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As filed with the Securities and Exchange Commission on April 28, 1998
Registration No. 33-92466
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 5
UNDER THE
SECURITIES ACT OF 1933
THE MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA SEPARATE ACCOUNT B,
FORMERLY NASL VARIABLE LIFE ACCOUNT
(Exact name of trust)
THE MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA,
FORMERLY NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(Name of depositor)
116 Huntington Avenue
Boston, MA 02116
(Address of Depositor's Principal Executive Offices)
James D. Gallagher, Esq.
Vice President, Secretary Copy to:
and General Counsel J. Sumner Jones, Esq.
The Manufacturers Life Insurance Company Jones & Blouch L.L.P.
of North America Suite 405 West
73 Tremont Street 1025 Thomas Jefferson Street
Boston, MA 02108 Washington, DC 20007-0805
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1998 pursuant to paragraph (b)(1) of Rule 485
----
____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
____ on May 1, 1998 pursuant to paragraph (a)(1) of Rule 485
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RECONCILIATION AND THE TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
ITEM NO. OF CAPTION IN
FORM N-8B-2 PROSPECTUS
- --------------------------------------------------------------------------------
1. Cover Page
2. Cover Page
3. Not Applicable
4. OTHER MATTERS: Distribution of the Contract
5. GENERAL INFORMATION ABOUT THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA, THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA SEPARATE ACCOUNT B AND MANUFACTURERS
INVESTMENT TRUST: The Manufacturers Life Insurance Company of
North America Separate Account B , The Manufacturers Life
Insurance Company of North America
6. GENERAL INFORMATION ABOUT THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA, THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA SEPARATE ACCOUNT B AND MANUFACTURERS
INVESTMENT TRUST: The Manufacturers Life Insurance Company of
North America Separate Account B
7. Not Applicable
8. Not Required
9. OTHER MATTERS: Legal Proceedings
10. GENERAL INFORMATION ABOUT THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA, THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA SEPARATE ACCOUNT B AND MANUFACTURERS
INVESTMENT TRUST: The Manufacturers Life Insurance Company of
North America, Manufacturers Investment Trust; OTHER MATTERS:
Voting Rights; CHARGES AND DEDUCTIONS; DESCRIPTION OF THE
CONTRACT
11. GENERAL INFORMATION ABOUT THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA, THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA SEPARATE ACCOUNT B AND MANUFACTURERS
INVESTMENT TRUST: Manufacturers Investment Trust
12. GENERAL INFORMATION ABOUT THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA, THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA SEPARATE ACCOUNT B AND MANUFACTURERS
INVESTMENT TRUST: Manufacturers Investment Trust
13. CHARGES AND DEDUCTIONS; FEDERAL TAX MATTERS; OTHER MATTERS:
Distribution of the Contract
14. DESCRIPTION OF THE CONTRACT: Application for a Contract
15. DESCRIPTION OF THE CONTRACT: Allocation of Payments
16. DESCRIPTION OF THE CONTRACT: Payments; GENERAL INFORMATION ABOUT
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA, THE
MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA SEPARATE
ACCOUNT B AND MANUFACTURERS INVESTMENT TRUST: Manufacturers
Investment Trust
17. DESCRIPTION OF THE CONTRACT: Withdrawals; CHARGES AND DEDUCTIONS:
Withdrawal Charge
18. DESCRIPTION OF THE CONTRACT; CHARGES AND DEDUCTIONS; FEDERAL
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TAX MATTERS
19. OTHER MATTERS: Notices and Reports to Contract Holders
20. Not Applicable
21. DESCRIPTION OF THE CONTRACT: Loans
22. Not Applicable
23. OTHER MATTERS: Safekeeping of Separate Account Assets
24. DESCRIPTION OF THE CONTRACT
25. GENERAL INFORMATION THE MANUFACTURERS LIFE INSURANCE COMPANY OF
NORTH AMERICA, THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH
AMERICA SEPARATE ACCOUNT B AND MANUFACTURERS INVESTMENT TRUST:
The Manufacturers Life Insurance Company of North America
26. Not Applicable
27. GENERAL INFORMATION ABOUT THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA, THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA SEPARATE ACCOUNT B AND MANUFACTURERS
INVESTMENT TRUST: The Manufacturers Life Insurance Company of
North America
28. OTHER MATTERS: Officers and Directors of the Company
29. GENERAL INFORMATION ABOUT THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA, THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA SEPARATE ACCOUNT B AND MANUFACTURERS
INVESTMENT TRUST: The Manufacturers Life Insurance Company of
North America
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. OTHER MATTERS: Distribution of the Contract
36. Not Required
37. Not Applicable
38. OTHER MATTERS: Distribution of the Contract
39. OTHER MATTERS: Distribution of the Contract
40. Not Applicable
41. GENERAL INFORMATION ABOUT THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA, THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA SEPARATE ACCOUNT B AND MANUFACTURERS
INVESTMENT TRUST: The Manufacturers Life Insurance Company of
North America; OTHER MATTERS: Distribution of the Contract
42. Not Applicable
43. Not Applicable
44. DESCRIPTION OF THE CONTRACT: Allocation of Payments
45. Not Applicable
46. DESCRIPTION OF THE CONTRACT; CHARGES AND DEDUCTIONS
47. GENERAL INFORMATION ABOUT THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA, THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA SEPARATE ACCOUNT B AND MANUFACTURERS
INVESTMENT TRUST: Manufacturers Investment Trust, The
Manufacturers Life Insurance Company of North America Separate
Account B
48. Not Applicable
49. Not Applicable
50. GENERAL INFORMATION ABOUT THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA, THE MANUFACTURERS LIFE INSURANCE
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COMPANY OF NORTH AMERICA SEPARATE ACCOUNT B AND MANUFACTURERS
INVESTMENT TRUST: The Manufacturers Life Insurance Company of
North America Separate Account B
51. Cover Page; DESCRIPTION OF THE CONTRACT; CHARGES AND DEDUCTIONS
52. GENERAL INFORMATION ABOUT THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA, THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA SEPARATE ACCOUNT B AND MANUFACTURERS
INVESTMENT TRUST: The Manufacturers Life Insurance Company of
North America Separate Account B, Manufacturers Investment Trust
53. FEDERAL TAX MATTERS
54. Not Applicable
55. Not Applicable
56. Not Required
57. Not Required
58. Not Required
59. FINANCIAL STATEMENTS
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PART I
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Service Office Mailing Address
116 Huntington Avenue P.O. Box 9236
Boston, Massachusetts 02116 Boston, Massachusetts
(617) 266-6004 (800) 224-3687 02205-9236
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THE MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA SEPARATE ACCOUNT B
- --------------------------------------------------------------------------------
OF
THE MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA
VENTURE LIFE MODIFIED SINGLE PAYMENT VARIABLE
LIFE INSURANCE CONTRACT NON-PARTICIPATING
This Prospectus describes Venture Life, a modified single payment
combination fixed and variable life insurance contract (the "contract"), offered
by The Manufacturers Life Insurance Company of North America, formerly North
American Security Life Insurance Company (the "Company"), a stock life insurance
company the ultimate parent of which is The Manufacturers Life Insurance Company
("Manulife"). The contract is designed primarily for use in estate planning. The
contract requires the contract owner to make an initial premium payment of at
least $10,000 and, subject to certain restrictions, permits additional premium
payments.
