1999 13.845626 13.388502 2,117,952.360
Diversified Bond
1997 $12.500000 $12.768031 25,278.234
1998 12.768031 13.914540 162,214.705
1999 13.914540 13.798700 782,445.430
</TABLE>
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<PAGE> 175
<TABLE>
<CAPTION>
SUB-ACCOUNT UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS
START OF YEAR(A) END OF YEAR AT END OF YEAR
<S> <C> <C> <C>
U.S. Government Securities
1997 $12.500000 $12.898929 49,384.296
1998 12.898929 13.651980 558,901.273
1999 13.651980 13.411398 1,669,225.469
Money Market
1997 $12.500000 $12.682927 431,878.733
1998 12.682927 13.123053 1,949,743.402
1999 13.123053 13.515626 9,877,862.311
Lifestyle Aggressive 1000
1997 $12.500000 $12.184094 54,685.065
1998 12.184094 12.579492 369,032.152
1999 12.579492 14.195565 832,851.584
Lifestyle Growth 820
1997 $12.500000 $12.418021 722,945.165
1998 12.418021 12.985550 2,996,409.085
1999 12.985550 14.903883 4,346,394.820
Lifestyle Balanced 640
1997 $12.500000 $12.545543 819161.076
1998 12.545543 13.059244 3,939,117.609
1999 13.059244 14.456141 5,729,759.654
Lifestyle Moderate 460
1997 $12.500000 $12.686656 107584.170
1998 12.686656 13.711730 1,295,671.881
1999 13.711730 14.566774 2,395,187.413
Lifestyle Conservative 280
1997 $12.500000 $12.839861 47,679.118
1998 12.839861 13.933826 839,361.780
1999 13.933826 14.296546 1,593,352.835
</TABLE>
(A) Units under the series of contracts were first credited under the
sub-account on August 4, 1997, except in the following instances:
- Small Company Value Trust where units were first credited
under the sub-accounts on October 1, 1997.
- Small Company Blend, Mid Cap Stock, International Value, U.S.
Large Cap Value and Total Return Trusts where units were first
credited on May 1, 1999.
(B) Formerly, the Mid Cap Growth Trust.
B-3
<PAGE> 176
APPENDIX C
EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE
EXAMPLE 1 - Assume:
- a single payment of $50,000 is made,
- a 3% payment enhancement of $1,500 is credited to contract
value,
- no additional payments are made and
- there are no partial withdrawals.
The table below illustrates five examples of the withdrawal charges that would
be imposed if the contract is completely withdrawn. All contract values are
hypothetical.
<TABLE>
<CAPTION>
Contract Year Hypothetical Free Withdrawal Payments Withdrawal Charge
Contract Value Amount Liquidated
Percent Amount
<S> <C> <C> <C> <C> <C>
2 $55,000 $5,000(a) $50,000 8.50% $4,250
4 $50,500 $5,000(b) $45,500 7.00% $3,185
6 $60,000 $10,000(c) $50,000 5.00% $2,500
8 $80,000 $30,000(d) $50,000 3.00% $1,500
10 $70,000 $20,000(e) $50,000 0.00% $0
</TABLE>
(a) During any contract year the free withdrawal amount is the greater of:
- the contract value minus unliquidated payments (accumulated
earnings), or
- 10% of total payments made under the contract minus any partial
withdrawals in that contract year.
In the second contract year the earnings under the contract are $5,000
($55,000 - $50,000 = $5,000), and 10% of payments is equal to $5,000
(0.10 x $50,000 = $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 that
liquidated payment.
(b) In the example for the fourth contract year, there were no earnings in
the contract. The free withdrawal amount therefore is equal to 10% of
payments (0.10 x $50,000 = $5,000) and the withdrawal charge is only
applied to payments liquidated.
(c) In the example for the sixth contract year, the accumulated earnings of
$10,000 is greater than 10% of payments ($5,000). The free withdrawal
amount therefore is equal to the accumulated earnings of $10,000 and
the withdrawal charge is applied to the payments liquidated.
(d) In the example for the eighth contract year, the accumulated earnings
of $30,000 is greater than 10% of payments ($5,000). The free
withdrawal amount therefore is equal to the accumulated earnings of
$30,000 and the withdrawal charge is applied to the payments
liquidated.
(e) There is no withdrawal charge on any payments that have been in the
contract for at least 10 years.
C-1
<PAGE> 177
EXAMPLE 2 - Assume:
- - a single payment of $50,000 is made,
- - a 3% payment enhancement of $1,500 is credited to contract value,
- - 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.
<TABLE>
<CAPTION>
Hypothetical Contract Value Partial Free Withdrawal Amount Payments Withdrawal Charge
Withdrawal Liquidated
Requested
Percent Amount
<S> <C> <C> <C> <C> <C>
$65,000 $2,000 $15,000(a) $0 8.00% $0
$49,000 $5,000 $3,000(b) $2,000 8.00% $160
$52,000 $7,000 $4,000(c) $3,000 8.00% $240
$44,000 $8,000 $0(d) $8,000 8.00% $640
</TABLE>
(a) The free withdrawal amount during any contract year is the greater of
- the contract value minus unliquidated payments (accumulated
earnings), or
- 10% of payments minus 100% of all prior withdrawals in that
contract year.
For the first example, accumulated earnings of $15,000 ($65,000 -
$50,000 = $15,000) is the free withdrawal amount since it is greater
than 10% of payments less prior withdrawals ($5,000 - $0). The amount
requested ($2,000) is less than the free withdrawal amount. Therefore,
payments are not liquidated and no withdrawal charge applies.
(b) The contract has negative accumulated earnings ($49,000 - $50,000 less
than 0), so the free withdrawal amount is limited to 10% of payments
minus 100% of all prior withdrawals during the contract year. Because
$2,000 has already been withdrawn in the current contract year, the
remaining free withdrawal 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 will result in payments being liquidated. The remaining
unliquidated payments after the $5,000 partial withdrawal are $48,000
($50,000 - $2,000 = $48,000).
(c) The contract has increased in value to $52,000. The unliquidated
payments are $48,000 which results in $4,000 of accumulated earnings
($52,000 - $48,000 = $4,000) which is greater than 10% of payments
minus prior withdrawals this contract year ($5,000 - $2,000 - $5,000
less than 0). Hence the free withdrawal amount is $4,000, leaving
$3,000 of the $7,000 partial withdrawal subject to a withdrawal charge.
The unliquidated payments are reduced by $3,000 to $45,000.
(d) The free withdrawal amount is zero since the contract has negative
accumulated earnings ($44,000 - $45,0000 less than 0) 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 for withdrawal requests during that
contract year.
C-2
<PAGE> 178
APPENDIX D
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 adviser
should be consulted.
<TABLE>
<CAPTION>
TAX RATE
QUALIFIED NON-QUALIFIED
STATE CONTRACTS CONTRACTS
<S> <C> <C>
CALIFORNIA ............................................... .50% 2.35%
MAINE .................................................... .00% 2.00%
NEVADA ................................................... .00% 3.50%
PUERTO RICO .............................................. 1.00% 1.00%
SOUTH DAKOTA* ............................................ .00% 1.25%
WEST VIRGINIA ............................................ 1.00% 1.00%
WYOMING .................................................. .00% 1.00%
</TABLE>
* Premium tax paid upon receipt of premium (no tax at annuitization if
tax paid on premium.)
D-1
<PAGE> 179
APPENDIX E
PENNSYLVANIA MAXIMUM MATURITY AGE
For all contracts issued in Pennsylvania the maximum maturity age based upon the
issue age of the annuitant is as follows:
<TABLE>
<CAPTION>
ISSUE AGE MAXIMUM MATURITY AGE
<S> <C>
70 or less 85
71-75 86
76-80 88
81-85 90
86-90 93
91-93 96
94-95 98
96-97 99
98-99 101
100-101 102
102 103
103 104
104 105
105 106
</TABLE>
The annuitant must exercise a settlement annuity option no later than
the maximum maturity age stated above. For example, an annuitant who is age 60
at issue must exercise a settlement option prior to age 86. We will use the
issue age of the youngest annuitant in the determination of the required
settlement option date.
If contracts are issued with annuitants over age 80, a withdrawal
charge could be imposed if they terminate the contract rather than elect a
settlement option upon attainment of the maximum maturity age. This is a result
of the Pennsylvania restrictions in combination with the contract's 9-year
withdrawal charge schedule.
E-1
<PAGE> 180
APPENDIX F
EXAMPLES OF PAYMENT ENHANCEMENT CALCULATIONS
The payment enhancement is determined based on the cumulative amount of your
payments. The payment enhancements, as a percentage of payments, are shown in
the table below.
<TABLE>
<CAPTION>
Cumulative Payments Payment Enhancement*
<S> <C>
$10,000 to $499,999 3.0%
$500,000 to $2,499,999 4.0%
$2,500,000 and above 5.0%
</TABLE>
Payment enhancements are payable as a percentage of the payment being made. The
two examples below demonstrate how the payment enhancement is calculated:
EXAMPLE 1 - Assume an initial payment of $400,000 and a subsequent payment of
$200,000. Payment enhancements would be determined as follows**:
- - A payment enhancement of $12,000 (3% x $400,000) would be allocated among the
investment options in proportion to the allocation of the $400,000 initial
payment.
- - A payment enhancement of $8,000 (4% x $200,000) would be allocated among the
investment options in proportion to the allocation of the $200,000 subsequent
payment.
EXAMPLE 2 - Assume an initial payment of $200,000 and a subsequent payment of
$400,000. Payment enhancements would be determined as follows**:
- - A payment enhancement of $6,000 (3% x $200,000) would be allocated among the
investment options in proportion to the allocation of the $200,000 initial
payment.
- - A payment enhancement of $16,000 (4% x $400,000) would be allocated among the
investment options in proportion to the allocation of the $400,000 subsequent
payment.
*Promotional Payment Enhancement rates that are currently in effect for new
contracts are higher. See "Description of the Contract - Payment Enhancement."
**Unless we receive a Letter of Intent from you representing that additional
purchase payments will be received within 13 months of the issue date of the
contract. If we receive a Letter of Intent, the payment enhancement will be
determined using the percentage associated with the total amount of purchase
payments indicated in the Letter of Intent (see "payment enhancements").
F-1
<PAGE> 181
APPENDIX G
QUALIFIED PLAN TYPES
Set forth below are brief descriptions of the types of qualified plans
in connection with which we will issue contract. Certain potential tax
consequences associated with use of the contract in connection with qualified
plans are also described. Persons intending to use the contract in connection
with qualified plans should consult their tax advisor.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to
an individual retirement program known as an "Individual Retirement Annuity"
or "IRA." IRAs are subject to limits on the amounts that may be contributed
and deducted, 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).
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.
ROTH IRAS
Section 408A of the Code permits eligible individuals to contribute to
a type of IRA known as a "Roth IRA." Roth IRAs are generally subject to the
same rules as non-Roth IRAs, but differ in certain respects.
Among the differences are that contributions to a Roth IRA are not
deductible and "qualified distributions" from a Roth IRA are excluded from
income. A qualified distribution is a distribution that satisfies two
requirements. First, the distribution must be made in a taxable year that is
at least five years after the first taxable year for which a contribution to
any Roth IRA established for the owner was made. Second, the distribution must
be:
- made after the owner attains age 59-1/2;
- made after the owner's death;
- attributable to the owner being disabled; or
- a qualified first-time homebuyer distribution within the
meaning of Section 72(t)(2)(F) of the Code.
In addition, distributions from Roth IRAs need not commence when the
owner attains age 70-1/2. A Roth IRA may accept a "qualified rollover
contribution" from a non-Roth IRA, but a Roth IRA may not accept rollover
contributions from other qualified plans.
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). Furthermore, the state tax treatment of a Roth IRA may differ from the
Federal income tax treatment of a Roth IRA. If you intend to use the contract
in connection with a Roth IRA, you should seek competent tax advice.
G-1
<PAGE> 182
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 the IRS could characterize the death benefit
as an "incidental death benefit." If so, the contract owner could be deemed to
receive currently taxable income. In addition, 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. Corporate and self-employed pension and profit
sharing plans also are subject to nondiscrimination rules. The nondiscrimination
rules generally require that benefits, rights, or features of the plan not
discriminate in favor of highly compensated employees. In evaluating whether the
contract is suitable for purchase in connection with such a plan, the effect of
the Payment Enhancement on the plan's compliance with the applicable
nondiscrimination requirements should be considered. Violation of these
nondiscrimination rules can cause loss of the plan's tax favored status under
the Code. 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 a death benefit could be characterized as an
"incidental death benefit." If so, the contract owner could be deemed to receive
currently taxable income. 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:
- - contributions made pursuant to a salary reduction agreement in years
beginning after December 31, 1988,
- - earnings on those contributions, and
- - 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 we are 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.)
Tax-sheltered annuity plans are subject to nondiscrimination rules. The
nondiscrimination rules generally require that benefits, rights, or features of
the plan not discriminate in favor of highly compensated employees. In
evaluating whether the contract is suitable for purchase in connection with a
tax-sheltered annuity plan, the effect of the payment enhancement on the plan's
compliance with the applicable nondiscrimination requirements should be
considered. Violation of these nondiscrimination rules can cause loss of the
plan's tax favored status under the Code. Employers intending to use the
contract in connection with such plans should seek competent advice.
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. The contract will be issued in
connection with a section 457 deferred compensation plan sponsored by a state or
local government only if the plan has established a trust to hold plan assets,
including the contract.
G-2
<PAGE> 183
STATEMENT OF ADDITIONAL INFORMATION
MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA
SEPARATE ACCOUNT A
OF
THE MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA
FLEXIBLE PURCHASE PAYMENT INDIVIDUAL DEFERRED
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 mailing address of
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, 2000.
The Manufacturers Life Insurance Company of North America
500 Boylston Street, Suite 400
Boston, Massachusetts 02116-3739
(617) 663-3000
(800) 344-1029
2
<PAGE> 184
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information and History....................................... 3
Performance Data...................................................... 3
Services
Independent Auditors........................................... 9
Servicing Agent................................................ 10
Principal Underwriter.......................................... 10
Audited Financial Statements.......................................... 11
</TABLE>
<PAGE> 185
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 ("WE" or "US"). We are a
stock life insurance company organized under the laws of Delaware in 1979. Prior
to October 1, 1997 we were known as North American Security Life Insurance
Company. Our principal office is located at 500 Boylston Street, Suite 400,
Boston, Massachusetts 02116-3739. Our ultimate parent is Manulife Financial
Corporation ("MFC") based in Toronto, Canada. MFC is the holding company of The
Manufacturers Life Insurance Company and its subsidiaries, collectively known as
Manulife Financial.
Our financial statements which are included in this Statement of
Additional Information should be considered only as bearing on our ability to
meet our obligations under the contracts. They should not be considered as
bearing on the investment performance of the assets held in the Variable
Account.
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:
- redemption at the end of the time period, and
- not assuming redemption at the end of the time period.
Standardized figures include total return figures from:
- the inception date of the sub-account of the Variable Account
which invests in the portfolio, or
- ten years, whichever period is shorter.
Non-standardized figures include total return numbers from:
- inception date of the portfolio, or
- ten years, whichever period is shorter.
Such figures will always include the average annual total return for
recent one year and, when applicable, five and ten year periods, and where less
than ten years, the inception date of the sub-account, in the case of
standardized returns, and the inception date of the portfolio, in the case of
non-standardized returns. Where the period since inception is less than one
year, the total return quoted will be the aggregate return for the period. The
average annual total return is the average annual compounded rate of return that
equates a purchase payment to the market value of such purchase payment on the
last day of the period for which such return is calculated. The aggregate total
return is the percentage change (not annualized) that equates a purchase payment
to the market value of such purchase payment on the last day of the period for
which such return is calculated. For purposes of the calculations it is assumed
that an initial payment of $1,000 is made on the first day of the period for
which the return is calculated.