The contract provides for a face amount which is the minimum death
benefit while the contract is in force. The contract can be issued on either a
single life or last survivor basis. At the death of the insured while the
contract is in force, the Company will pay the death benefit (minus any
indebtedness) to the beneficiary.
Values under the contract may be allocated to a fixed investment option
and held in the Company's general account, or to one or more of twenty-nine
currently available variable investment options and held in The Manufacturers
Life Insurance Company of North America Separate Account B, formerly NASL
Variable Life Account (the "Variable Account"), a separate account of the
Company. Except as specifically noted herein and as set forth in the caption
"FIXED INVESTMENT OPTION" below, this Prospectus describes only the variable
portion of the contract.
Assets allocated to the Variable Account will be held in one or more of
twenty-nine Sub-Accounts of the Variable Account (the "Sub-Accounts"). The
assets of each Sub-Account are invested in shares of Manufacturers Investment
Trust (the "Trust"), a mutual fund having an investment Portfolio for each
Sub-Account of the Variable Account. See the accompanying Prospectus of the
Trust. The value of a contract owner's interest in the Variable Account will,
and a contract's death benefit may, vary with the investment performance of the
Portfolios underlying the Sub-Accounts to which values are allocated. The
Company does not guarantee the performance of any Portfolio.
BECAUSE THE CONTRACT WILL TYPICALLY BE TREATED AS A MODIFIED ENDOWMENT
CONTRACT FOR FEDERAL INCOME TAX PURPOSES, LOANS, PARTIAL WITHDRAWALS OR
SURRENDER OF THE CONTRACT MAY BE SUBJECT TO INCOME TAX AND A 10% PENALTY TAX.
It may not be advantageous to purchase variable life insurance as a
replacement for existing insurance.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS INFORMATION ABOUT THE VARIABLE ACCOUNT AND THE VARIABLE PORTION OF THE
CONTRACT THAT A PROSPECTIVE PURCHASER SHOULD KNOW BEFORE INVESTING. IN ADDITION,
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") MAINTAINS A WEB SITE
(HTTP://WWW.SEC.GOV) THAT CONTAINS MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING REGISTRANTS THAT FILE ELECTRONICALLY WITH THE SEC.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
VENLIFE.598 The date of the Prospectus is May 1, 1998
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TABLE OF CONTENTS
SPECIAL TERMS................................................................ 3
SUMMARY...................................................................... 6
GENERAL INFORMATION ABOUT THE MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA, THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH
AMERICA SEPARATE ACCOUNT B, AND MANUFACTURERS INVESTMENT TRUST............... 8
DESCRIPTION OF THE CONTRACT.................................................. 13
Application for a Contract........................................ 13
Payments.......................................................... 13
Allocation of Payments............................................ 14
Variable Investment Options....................................... 14
Transfers Among Investment Options................................ 15
Telephone Transactions............................................ 15
Dollar Cost Averaging ............................................ 15
Asset Rebalancing Program......................................... 15
Loans............................................................. 16
Withdrawals....................................................... 16
Death Benefit..................................................... 17
Annuity Payment Options........................................... 18
Termination....................................................... 19
Reinstatement..................................................... 20
Fixed Investment Option........................................... 20
Ten Day Right to Review........................................... 21
Ownership......................................................... 21
Beneficiary....................................................... 21
Miscellaneous Contract Provisions................................. 21
CHARGES AND DEDUCTIONS....................................................... 22
Monthly Deduction................................................. 22
Distribution Charge............................................... 23
Premium Tax Charge................................................ 24
Federal Tax Charge................................................ 24
Administration Charge............................................. 24
Cost of Insurance Charge.......................................... 24
Mortality and Expense Risk Charge................................. 24
Withdrawal Charge................................................. 24
Other Charges..................................................... 26
Other Taxes...................................................... 27
FEDERAL TAX MATTERS.......................................................... 27
Introduction...................................................... 27
The Company's Tax Status.......................................... 28
Taxation of Life Insurance Contracts in General................... 28
Disallowance of Interest Deduction................................ 32
Federal Income Tax Withholding.................................... 32
OTHER MATTERS................................................................ 32
Voting Rights..................................................... 32
Notices and Reports to Contract Owners............................ 33
Distribution of the Contract...................................... 33
Officers and Directors of the Company............................. 34
Confirmation Statements........................................... 35
Legal Proceedings................................................. 35
Legal Matters..................................................... 35
Independent Auditors.............................................. 36
Year 2000 Issues.................................................. 36
Other Information................................................. 36
Safekeeping of Variable Account Assets............................ 36
Contract Owner Inquiries.......................................... 36
2
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CONTRACT ILLUSTRATIONS....................................................... 36
FINANCIAL STATEMENTS......................................................... 44
3
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SPECIAL TERMS
Age and Attained Age The age at the insured's last birthday on the contract
date. If the insured is more than one person, "age" is
the joint equivalent age specified on the contract
specifications page. "Attained age" is age plus the
number of complete contract years.
Annuity Option One of several alternative methods by which
payment of the proceeds may be made. If no annuity
option is specified, then proceeds will be paid in a
lump-sum.
Beneficiary The person, persons, or entity to whom the death benefit
proceeds are payable following the death of the insured.
Cash Value The contract value minus any applicable
withdrawal charge. Company The Manufacturers Life
Insurance Company of North America Contingent The
person, persons or entity who becomes the beneficiary if
the beneficiary is not Beneficiary alive.
Contract The anniversary of the contract date.
Anniversary
Code The Internal Revenue Code of 1986, as amended.
Contract Date The date from which contract anniversary, contract year
and monthly anniversary day are determined. The contract
date is specified on the contract specifications page.
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 contract anniversary
thereafter.
Death Benefit The death benefit is determined on the date of
the insured's death and will be the greater of (a) the
face amount or (b) the contract value multiplied by the
death benefit factor stated in the contract. Debt Any
amounts in the loan account attributable to the contract
plus any accrued loan interest.
Face Amount The minimum death benefit provided by the contract. The
initial face amount is shown on the contract
specifications page. The face amount may be reduced as a
result of partial withdrawals and may be increased as
the result of additional premium payments.
General Account All of the assets of the Company other than assets in
separate accounts.