In calculating standardized return figures, all recurring charges (all
asset charges - mortality and expense risk fees and 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 does not reflect deduction of the annual contract fee. We believe
such non-standardized figures not reflecting redemptions at the end of
4
<PAGE> 186
the time period are useful to contract owners who wish to assess the performance
of an ongoing contract of the size that is meaningful to the individual contract
owner.
For total return figures quoted for periods prior to the commencement
of the offering of this contract, August 4, 1997, standardized performance data
will be the historical performance of the Trust or Merrill Variable Funds
portfolio from the date the applicable sub-account of the Variable Account first
became available for investment under other contracts offered by us, adjusted to
reflect current contract charges. In the case of non-standardized performance,
performance figures will be the historical performance of the Trust or Merrill
Variable Funds 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.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
CALCULATED AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS, INCEPTION
PORTFOLIO 1 YEAR 5 YEAR WHICHEVER IS SHORTER DATE (A)
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets 51.82% N/A -3.03% 01/01/97
Science & Technology 87.88% N/A 43.29% 01/01/97
International Small Cap 73.54% N/A 20.97% 03/04/96
Aggressive Growth 22.39% N/A 7.51% 01/01/97
Emerging Small Company 62.32% N/A 23.40% 01/01/97
Small Company Blend N/A N/A 18.70% 05/01/99
Mid Cap Stock N/A N/A -7.90% 05/01/99
All Cap Growth (C) 33.92% N/A 21.14% 03/04/96
Overseas 29.93% N/A 10.29% 01/09/95
International Stock 19.17% N/A 11.31% 01/01/97
International Value N/A N/A -5.15% 05/01/99
Mid Cap Blend 17.24% 20.89% 12.23% (B) 06/18/85
Small Company Value -1.90% N/A -5.53% 10/01/97
Global Equity -5.80% 8.66% 7.03% (B) 03/18/88
Growth 26.55% N/A 24.92% 07/15/96
Large Cap Growth 14.81% 17.28% 11.02% (B) 08/03/89
Quantitative Equity 11.87% N/A 22.69% 01/01/97
Blue Chip Growth 9.05% 22.94% 13.82% 12/11/92
Real Estate Securities -16.31% N/A -6.19% 01/01/97
Value -11.61% N/A 1.08% 01/01/97
Growth and Income 8.50% 23.48% 16.54% 04/23/91
U.S. Large Cap Value N/A N/A -6.17% 05/01/99
Equity-Income -6.04% 14.25% 12.03% 02/19/93
Income & Value -1.28% 11.42% 8.15% (B) 08/03/89
</TABLE>
5
<PAGE> 187
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS, INCEPTION
PORTFOLIO 1 YEAR 5 YEAR WHICHEVER IS SHORTER DATE (A)
<S> <C> <C> <C> <C>
Balanced -10.59% N/A 5.97% 01/01/97
High Yield -1.89% N/A 3.63% 01/01/97
Strategic Bond -7.10% 6.84% 5.04% 02/19/93
Global Bond -15.11% 4.89% 6.36% (B) 03/18/88
Total Return N/A N/A -9.57% 05/01/99
Investment Quality Bond -10.71% 4.84% 4.52% (B) 06/18/85
Diversified Bond -8.45% 6.81% 5.80% (B) 08/03/89
U.S. Government Securities -9.31% 4.12% 5.19% (B) 03/18/88
Money Market -4.96% 2.37% 3.23% (B) 06/18/85
Lifestyle Aggressive 1000 4.30% N/A 6.04% 01/07/97
Lifestyle Growth 820 6.23% N/A 8.18% 01/07/97
Lifestyle Balanced 640 2.15% N/A 6.71% 01/07/97
Lifestyle Moderate 460 -1.99% N/A 6.44% 01/07/97
Lifestyle Conservative 280 -5.31% N/A 4.75% 01/07/97
</TABLE>
(A) Inception date of the sub-account of the Variable Account which invests
in the portfolio.
(B) 10 year average annual return.
(C) Formerly, Mid Cap Growth Trust.
6
<PAGE> 188
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
(ASSUMING REDEMPTION AT THE END OF THE TIME PERIOD)
CALCULATED AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS, INCEPTION
PORTFOLIO 1 YEAR 5 YEAR WHICHEVER IS SHORTER DATE (A)
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets (A) 51.82% 1.83% 0.75% 10/04/94
Science & Technology 87.88% N/A 43.29% 01/01/97
International Small Cap 73.54% N/A 20.97% 03/04/96
Aggressive Growth 22.39% N/A 7.51% 01/01/97
Emerging Small Company 62.32% N/A 23.40% 01/01/97
Small Company Blend N/A N/A 18.70% 01/01/99
Mid Cap Stock N/A N/A -7.90% 01/01/99
All Cap Growth (C) 33.92% N/A 21.14% 03/04/96
Overseas 29.93% N/A 10.29% 01/09/95
International Stock 19.17% N/A 11.31% 01/01/97
International Value N/A N/A -5.15% 05/01/99
Mid Cap Blend 17.24% 20.89% 12.23% (B) 06/18/85
Small Company Value -1.90% N/A -5.53% 10/01/97
Global Equity -5.80% 8.66% 7.03% (B) 03/18/88
Growth 26.55% N/A 24.92% 07/15/96
Large Cap Growth 14.81% 17.28% 11.02% (B) 08/03/89
Quantitative Equity (A) 11.87% 22.56% 14.15% (B) 04/30/87
Blue Chip Growth 9.05% 22.94% 13.82% 12/11/92
Real Estate Securities (A) -16.31% 4.46% 8.91% (B) 04/30/87
Value -11.61% N/A 1.08% 01/01/97
Growth and Income 8.50% 23.48% 16.54% 04/23/91
U.S. Large Cap Value N/A N/A -6.17% 05/01/99
Equity-Income -6.04% 14.25% 12.03% 02/19/93
Income & Value -1.28% 11.42% 8.15% (B) 08/03/89
Balanced 10.59% N/A 5.97% 01/01/97
High Yield -1.89% N/A 3.63% 01/01/97
Strategic Bond -7.10% 6.84% 5.04% 02/19/93
Global Bond -15.11% 4.89% 6.36% (B) 03/18/88
Total Return N/A N/A -9.57% 05/01/99
Investment Quality Bond -10.71% 4.84% 4.52% (B) 06/18/85
</TABLE>
7
<PAGE> 189
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS, INCEPTION
PORTFOLIO 1 YEAR 5 YEAR WHICHEVER IS SHORTER DATE (A)
<S> <C> <C> <C> <C>
Diversified Bond -8.45% 6.81% 5.80% (B) 08/03/89
U.S. Government Securities -9.31% 4.12% 5.19% (B) 03/18/88
Money Market -4.96% 2.37% 3.23% (B) 06/18/85
Lifestyle Aggressive 1000 4.30% N/A 6.04% 01/07/97
Lifestyle Growth 820 6.23% N/A 8.18% 01/07/97
Lifestyle Balanced 640 2.15% N/A 6.71% 01/07/97
Lifestyle Moderate 460 -1.99% N/A 6.44% 01/07/97
Lifestyle Conservative 280 -5.31% N/A 4.75% 01/07/97
</TABLE>
A Performance for each of these sub-accounts is based upon 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
for each of these sub-accounts is based on the historical performance of the
respective predecessor Manulife Series Fund, Inc. portfolio for periods prior to
December 31, 1996.
B 10 year average annual return.
C Formerly, Mid Cap Growth Trust.
8
<PAGE> 190
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
(ASSUMING NO REDEMPTION AT THE END OF THE TIME PERIOD)
CALCULATED AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS, INCEPTION
PORTFOLIO 1 YEAR 5 YEAR WHICHEVER IS SHORTER DATE (A)
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets (A) 60.37% 2.98% 1.71% 10/04/94
Science & Technology 96.43% N/A 44.62% 01/01/97
International Small Cap 82.09% N/A 22.08% 03/04/96
Aggressive Growth 30.93% N/A 9.82% 01/01/97
Emerging Small Company 70.87% N/A 25.17% 01/01/97
Small Company Blend N/A N/A 27.25% 05/01/99
Mid Cap Stock N/A N/A -0.23% 05/01/99
All Cap Growth (C) 42.47% N/A 22.24% 03/04/96
Overseas 38.48% N/A 11.14% 01/09/95
International Stock 27.72% N/A 13.47% 01/01/97
International Value N/A N/A 2.78% 05/01/99
Mid Cap Blend 25.78% 21.48% 12.27% 06/18/85
Small Company Value 6.33% N/A -2.29% 10/01/97
Global Equity 2.07% 9.54% 7.07%B 03/18/88
Growth 35.09% N/A 26.11% 07/15/96
Large Cap Growth 23.36% 17.94% 11.06%B 08/03/89
Quantitative Equity (A) 20.42% 23.12% 14.18%B 04/30/87
Blue Chip Growth 17.59% 23.49% 14.05% 12/11/92
Real Estate Securities (A) -9.42% 5.49% 8.94%B 04/30/87
Value -4.29% N/A 3.67% 01/01/97
Growth and Income 17.05% 24.02% 16.65% 04/23/91
U.S. Large Cap Value N/A N/A 1.67% 05/01/99
Equity-Income 1.81% 14.98% 12.36% 02/19/93
Income & Value 7.01% 12.22% 8.18%B 08/03/89
Balanced -3.17% N/A 8.34% 01/01/97
High Yield 6.34% N/A 6.10% 01/01/97
Strategic Bond 0.65% 7.78% 5.51% 02/19/93
Global Bond -8.11% 5.90% 6.39%B 03/18/88
Total Return N/A N/A -2.05% 05/01/99
</TABLE>
9
<PAGE> 191
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS, INCEPTION
PORTFOLIO 1 YEAR 5 YEAR WHICHEVER IS SHORTER DATE (A)
<S> <C> <C> <C> <C>
Investment Quality Bond -3.30% 5.86% 4.56% (B) 06/18/85
Diversified Bond -0.83% 7.76% 5.84% (B) 08/03/89
U.S. Government Securities -1.76% 5.16% 5.22% (B) 03/18/88
Money Market 2.99% 3.49% 3.27% (B) 06/18/85
Lifestyle Aggressive 1000 12.85% N/A 8.42% 01/07/97
Lifestyle Growth 820 14.77% N/A 10.47% 01/07/97
Lifestyle Balanced 640 10.70% N/A 9.06% 01/07/97
Lifestyle Moderate 460 6.24% N/A 8.80% 01/07/97
Lifestyle Conservative 280 2.60% N/A 7.19% 01/07/97
</TABLE>
(A) Performance for each of these sub-accounts is based upon 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 for each of these sub-accounts is based on the
historical performance of the respective predecessor Manulife Series
Fund, Inc. portfolio for periods prior to December 31, 1996.
(B) 10 year average annual return.
(C) Formerly, Mid Cap Growth Trust.
* * * * *
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 or Merrill Variable Funds may include in their
advertising and sales literature general discussions of economic theories,
including but not limited to, discussions on how demographic and political
trends can affect the financial markets. Further, the Trust may also include in
its advertising and sales literature specific information on each of the Trust's
subadvisers, including but not limited to, research capabilities of a
subadviser, assets under management, information relating to other clients of a
subadviser, and other generalized information.
SERVICES
INDEPENDENT AUDITORS
The consolidated financial statements of the Company at December 31,
1999 and 1998 and for each of the three years in the period ended December 31,
1999 and for the Variable Separate Account at December 31, 1999 and for each of
the two years in the period then ended December 31, 1999 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 on such reports given upon the authority of
such firm as experts in accounting and auditing.
10
<PAGE> 192
SERVICING AGENT
Computer Sciences Corporation Financial Services Group ("CSC FSG")
provides to us 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 transaction
- 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.
We pay CSC FSG approximately $7.80 per policy per year, plus certain other fees
for the services provided.
PRINCIPAL UNDERWRITER
Manufacturers Securities Services, LLC ("MSS"), the successor to NASL
Financial Services, Inc., is a Delaware limited liability company controlled by
us. It serves as principal underwriter of the contracts. Contracts are offered
on a continuous basis. The aggregate dollar amounts of underwriting commissions
paid to MSS in 1999, 1998 and 1997 were $183,494,116, $122,828,714 and
$29,615,342 respectively. MSS did not retain any of these amounts during such
periods.
11
<PAGE> 193
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
Years ended December 31, 1999, 1998 and 1997
<PAGE> 194
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
Report of Independent Auditors.............................................1
Audited Consolidated Financial Statements
Consolidated Balance Sheets...........................................2
Consolidated Statements of Income.....................................3
Consolidated Statements of Changes in Shareholder's Equity............4
Consolidated Statements of Cash Flows.................................5
Notes to Consolidated Financial Statements.................................6
<PAGE> 195
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 (the Company) as of
December 31, 1999 and 1998, and the related consolidated statements of income,
changes in shareholder's equity, and cash flows for each of the three years in
the period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
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 consolidated 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, 1999 and
1998, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
Boston, Massachusetts
February 28, 2000 Ernst & Young LLP
1
<PAGE> 196
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at December 31
ASSETS ($ thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENTS:
Fixed-maturity securities available-for-sale, at fair value (note 3) $ 152,922 $ 157,743
(amortized cost: 1999 $156,382; 1998 $152,969)
Short-term investments 41,311 34,074
Policy loans 7,049 5,175
- --------------------------------------------------------------------------------------------------------------------
Total investments $ 201,282 $ 196,992
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 27,790 $ 10,320
Accrued investment income 2,630 3,132
Deferred acquisition costs (note 5) 655,294 449,332
Other assets 19,341 6,360
Due from reinsurers 797,746 641,858
Separate account assets 16,022,215 12,188,420
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 17,726,298 $ 13,496,414
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY ($ thousands)
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Policyholder liabilities and accruals $ 139,764 $ 102,252
Payable to affiliates 10,267 4,388
Notes payable to affiliates (note 10) 311,100 241,000
Deferred income taxes (note 6) 46,533 23,777
Other liabilities 50,577 26,655
Due to reinsurers 808,599 655,892
Separate account liabilities 16,022,215 12,188,420
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 17,389,055 $ 13,242,384
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY:
Common stock (note 8) $ 2,600 $ 2,600
Additional paid-in capital (note 8) 207,102 179,053
Retained earnings 130,145 70,293
Accumulated other comprehensive (loss) income (2,604) 2,084
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDER'S EQUITY $ 337,243 $ 254,030
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 17,726,298 $ 13,496,414
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
2
<PAGE> 197
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
- --------------------------------------------------------------- ----------------- ------------------- ----------------
<S> <C> <C> <C>
REVENUES:
Fees from separate accounts and policyholder funds $ 218,231 $ 166,498 $ 126,636
Advisory fees and other distribution revenues 122,662 94,821 67,678
Premiums 175 - -
Net investment income (note 3) 12,721 12,178 7,906
Net realized investment (losses) gains (note 3) (266) 719 531
- --------------------------------------------------------------- ----------------- ------------------- ----------------
TOTAL REVENUE $ 353,523 $ 274,216 $ 202,751
- --------------------------------------------------------------- ----------------- ------------------- ----------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 6,735 $ 4,885 $ 4,986
Amortization of deferred acquisition costs (note 5) 44,554 53,499 40,649
Other insurance expenses (note 11) 192,834 135,624 100,385
Financing costs 16,842 12,497 14,268
- --------------------------------------------------------------- ----------------- ------------------- ----------------
TOTAL BENEFITS AND EXPENSES $ 260,965 $ 206,505 $ 160,288
- --------------------------------------------------------------- ----------------- ------------------- ----------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES $ 92,558 $ 67,711 $ 42,463
- --------------------------------------------------------------- ----------------- ------------------- ----------------
- --------------------------------------------------------------- ----------------- ------------------- ----------------
INCOME TAX EXPENSE (NOTE 6) $ 32,706 $ 23,873 $ 15,044
- --------------------------------------------------------------- ----------------- ------------------- ----------------
- --------------------------------------------------------------- ----------------- ------------------- ----------------
NET INCOME FROM CONTINUING OPERATIONS $ 59,852 $ 43,838 $ 27,419
- --------------------------------------------------------------- ----------------- ------------------- ----------------
Discontinued operations (note 15):
Loss from operations, net of tax $ - $ - $ (141)
Gain on disposal, net of tax $ - $ 582 $ 5,955
- --------------------------------------------------------------- ----------------- ------------------- ----------------
NET INCOME $ 59,852 $ 44,420 $ 33,233
- --------------------------------------------------------------- ----------------- ------------------- ----------------
</TABLE>
See accompanying notes.
3
<PAGE> 198
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER TOTAL
COMMON ADDITIONAL EARNINGS COMPREHENSIVE SHAREHOLDER'S
($thousands) STOCK PAID-IN CAPITAL (DEFICIT) (LOSS) INCOME EQUITY
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $2,600 $131,322 $(7,360) $ 509 $ 127,071
Capital contribution (note 8) - 47,731 - - 47,731
Comprehensive income (note 4) - - 33,233 691 33,924
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $2,600 $179,053 $25,873 $ 1,200 $ 208,726
Comprehensive income (note 4) - - 44,420 884 45,304
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $2,600 $179,053 $70,293 $ 2,084 $ 254,030
Capital contribution (note 8) - 28,049 - - 28,049
Comprehensive income (loss) (note 4) - - 59,852 (4,688) 55,164
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $2,600 $207,102 $130,145 $ (2,604) $ 337,243
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
4
<PAGE> 199
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
- ---------------------------------------------------------------------------- -------------- ---------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 59,852 $ 44,420 $ 33,233
Adjustments to reconcile net income to net cash used in operating
activities:
Amortization of bond discount and premium 747 685 401
Benefits to policyholders 6,735 4,885 4,986
Provision for deferred income tax 24,269 6,872 15,767
Net realized investment losses (gains) 266 (719) (531)
Amortization of deferred acquisition costs 44,554 53,499 40,649
Amortization of deferred acquisition costs included in discontinued - - 1,707
operations
Policy acquisition costs deferred (248,483) (138,527) (123,965)
Gain on disposal of discontinued operations - - (9,394)
Changes in assets and liabilities:
Accrued investment income 502 (491) (835)
Other assets (12,981) 3,266 (1,396)
Receivable from affiliates - 4,605 (4,605)
Payable to affiliates 5,879 4,644 (1,462)
Other liabilities 23,922 (1,882) 6,642
- ---------------------------------------------------------------------------- -------------- ---------- -----------
Net cash used in operating activities $ (94,738) $(18,743) $(38,803)
- ---------------------------------------------------------------------------- -------------- ---------- -----------
INVESTING ACTIVITIES:
Fixed-maturity securities sold, matured or repaid $ 95,139 $ 37,694 $ 74,626
Fixed-maturity securities purchased (99,565) (50,056) (118,765)
Equity securities sold - - 1
Equity securities purchased - - (250)
Foreclosed real estate sold - - 2,268
Disposal of discontinued operations - - 16,338
Net change in short-term investments (7,237) (19,082) (10,697)
Policy loans advanced, net (1,874) (1,899) (2,639)
- ---------------------------------------------------------------------------- -------------- ---------- -----------
Cash used in investing activities $ (13,537) $(33,343) $ (39,118)
- ---------------------------------------------------------------------------- -------------- ---------- -----------
FINANCING ACTIVITIES:
Net reinsurance consideration $ (3,181) $ (7,014) $ (5,443)
Deposits to policyholder funds 50,351 15,551 20,607
Return of policyholder funds (19,574) (10,934) (15,462)
Increase in notes payable to affiliates 70,100 57,464 25,754
Capital contribution by Parent 28,049 - 47,731
- ---------------------------------------------------------------------------- -------------- ---------- -----------
Cash provided by financing activities $ 125,745 $ 55,067 $ 73,187
- ---------------------------------------------------------------------------- -------------- ---------- -----------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the year 17,470 2,981 (4,734)
Balance, beginning of year 10,320 7,339 12,073
- ---------------------------------------------------------------------------- -------------- ---------- -----------
BALANCE, END OF YEAR $ 27,790 $ 10,320 $ 7,339
- ---------------------------------------------------------------------------- -------------- ---------- -----------
</TABLE>
See accompanying notes.
5
<PAGE> 200
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(IN THOUSANDS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company of North America (hereinafter
referred to as "MNA"), is a wholly-owned subsidiary of Manulife-Wood
Logan Holding Co., Inc. (hereinafter referred to as "MWLH"). MWLH is an
indirect wholly-owned subsidiary of The Manufacturers Life Insurance
Company ("MLI"); prior to June 1, 1999, MLI indirectly owned 85% of
MWLH, and minority shareholders associated with MWLH owned the
remaining 15%. MLI is a wholly-owned subsidiary of Manulife Financial
Corporation, a publicly traded company. Manulife Financial Corporation
and its subsidiaries are known collectively as "Manulife Financial."
MNA owns 100% of The Manufacturers Life Insurance Company of New York
(hereinafter referred to as "MNY") and is the managing member with a
90% interest in Manufacturers Securities Services, LLC ("MSS"). MNY
owns a 10% interest in MSS. MNA, MNY and MSS are hereinafter referred
to collectively as "the Company."
MNA issues individual and group annuity contracts in forty-eight
states, excluding New York and New Hampshire. Prior to July 1, 1998,
MNA also issued individual variable life insurance contracts. MNY
issues individual and group annuity contracts and individual life
insurance contracts in New York. Amounts invested in the fixed portion
of the contracts are allocated to the general accounts of the Company
or noninsulated separate accounts of the Company. Amounts invested in
the variable portion of the contracts are allocated to the separate
accounts of the Company. Each of these separate accounts invests in
shares of the various portfolios of the Manufacturers Investment Trust
(hereinafter referred to as "MIT"), a no-load, open-end investment
management company organized as a Massachusetts business trust, or in
open-end investment management companies offered and managed by
unaffiliated third parties.
Prior to October 1, 1997, NASL Financial Services Inc. ("NASL
Financial"), a subsidiary of MNA, acted as investment adviser to MIT
and as principal underwriter of the variable contracts issued by the
Company. Effective October 1, 1997, MSS, the successor to NASL
Financial, replaced NASL Financial as the investment adviser to MIT and
as the principal underwriter of all variable contracts issued by MNA.
MSS also acts as the principal underwriter for the variable contracts
and is the exclusive distributor for all contracts issued by MNY.
On October 31, 1998, MNA transferred a 10% interest in the members'
equity of MSS to MNY as a contribution of capital valued at $175.
6
<PAGE> 201
2. SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have
been prepared in conformity with generally accepted accounting
principles ("GAAP") in the United States and include the accounts and
operations, after intercompany eliminations, of the Company and its
majority and wholly-owned subsidiaries, MSS and MNY.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those
estimates.
B) RECENT ACCOUNTING STANDARDS
i) In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging
activities. Contracts that contain embedded derivatives, such as
certain insurance contracts, are also addressed by the Statement. SFAS
No. 133 requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and
measure those instruments at fair value. In July 1999, the FASB issued
Statement 137, which delayed the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. The Company is evaluating
the accounting implications of SFAS No. 133 and has not determined its
potential impact on the Company's results of operations or its
financial condition.
ii) In December 1997, the American Institute of Certified Public
Accountant's Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments." SOP 97-3 provides
guidance on the recognition and measurement of liabilities for various
assessments related to insurance activities, including those by state
guaranty funds. The Company adopted SOP 97-3 during 1999. Prior to the
adoption of SOP 97-3, the Company expensed and recognized liabilities
for such assessments on a "pay-as-you-go" basis. The effect of adopting
SOP 97-3 did not have a material impact on the results of operations
and financial condition of the Company for the year ended December 31,
1999.
iii) In March 1998, AcSEC issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires the capitalization of certain costs incurred in connection
with developing or obtaining internal-use software. The Company adopted
SOP 98-1 during 1999. Prior to the adoption of SOP 98-1, the Company
expensed internal-use software-related costs as incurred. The effect of
adopting the SOP 98-1 was to increase net income by $1,039 for the year
ended December 31, 1999.
7
<PAGE> 202
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C) INVESTMENTS
The Company classifies all of its fixed-maturity securities as
available-for-sale and records these securities at fair value. Realized
gains and losses on sales of securities classified as
available-for-sale are recognized in net income using the
specific-identification method. Changes in the fair value of securities
available-for-sale are reflected directly in accumulated other
comprehensive income after adjustments for deferred taxes and deferred
acquisition costs. Discounts and premiums on investments are amortized
using the effective-interest method.
The cost of fixed-maturity securities is adjusted for the amortization
of premiums and accretion of discounts using the interest method. This
amortization or accretion is included in net investment income.
For the mortgage-backed bond portion of the fixed-maturity securities
portfolio, the Company recognizes amortization using a constant
effective yield based on anticipated prepayments and the estimated
economic life of the securities. When actual prepayments differ
significantly from anticipated prepayments, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the security is adjusted to the amount
that would have existed had the new effective yield been applied since
the acquisition of the security. That adjustment is included in net
investment income.
Policy loans are reported at aggregate unpaid balances, which
approximate fair value.
Short-term investments, which include investments with maturities of
less than one year and greater than 90 days at the date of acquisition,
are reported at amortized cost, which approximates fair value.
D) CASH EQUIVALENTS
The Company considers all liquid debt instruments purchased with a
maturity date of three months or less at acquisition to be cash
equivalents. Cash equivalents are stated at cost plus accrued interest,
which approximates fair value.
8
<PAGE> 203
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E) DEFERRED ACQUISITION COSTS (DAC)
Commissions, net of commission allowances for reinsurance ceded, and
other expenses which vary with, and are primarily related to the
production of new business are deferred to the extent recoverable and
included as an asset. Acquisition costs associated with annuity
contracts and investment pension contracts are being amortized
generally in proportion to the present value of expected gross profits
from surrender charges and investment, mortality and expense margins.
The amortization is adjusted retrospectively when estimates of current
or future gross profits are revised. DAC associated with traditional
nonparticipating individual insurance policies is charged to expense
over the premium-paying period of the related policies. DAC is adjusted
for the impact on estimated future gross profits, assuming the
unrealized gains or losses on securities had been realized at year end.
The impact of any such adjustments is included in net unrealized gains
(losses) in accumulated other comprehensive income. DAC is reviewed
annually to determine recoverability from future income and, if not
recoverable, it is immediately expensed.
F) POLICYHOLDER LIABILITIES
Policyholder liabilities equal the policyholder account value for the
fixed portions of annuity, variable life and investment pension
contracts with no substantial mortality or morbidity risk. Account
values are increased for deposits received and interest credited, and
are reduced by withdrawals. For traditional nonparticipating life
insurance policies, policyholder liabilities are computed using the net
level premium method and are based upon estimates as to future
mortality, persistency, maintenance expenses and interest rate yields
that are applicable in the year of issue. The assumptions include a
provision for adverse deviation.
G) SEPARATE ACCOUNTS
Separate account assets and liabilities that are reported in the
accompanying balance sheets represent investments in MIT, which are
mutual funds that are separately administered for the exclusive benefit
of the policyholders of the Company and its affiliates, or open-end
investment management companies offered and managed by unaffiliated
third parties, which are mutual funds that are separately administered
for the benefit of the Company's policyholders and other contract
owners. These assets and liabilities are reported at fair value. The
policyholders, rather than the Company, bear the investment risk. The
operations of the separate accounts are not included in the
accompanying financial statements. Fees charged on separate account
policyholder funds are included in revenues.
9
<PAGE> 204
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H) REVENUE RECOGNITION
Fee income from separate accounts, annuity contracts and investment
pension contracts consists of charges for mortality, expenses, and
surrender and administration charges that have been assessed against
the policyholder account balances. Premiums on traditional
nonparticipating life insurance policies are recognized as revenue when
due. Investment income is recorded as revenue when due.
MSS and formerly NASL Financial (collectively the Adviser) are
responsible for managing the corporate and business affairs of MIT and
act as investment adviser to MIT. As compensation for its investment
advisory services, the Adviser receives advisory fees based on the
daily average net assets of the portfolios. The Adviser, as part of its
advisory services, is responsible for selecting and compensating
subadvisers 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 subadviser compensation
from the North American Funds ("NAF") through October 1, 1997, the date
the Company sold NAF. Subadviser compensation for MIT is included in
other insurance expenses.
I) POLICYHOLDER BENEFITS AND CLAIMS
Benefits for annuity contracts and investment pension contracts include
interest credited to policyholder account balances and benefit claims
incurred during the period in excess of policyholder account balances.
J) FINANCING AGREEMENTS
MNA has entered into various financing agreements with reinsurers and
an affiliated company. All assets and liabilities related to these
contracts are reported on a gross basis. Due to the nature of MNA's
products, these agreements are accounted for under the deposit method
whereby the net premiums paid to the reinsurers are recorded as
deposits.
K) 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." Under this method, deferred tax assets
and liabilities are determined based on differences between the
financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that likely will be in
effect when the differences are expected to reverse. The measurement of
deferred tax assets is reduced by a valuation allowance if, based upon
the available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized.
10
<PAGE> 205
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
L) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
3. INVESTMENTS AND INVESTMENT INCOME
A) FIXED-MATURITY SECURITIES
At December 31, 1999, the amortized cost and fair value of
fixed-maturity securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST UNREALIZED UNREALIZED LOSSES FAIR VALUE
AS AT DECEMBER 31, GAINS
($ thousands) 1999 1998 1999 1998 1999 1998 1999 1998
------------------------------ ---------- ---------- -------- ------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government $ 28,634 $ 18,266 $ 94 $1,144 $ (740) $ (28) $ 27,988 $ 19,382
Corporate 92,532 100,705 122 3,376 (2,486) (35) 90,168 104,046
Mortgage-backed 28,234 16,812 27 131 (406) (68) 27,855 16,875
Foreign governments 5,924 16,129 23 151 - (8) 5,947 16,272
States/political subdivisions 1,058 1,057 - 111 94) - 964 1,168
------------------------------ ---------- ---------- -------- ------- --------- -------- --------- ---------
TOTAL FIXED-MATURITY $ 156,382 $152,969 $ 266 $4,913 $(3,726) $(139) $152,922 $157,743
SECURITIES
------------------------------ ---------- ---------- -------- ------- --------- ------- --------- ---------
</TABLE>
Proceeds from sales of fixed-maturity securities during 1999 were
$81,874 (1998, $23,780; 1997, $53,325).
The contractual maturities of fixed-maturity securities at December 31,
1999 are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. Corporate
requirements and investment strategies may result in the sale of
investments before maturity.