In Force The contract is in effect, beginning on the later of the
issue date or receipt of the initial payment, until the
contract is terminated.
Insured The person whose life is covered by the contract, as
specified on the contract specifications page. If more
than one person is so named, all provisions of the
contract which are based on the death of the insured
will be based on the date of the death of the last
survivor of those persons. Investment Account An account
the Company establishes for the owner which represents
the owner's interest in an investment option.
Investment Account The value of the owner's investment in an investment
Value account.
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Investment Options The fixed and variable investments available to contract
owners. Currently, one fixed and twenty-nine variable
investment options are available under the contract. The
Company currently limits the number of investment
options to which an owner may allocate contract value to
ten.
Issue Date The date the application is approved and the
contract is issued, as specified on the contract
specification page.
Loan Account The portion of the assets held in the Company's general
account that is used as collateral when a loan is taken.
Maturity Date The date on which proceeds are payable if the insured is
living, and the contract has not been surrendered for
payment of its surrender value, as specified on the
contract specifications page (the contract anniversary
when the insured has attained age 100, unless the
extended maturity option is elected).
Monthly Anniversary Day The same day each month as the contract date. If there
is no monthly anniversary day in a calendar month, the
monthly anniversary day will be the last day of the
current calendar month.
Owner or The person, persons or entity entitled to the ownership
Contract Owner rights under the contract.
Payment or An amount paid by a contract owner to the Company as
Premium Payment consideration for the benefits provided by the contract.
Portfolio or The registered management investment companies (or any
Trust Portfolio successor companies offered under the contract) in which
the separate account may invest.
Proceeds Upon the death of the insured while the contract is in
force prior to the maturity date, the amount to be paid
to the beneficiary (the death benefit minus any debt).
Upon surrender of the contract or on the maturity date,
the surrender value to be paid to the contract owner.
Separate Account A segregated account of the Company that is not
commingled with the Company's general assets and
obligations.
Service Office Any office the Company designates for the receipt of
payments and processing of contract owner requests.
Sub-Account(s) The subdivisions of the separate account used to permit
a contract owner's contract value, less indebtedness, to
be allocated among the Portfolios.
Surrender Value The cash value less any debt.
Trust Manufacturers Investment Trust
Unliquidated The sum of all payments under the contract, minus the
Payments sum of payments liquidated, if any, due to partial
withdrawals.
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 valuation date that the net asset
value of each Portfolio is determined.
Variable Account The Manufacturers Life Insurance Company of North
America Separate Account B, which is a separate account
of the Company.
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SUMMARY
THE CONTRACT
The contract is a modified single payment variable life insurance
contract. The contract provides a death benefit and is designed for use in
estate planning. During the insured's life, the contract provides that the
contract value will accumulate on a fixed and/or variable basis. The variable
portion of the contract will vary with the investment performance of an owner's
variable investment accounts. Any portion of contract value allocated to the
fixed investment option will accumulate based on the interest rate(s) credited
by the Company.
PAYMENTS
The contract requires the contract owner to make an initial payment of
at least $10,000 and, subject to certain restrictions, permits additional
payments. After the first contract anniversary, one additional premium payment
of at least $1,000 may be made at any time during each contract year. Provided
that the insured is between ages 40 and 70, up to the lesser of $5,000 or 5% of
the initial payment may be paid without submitting new evidence of insurability.
Additional payments may or may not increase the contract's face amount (see
"PAYMENTS").
INVESTMENT OPTIONS
Payments may be allocated among the thirty investment options currently
available under the contract: twenty-nine variable investment options and one
fixed investment option. Contract value may be allocated to a maximum of ten
investment options at any one time. The twenty-nine variable investment options
are the twenty-nine Sub-Accounts of the Variable Account, a separate account
established by the Company. The Sub-Accounts invest in corresponding Portfolios
of the Trust: Science and Technology Trust, International Small Cap Trust,
Emerging Growth Trust, Pilgrim Baxter Growth Trust, Small/Mid Cap Trust,
International Stock Trust, Global Equity Trust, Equity Trust, Growth Trust, Blue
Chip Growth Trust, Real Estate Securities Trust, Value Trust, International
Growth and Income Trust, Growth and Income Trust, Equity-Income Trust,
Aggressive Asset Allocation Trust, High Yield Trust, Moderate Asset Allocation
Trust, Conservative Asset Allocation Trust, Strategic Bond Trust, Global
Government Bond Trust, Investment Quality Bond Trust, U.S. Government Securities
Trust, Money Market Trust, Lifestyle Aggressive 1000 Trust, Lifestyle Growth 820
Trust, Lifestyle Balanced 640 Trust, Lifestyle Moderate 460 Trust and the
Lifestyle Conservative 280 Trust (see the accompanying Prospectus of the Trust).
The portion of the contract value in the Variable Account will reflect the
investment performance of the Sub-Accounts selected (see "THE MANUFACTURERS LIFE
INSURANCE COMPANY OF NORTH AMERICA SEPARATE ACCOUNT B"). Premium payments may
also be allocated to the fixed investment option. Under the fixed investment
option, the Company guarantees the principal value of payments and the rate of
interest credited to the investment account until the next contract anniversary.
The portion of the contract value in the fixed investment option will reflect
such interest and principal guarantees (see "FIXED INVESTMENT OPTION"). Subject
to certain regulatory limitations, the Company may elect to add, subtract or
substitute investment options.
If the initial payment is received at the Service Office prior to the
issue date, the entire payment will be allocated to the Company's General
Account. This amount will be allocated to the Money Market Sub-Account as of the
issue date of the contract. The contract value will then be allocated among the
investment accounts in accordance with the applicant's instructions on the later
of (a) fifteen days after the issue date of the contract or (b) the date the
initial payment is received at the Service Office.
TRANSFERS
Prior to the maturity date, amounts may be transferred among the
variable investment options and from the variable investment options to the
fixed investment option without charge. In addition, amounts may be transferred
prior to the maturity date from the fixed investment option to the variable
investment options within 30 days of each contract anniversary (and in other
limited circumstances) (see "FIXED INVESTMENT OPTION"). After the maturity date,
transfers are not permitted. 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 of the contract from
which the transfer is made is less than $100, then the Company will transfer the
entire amount instead of the requested amount. The Company may impose certain
additional limitations on transfers (see "TRANSFERS AMONG INVESTMENT OPTIONS").
Transfer privileges may also be
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used under a special service offered by the Company to dollar cost average an
investment in the contract (see "DOLLAR COST AVERAGING").
WITHDRAWALS
Prior to the earlier of the maturity date or the death of the insured,
the owner may withdraw all or a portion of the contract value. The amount
withdrawn from any investment account must be at least $300 or, if less, the
entire balance of the investment account. If a partial withdrawal plus any
applicable withdrawal charge would reduce the contract value to less than $300,
the withdrawal request will be treated as a request to withdraw the entire
contract value. A withdrawal charge may be imposed (see "WITHDRAWALS"). A
withdrawal may be subject to income tax and a 10% penalty tax (see "FEDERAL TAX
MATTERS").