<TABLE>
<CAPTION>
($ thousands) AMORTIZED COST FAIR VALUE
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
FIXED-MATURITY SECURITIES
One year or less $ 42,477 $ 42,567
Greater than 1; up to 5 years 49,172 48,582
Greater than 5; up to 10 years 18,299 17,505
Due after 10 years 18,200 16,413
Mortgage-backed securities 28,234 27,855
-----------------------------------------------------------------------------------------------------------
TOTAL FIXED-MATURITY SECURITIES $156,382 $152,922
-----------------------------------------------------------------------------------------------------------
</TABLE>
Fixed-maturity securities with a fair value of $6,108 and $6,105 at
December 31, 1999 and 1998, respectively, were on deposit with, or in
custody accounts on behalf of, state insurance departments to satisfy
regulatory requirements.
11
<PAGE> 206
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
B) INVESTMENT INCOME AND NET REALIZED INVESTMENT GAINS
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed-maturity securities $9,945 $ 9,904 $7,250
Short-term investments 2,960 2,503 1,126
Other invested assets - 19 -
-----------------------------------------------------------------------------------------------------------
Gross investment income 12,905 12,426 8,376
-----------------------------------------------------------------------------------------------------------
Investment expenses (184) (248) (470)
-----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $12,721 $ 12,178 $7,906
-----------------------------------------------------------------------------------------------------------
</TABLE>
The gross realized gains and losses on the sales of investments were as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed-maturity securities:
Gross realized gains $311 $724 $788
Gross realized losses (577) (5) (7)
Equity securities
Gross realized losses - - (250)
-----------------------------------------------------------------------------------------------------------
NET REALIZED (LOSS) GAIN ($266) $719 $531
-----------------------------------------------------------------------------------------------------------
</TABLE>
4. COMPREHENSIVE INCOME
Total comprehensive income was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
---------------------------------------------------------------- -------------- ------------ -------------
<S> <C> <C> <C>
NET INCOME $ 59,852 $ 44,420 $ 33,233
---------------------------------------------------------------- -------------- ------------ -------------
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:
Unrealized holding (losses) gains arising during the period (4,861) 1,351 1,036
Less:
Reclassification adjustment for realized (losses) gains
included In net income (173) 467 345
---------------------------------------------------------------- -------------- ------------ -------------
Other comprehensive (loss) income (4,688) 884 691
---------------------------------------------------------------- -------------- ------------ -------------
COMPREHENSIVE INCOME $ 55,164 $ 45,304 $ 33,924
---------------------------------------------------------------- -------------- ------------ -------------
</TABLE>
Other comprehensive (loss) income is reported net of income taxes
(benefit) of $(1,513), $476, and $372 for 1999, 1998, and 1997,
respectively.
12
<PAGE> 207
5. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
----------------------------------------------- -------------------- ------------------- ------------------
<S> <C> <C> <C>
Balance at January 1 $ 449,332 $ 364,983 $ 290,610
Capitalization 248,483 138,527 123,965
Amortization (44,554) (53,499) (40,649)
Amortization included in discontinued - - (1,707)
operations
Amortization included in gain on disposal of - - (6,943)
discontinued operations
Effect of net unrealized losses (gains) on 2,033 (679) (293)
securities available-for-sale
----------------------------------------------- -------------------- ------------------- ------------------
BALANCE AT DECEMBER 31 $ 655,294 $ 449,332 $ 364,983
----------------------------------------------- -------------------- ------------------- ------------------
</TABLE>
6. INCOME TAXES
The components of income tax expense from continuing operations were as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
----------------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Current expense (benefit) $ 8,437 $ 17,001 $ (723)
Deferred expense 24,269 6,872 15,767
----------------------------------------------------- ----------------- ----------------- -----------------
TOTAL EXPENSE $ 32,706 $ 23,873 $15,044
----------------------------------------------------- ----------------- ----------------- -----------------
</TABLE>
Significant components of the Company's net deferred tax liability are
as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
AS AT DECEMBER 31
($ thousands) 1999 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Financing arrangements $ 136 $ 1,289
Unrealized losses on securities available for sale 1,048 -
-----------------------------------------------------------------------------------------------------------
Gross deferred tax assets 1,184 1,289
Valuation allowance (657) -
-----------------------------------------------------------------------------------------------------------
Net deferred tax assets 527 1,289
-----------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Deferred policy acquisition costs (43,559) (22,017)
Unrealized gains on securities available-for-sale - (1,122)
Other (3,501) (1,927)
-----------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (47,060) (25,066)
-----------------------------------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITY $ (46,533) $ (23,777)
-----------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1999, the Company had $3,460 of unrealized capital
losses in its available-for-sale portfolio. Under federal tax law,
utilization of these capital losses, when realized, is limited to use
as an offset against capital gains. The Company believes that it is
more likely than not that it will be unable to realize the benefit of
the full deferred tax asset related to the net unrealized capital
losses. The Company has therefore, established a valuation allowance
for the amount in excess of the available capital gains. The Company
believes that it will realize the full benefit of its remaining
deferred tax assets.
13
<PAGE> 208
6. INCOME TAXES (CONTINUED)
The Company is a member of the MWLH-affiliated group, filing a
consolidated federal income tax return. MNA and MNY file separate state
income tax returns. The method of allocation between the companies is
subject to a written tax-sharing agreement under which the tax
liability is allocated to each member of the group on a pro rata basis
based on the relationship that the member's tax liability (computed on
a separate-return basis) bears to the tax liability of the consolidated
group. The tax charge to MNA or MNY will not be more than either
company would have paid on a separate-return basis. Settlements of
taxes are made through an increase or reduction to the payable to
parent, subsidiaries and affiliates, which are settled periodically.
The Company made estimated tax payments of $11,077, $12,516 and $531 in
1999, 1998 and 1997, respectively.
7. FINANCING AND REINSURANCE AGREEMENTS
The financing agreements entered into with reinsurance companies relate
primarily to the products sold by MNA. Most of MNA'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.
The Company has entered into two indemnity coinsurance agreements to
reinsure 100% of all contractual liabilities arising from the fixed
portion of both in-force and new variable annuity business written by
the Company. Under these agreements, each reinsurer, one unaffiliated
and one affiliated, receives the fixed portion of all premiums and
transfers received by the Company. Each reinsurer reimburses the
Company for all claims and provides expense allowances to cover
commissions and other costs associated with the reinsured business.
The Company has modified coinsurance agreements with two unaffiliated
life insurance companies. The treaties cover the quota share of all
elements of risk under the variable portion of certain variable annuity
policy forms. Another treaty, recaptured in 1999, with an unaffiliated
life insurance company covered the variable portion of certain annuity
contracts written prior to December 31, 1996.
The Company has treaties with three reinsurers, two unaffiliated and
one affiliated, to reinsure its Minimum Death Benefit Guarantee risk.
In addition, the Company reinsures a portion of its risk related to
waiving surrender charges at death. 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.
14
<PAGE> 209
7. FINANCING AND REINSURANCE AGREEMENTS (CONTINUED)
The Company has a treaty with an unaffiliated reinsurer to reinsure a
quota share of the variable portion of the Company's variable life
insurance contracts. In addition, the reinsurer assumes the product's
net amount at risk in excess of the Company's retention limit on a
yearly renewable term basis.
During 1998, MNY entered into reinsurance agreements with various
reinsurers to reinsure face amounts in excess of $100 for its
traditional nonparticipating insurance product. To date, there have
been no reinsurance recoveries under these agreements.
In the event of insolvency of a reinsurer, the Company remains
primarily liable to its policyholders. Failure of reinsurers to honor
their obligations could result in losses to the Company and,
accordingly, the Company periodically monitors the financial condition
of its reinsurers.
The Company has not entered into any reinsurance agreements in which
the reinsurer may unilaterally cancel any reinsurance for reasons other
than nonpayment of premiums or other similar credits or a significant
change in the ownership of the Company. The Company does not have any
reinsurance agreements in effect under which the amount of losses paid
or accrued through December 31, 1999 would result in a payment to the
reinsurer of amounts which, in the aggregate and allowing for offset of
mutual credits from other reinsurance agreements with the same
reinsurer, exceed the total direct premiums collected under the
reinsured policies.
8. SHAREHOLDER'S EQUITY
The Company has one class of capital stock:
<TABLE>
<CAPTION>
AS AT DECEMBER 31:
($ thousands) 1999 1998
---------------------------------------------------------------- -------------------------- ----------------
<S> <C> <C>
AUTHORIZED:
3,000 Common shares, par value $1,000
ISSUED AND OUTSTANDING:
2,600 Common shares $ 2,600 $2,600
---------------------------------------------------------------- -------------------------- ----------------
</TABLE>
15
<PAGE> 210
8. SHAREHOLDER'S EQUITY (CONTINUED)
In December 1999, the Company received a capital contribution of
$28,049 from MWLH.
In October 1997, the Company received a capital contribution of $47,731
from MWLH to support expansion of its New York operations.
The net assets of MNA and MNY available to MWLH as dividends are
generally limited to, and cannot be made except from, earned statutory
basis profits. The maximum amount of dividends that may be paid by life
insurance companies without prior approval of the Insurance
Commissioners of the States of Delaware and New York is subject to
restrictions relating to statutory surplus and net gain from operations
on a statutory basis.
Net (loss) income and capital and surplus, as determined in accordance
with statutory accounting principles for MNA and MNY were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MNA:
Net (loss) income $ (2,524) $ 28,067 $ 22,259
Net capital and surplus 171,094 157,940 139,171
MNY:
Net income (loss) 932 (5,678) (1,562)
Net capital and surplus 63,470 62,881 68,336
-----------------------------------------------------------------------------------------------------------
</TABLE>
State regulatory authorities prescribe statutory accounting practices
that differ in certain respects from accounting principles generally
accepted in the United States followed by stock life insurance
companies. The significant differences relate to investments, deferred
acquisition costs, deferred income taxes, nonadmitted asset balances
and reserve calculation assumptions.
MNA's broker dealer subsidiary, MSS, is subject to the Securities and
Exchange Commission's (SEC) "Net Capital Rule" as defined under rule
15c3-1. At December 31, 1999 and 1998, the net capital of the broker
dealer exceeded the SEC's minimum capital requirements.
9. RELATED-PARTY TRANSACTIONS
The Company utilized various services provided by MLI in 1999, 1998 and
1997, such as legal, personnel, investment accounting and other
corporate services. The charges for these services were approximately
$11,751, $12,752 and $8,229 in 1999, 1998 and 1997, respectively. At
December 31, 1999 and 1998, the Company had a net liability to MLI for
these services and interest accrued on notes payable of $8,341 and
$180, respectively. At December 31, 1999 and 1998, the payable is
offset by a receivable from MIT and MLI for expenses paid on their
behalf of $434 and $792, respectively. In addition, the Company has an
intercompany payable to MWLH relating to federal income taxes of $2,360
and $5,000 reflected in the intercompany payable at December 31, 1999
and 1998, respectively.
16
<PAGE> 211
9. RELATED-PARTY TRANSACTIONS (CONTINUED)
The financial statements have been prepared from the records maintained
by the Company and may not necessarily be indicative of the financial
conditions or results of operations that would have occurred if the
Company had been operated as an unaffiliated corporation (see also
Notes 1, 6, 7, 8, 10, 12, 13 and 14 for additional related-party
transactions).
10. NOTES PAYABLE TO AFFILIATES AND LINES OF CREDIT
MNA has promissory notes from The Manufacturers Life Insurance Company
(U.S.A.) ("ManUSA") for $291,100 including an additional borrowing of
$70,100 during 1999. Interest on the loan is calculated at a
fluctuating rate equal to LIBOR plus 32.5 basis points and is payable
in quarterly installments. Principal and accrued interest are payable
within 45 days of demand. Accrued interest payable at December 31, 1999
and 1998 is $834 and $419, respectively.
MNA has a surplus note of $20,000 with interest at 8% due to ManUSA.
The note and accrued interest are subordinated to payments due to
policyholders and other claimants. Principal and interest payments and
interest accruals can be made only upon prior approval of the Insurance
Department of the State of Delaware.
MNA and MNY have unsecured lines of credit with State Street Bank and
Trust Company totaling $15,000, bearing interest at the bank's money
market rate plus 50 basis points. There were no outstanding advances
under the lines of credit at December 31, 1999 and 1998.
Interest expense and interest paid in 1999 were $15,546 and $15,250,
respectively (1998 $13,506 and $16,861; 1997 $10,887 and $9,354).
11. OTHER INSURANCE EXPENSES
Other insurance expenses were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Selling and administrative expenses $69,757 $49,732 $42,581
Subadvisory fees 53,118 38,701 26,364
General operating expenses 69,959 47,191 31,440
-----------------------------------------------------------------------------------------------------------
TOTAL
$192,834 $135,624 $100,385
-----------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 212
12. EMPLOYEE BENEFITS
A) EMPLOYEE RETIREMENT PLAN
Prior to July 1, 1998, MNA and MNY, participated in a noncontributory
defined benefit pension plan (the Nalaco Plan) sponsored by MLI,
covering its employees. A similar plan (the Manulife Plan) also existed
for ManUSA. Both plans provided pension benefits based on length of
service and final average earnings. Vested benefits were fully funded;
current pension costs were funded as they accrue.
Effective July 1, 1998, the Nalaco Plan was merged into the Manulife
Plan as approved by the Board of Directors of MLI. The merged plan was
then restated as a cash balance pension plan entitled "The Manulife
Financial U.S. Cash Balance Pension Plan" (Cash Balance Plan).
Participants in the two prior plans ceased accruing benefits under the
old plan effective June 30, 1998, and became participants in the Cash
Balance Plan on July 1, 1998. Also effective July 1, ManUSA became the
sponsor of the Cash Balance Plan. Each participant who was a
participant in one of the prior plans received an opening account
balance equal to the present value of their June 30, 1998 accrued
benefit under the prior plan, using Pension Benefit Guaranty
Corporation rates (PBCG). Future contribution credits under the Cash
Balance Plan vary by service, and interest credits are a function of
the interest rate levels. Pension benefits are provided to those
participants after three years of vesting service, and the normal
retirement benefit is actuarially equivalent to the cash balance
account at normal retirement date. The normal form of payment under the
Cash Balance Plan is a life annuity, with various optional forms
available.
Actuarial valuation of accumulated plan benefits are based on projected
salaries and best estimates of investment yields on plan assets,
mortality of participants, employee termination and ages at retirement.
Pension costs relating to current service and amortization of
experience gains and losses are amortized to income over the estimated
average remaining service lives of the participants. No pension expense
was recognized by the sponsor in 1999, 1998 or 1997 because the plan
was subject to the full funding limitation under the Internal Revenue
Code.
At December 31, 1999, the projected benefit obligation based on an
assumed interest rate of 7.5% was $68,410. The fair value of plan
assets invested in ManUSA's general fund deposit administration
insurance contracts was $86,777.
Prior to July 1, 1998, MNA also participated in an unfunded
Supplemental Executive Retirement Plan (Manulife SERP) sponsored by MLI
for executives. This was a non-qualified plan that provides defined
pension benefits in excess of limits imposed by the law to those
retiring after age 50 with 10 or more years of vesting service, and the
pension benefit is a final average benefit based on the executive's
highest 5-year average earnings. Compensation was not limited by, and
benefits were not restricted by the Internal Revenue Code Section 415.