LOANS
A owner may obtain one or both of two types of loans using the contract
as the sole security for the loan. At the time a loan is requested, the
aggregate amount of all loans (including the currently applied for loan) may not
exceed 90% of the cash value (see "LOANS"). A loan may be subject to income tax
and a 10% penalty tax (see "FEDERAL TAX MATTERS").
Confirmation Statements
Owners will be sent confirmation statements for certain transactions in
their account. Owners should carefully review these statements to verify their
accuracy. Any mistakes should immediately be reported to the Company's Service
Office. If the owner fails to notify the Company's Service Office of any mistake
within 60 days of the mailing of the confirmation statement, the owner will be
deemed to have ratified the transaction.
CHARGES AND DEDUCTIONS
Contract Charges
No deduction is made from premium payments under the contract. On
each monthly anniversary day (or, if the monthly anniversary is not a valuation
date, the next valuation date after the monthly anniversary), charges are
deducted proportionately from all investment accounts.
Certain charges are expressed as an annual percentage of the owner's
contract value:
Three of these charges are deducted only during the first ten
contract years:
- 0.25% for distribution costs incurred by the Company,
- 0.25% for state premium taxes to be paid by the Company as a
result of receipt of premium payments, and
- 0.15% for the Company's increased Federal taxes caused by its
receipt of premium payments.
Two of these charges are deducted for all contract years:
- A 0.40% charge for contract administration, and
- A 0.35% charge for the death benefit provided by the contract
(0.55% after the first ten contract years). If there is more
than one insured, this charge is 0.10% (0.30% after the first
ten contract years). This cost of insurance charge may vary;
however, it is guaranteed not to exceed charges based upon the
Commissioner's 1980 Standard Ordinary Mortality Table (the
"1980 CSO Table").
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In addition, there are two other contract charges:
- A charge at an annual rate of 0.90% of the value of each
variable investment account is deducted monthly for the
mortality and expense risks assumed by the Company in
connection with the contract.
- A monthly administrative charge of $2.50 per month will be
imposed upon contracts with less than $100,000 of total premium
payments (see "CHARGES AND DEDUCTIONS").
Trust Charges
There are deductions from and expenses paid out of the assets of the
Trust Portfolios that are described in the accompanying Prospectus of the Trust.
DEATH BENEFIT
The contract provides for a face amount which is the minimum death
benefit under the contract. The death benefit may be greater than the face
amount as a result of favorable investment performance. At the death of the
insured, the Company will pay the proceeds to the beneficiary. The proceeds
equal the death benefit less any debt under the contract (see "DEATH BENEFIT").
TEN DAY REVIEW
Within 10 days of receipt of a contract, the contract owner may cancel
the contract by returning it to the Company (see "TEN DAY RIGHT TO REVIEW").
TERMINATION
The contract will terminate and life insurance coverage will cease if
the owner surrenders the contract, or if the insured dies. It also will
terminate 61 days after a monthly anniversary day when the contract surrender
value is less than zero unless the owner makes payments within the 61 day grace
period sufficient to prevent the termination. Unless the owner elects the
extended maturity option, the contract will also terminate on the maturity date
specified on the contract specifications page (the contract anniversary when the
attained age of the insured is 100) (see "TERMINATION").
GENERAL INFORMATION ABOUT
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA ,
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA SEPARATE
ACCOUNT B AND MANUFACTURERS INVESTMENT TRUST
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
The Manufacturers Life Insurance Company of North America, (the
"Company") is a stock life insurance company organized under the laws of
Delaware in 1979. The Company's principal office is located at 116 Huntington
Avenue, Boston, Massachusetts 02116. The Company is also the depositor of The
Manufacturers Life Insurance Company of North America Separate Account B, (the
"Variable Account") a separate account of the Company that issues variable life
contracts. The ultimate parent of the Company is The Manufacturers Life
Insurance Company ("Manulife"), a Canadian mutual life insurance company based
in Toronto, Canada. Prior to January 1, 1996, the Company was a wholly owned
subsidiary of North American Life Assurance Company ("NAL"), a Canadian mutual
life insurance company. On January 1, 1996 North American Life and Manulife
merged with the combined company retaining the name Manulife.
On January 20, 1998, the Board of Directors of Manulife asked the
management of Manulife to prepare a plan for conversion of Manulife from a
mutual life insurance company to an investor-owned, publicly-traded stock
company. Any demutualization plan for Manulife is subject to the approval of the
Manulife Board of Directors and policyholders as well as regulatory approval.
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA SEPARATE ACCOUNT B
The Company established the Variable Account in 1986, as a separate
account under Delaware law. The income, gains and losses, whether or not
realized, from assets of the Variable Account are, in accordance with the
contract, credited to or charged against the Variable Account without regard to
other income, gains or losses of the Company. Nevertheless, all obligations
arising under the contract are general corporate obligations of the Company.
Assets of the Variable Account may not be charged with liabilities arising out
of any other business of the Company.
The Variable Account is registered with the SEC under the Investment
Company Act of 1940, as amended (the "1940 Act") as a unit investment trust. A
unit investment trust is a type of investment company which invests its assets
in specified securities, such as the shares of one or more investment companies.
Registration under the 1940 Act does not involve supervision by the SEC of the
management or investment policies or practices of the Variable Account. If
deemed by the Company to be in the best interests of persons having voting
rights under the contract, the Variable Account may be operated as a management
company under the 1940 Act or it may be deregistered if registration under the
1940 Act is no longer required.
There are currently twenty-nine Sub-Accounts within the Variable
Account, one for each of the twenty-nine Portfolios described below. The Company
reserves the right to add other Sub-Accounts, eliminate existing Sub-Accounts,
combine Sub-Accounts or transfer assets in one Sub-Account to another
Sub-Account established by the Company or an affiliated company. The Company
will not eliminate existing Sub-Accounts or combine Sub-Accounts without
obtaining any necessary approval of the appropriate state or Federal regulatory
authorities.
MANUFACTURERS INVESTMENT TRUST
The assets of each sub-account of the Variable Account are invested in
shares of a corresponding Portfolio of the Trust. A description of each
Portfolio is set forth below. The Trust is registered under the 1940 Act as an
open-end management investment company. Each of the portfolios is diversified
for purposes of the 1940 Act, except for the Global Government Bond Trust,
Emerging Growth Trust and the five Lifestyle Trusts which are non-diversified.
The Trust receives investment advisory services from Manufacturers Securities
Services, LLC, the successor to NASL Financial Services, Inc. ("MSS").