18
<PAGE> 213
12. EMPLOYEE BENEFITS (CONTINUED)
A) EMPLOYEE RETIREMENT PLAN (CONTINUED)
Effective July 1, 1998, the Manulife SERP was restated to become a
supplemental cash balance plan, and each participant in the SERP who
became a participant in the restated plan was provided with an opening
account balance equal to the present value of their June 30, 1998
accrued benefit under the SERP, using PBGC rates. Future contribution
credits vary by service, and interest credits are a function of
interest rate levels. These annual contribution credits are made in
respect of the participant's compensation that is in excess of the
limit in Internal Revenue Code Section 401(a)(17). In addition, a one
time contribution may be made for a participant if it is determined at
the time of their termination of employment that the participant's
pension benefit under the Cash Balance Plan is limited by Internal
Revenue Code Section 415. Together, these contributions serve to
restore to the participant the benefit that they would have been
entitled to under the Cash Balance Plan's benefit formula but for the
limitation in Internal Revenue Code Sections 401(a)(17) and 415.
Benefits are provided to participants after three years. The default
form of payment under the plan is a lump sum although participants may
elect to receive payment in the form of an annuity provided that such
election is made within the time period prescribed in the plan. If an
annuity form of payment is elected, the amount payable is equal the
actuarial equivalent of the participant's balance under the
supplemental Cash Balance Plan, using the factors and assumptions for
determining immediate annuity amounts applicable to the participant
under the qualified Cash Balance Plan.
B) 401(K) PLAN
Prior to July 1, 1998, the Company also sponsored a defined
contribution plan, the North American Security Life 401(k) Savings
Plan, which was subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA). A similar plan, the Manulife
Financial 401K Savings Plan, also existed for employees of ManUSA.
These two plans were merged on July 1, 1998 into one defined
contribution plan sponsored by ManUSA, as approved by the Board of
Directors on March 26, 1998. The Company contributed $300, $285 and
$353 in 1999, 1998 and 1997, respectively.
C) OTHER POSTRETIREMENT BENEFIT PLAN
In addition to the retirement plan, the Company participates in the
other postretirement benefit plan of ManUSA which provides retiree
medical and life insurance benefits to those who have attained age 55
with ten or more years of service. The plan provides the medical
coverage for retirees and spouses under age 65. When the retirees or
the covered dependents reach age 65, Medicare provides primary coverage
and the plan provides secondary coverage. There is no contribution for
post-age 65, coverage and no contributions are required for retirees
for life insurance coverage. The plan is unfunded.
The other postretirement benefit cost of the Company, which includes
the expected cost of postretirement benefits for newly eligible
employees and for vested employees, interest cost, and gains and losses
arising from differences between actuarial assumptions and actual
experience is accounted for by the plan sponsor, ManUSA.
19
<PAGE> 214
13. LEASES
In January 1999, ManUSA entered into a new sublease agreement on behalf
of the Company. In September 1999, the Company surrendered its old
office space and was released from its lease commitment. The Company
moved into the new office space in September 1999 with payments to the
landlord commencing January 1, 2000. The free rent from September to
December 1999 is being amortized over the term of the lease. For the
years ended December 31, 1999, 1998 and 1997, the Company incurred rent
expenses of $3,105, $1,617 and, $1,316, respectively. The Company also
leases various office equipment under operating lease agreements.
The minimum lease payments associated with the office space and various
office equipment under operating lease agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDED: MINIMUM LEASE PAYMENTS
------------------------------------------------------
<S> <C>
2000 4,028
2001 4,012
2002 4,008
2003 3,994
2004 and after 19,234
------------------------------------------------------
Total $35,276
------------------------------------------------------
</TABLE>
14. 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 MNA. The guarantee covers the
outstanding fixed portion of variable annuity contracts, including
those issued prior to the date of the guarantee agreement.
15. DISCONTINUED OPERATIONS
On May 6, 1997, MNA signed a letter of intent to sell its 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, required 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. In 1998, related to the
sale, the Company received a contingent payment of $1,000, before
income taxes, less an adjustment of $105 to the final settlement of the
purchase price. For 1998 and 1997, the Company realized a gain of $895
and $9,161, before applicable taxes of $313 and $3,206, respectively.
Included in the gain for 1997 is a provision of $10, before applicable
taxes of $3, for the loss from continuing operations during the
phase-out period. Expenses of $223 in 1997 were incurred on the sale
and netted against the realized gain.
20
<PAGE> 215
15. DISCONTINUED OPERATIONS (CONTINUED)
The operating results related to discontinued operations are summarized
as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
($ thousands) 1997
------------------------------------------ -------------------
<S> <C>
Advisory fees, commissions
and distribution revenues $ 4,605
------------------------------------------ -------------------
Loss from operations before income tax $ (217)
benefit
Income tax benefit 76
------------------------------------------ -------------------
Loss from operations, net of tax $ (141)
------------------------------------------ -------------------
</TABLE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------- ----------------------------- -------------------------------
($ thousands) CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
---------------------------------------- ---------------- ------------ ----------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Fixed-maturity securities 152,922 152,922 157,743 157,743
Short-term investments 41,311 41,311 34,074 34,074
Policy loans 7,049 7,049 5,175 5,175
Cash and cash equivalents 27,790 27,790 10,320 10,320
Due from reinsurers 797,746 797,746 641,858 641,858
Separate account assets 16,022,215 16,022,215 12,188,420 12,188,420
LIABILITIES:
Policyholder liabilities and 139,764 137,717 102,252 98,312
accruals
Due to reinsurers 808,599 808,599 655,892 655,892
Notes payable to affiliates 311,100 311,100 241,000 241,000
Separate account liabilities 16,022,215 16,022,215 12,188,420 12,188,420
---------------------------------------- ----------- ----------- ----------- ------------
</TABLE>
The following methods and assumptions were used by the Company in
estimating the fair value disclosures for financial instruments:
Fixed-Maturity Securities: Fair values for fixed-maturity securities
are obtained from an independent pricing service.
Short-Term Investments and Cash and Cash Equivalents: Carrying values
approximate fair values.
Policy Loans: Carrying values approximate fair values.
21
<PAGE> 216
16. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Due from Reinsurers: Fair value is equal to deposits made under the
contract and approximates the carrying value.
Separate Account Assets and Liabilities: The carrying amounts in the
balance sheet for separate account assets and liabilities approximate
their fair value.
Policyholder Liabilities and Accruals: Fair values of the Company's
liabilities under contracts not involving significant mortality risk
(deferred annuities) are estimated to be the cash surrender value, or
the cost the Company would incur to extinguish the liability.
Due 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.
17. CONTINGENCIES
The Company is subject to various lawsuits that have arisen in the
course of its business. Contingent liabilities arising from litigation,
income taxes and other matters are not considered material in relation
to the financial position of the Company.
22
<PAGE> 217
AUDITED FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT A
Years ended December 31, 1999 and 1998
<PAGE> 218
The Manufacturers Life Insurance Company of North America
Separate Account A
Audited Financial Statements
Years ended December 31, 1999 and 1998
CONTENTS
Report of Independent Auditors................................................1
Audited Financial Statements
Statement of Assets and Contract Owners' Equity...............................2
Statements of Operations and Changes in Contract Owners' Equity...............4
Notes to Financial Statements................................................19
<PAGE> 219
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 of The Manufacturers Life Insurance Company of North America
as of December 31, 1999, 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Manufacturers Life
Insurance Company of North America Separate Account A at December 31, 1999, 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 accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 15, 2000
1
<PAGE> 220
The Manufacturers Life Insurance Company of North America
Separate Account A
Statement of Assets and Contract Owners' Equity
December 31, 1999
<TABLE>
<S> <C>
ASSETS
Investments at market value:
Sub-accounts held by Manufacturers Investment Trust:
Mid Cap Blend Portfolio--65,729,135 shares (cost $1,267,408,277) $1,439,468,050
Investment Quality Bond Portfolio--18,866,533 shares (cost $226,060,734) 218,851,779
Growth and Income Portfolio--84,573,096 shares (cost $1,992,453,797) 2,763,003,036
Blue Chip Growth Portfolio--66,175,463 shares (cost $1,130,509,788) 1,432,037,014
Money Market Portfolio--87,199,520 shares (cost $871,995,200) 871,995,200
Global Equity Portfolio--39,047,614 shares (cost $705,363,023) 733,704,675
Global Bond Portfolio--11,832,771 shares (cost $152,950,552) 137,260,140
U.S. Government Securities Portfolio--17,391,094 shares (cost $233,276,680) 230,258,080
Diversified Bond Portfolio--14,571,220 shares (cost $160,288,296) 157,660,602
Income & Value Portfolio--46,224,569 shares (cost $549,978,606) 596,759,183
Large Cap Growth Portfolio--20,739,517 shares (cost $296,005,542) 357,341,870
Equity-Income Portfolio--47,843,723 shares (cost $781,387,327) 815,735,481
Strategic Bond Portfolio--22,452,974 shares (cost $262,767,771) 250,126,128
Overseas Portfolio--19,953,323 shares (cost $249,056,453) 317,656,908
Growth Portfolio--18,940,379 shares (cost $396,795,271) 509,117,400
Mid Cap Growth Portfolio--23,114,951 shares (cost $406,781,895) 575,331,123
International Small Cap Portfolio--6,499,140 shares (cost $112,015,695) 183,015,794
Pacific Rim Emerging Markets Portfolio--6,220,744 shares (cost $57,924,402) 67,681,694
Science & Technology Portfolio--25,024,745 shares (cost $647,828,449) 905,145,043
Emerging Small Company Portfolio--2,789,537 shares (cost $76,485,645) 113,645,728
Aggressive Growth Portfolio--6,470,337 shares (cost $86,725,579) 112,195,642
International Stock Portfolio--6,362,311 shares (cost $88,511,635) 98,170,464
Quantitative Equity Portfolio--6,985,304 shares (cost $174,265,768) 196,706,168
Value Trust Portfolio--9,342,873 shares (cost $138,659,120) 123,606,206
Real Estate Securities Portfolio--2,324,186 shares (cost $34,875,077) 29,958,758
Balanced Portfolio--5,518,702 shares (cost $102,541,513) 98,343,272
High Yield Portfolio--11,198,777 shares (cost $150,059,901) 143,792,293
Lifestyle Aggressive 1000 Portfolio--3,780,611 shares (cost $49,539,440) 54,970,082
Lifestyle Growth 820 Portfolio--18,884,819 shares (cost $259,812,929) 286,671,549
Lifestyle Balanced 640 Portfolio--20,650,896 shares (cost $276,213,083) 294,068,753
Lifestyle Moderate 460 Portfolio--9,496,242 shares (cost $128,936,221) 134,181,905
Lifestyle Conservative 280 Portfolio--6,344,330 shares (cost $83,329,291) 83,427,946
Small Company Value Portfolio--4,766,424 shares (cost $52,201,014) 58,484,021
US Large Cap Value Portfolio--9,186,453 shares (cost $113,163,494) 117,954,060
Mid Cap Stock Portfolio--2,161,880 shares (cost $26,330,859) 27,239,687
Small Company Blend Portfolio--2,402,094 shares (cost $32,641,242) 37,857,001
International Value Trust Portfolio--2,175,349 shares (cost $26,432,131) 28,236,032
Total Return Portfolio--5,294,711 shares (cost $65,544,878) 65,495,571
</TABLE>
2
<PAGE> 221
The Manufacturers Life Insurance Company of North America
Separate Account A
Statement of Assets, Liabilities and Contract Owners' Equity (continued)
December 31, 1999
<TABLE>
<S> <C>
ASSETS (CONTINUED)
Investments at market value (continued):
Sub-accounts held by Merrill Lynch Variable Series Funds, Inc.:
Basic Value Focus Portfolio--1,402,863 shares (cost $19,814,327) $ 19,050,878
Developing Capital Markets Focus Portfolio--127,061 shares (cost $1,053,733) 1,312,542
Special Value Focus Portfolio--197,764 shares (cost $3,968,589) 4,617,790
----------------
Total assets $ 14,692,135,548
================
CONTRACT OWNERS' EQUITY
Variable annuity contracts $ 14,670,567,844
Annuity reserves 21,567,704
----------------
Total contract owners' equity $ 14,692,135,548
================
</TABLE>
See accompanying notes.
3
<PAGE> 222
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in
Contract Owners' Equity
<TABLE>
<CAPTION>
SUB-ACCOUNT
--------------------------------------------------------------------------------------------------
MID CAP BLEND (1) INVESTMENT QUALITY BOND GROWTH AND INCOME
--------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 153,929,397 $ 262,896,468 $ 11,715,866 $ 9,380,173 $ 80,203,495 $ 104,185,784
Expenses:
Mortality and expense risk
and administrative charges 18,761,395 19,254,747 3,235,250 2,619,222 34,879,668 24,518,612
--------------------------------------------------------------------------------------------------
Net investment income (loss) 135,168,002 243,641,721 8,480,616 6,760,951 45,323,827 79,667,172
Net realized gain (loss) (26,061,804) 31,286,927 855,077 3,524,700 192,498,787 120,361,648
Unrealized appreciation
(depreciation) during the
period 199,725,097 (174,185,950) (16,830,922) 2,142,373 149,108,797 182,367,957
--------------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 308,831,295 100,742,698 (7,495,229) 12,428,024 386,931,411 382,396,777
Changes from principal
transactions:
Purchase payments 93,411,927 94,757,279 40,597,928 34,025,800 379,342,825 248,202,994
Transfers between sub-
accounts and the
Company (148,189,886) (73,281,664) (152,399) 27,481,604 201,840,782 109,065,836
Withdrawals (180,603,372) (127,824,175) (29,033,342) (18,664,400) (262,999,113) (142,936,147)
Annual contract fee (578,783) (627,094) (67,743) (56,911) (798,850) (612,633)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions (235,960,114) (106,975,654) 11,344,444 42,786,093 317,385,644 213,720,050
--------------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 72,871,181 (6,232,956) 3,849,215 55,214,117 704,317,055 596,116,827
Contract owners' equity at
beginning of period 1,366,596,869 1,372,829,825 215,002,564 159,788,447 2,058,685,981 1,462,569,154
--------------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $1,439,468,050 $1,366,596,869 $218,851,779 $215,002,564 $2,763,003,036 $2,058,685,981
==================================================================================================
</TABLE>
(1) On May 3, 1999, the Equity Sub-Account was renamed Mid Cap Blend through a
vote of the Board of Directors.
See accompanying notes.
4
<PAGE> 223
The Manufacturers Life Insurance Company of North America
Separate Account A
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,
1999 1998 1999 1998 1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 48,024,156 $ 13,929,066 $ 29,316,220 $ 21,461,471 $ 84,963,853 $ 59,603,230
Expenses:
Mortality and expense risk
and administrative charges 17,072,171 10,658,625 9,381,472 6,194,641 11,225,268 12,014,172
----------------------------------------------------------------------------------------------
Net investment income (loss) 30,951,985 3,270,441 19,934,748 15,266,830 73,738,585 47,589,058
Net realized gain (loss) 92,356,233 61,124,930 (37,631) 192,043 34,261,905 27,283,864
Unrealized appreciation
(depreciation) during the
period 80,600,837 123,565,136 0 0 (93,110,046) 6,192,769
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 203,909,055 187,960,507 19,897,117 15,458,873 14,890,444 81,065,691
Changes from principal transactions:
Purchase payments 267,993,066 142,511,048 374,293,200 280,358,533 51,092,502 61,937,777
Transfers between sub-
accounts and the
Company 99,970,099 70,636,247 302,685,947 (41,216,927) (84,444,789) (27,166,058)
Withdrawals (122,015,658) (50,972,213) (291,230,505) (115,055,612) (98,792,707) (71,777,066)
Annual contract fee (388,548) (266,440) (159,194) (111,391) (331,275) (372,022)
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 245,558,959 161,908,642 385,589,448 123,974,603 (132,476,269) (37,377,369)
----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 449,468,014 349,869,149 405,486,565 139,433,476 (117,585,825) 43,688,322
Contract owners' equity at
beginning of period 982,569,000 632,699,851 466,508,635 327,075,159 851,290,500 807,602,178
----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $1,432,037,014 $ 982,569,000 $ 871,995,200 $ 466,508,635 $ 733,704,675 $851,290,500
==============================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 224
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
GLOBAL BOND (2) U.S. GOVERNMENT SECURITIES DIVERSIFIED BOND (3)
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 15,950,596 $ 18,973,842 $ 10,287,189 $ 9,103,890 $ 16,986,531 $ 17,570,424
Expenses:
Mortality and expense risk
and administrative charges 2,249,622 2,750,057 3,564,976 2,945,305 2,451,082 2,625,650
-----------------------------------------------------------------------------------------------
Net investment income (loss) 13,700,974 16,223,785 6,722,213 6,158,585 14,535,449 14,944,774
Net realized gain (loss) (7,723,870) 898,854 1,192,111 4,428,098 541,478 3,497,458
Unrealized appreciation
(depreciation) during the
period (20,175,181) (5,780,204) (12,050,024) 1,035,564 (16,277,262) (1,878,860)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations (14,198,077) 11,342,435 (4,135,700) 11,622,247 (1,200,335) 16,563,372
Changes from principal
transactions:
Purchase payments 8,221,045 9,584,824 37,846,882 40,913,770 14,089,233 7,937,011
Transfers between sub-
accounts and the
Company (17,128,037) (21,994,571) (4,058,550) 19,072,298 (9,493,700) (6,943,504)
Withdrawals (26,084,516) (18,770,928) (36,511,642) (23,285,802) (31,237,206) (26,555,234)
Annual contract fee (60,363) (77,219) (72,992) (66,701) (81,266) (92,857)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions (35,051,871) (31,257,894) (2,796,302) 36,633,565 (26,722,939) (25,654,584)
-----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity (49,249,948) (19,915,459) (6,932,002) 48,255,812 (27,923,274) (9,091,212)
Contract owners' equity at
beginning of period 186,510,088 206,425,547 237,190,082 188,934,270 185,583,876 194,675,088
-----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 137,260,140 $ 186,510,088 $ 230,258,080 $ 237,190,082 $ 157,660,602 $ 185,583,876
===============================================================================================
</TABLE>
(2) On May 3, 1999, the Global Government Bond Sub-Account was renamed Global
Bond through a vote of the Board of Directors.
(3) On May 3, 1999, the Conservative Asset Allocation Sub-Account was renamed
Diversified Bond through a vote of the Board of Directors.
See accompanying notes.
6
<PAGE> 225
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
INCOME & VALUE (4) LARGE CAP GROWTH (5) EQUITY INCOME
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 64,728,819 $ 64,146,035 $ 25,595,630 $ 26,290,872 $ 61,583,673 $ 50,288,949
Expenses:
Mortality and expense risk
and administrative charges 8,356,583 8,092,103 3,917,259 3,191,540 12,388,373 12,044,210
-----------------------------------------------------------------------------------------------
Net investment income (loss) 56,372,236 56,053,932 21,678,371 23,099,332 49,195,300 38,244,739
Net realized gain (loss) 14,156,297 14,458,530 23,897,802 9,700,147 60,838,721 45,466,323
Unrealized appreciation
(depreciation) during the
period (30,559,573) 2,472,822 19,560,682 3,631,032 (93,256,752) (23,107,903)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 39,968,960 72,985,284 65,136,855 36,430,511 16,777,269 60,603,159
Changes from principal
transactions:
Purchase payments 37,755,830 18,958,426 58,029,084 10,964,443 89,380,630 103,523,597
Transfers between sub-
accounts and the
Company 29,853,674 (17,040,289) 32,067,415 (5,795,331) (80,590,017) (18,384,431)
Withdrawals (89,782,808) (71,094,567) (36,367,472) (24,226,715) (100,634,351) (60,748,536)
Annual contract fee (304,235) (329,687) (154,449) (156,682) (292,444) (292,490)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions (22,477,539) (69,506,117) 53,574,578 (19,214,285) (92,136,182) 24,098,140
-----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 17,491,421 3,479,167 118,711,433 17,216,226 (75,358,913) 84,701,299
Contract owners' equity at
beginning of period 579,267,762 575,788,595 238,630,437 221,414,211 891,094,394 806,393,095
-----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 596,759,183 $ 579,267,762 $ 357,341,870 $ 238,630,437 $ 815,735,481 $ 891,094,394
===============================================================================================
</TABLE>
(4) On May 3, 1999, the Moderate Asset Allocation Sub-Account was renamed Income
& Value through a vote of the Board of Directors.
(5) On May 3, 1999, the Aggressive Asset Allocation Sub-Account was renamed
Large Cap Growth through a vote of the Board of Directors.
See accompanying notes.
7
<PAGE> 226
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
STRATEGIC BOND OVERSEAS (6) GROWTH
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 20,390,856 $ 19,762,976 $ 0 $ 10,783,616 $ 14,178,869 $ 6,498,283
Expenses:
Mortality and expense risk
and administrative charges 3,938,500 4,220,177 3,241,956 2,772,206 4,962,443 2,460,324
-----------------------------------------------------------------------------------------------
Net investment income (loss) 16,452,356 15,542,799 (3,241,956) 8,011,410 9,216,426 4,037,959
Net realized gain (loss) (3,762,853) 5,827,370 23,772,499 (4,242,482) 31,512,124 7,868,700
Unrealized appreciation
(depreciation) during the
period (11,027,718) (22,293,148) 64,760,081 6,890,254 74,478,633 23,267,491
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 1,661,785 (922,979) 85,290,624 10,659,182 115,207,183 35,174,150
Changes from principal
transactions:
Purchase payments 22,725,716 59,587,164 28,374,515 22,213,738 89,248,445 46,724,068
Transfers between sub-
accounts and the
Company (40,829,510) (16,016,161) 34,421,895 (9,290,437) 107,317,349 20,642,796
Withdrawals (34,305,856) (21,651,946) (23,065,572) (13,365,800) (27,547,360) (9,558,754)
Annual contract fee (83,834) (81,880) (76,048) (72,465) (102,141) (54,268)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions (52,493,484) 21,837,177 39,654,790 (514,964) 168,916,293 57,753,842
-----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity (50,831,699) 20,914,198 124,945,414 10,144,218 284,123,476 92,927,992
Contract owners' equity at
beginning of period 300,957,827 280,043,629 192,711,494 182,567,276 224,993,924 132,065,932
-----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 250,126,128 $ 300,957,827 $ 317,656,908 $ 192,711,494 $ 509,117,400 $ 224,993,924
===============================================================================================
</TABLE>
(6) On May 3, 1999, the International Growth & Income Sub-Account was renamed
Overseas through a vote of the Board of Directors.
See accompanying notes.
8
<PAGE> 227
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
----------------------------------------------------------------------------------------------
MID CAP GROWTH (7) INTERNATIONAL SMALL CAP PACIFIC RIM EMERGING MARKETS
----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 48,276,292 $ 0 $ 358,697 $ 336,534 $ 1,026,291 $ 0
Expenses:
Mortality and expense risk
and administrative charges 5,718,870 3,976,254 1,573,338 1,517,775 446,217 137,686
----------------------------------------------------------------------------------------------
Net investment income (loss) 42,557,422 (3,976,254) (1,214,641) (1,181,241) 580,074 (137,686)
Net realized gain (loss) 28,008,220 20,349,494 15,671,103 6,105,663 7,368,690 (2,090,591)
Unrealized appreciation
(depreciation) during the
period 94,166,019 51,762,373 65,010,127 5,595,158 9,147,024 1,949,020
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 164,731,661 68,135,613 79,466,589 10,519,580 17,095,788 (279,257)
Changes from principal
transactions:
Purchase payments 73,220,832 46,950,104 12,518,161 11,129,043 17,899,189 3,553,787
Transfers between sub-
accounts and the
Company 23,827,468 8,700,217 (3,519,893) (11,727,965) 23,572,852 1,253,352
Withdrawals (33,080,407) (17,277,732) (10,366,665) (6,285,382) (2,407,322) (497,351)
Annual contract fee (133,217) (102,955) (40,229) (42,473) (9,223) (3,324)
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 63,834,676 38,269,634 (1,408,626) (6,926,777) 39,055,496 4,306,464
----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 228,566,337 106,405,247 78,057,963 3,592,803 56,151,284 4,027,207
Contract owners' equity at
beginning of period 346,764,786 240,359,539 104,957,831 101,365,028 11,530,410 7,503,203
----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 575,331,123 $ 346,764,786 $ 183,015,794 $ 104,957,831 $ 67,681,694 $ 11,530,410
==============================================================================================
</TABLE>
(7) On May 3, 1999, the Small Mid Cap Sub-Account was renamed Mid Cap Growth
through a vote of the Board of Directors.
See accompanying notes.
9
<PAGE> 228
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
----------------------------------------------------------------------------------------------
SCIENCE & TECHNOLOGY EMERGING SMALL COMPANY AGGRESSIVE GROWTH (8)
----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 61,919,386 $ 0 $ 759,177 $ 606,644 $ 0 $ 0
Expenses:
Mortality and expense risk
and administrative charges 5,761,991 1,202,138 873,992 644,336 924,547 725,112
----------------------------------------------------------------------------------------------
Net investment income (loss) 56,157,395 (1,202,138) (114,815) (37,692) (924,547) (725,112)
Net realized gain (loss) 55,024,474 2,838,592 7,884,062 (840,697) 4,579,079 302,011
Unrealized appreciation
(depreciation) during the
period 227,736,042 32,860,184 35,160,887 754,323 21,518,364 2,526,128
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 338,917,911 34,496,638 42,930,134 (124,066) 25,172,896 2,103,027
Changes from principal
transactions:
Purchase payments 207,053,560 34,212,705 15,034,166 16,370,893 26,876,986 12,805,688
Transfers between sub-
accounts and the
Company 249,768,296 16,789,653 5,408,633 532,221 5,696,610 514,103
Withdrawals (27,264,960) (4,130,388) (4,232,298) (2,520,170) (4,347,279) (2,807,192)
Annual contract fee (118,939) (26,696) (20,646) (12,785) (20,633) (17,850)
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 429,437,957 46,845,274 16,189,855 14,370,159 28,205,684 10,494,749
----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 768,355,868 81,341,912 59,119,989 14,246,093 53,378,580 12,597,776
Contract owners' equity at
beginning of period 136,789,175 55,447,263 54,525,739 40,279,646 58,817,062 46,219,286
----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 905,145,043 $ 136,789,175 $ 113,645,728 $ 54,525,739 $ 112,195,642 $ 58,817,062
==============================================================================================
</TABLE>
(8) On May 3, 1999, the Pilgrim Baxter Growth Sub-Account was renamed Aggressive
Growth through a vote of the Board of Directors.
See accompanying notes.
10
<PAGE> 229
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------
INTERNATIONAL STOCK WORLDWIDE GROWTH (9) QUANTITATIVE EQUITY
-----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 8,108,456 $ 862,935 $ 319,615 $ 172,999 $ 10,516,654 $ 4,541,776
Expenses:
Mortality and expense risk
and administrative charges 1,061,361 674,016 177,079 395,448 2,042,760 640,582
-----------------------------------------------------------------------------------------
Net investment income (loss) 7,047,095 188,919 142,536 (222,449) 8,473,894 3,901,194
Net realized gain (loss) 8,135,854 2,364,955 3,255,622 525,371 4,998,960 449,434
Unrealized appreciation
(depreciation) during the
period 7,613,413 3,503,979 (1,523,409) 1,343,334 14,982,816 6,170,135
-----------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 22,796,362 6,057,853 1,874,749 1,646,256 28,455,670 10,520,763
Changes from principal
transactions:
Purchase payments 23,670,823 13,225,216 2,628,319 11,495,901 48,763,678 20,771,816
Transfers between sub-
accounts and the
Company 1,405,970 2,851,294 (37,474,479) 2,347,570 63,401,411 12,619,124
Withdrawals (5,184,070) (2,491,971) (1,108,247) (1,286,241) (11,480,477) (2,437,925)
Annual contract fee (20,859) (13,680) (3,338) (7,427) (35,712) (11,798)
-----------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 19,871,864 13,570,859 (35,957,745) 12,549,803 100,648,900 30,941,217
-----------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 42,668,226 19,628,712 (34,082,996) 14,196,059 129,104,570 41,461,980
Contract owners' equity at
beginning of period 55,502,238 35,873,526 34,082,996 19,886,937 67,601,598 26,139,618
-----------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 98,170,464 $ 55,502,238 $ 0 $ 34,082,996 $ 196,706,168 $ 67,601,598
=========================================================================================
</TABLE>
(9) On April 30, 1999, the Worldwide Growth Sub-Account ceased operations and
was merged with the Global Equity Sub-Account through a vote of the Board of
Directors.
See accompanying notes.
11
<PAGE> 230
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
--------------------------------------------------------------------------------------------
VALUE TRUST REAL ESTATE SECURITIES BALANCED
--------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 3,906,842 $ 4,638,914 $ 1,606,291 $ 4,863,628 $ 7,083,393 $ 4,362,693
Expenses:
Mortality and expense risk
and administrative charges 1,922,443 1,782,489 467,023 550,805 1,443,252 638,257
--------------------------------------------------------------------------------------------
Net investment income (loss) 1,984,399 2,856,425 1,139,268 4,312,823 5,640,141 3,724,436
Net realized gain (loss) (2,588,397) 1,138,053 (6,927,167) (902,342) (1,412,831) 247,184
Unrealized appreciation
(depreciation) during the
period (5,159,090) (10,157,046) 2,714,591 (10,990,491) (6,552,341) 1,131,212
--------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations (5,763,088) (6,162,568) (3,073,308) (7,580,010) (2,325,031) 5,102,832
Changes from principal
transactions:
Purchase payments 18,406,894 49,908,355 4,080,168 11,906,485 29,779,086 26,732,376
Transfers between sub-
accounts and the
Company (18,344,695) 14,640,406 (5,881,514) 2,566,730 5,388,722 22,894,698
Withdrawals (11,460,776) (5,344,005) (3,461,863) (2,469,360) (9,245,498) (2,463,299)
Annual contract fee (41,689) (29,966) (11,688) (10,774) (27,011) (9,365)
--------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions (11,440,266) 59,174,790 (5,274,897) 11,993,081 25,895,299 47,154,410
--------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity (17,203,354) 53,012,222 (8,348,205) 4,413,071 23,570,268 52,257,242
Contract owners' equity at
beginning of period 140,809,560 87,797,338 38,306,963 33,893,892 74,773,004 22,515,762
--------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 123,606,206 $ 140,809,560 $ 29,958,758 $ 38,306,963 $ 98,343,272 $ 74,773,004
============================================================================================
</TABLE>
See accompanying notes.