The Trust currently has fourteen subadvisers who manage all of the
portfolios:
SUBADVISER SUBADVISER TO
- ---------- -------------
Fidelity Management Trust Company Equity Trust
Conservative Asset Allocation Trust
Moderate Asset Allocation Trust
Aggressive Asset Allocation Trust
Founders Asset Management LLC Growth Trust
International Small Cap Trust
Fred Alger Management, Inc. Small/Mid Cap Trust
J.P. Morgan Investment Management Inc. International Growth and Income Trust
Manufacturers Adviser Corporation Real Estate Securities Trust
Money Market Trust
Lifestyle Aggressive 1000 Trust
Lifestyle Growth 820 Trust
Lifestyle Balanced 640 Trust
Lifestyle Moderate 460 Trust
Lifestyle Conservative 280 Trust
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<PAGE> 15
Miller Anderson & Sherrerd, LLP Value Trust
High Yield Trust
Morgan Stanley Asset Management Inc. Global Equity Trust
Oechsle International Advisors, L.P. Global Government Bond Trust
Pilgrim Baxter & Associates, Ltd. Pilgrim Baxter Growth Trust
Rowe Price-Fleming International, Inc. International Stock Trust
Salomon Brothers Asset Management Inc U.S. Government Securities Trust
Strategic Bond Trust
T. Rowe Price Associates, Inc. Science & Technology Trust
Blue Chip Growth Trust
Equity-Income Trust
Warburg Pincus Asset Management, Inc. Emerging Growth Trust
Wellington Management Company, LLP Growth and Income Trust
Investment Quality Bond Trust
The following is a brief description of each Portfolio:
The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital.
Current income is incidental to the Portfolio's objective.
The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by
investing primarily in securities issued by foreign companies which
have total market capitalization or annual revenues of $1 billion or
less. These securities may represent companies in both established and
emerging economies throughout the world.
The EMERGING GROWTH TRUST seeks maximum capital appreciation by
investing primarily in a Portfolio of equity securities of domestic
companies. The Emerging Growth Trust ordinarily will invest at least
65% of its total assets in common stocks or warrants of emerging growth
companies that represent attractive opportunities for maximum capital
appreciation.
The PILGRIM BAXTER GROWTH TRUST seeks capital appreciation by investing
in companies believed by the Subadviser to have an outlook for strong
earnings growth and the potential for significant capital appreciation.
The SMALL/MID CAP TRUST seeks long-term capital appreciation by
investing at least 65% of its total assets (except during temporary
defensive periods) in small/mid cap equity securities. As used herein
small/mid cap equity securities are equity securities of companies
that, at the time of purchase, have total market capitalization between
$500 million and $5 billion.
The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by
investing primarily in common stocks of established, non-U.S.
companies.
The 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 EQUITY TRUST seeks growth of capital by investing primarily in
common stocks of United States issuers and securities convertible into
or carrying the right to buy common stocks.
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<PAGE> 16
The GROWTH TRUST seeks long term growth of capital by investing at
least 65% of the Portfolio's total assets in common stocks of
well-established, high-quality growth companies that the Subadviser
believes have the potential to increase earnings faster than the rest
of the market.
The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital
(current income is a secondary objective) and many of the stocks in the
Portfolio are expected to pay dividends.
The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of
long-term capital appreciation and satisfactory current income by
investing in real estate related equity and debt securities.
The VALUE TRUST seeks to realize an above-average total return over a
market cycle of three to five years, consistent with reasonable risk by
investing primarily in common and preferred stocks, convertible
securities, rights and warrants to purchase common stocks, ADRs and
other equity securities of companies with equity capitalizations
usually greater than $300 million.
The INTERNATIONAL GROWTH AND INCOME TRUST seeks long-term growth of
capital and income by investing, under normal circumstances, at least
65% of its total assets in equity securities of foreign issuers. The
Portfolio may also invest in debt securities of corporate or sovereign
issuers rated A or higher by Moody's Investor Services, Inc. or
Standard & Poor's Corporation or, if unrated, of equivalent credit
quality as determined by the subadviser.
The GROWTH AND INCOME TRUST seeks long-term growth of capital and
income, consistent with prudent investment risk, by investing primarily
in a diversified Portfolio of common stocks of United States issuers
which the Subadviser believes are of high quality.
The EQUITY-INCOME TRUST seeks to provide substantial dividend income
and also long-term capital appreciation by investing primarily in
dividend-paying common stocks, particularly of established companies
with favorable prospects for both increasing dividends and capital
appreciation.
The HIGH YIELD TRUST seeks to realize an above-average total return
over a market cycle of three to five years, consistent with reasonable
risk, by investing primarily in high yield debt securities, including
corporate bonds and other fixed-income securities.
The AUTOMATIC ASSET ALLOCATION TRUSTS seek the highest potential total
return consistent with a specified level of risk tolerance --
conservative, moderate or aggressive -- by investing primarily in the
kinds of securities in which the Equity, Investment Quality Bond, U.S.
Government Securities and Money Market Trusts may invest.
- The AGGRESSIVE ASSET ALLOCATION TRUST seeks the highest total
return consistent with an aggressive level of risk tolerance. This
Portfolio attempts to limit the decline in Portfolio value in very
adverse market conditions to 15% over any three year period.
- The MODERATE ASSET ALLOCATION TRUST seeks the highest total return
consistent with a moderate level of risk tolerance. This Portfolio
attempts to limit the decline in Portfolio value in very adverse
market conditions to 10% over any three year period.
- The CONSERVATIVE ASSET ALLOCATION TRUST seeks the highest total
return consistent with a conservative level of risk tolerance.
This Portfolio attempts to limit the decline in Portfolio value in
very adverse market conditions to 5% over any three year period.
The STRATEGIC BOND TRUST seeks a high level of total return consistent
with preservation of capital by giving its Subadviser broad discretion
to deploy the Portfolio's assets among certain segments of the
fixed-income market as the Subadviser believes will best contribute to
achievement of the Portfolio's investment objective.
The GLOBAL GOVERNMENT BOND TRUST seeks a high level of total return by
placing primary emphasis on high current income and the preservation of
capital by investing primarily in a global Portfolio of high-quality,
fixed-income securities of foreign and United States governmental
entities and supranational issuers.
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<PAGE> 17
The INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by
investing primarily in a diversified Portfolio of investment grade
corporate bonds and U.S. Government bonds with intermediate to longer
term maturities. The Portfolio may also invest up to 20% of its assets
in non-investment grade fixed income securities.
The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current
income consistent with preservation of capital and maintenance of
liquidity, by investing in debt obligations and mortgage-backed
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and derivative securities such as collateralized
mortgage obligations backed by such securities.
The MONEY MARKET TRUST seeks maximum current income consistent with
preservation of principal and liquidity by investing in high quality
money market instruments with maturities of 397 days or less issued
primarily by United States entities.
The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth
of capital (current income is not a consideration) by investing 100% of
the Lifestyle Trust's assets in other Portfolios of the Trust
("Underlying Portfolios") which invest primarily in equity securities.
The LIFESTYLE GROWTH 820 TRUST seeks to provide long term growth of
capital with consideration also given to current income by investing
approximately 20% of the Lifestyle Trust's assets in Underlying
Portfolios which invest primarily in fixed income securities and
approximately 80% of its assets in Underlying Portfolios which invest
primarily in equity securities.
The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a
high level of current income and growth of capital with a greater
emphasis given to capital growth by investing approximately 40% of the
Lifestyle Trust's assets in Underlying Portfolios which invest
primarily in fixed income securities and approximately 60% of its
assets in Underlying Portfolios which invest primarily in equity
securities.
The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a
high level of current income and growth of capital with a greater
emphasis given to high income by investing approximately 60% of the
Lifestyle Trust's assets in Underlying Portfolios which invest
primarily in fixed income securities and approximately 40% of its
assets in Underlying Portfolios which invest primarily in equity
securities.
The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of
current income with some consideration also given to growth of capital
by investing approximately 80% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities
and approximately 20% of its assets in Underlying Portfolios which
invest primarily in equity securities.
In pursuing the Strategic Bond, High Yield and Investment Quality Bond
Trusts' investment objective, each portfolio expects to invest a portion of its
assets in high yield securities, commonly known as "junk bonds" which also
present a high degree of risk. The risks of these securities include price
volatility and risk of default in the payment of interest and principle. See
"Risk Factors Relating to High Yield Securities" contained in the Trust
Prospectus before investing in any of these Trusts.
In pursuing the Pacific Rim Emerging Markets, International Stock,
Worldwide Growth, International Small Cap, Global Equity, Strategic Bond,
International Growth and Income, High Yield and Global Government Bond Trusts'
investment objective, each portfolio may invest up to 100% of its assets in
foreign securities which may present additional risks. See "Foreign Securities"
in the Trust Prospectus before investing in any of these Trusts.
If the shares of any Portfolio are no longer available for investment
or in the Company's judgment, investment in a Portfolio becomes inappropriate in
view of the purposes of the Variable Account, the Company may eliminate the
shares of a Portfolio and substitute shares of another Portfolio or another
open-end registered investment company. Substitution may be made with respect to
both existing investments and the investment of future payments. However, no
substitution will be made without notice to contract owners and prior approval
of the SEC to the extent required by the 1940 Act. The Variable Account may
purchase other securities for additional
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<PAGE> 18
Sub-Accounts or to fund classes of contracts not offered through this Prospectus
without giving such notice or seeking SEC approval.
A full description of the Trust, including the investment objectives,
policies and restrictions and expenses of each of the Portfolios and a
description of procedures for handling potential conflicts of interest arising
from the use of the Trust to fund both variable annuity and variable life
insurance contracts, is contained in the Prospectus for the Trust which
accompanies this Prospectus and should be read by a prospective purchaser before
investing.
DESCRIPTION OF THE CONTRACT
APPLICATION FOR A CONTRACT
To purchase a contract a prospective contract owner must submit an
application to the Company. A contract will be issued only on the lives of
insureds from ages 20 through 80 who supply evidence of insurability
satisfactory to the Company. Contracts insuring more than one person will only
be issued to a male life/female life combination where the difference in their
"adjusted ages" (age last birthday plus three years if tobacco user) is not more
than 15 years. Acceptance is subject to the Company's underwriting rules. The
Company reserves the right to reject an application for any lawful reason
provided similarly-situated risks are treated in a consistent manner and unfair
discrimination is avoided. IF A CONTRACT IS NOT ISSUED, THE PREMIUM PAYMENTS
WILL BE RETURNED WITHOUT INTEREST. No change in the terms or conditions of a
contract will be made without the consent of the owner.
The contract will be effective on the contract date only after the
Company has received all outstanding delivery requirements and received the
initial payment. The contract date is the date used to determine all future
cyclical transactions on the contract, e.g., monthly anniversary day and
contract years. The contract date may be prior to, or the same as, the date the
contract is issued.
If the face amount exceeds current limits established by the Company,
the initial payment will not be accepted with the application. In other cases
where an initial payment is received with the application, the Company will
provide conditional insurance during underwriting according to the terms of a
prepayment receipt and temporary life insurance agreement. The conditional
insurance will be the insurance applied for, up to a maximum of $100,000. If no
payment was submitted with the application, on contract delivery we will require
sufficient payment to place the insurance in force.
PAYMENTS
The contract is designed to permit an initial payment and, subject to
certain conditions, additional payments. The initial payment purchases a death
benefit initially equal to the contract's face amount. The minimum initial
payment is $10,000.
Under current underwriting rules, which are subject to change, proposed
insureds are eligible for simplified underwriting without a medical examination
if their application responses and initial payment meet simplified underwriting
standards. Customary underwriting standards will apply to all other proposed
insureds. The maximum initial premium currently permitted on a simplified
underwriting basis varies with the issue age of the insured according to the
following table:
ISSUE AGE SIMPLIFIED UNDERWRITING
MAXIMUM INITIAL PAYMENT
40-44 Not available
45-54 $ 20,000
55-64 $ 30,000
65-80 $ 50,000
$100,000
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<PAGE> 19
If the additional payment is greater than the Guaranteed Additional Payment (as
defined below) and is not made to avoid termination of the contract, new
evidence of insurability of the insured will be required. No additional payment
will be accepted until evidence of insurability is provided to the Company.
Additional payments may be made at any time and in any amount necessary
to avoid termination of the contract. Other additional payments may be made at
any time after the first contract anniversary, subject to the following
conditions:
(1) each additional payment must be at least $1,000;
(2) only one payment may be paid in any contract year;
(3) the attained age of the insured must be less than 81; and
(4) absent submission of new evidence of insurability of the insured,
the maximum additional payment permitted in a contract year is
the "Guaranteed Additional Payment". The Guaranteed Additional
Payment is the lesser of $5,000 or a percentage of the initial
payment (5% for attained ages 40-70, and 0% for attained ages
20-39 and 71-80).
An additional payment may result in an increase in the face amount of
insurance. If necessary, the Company will increase the face amount by an amount
sufficient to permit the contract to remain within the definition of a "life
insurance contract" under Section 7702 of the Internal Revenue Code of 1986, as
amended (the "Code").
ALLOCATION OF PAYMENTS
The Company will establish an investment account for the contract owner
for each variable investment option to which the contract owner allocates
payments. The contract owner may allocate contract value to a maximum of ten
investment options at any one time.
If the initial payment is received at the Service Office prior to the
issue date, the entire payment will be allocated to the Company's General
Account. On the issue date, this amount will be allocated to the Money Market
Sub-Account as of the date the initial payment is received at the Service
Office. The contract value will then be allocated among the investment accounts
in accordance with the applicant's instructions on the later of (a) fifteen days
after the issue date of the contract or (b) the date the initial payment is
received at the Service Office. Additional payments are first applied to the
amount of any debt under any outstanding loan. Thereafter, additional payments
will be allocated among investment options in accordance with the contract
owner's instructions as of the date the payment is received at the Service
Office.
VARIABLE INVESTMENT OPTIONS
The investment account for a variable investment option represents the
contract owner's interest in that investment option. The value of a variable
investment account may increase or decrease daily depending on the net
investment experience (described below) for a Sub-Account. The investment
account value reflects payments, amounts transferred to the investment account,
the net investment experience of the Sub-Account, and any withdrawals, loans,
transfers and charges taken from the investment account.
The net investment experience for a variable investment account is the
investment performance of the underlying Trust Portfolio of a Sub-Account from
one valuation period to the next. The net investment experience for any
valuation period is determined by dividing (a) by (b):
Where (a) is:
(1) the net asset value of a Portfolio share held in the Sub-Account
determined at the end of the current valuation period, plus
(2) the per share amount of any dividend or capital gain distributions
made by the Portfolio on shares held in the Sub-Account if the "ex-dividend"
date occurs during the current valuation period.
Where (b) is:
the net asset value of a Portfolio share held in the Sub-Account
determined as of the end of the immediately preceding valuation period.
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<PAGE> 20
TRANSFERS AMONG INVESTMENT OPTIONS
Before the maturity date the contract owner may transfer amounts among
the variable investment options and from such investment options to the fixed
investment option at any time and without charge upon written notice to the
Company or by telephone if the contract owner authorizes the Company in writing
to accept telephone transfer requests. Amounts may only be transferred from the
fixed investment option to the variable investment options within 30 days of the
contract anniversary. The Company will effect such transfers so that the
contract value on the date of the transfer will not be affected by the transfer.
The contract owner must transfer at least $300 or, if less, the entire value of
the investment account. If after the transfer the amount remaining in the
investment account is less than $100, then the Company will transfer the entire
amount instead of the requested amount. The Company reserves the right to limit,
upon notice, the maximum number of transfers a contract owner may make to one
per month or six at any time within a contract year. In addition, the Company
reserves the right to defer the transfer privilege at any time that the Company
is unable to purchase or redeem shares of the Trust Portfolios. The Company also
reserves the right to modify or terminate the transfer privilege at any time in
accordance with applicable law.
TELEPHONE TRANSACTIONS
Contract owners are permitted to request transfers by telephone. The
Company will not be liable for following instructions communicated by telephone
that it reasonably believes to be genuine. To be permitted to request transfers
by telephone, a contract owner must elect the option on an appropriate
authorization form provided by the Company. The Company will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine
and may only be liable for any losses due to unauthorized or fraudulent
instructions where it fails to employ its procedures properly. Such procedures
include the following: Upon telephoning a request, contract owners will be asked
to provide certain identifying information. For the contract owner's and
Company's protection, all conversations with contract owners will be tape
recorded. All telephone transactions will be followed by a confirmation
statement of the transaction.
DOLLAR COST AVERAGING
The Company administers a Dollar Cost Averaging ("DCA") program which
enables a contract owner to pre-authorize a periodic exercise of the contractual
transfer rights described above. Contract owners entering into a DCA agreement
instruct the Company to transfer monthly a predetermined dollar amount from any
Sub-Account or the fixed investment option to other Sub-Accounts until the
amount in the Sub-Account from which the transfer is made or the fixed
investment option is exhausted. The DCA program is generally suitable for
contract owners making a substantial deposit to the contract and who desire to
control the risk of investing at the top of a market cycle. The DCA program
allows such investments to be made in equal installments over time in an effort
to reduce such risk. Contract owners interested in the DCA program may obtain a
separate application and full information concerning the program and its
restrictions from their securities dealer or the Service Office. There is no
charge for participation in the DCA program.
ASSET REBALANCING PROGRAM
The Company administers an Asset Rebalancing Program which enables a
contract owner to indicate to the Company the percentage levels he or she would
like to maintain in particular Trust Portfolios. On the last business day of
every calendar quarter, the contract owner's contract value will be
automatically rebalanced to maintain the indicated percentages by transfers
among the Portfolios. (The fixed investment option is not eligible for
participation in the Asset Rebalancing Program.) The entire value of the
contract owners' variable investment accounts must be included in the Asset
Rebalancing Program. Other investment programs, such as the DCA program, or
other transfers or withdrawals may not work in concert with the Asset
Rebalancing Program. Therefore, contract owners should monitor their use of
these programs and other transfers or withdrawals while the Asset Rebalancing
Program is being used. Contract owners interested in the Asset Rebalancing
Program may obtain a separate application and full information concerning the
program from their securities dealer or the Service Office. There is no charge
for participation in the Asset Rebalancing Program.
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LOANS
While the contract is in force, the owner may obtain loans using the
owner's contract as the sole security for the loan. The maximum loan amount is
90% of cash value at the time of the loan; the minimum loan amount is $1,000.
Contract loans may be subject to income tax and a 10% penalty tax (see "FEDERAL
TAX MATTERS"). When an owner requests a loan, the Company will reduce the
owner's investment in the investment accounts and transfer the amount of the
loan to the loan account, a part of the Company's general account. The owner may
designate the investment accounts from which the loan is to be withdrawn. Absent
such a designation, the amount of the loan will be withdrawn from the investment
accounts on a pro rata basis. On each contract anniversary, the Company will
transfer from the investment accounts to the loan account the amount by which
the debt on the contract exceeds the balance in the loan account. In addition,
any additional payments are first applied to the amount of any debt under any
outstanding loan.
The Company charges interest of 6% per year on contract loans. Loan
interest is payable in arrears and, unless paid in cash, the accrued loan
interest is added to the amount of the debt and bears interest at 6% as well.
Except for the target loan amount described below, the loan account will be
credited interest at the rate of 4% per year.
The target loan amount is equal to the greater of:
(a) the excess of the contract value over the unliquidated payments, or
(b) 10% of total payments made under the contract.
The amount of the loan account that is less than or equal to the target
loan amount will be credited interest at the rate of 6% per year (unless a lower
rate becomes necessary in order to maintain the tax status of the contract). The
portion of the loan account that qualifies as target loan amount is determined
on the contract date and each monthly anniversary day.
If on any date debt under a contract exceeds the contract value, the
contract will be in default. In such case, the owner will receive a notice
indicating the payment needed to bring the contract out of default and will have
a sixty-one day grace period within which to pay that amount. If the required
payment is not made within the grace period, the contract will be terminated.