12
<PAGE> 231
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
--------------------------------------------------------------------------------------------
HIGH YIELD CAPITAL GROWTH BOND (10) LIFESTYLE AGGRESSIVE 1000
--------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 11,545,406 $ 8,887,481 $ 864,902 $ 264,547 $ 2,722,018 $ 2,636,383
Expenses:
Mortality and expense risk
and administrative charges 1,997,783 1,432,205 55,062 95,375 708,426 723,027
--------------------------------------------------------------------------------------------
Net investment income (loss) 9,547,623 7,455,276 809,840 169,172 2,013,592 1,913,356
Net realized gain (loss) (2,257,195) 308,573 (660,734) 135,919 (1,222,067) 809,716
Unrealized appreciation
(depreciation) during the
period 1,227,151 (7,507,180) (267,578) 156,238 5,251,865 (1,147,651)
--------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 8,517,579 256,669 (118,472) 461,329 6,043,390 1,575,421
Changes from principal transactions:
Purchase payments 29,744,338 57,459,954 1,787,667 3,886,790 15,435,696 21,969,123
Transfers between sub-
accounts and the
Company (6,333,119) 15,683,299 (12,288,805) 3,612,080 (21,418,342) (1,521,360)
Withdrawals (12,946,674) (5,903,448) (285,298) (227,645) (3,918,302) (3,165,862)
Annual contract fee (31,743) (17,792) (620) (891) (35,402) (25,491)
--------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 10,432,802 67,222,013 (10,787,056) 7,270,334 (9,936,350) 17,256,410
--------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 18,950,381 67,478,682 (10,905,528) 7,731,663 (3,892,960) 18,831,831
Contract owners' equity at
beginning of period 124,841,912 57,363,230 10,905,528 3,173,865 58,863,042 40,031,211
--------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 143,792,293 $ 124,841,912 $ 0 $ 10,905,528 $ 54,970,082 $ 58,863,042
============================================================================================
</TABLE>
(10) On April 30, 1999, the Capital Growth Bond Sub-Account ceased operations
and was merged with the Investment Quality Bond Sub-Account through a vote
of the Board of Directors.
See accompanying notes.
13
<PAGE> 232
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
LIFESTYLE GROWTH 820 LIFESTYLE BALANCED 640 LIFESTYLE MODERATE 460
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 14,858,795 $ 14,111,619 $ 17,810,957 $ 13,670,797 $ 7,506,470 $ 3,839,085
Expenses:
Mortality and expense risk
and administrative charges 3,749,541 3,455,069 4,121,828 3,423,557 1,849,094 1,151,712
-----------------------------------------------------------------------------------------------
Net investment income (loss) 11,109,254 10,656,550 13,689,129 10,247,240 5,657,376 2,687,373
Net realized gain (loss) 1,685,669 2,139,936 (859,793) 1,544,172 1,153,420 878,683
Unrealized appreciation
(depreciation) during the
period 23,446,478 (2,785,080) 16,069,672 (3,124,500) 1,095,396 2,974,288
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 36,241,401 10,011,406 28,899,008 8,666,912 7,906,192 6,540,344
Changes from principal
transactions:
Purchase payments 70,193,502 110,072,582 61,122,566 136,038,997 28,704,487 54,357,743
Transfers between sub-
accounts and the
Company (94,123,645) 5,245,489 (82,208,600) 14,223,902 (8,341,574) 14,002,683
Withdrawals (19,561,667) (10,385,720) (20,076,098) (12,460,337) (9,811,239) (3,921,846)
Annual contract fee (123,215) (72,269) (106,632) (51,951) (41,995) (13,485)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions (43,615,025) 104,860,082 (41,268,764) 137,750,611 10,509,679 64,425,095
-----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity (7,373,624) 114,871,488 (12,369,756) 146,417,523 18,415,871 70,965,439
Contract owners' equity at
beginning of period 294,045,173 179,173,685 306,438,509 160,020,986 115,766,034 44,800,595
-----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 286,671,549 $ 294,045,173 $ 294,068,753 $ 306,438,509 $ 134,181,905 $ 115,766,034
===============================================================================================
</TABLE>
See accompanying notes.
14
<PAGE> 233
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------
US LARGE CAP
LIFESTYLE CONSERVATIVE 280 SMALL COMPANY VALUE VALUE (11)
-----------------------------------------------------------------------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31
-----------------------------------------------------------------------------------
1999 1998 1999 1998 1999
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income:
Dividends $ 5,216,443 $ 1,713,067 $ 38,016 $ 19,377 $ 0
Expenses:
Mortality and expense risk
and administrative charges 1,128,310 556,830 809,959 606,307 626,565
-----------------------------------------------------------------------------------
Net investment income (loss) 4,088,133 1,156,237 (771,943) (586,930) (626,565)
Net realized gain (loss) 544,159 271,648 (5,255,135) (582,960) (193,257)
Unrealized appreciation
(depreciation) during the
period (2,519,013) 2,119,282 9,035,272 (2,538,730) 4,790,566
-----------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 2,113,279 3,547,167 3,008,194 (3,708,620) 3,970,744
Changes from principal transactions:
Purchase payments 23,265,220 33,166,004 8,866,509 28,591,491 57,292,554
Transfers between sub-
accounts and the
Company (1,927,268) 14,381,167 (13,624,996) 25,105,906 58,617,615
Withdrawals (6,127,892) (2,280,020) (4,843,069) (1,762,784) (1,920,575)
Annual contract fee (18,295) (4,485) (18,019) (8,494) (6,278)
-----------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 15,191,765 45,262,666 (9,619,575) 51,926,119 113,983,316
-----------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 17,305,044 48,809,833 (6,611,381) 48,217,499 117,954,060
Contract owners' equity at
beginning of period 66,122,902 17,313,069 65,095,402 16,877,903 0
-----------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 83,427,946 $ 66,122,902 $ 58,484,021 $ 65,095,402 $ 117,954,060
===================================================================================
</TABLE>
See accompanying notes.
15
<PAGE> 234
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------
MID CAP STOCK (11) SMALL COMPANY INTERNATIONAL
BLEND (11) VALUE (11)
-----------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1999
-----------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends $ 0 $ 720,294 $ 0
Expenses:
Mortality and expense risk
and administrative charges 122,937 164,934 136,693
-----------------------------------------------------------------
Net investment income (loss) (122,937) 555,360 (136,693)
Net realized gain (loss) (173,237) 257,693 33,013
Unrealized appreciation
(depreciation) during the
period 908,828 5,215,759 1,803,901
-----------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 612,654 6,028,812 1,700,221
Changes from principal
transactions:
Purchase payments 15,399,144 15,336,609 11,603,890
Transfers between sub-
accounts and the
Company 11,691,592 16,834,296 15,682,172
Withdrawals (461,893) (340,818) (748,816)
Annual contract fee (1,810) (1,898) (1,435)
-----------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 26,627,033 31,828,189 26,535,811
-----------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 27,239,687 37,857,001 28,236,032
Contract owners' equity at
beginning of period 0 0 0
-----------------------------------------------------------------
Contract owners' equity at end
of period $ 27,239,687 $ 37,857,001 $ 28,236,032
=================================================================
</TABLE>
(11) From commencement of operations, May 3, 1999.
See accompanying notes.
16
<PAGE> 235
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-------------------------------------------------------------------------------------
DEVELOPING CAPITAL MARKETS
TOTAL RETURN (11) BASIC VALUE FOCUS FOCUS
-------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1998 1999 1998
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income:
Dividends $ 0 $ 2,014,871 $ 53,970 $ 11,709 $ 388
Expenses:
Mortality and expense risk
and administrative charges 322,526 133,444 21,001 7,049 1,933
-------------------------------------------------------------------------------------
Net investment income (loss) (322,526) 1,881,427 32,969 4,660 (1,545)
Net realized gain (loss) (54,031) (18,709) (18,194) 19,139 (7,758)
Unrealized appreciation
(depreciation) during the
period (49,306) (842,689) 80,592 295,033 (46,006)
-------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations (425,863) 1,020,029 95,367 318,832 (55,309)
Changes from principal
transactions:
Purchase payments 28,361,631 10,559,719 2,636,532 597,141 279,236
Transfers between sub-
accounts and the
Company 39,133,059 4,408,752 331,091 281,489 (12,556)
Withdrawals (1,570,783) (317,296) (27,056) (125,800) (2,025)
Annual contract fee (2,473) (4,087) (92) (248) (6)
-------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 65,921,434 14,647,088 2,940,475 752,582 264,649
-------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 65,495,571 15,667,117 3,035,842 1,071,414 209,340
Contract owners' equity at
beginning of period 0 3,383,761 347,919 241,128 31,788
-------------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 65,495,571 $ 19,050,878 $ 3,383,761 $ 1,312,542 $ 241,128
=====================================================================================
</TABLE>
(11) From commencement of operations, May 3, 1999.
See accompanying notes.
17
<PAGE> 236
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
--------------------------------------------------------------------------------
SPECIAL VALUE FOCUS TOTAL
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income:
Dividends $ 250,560 $ 57,259 $ 845,296,685 $ 760,515,175
Expenses:
Mortality and expense risk
and administrative charges 31,506 10,495 178,004,548 140,724,000
--------------------------------------------------------------------------------
Net investment income (loss) 219,054 46,764 667,292,137 619,791,175
Net realized gain (loss) (63,717) (77,295) 555,229,763 367,566,677
Unrealized appreciation
(depreciation) during the
period 704,186 (50,244) 825,926,613 198,898,651
--------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 859,523 (80,775) 2,048,448,513 1,186,256,503
Changes from principal transactions:
Purchase payments 2,095,665 1,000,154 2,452,701,028 1,890,721,447
Transfers between sub-
accounts and the
Company 665,403 117,665 643,567,683 174,920,177
Withdrawals (275,556) (10,841) (1,597,183,118) (886,646,495)
Annual contract fee (1,270) (76) (4,430,769) (3,754,865)
--------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 2,484,242 1,106,902 1,494,654,824 1,175,240,264
--------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 3,343,765 1,026,127 3,543,103,337 2,361,496,767
Contract owners' equity at
beginning of period 1,274,025 247,898 11,149,032,211 8,787,535,444
--------------------------------------------------------------------------------
Contract owners' equity at end
of period $ 4,617,790 $ 1,274,025 $ 14,692,135,548 $ 11,149,032,211
================================================================================
</TABLE>
See accompanying notes.
18
<PAGE> 237
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements
December 31, 1999
1. ORGANIZATION
The Manufacturers Life Insurance Company of North America Separate Account A
(the Account) is a separate account established by The Manufacturers Life
Insurance Company of North America (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-eight sub-accounts of Manufacturers Investment
Trust (the Trust) and three sub-accounts 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 twenty-six contracts,
distinguished principally by the level of expenses and surrender charges. These
twenty-six contracts are as follows: Venture Variable Annuity 1, 3, 7, 8, 17,
18, 20, 21, 22, 23, 25, 26, 27, 30, 31 and 34 (VEN 1, 3, 7, 8, 17, 18, 20, 21,
22, 23, 25, 26, 27, 30, 31 and 34), Venture Vantage Annuity 20, 21, 22, 23, 25
(VTG20, 21, 22, 23, 25), Venture Vision Variable Annuity 5, 6, 25 and 26 (VIS 5,
6, 25 and 26) and Venture No-load Rollover Annuity (MRP).
The Company is a wholly-owned subsidiary of Manulife Wood Logan Holding Company,
Inc. (MWLH). MWLH is 78.4% owned by The Manufacturers Life Insurance Company
(USA), (ManUSA) and 21.6% by MRL Holding LLC, (MRL). ManUSA and MRL are indirect
wholly-owned subsidiaries of the Manufacturers Life Insurance Company (MLI),
which in turn is a wholly-owned subsidiary of Manulife Financial Corporation.
Manulife Financial Corporation and its subsidiaries are known collectively as
Manulife Financial.
On May 3, 1999, five new sub-accounts, Small Company Blend, Total Return,
International Value, US Large Cap Value and Mid Cap Stock commenced operations.
On April 30, 1999, two sub-accounts, Capital Growth Bond and Worldwide Growth,
ceased operations and were merged into the Investment Quality Bond and Global
Equity sub-accounts, respectively.
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.
19
<PAGE> 238
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
Actual results could differ from reported results using those estimates.
20
<PAGE> 239
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
3. AFFILIATED COMPANY TRANSACTIONS
The Company has an Administrative Services Agreement with Manulife Financial,
whereby Manulife Financial or its designee, with the consent of the Company,
performs certain services on behalf of the Company necessary for the operation
of the separate account. The Company has an underwriting and distribution
agreements with its affiliate, Manufacturers Securities Services LLC (MSS). MSS
is owned 90% by the Company and 10% by The Manufacturers Life Insurance Company
of New York (MNY). MNY is a wholly owned subsidiary of the Company.
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:
(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,
30, 31, 34): 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 (VEN 25, 26, 27): offered in Merrill Lynch Series
Funds only (Basic Value Focus, Developing Capital Markets Focus and
Special Value Focus portfolios): 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.
21
<PAGE> 240
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
4. CONTRACT CHARGES (CONTINUED)
(iv) Current Contract Series (VIS 5,6, 25, 26): 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.
(i) Current Contract Series (VTG20, 21, 22, 23, 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 1.15% of the contract value, respectively.