There is a potential that the policy could lapse if projected earnings are not
achieved and there is a loan outstanding. See "Tax Treatment of Loans" for
further discussion of the possible adverse tax consequences in the event that a
contract lapses and a loan is outstanding.
The amount of any debt will be deducted from the death benefit
otherwise payable under the contract (see "DEATH BENEFIT"). In addition, debt,
whether or not repaid, will have a permanent effect on the contract value
because the investment results of the investment accounts will apply only to the
unborrowed portion of the contract value. The longer debt is outstanding, the
greater the effect is likely to be. The effect could be favorable or
unfavorable. If the investment results are greater than the rate being credited
on amounts held in the loan account while the debt is outstanding, the contract
value will not increase as rapidly as it would have if no debt were outstanding.
If investment results are below that rate, the contract value will be higher
than it would have been had no debt been outstanding.
The owner may repay any debt in whole or in part at any time while the
contract is in force. An amount equal to the amount of the loan repayment will
be transferred from the loan account and allocated among the investment accounts
in the same percentage as additional payments are allocated, unless the owner
requests otherwise.
WITHDRAWALS
Prior to the earlier of the maturity date or the death of the insured,
the owner may withdraw all or a portion of the contract value upon written
request, complete with all necessary information to the Service Office. In the
case of a total withdrawal, the Company will pay the surrender value as of the
date of receipt of the request at the Service Office, and the contract will
terminate. In the case of a partial withdrawal from an investment account, the
Company will pay the amount requested and deduct that amount plus any applicable
withdrawal
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<PAGE> 22
charge from such investment account. All request to withdraw all or a portion of
the contract value must be in writing. Telephone withdrawals are not permitted.
(see "CHARGES AND DEDUCTIONS").
When making a partial withdrawal, the contract owner should specify the
investment accounts from which the withdrawal is to be made. The amount
requested from an investment account may not exceed the value of that investment
account less any applicable withdrawal charge. If the contract owner does not
specify the investment account from which a partial withdrawal is to be taken, a
partial withdrawal will be taken from all the investment accounts. The face
amount will be reduced proportionally to the reduction in the contract value due
to the partial withdrawal.
For the rules governing the order and manner of withdrawals from the
fixed investment option (see "FIXED INVESTMENT OPTION").
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 account. If after the withdrawal (and deduction of any withdrawal
charge) the amount remaining in the investment account is less than $100, the
Company will treat the partial withdrawal as a withdrawal of the entire amount
held in the investment account. If a partial withdrawal plus any applicable
withdrawal charge would reduce the contract value to less than $300, the Company
will treat the partial withdrawal as a total withdrawal of the contract value.
The amount of any withdrawal from the variable investment options will
be paid promptly, and in any event within seven days of receipt of the request,
complete with all necessary information at the Service Office, except that the
Company reserves the right to defer the right of withdrawal or postpone payments
for any period when: (1) the New York Stock Exchange is closed (other than
customary weekend and holiday closings), (2) trading on the New York Stock
Exchange is restricted, (3) an emergency exists as a result of which disposal of
securities held in the Variable Account is not reasonably practicable or it is
not reasonably practicable to determine the value of the Variable Account's net
assets, or (4) the SEC, by order, so permits for the protection of security
holders; provided that applicable rules and regulations of the SEC shall govern
as to whether the conditions described in (2) and (3) exist.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax (see "FEDERAL TAX MATTERS").
DEATH BENEFIT
Upon receipt of proof of the death of the insured while the contract is in
force, the Company will pay the death benefit proceeds to the beneficiary. The
amount of the death benefit is determined on the date the Company receives proof
of the insured's death and will be the greater of (a) the face amount or (b) the
contract value times the death benefit factor from the following table:
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Death Death
Attained Benefit Attained Benefit
Age Factor Age Factor
-------- ------- -------- -------
40 or
younger 250% 60 130%
41 243% 61 128%
42 236% 62 126%
43 229% 63 124%
44 222% 64 122%
45 215% 65 120%
46 209% 66 119%
47 203% 67 118%
48 197% 68 117%
49 191% 69 116%
50 185% 70 115%
51 178% 71 113%
52 171% 72 111%
53 164% 73 109%
54 157% 74 107%
55 150% 75-90 105%
56 146% 91 104%
57 142% 92 103%
58 138% 93 102%
59 134% 94-99 101%
Proof of death is received when one of the following is received at the
Service Office:
(a) A certified copy of a death certificate; or
(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 the Company.
All or part of the death benefit proceeds may be paid in cash or
applied under an annuity option (see "ANNUITY PAYMENT OPTIONS"). If there is any
debt under the contract, the death benefit proceeds equal the death benefit, as
described above, less such debt.
ANNUITY PAYMENT OPTIONS
Proceeds payable under the contract are payable either in a lump sum or
in accordance with one or more annuity options. If no annuity option is
specified, then proceeds will be paid in a lump sum. The person to receive
payments under an option is called the payee and for joint and survivor
annuities, the second person named is called the co-payee. An annuity option may
be chosen only if the amount to be applied for any payee is at least $2,000.
Each periodic payment must be at least $25. In addition to the annuity options
described below, the owner may choose any form of settlement acceptable to the
Company.
The following options are guaranteed in the contract:
Option 1(a): Non-Refund Life Annuity - An annuity with payments during
the lifetime of the payee. No payments are due after the death of the
payee. Since there is no guarantee that any minimum number of payments
will be made, an annuitant may receive only one payment if the
annuitant dies prior to the date the second payment is due.
Option 1(b): Life Annuity with Payments Guaranteed for 10 Years - An
annuity with payments guaranteed for 10 years and continuing thereafter
during the lifetime of the payee. Since payments are guaranteed for 10
years, annuity payments will be made to the end of such period if the
payee dies prior to the end of the tenth year.
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Option 2(a): Joint & Survivor Non-Refund Life Annuity - An annuity with
payments during the lifetimes of the payee and a designated co-payee.
No payments are due after the death of the last survivor of the payee
and co-payee. Since there is no guarantee that any minimum number of
payments will be made, a payee or co-payee may receive only one payment
if the payee and co-payee 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 payee and a
designated co-payee. Since payments are guaranteed for 10 years,
annuity payments will be made to the end of that period if both the
payee and the co-payee die prior to the end of the tenth year.
In addition to the foregoing annuity options which the Company is
contractually obligated to offer at all times, the Company currently offers the
following annuity options. The Company may cease offering the following annuity
options at any time and may offer other annuity options in the future.
Option 3: Life annuity with Payments Guaranteed for 5, 15 or 20 Years -
An annuity with payments guaranteed for 5, 15 or 20 years and
continuing thereafter during the lifetime of the payee. Since payments
are guaranteed for the specific number of years, annuity payments will
be made to the end of the last year of the 5, 15 or 20 year period.
Option 4: Joint & Two-Thirds Survivor No-