(vi) Current Contract Series (MRP): 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 .85% 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, 1999:
<TABLE>
<CAPTION>
PURCHASES SALES
------------------------------------
<S> <C> <C>
Mid Cap Blend $326,353,442 $427,145,554
Investment Quality Bond Portfolio 103,324,875 83,499,815
Growth and Income Portfolio 748,865,292 386,155,821
Blue Chip Growth Portfolio 591,383,750 314,872,806
Money Market Portfolio 2,549,392,949 2,143,868,753
Global Equity Portfolio 588,186,069 646,923,753
Global Bond Portfolio 50,588,524 71,939,421
U.S. Government Securities Portfolio 133,569,431 129,643,520
Diversified Bond Allocation Portfolio 51,328,952 63,516,442
Income & Value Portfolio 170,745,338 136,850,641
Large Cap Growth Portfolio 231,014,038 155,761,089
Equity-Income Portfolio 247,368,634 290,309,516
Strategic Bond Portfolio 69,523,298 105,564,426
Overseas Portfolio 380,837,141 344,424,307
Growth Portfolio 281,014,445 102,881,726
Mid Cap Growth Portfolio 233,388,727 126,996,629
</TABLE>
22
<PAGE> 241
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
5. PURCHASES AND SALES OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
PURCHASES SALES
---------------------------------
<S> <C> <C>
International Small Cap Portfolio $ 123,004,361 $ 125,627,627
Pacific Rim Emerging Markets Portfolio 179,053,815 139,418,246
Science & Technology Portfolio 634,748,848 149,153,496
Emerging Small Company Portfolio 113,235,700 97,160,660
Aggressive Growth Portfolio 115,965,778 88,684,641
International Stock Portfolio 373,033,926 346,114,967
Worldwide Growth Portfolio 14,975,888 50,791,097
Quantitative Equity Portfolio 156,567,797 47,445,003
Value Trust Portfolio 55,041,981 64,497,848
Real Estate Securities Portfolio 19,050,260 23,185,889
Balanced Portfolio 76,804,994 45,269,554
High Yield Portfolio 102,362,334 82,381,909
Capital Growth Bond Portfolio 4,586,526 14,563,742
Lifestyle Aggressive 1000 Portfolio 24,724,045 32,646,803
Lifestyle Growth 820 Portfolio 90,261,683 122,767,454
Lifestyle Balanced 640 Portfolio 92,501,212 120,080,847
Lifestyle Moderate 460 Portfolio 54,442,620 38,275,565
Lifestyle Conservative 280 Portfolio 50,735,991 31,456,093
Small Company Value Portfolio 33,013,909 43,405,427
Total Return Portfolio 75,358,181 9,759,272
US Large Cap Value Portfolio 126,164,709 12,807,958
International Value Trust Portfolio 48,638,006 22,238,888
Mid Cap Stock Portfolio 31,573,764 5,069,668
Small Company Blend Portfolio 35,802,685 3,419,136
Basic Value Focus Portfolio 17,696,840 1,168,325
Developing Capital Markets Focus Portfolio 3,471,451 768,155
Special Value Focus Portfolio 947,250 190,008
---------------------------------
Total $9,410,649,459 $7,248,702,497
=================================
</TABLE>
23
<PAGE> 242
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES
A summary of the accumulation unit values at December 31, 1999 and 1998 and the
accumulation units and dollar values outstanding at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- ---------------------------------------------------
<S> <C> <C> <C> <C>
Mid Cap Blend Sub-Account:
VEN 1 Contracts 51.507214 64.95498 12,707 $ 825,409
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 31.289551 39.416089 32,325,962 1,274,163,008
VIS 5,6,25 and 26 Contracts 22.973151 28.867552 3,038,413 87,711,548
VTG20 Contracts 13.443090 16.909177 4,464,769 75,495,561
MRP Contracts 12.103394 15.307946 877 13,422
--------------------------------------
39,842,728 1,438,208,948
Investment Quality Bond Sub-Account:
VEN 1 Contracts 22.746879 22.052785 4,129 91,059
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 19.660365 19.039807 8,787,934 167,320,569
VIS 5,6,25 and 26 Contracts 13.299876 12.847911 1,766,908 22,701,077
VTG20 Contracts 13.845626 13.388502 2,078,881 27,833,097
MRP Contracts 13.269922 12.902584 1,630 21,025
--------------------------------------
12,639,482 217,966,827
Growth and Income Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 32.976967 38.655938 57,740,268 2,232,004,220
VIS 5,6,25 and 26 Contracts 26.056725 30.467742 7,534,499 229,559,163
VTG20 Contracts 15.811724 18.506889 16,079,923 297,589,355
MRP Contracts 13.924321 16.387611 12,932 211,921
-----------------------------------------------------
81,367,622 2,759,364,659
Blue Chip Growth Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 21.710674 25.568866 42,817,809 1,094,802,822
VIS 5,6,25 and 26 Contracts 22.573222 26.51836 4,836,159 128,246,994
VTG20 Contracts 16.234822 19.091275 10,790,218 205,999,017
MRP Contracts 14.123586 16.700133 10,829 180,841
--------------------------------------
58,455,015 1,429,229,674
</TABLE>
24
<PAGE> 243
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
------------- ---------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
------------- ---------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Sub-Account:
VEN 1 Contracts 17.283692 17.846774 4,228 $ 75,456
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 15.794513 16.291417 38,239,225 622,971,156
VIS 5,6,25 and 26 Contracts 11.811952 12.153141 9,394,304 114,170,305
VTG20 Contracts 13.123053 13.515626 9,661,872 130,586,252
MRP Contracts 12.872909 13.331106 78,627 1,048,181
--------------------------------------
57,378,256 868,851,350
Global Equity Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 24.098970 24.633827 25,688,362 632,802,659
VIS 5,6,25 and 26 Contracts 18.706100 19.073534 3,181,382 60,680,189
VTG20 Contracts 13.944724 14.232856 2,766,110 39,369,646
MRP Contracts 12.195410 12.516028 553 6,922
--------------------------------------
31,636,407 732,859,416
Global Bond Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 21.333144 19.632749 6,071,768 119,205,498
VIS 5,6,25 and 26 Contracts 14.814388 13.599529 810,534 11,022,877
VTG20 Contracts 13.615563 12.511533 539,336 6,747,926
--------------------------------------
7,421,638 136,976,301
U.S. Government Securities Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 18.587049 18.286918 10,165,983 185,904,501
VIS 5,6,25 and 26 Contracts 12.999698 12.757839 1,711,219 21,831,460
VTG20 Contracts 13.651980 13.411398 1,654,589 22,190,357
MRP Contracts 13.159699 12.999097 4,333 56,327
--------------------------------------
13,536,124 229,982,645
</TABLE>
25
<PAGE> 244
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------------- -----------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
Diversified Bond Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 18.125951 18.002047 7,516,672 $135,315,483
VIS 5,6,25 and 26 Contracts 14.663990 14.527388 783,368 11,380,292
VTG20 Contracts 13.914540 13.7987 782,445 10,796,730
MRP Contracts 13.161158 13.123588 544 7,134
--------------------------------------
9,083,029 157,499,639
Income & Value Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 20.742457 22.230152 24,075,423 535,200,302
VIS 5,6,25 and 26 Contracts 16.824988 17.986686 1,897,189 34,124,143
VTG20 Contracts 14.398732 15.408317 1,751,346 26,985,288
MRP Contracts 13.179250 14.181104 1,702 24,134
--------------------------------------
27,725,660 596,333,867
Large Cap Growth Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 23.040505 28.465074 10,369,256 295,161,628
VIS 5,6,25 and 26 Contracts 18.982681 23.393391 797,949 18,666,730
VTG20 Contracts 14.785253 18.238886 2,373,175 43,284,060
MRP Contracts 13.271688 16.46198 329 5,422
--------------------------------------
13,540,709 357,117,840
Equity-Income Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 22.054902 22.487758 29,513,793 663,699,024
VIS 5,6,25 and 26 Contracts 20.794388 21.14957 3,549,615 75,072,828
VTG20 Contracts 14.249466 14.507362 5,116,706 74,229,906
MRP Contracts 12.464044 12.759601 27,275 348,019
--------------------------------------
38,207,389 813,349,777
</TABLE>
26
<PAGE> 245
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
1998 1999
--------------- -----------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
Strategic Bond Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.486687 14.602672 13,422,186 $195,999,784
VIS 5,6,25 and 26 Contracts 14.243718 14.321908 2,000,055 28,644,610
VTG20 Contracts 12.761400 12.8443 1,950,430 25,051,911
MRP Contracts 12.280627 12.428556 316 3,924
--------------------------------------
17,372,987 249,700,229
Overseas Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 12.290162 17.044524 15,431,151 263,016,625
VIS 5,6,25 and 26 Contracts 12.168562 16.833813 1,593,099 26,817,931
VTG20 Contracts 12.423604 17.203799 1,571,610 27,037,669
MRP Contracts 11.720466 16.319479 216 3,517
--------------------------------------
18,596,076 316,875,742
Growth Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 20.739989 28.060585 13,675,398 383,739,682
VIS 5,6,25 and 26 Contracts 20.612746 27.818889 1,531,097 42,593,413
VTG20 Contracts 14.959659 20.209678 4,080,687 82,469,376
MRP Contracts 13.655376 18.549262 6,215 115,293
--------------------------------------
19,293,397 508,917,764
Mid-Cap Growth Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 19.002856 27.113084 16,588,508 449,765,600
VIS 5,6,25 and 26 Contracts 18.869029 26.855 1,884,223 50,600,809
VTG20 Contracts 15.351927 21.871173 3,358,970 73,464,619
MRP Contract 13.903872 19.917321 3,240 64,535
--------------------------------------
21,834,941 573,895,563
</TABLE>
27
<PAGE> 246
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------------- -----------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
International Small Cap Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.792077 26.974754 5,445,119 $146,880,743
VIS 5,6,25 and 26 Contracts 14.687879 26.718058 677,004 18,088,222
VTG20 Contracts 13.042850 23.749328 744,863 17,689,992
MRP Contracts 12.202690 22.341682 6,651 148,600
--------------------------------------
6,873,637 182,807,557
Pacific Rim Emerging Markets Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 7.695249 12.359297 3,719,990 45,976,459
VIS 5,6,25 and 26 Contracts 7.656925 12.2671 382,168 4,688,087
VTG20 Contracts 7.472906 11.984246 1,419,030 17,006,003
MRP 18.168886 224 4,078
--------------------------------------
5,521,412 67,674,627
Science & Technology Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 19.287390 37.943261 16,967,094 643,786,890
VIS 5,6,25 and 26 Contracts 19.191525 37.660683 1,876,212 70,659,428
VTG20 Contracts 15.499402 30.445751 6,240,095 189,984,367
MRP Contracts 15.503436 30.621118 15,089 462,031
--------------------------------------
25,098,490 904,892,716
Emerging Small Company Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.381705 24.610648 3,384,328 83,290,514
VIS 5,6,25 and 26 Contracts 14.310172 24.427201 409,471 10,002,229
VTG20 Contracts 12.896270 22.035674 918,233 20,233,873
MRP Contracts 11.312902 19.436616 1,703 33,091
--------------------------------------
4,713,735 113,559,707
</TABLE>
28
<PAGE> 247
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- ---------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive Growth Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 12.680777 16.628126 4,630,976 $ 77,004,445
VIS 5,6,25 and 26 Contracts 12.617679 16.504105 712,544 11,759,901
VTG20 Contracts 11.910371 15.594503 1,500,020 23,392,064
MRP Contracts 12.027610 15.83478 325 5,148
--------------------------------------
6,843,865 112,161,558
International Stock Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.337171 18.338932 3,652,874 66,989,812
VIS 5,6,25 and 26 Contracts 14.265882 18.202233 760,297 13,839,100
VTG20 Contracts 12.838403 16.397239 1,046,587 17,161,143
16.253406 390 6,339
--------------------------------------
5,460,148 97,996,394
Quantitative Equity Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 20.068624 24.202942 5,781,734 139,934,976
VIS 5,6,25 and 26 Contracts 19.968902 24.022598 1,020,245 24,508,931
VTG20 Contracts 15.640646 18.834509 1,707,382 32,157,705
MRP Contracts 14.006399 16.959503 5,575 94,552
--------------------------------------
8,514,936 196,696,164
Value Trust Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.591878 13.987433 5,992,312 83,817,066
VIS 5,6,25 and 26 Contracts 14.519332 13.883152 1,253,382 17,400,899
VTG20 Contracts 12.033566 11.517818 1,927,798 22,204,025
MRP Contracts 11.207507 10.786297 291 3,139
--------------------------------------
9,173,783 123,425,129
</TABLE>
29
<PAGE> 248
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- ---------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate Securities Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 12.317190 11.174188 1,920,244 $21,457,172
VIS 5,6,25 and 26 Contracts 12.255908 11.090818 360,400 3,997,132
VTG20 Contracts 11.158599 10.10793 441,160 4,459,217
MRP Contracts 10.417728 9.488883 1,069 10,139
--------------------------------------
2,722,873 29,923,660
Balanced Sub-Account;
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 16.459454 15.96237 3,662,011 58,454,381
VIS 5,6,25 and 26 Contracts 16.377624 15.843343 866,999 13,736,155
VTG20 Contracts 14.397307 13.941569 1,863,512 25,980,277
MRP Contracts 13.203432 12.856009 1,913 24,592
--------------------------------------
6,394,435 98,195,405
High Yield Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.078376 14.993652 6,044,506 90,629,226
VIS 5,6,25 and 26 Contracts 14.008370 14.88185 1,590,415 23,668,318
VTG20 Contracts 13.018749 13.844359 2,121,022 29,364,184
MRP Contracts 12.279967 13.130722 2,176 28,579
--------------------------------------
9,758,119 143,690,307
Lifestyle Aggressive 1000 Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.134419 15.974195 2,511,100 40,112,804
VIS 5,6,25 and 26 Contracts 14.064128 15.855076 190,056 3,013,346
VTG20 Contracts 12.579492 14.195565 832,852 11,822,799
MRP Contracts 11.895710 13.497935 1,566 21,133
--------------------------------------
3,535,574 54,970,082
</TABLE>
30
<PAGE> 249
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- ---------------------------------------------------
<S> <C> <C> <C> <C>
Lifestyle Growth 820 Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.696667 16.893101 11,564,148 $195,354,327
VIS 5,6,25 and 26 Contracts 14.623605 16.767184 1,577,729 26,454,079
VTG20 Contracts 12.985550 14.903883 4,346,395 64,778,160
MRP Contracts 12.159849 14.033145 5,144 72,190
--------------------------------------
17,493,416 286,658,756
Lifestyle Balanced 640 Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 14.664362 16.257312 11,049,450 179,634,356
VIS 5,6,25 and 26 Contracts 14.591457 16.136115 1,938,056 31,272,696
VTG20 Contracts 13.059244 14.456141 5,693,341 82,303,734
MRP Contracts 12.282889 13.671696 11,202 153,148
--------------------------------------
18,692,049 293,363,934
Lifestyle Moderate 460 Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 15.171965 16.142259 4,878,939 78,757,090
VIS 5,6,25 and 26 Contracts 15.096548 16.021927 1,272,100 20,381,491
VTG20 Contracts 13.711730 14.566774 2,395,187 34,890,154
MRP Contracts 12.868825 13.746687 11,142 153,170
--------------------------------------
8,557,368 134,181,905
Lifestyle Conservative 280 Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 15.025549 15.439823 3,085,032 47,632,353
VIS 5,6,25 and 26 Contracts 14.950846 15.324704 847,076 12,981,193
VTG20 Contracts 13.933826 14.296546 1,593,353 22,779,442
MRP Contracts 13.175636 13.593172 2,572 34,958
--------------------------------------
5,528,033 83,427,946
</TABLE>
31
<PAGE> 250
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------------- -----------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
Total Return Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 12.255674 3,467,956 $42,502,137
VIS 5,6,25 and 26 Contracts 12.235367 395,881 4,843,748
VTG20 Contracts 12.243486 1,482,395 18,149,686
--------------------------------------
5,346,232 65,495,571
Small Company Value Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 11.178700 11.904646 3,361,623 40,018,928
VIS 5,6,25 and 26 Contracts 11.143828 11.83789 658,008 7,789,430
VTG20 Contracts 11.157770 11.864553 887,824 10,533,632
--------------------------------------
4,907,455 58,341,990
U.S. Large Cap Value Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 12.721279 5,189,158 66,012,721
VIS 5,6,25 and 26 Contracts 12.700198 806,506 10,242,789
VTG20 Contracts 12.70863 3,259,258 41,420,698
--------------------------------------
MRP 9,254,922 117,676,208
Mid Cap Stock Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 12.48352 1,289,051 16,091,892
VIS 5,6,25 and 26 Contracts 12.462837 142,342 1,773,989
VTG20 Contracts 12.471106 751,642 9,373,806
--------------------------------------
2,183,035 27,239,687
Small Company Blend Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 15.922213 1,517,759 24,166,076
VIS 5,6,25 and 26 Contracts 15.895877 130,739 2,078,216
VTG20 Contracts 15.906411 729,934 11,610,624
--------------------------------------
2,378,432 37,854,916
</TABLE>
32
<PAGE> 251
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
--------------- ---------------------------------------------------
<S> <C> <C> <C> <C>
International Value Sub-Account:
VEN 3,7,8,17,18,20,21,22,23,25,26 and
27 Contracts 12.86011 1,412,579 $ 18,165,918
VIS 5,6,25 and 26 Contracts 12.83881 138,371 1,776,514
VTG20 Contracts 12.847324 644,472 8,279,742
--------------------------------------
2,195,422 28,222,174
Basic Value Focus Sub-Account:
VEN 25,26 and 27 Contracts 17.018200 20.300779 650,610 13,207,896
Venture/Vantage 12.027400 14.325771 407,865 5,842,982
--------------------------------------
1,058,475 19,050,878
Developing Capital Market Focus Sub-Account:
VEN 25,26 and 27 Contracts 6.389100 10.419795 89,279 930,266
Venture/Vantage 9.694900 15.787402 24,214 382,276
--------------------------------------
113,493 1,312,542
Special Value Focus Sub-Account:
VEN 25,26 and 27 Contracts 25.494200 33.685273 81,985 2,761,701
Venture/Vantage 10.568700 13.943374 133,116 1,856,089
--------------------------------------
215,101 4,617,790
-------------------
TOTAL $14,670,567,844
===================
</TABLE>
33
<PAGE> 252
The Manufacturers Life Insurance Company of North America
Separate Account A
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.
34
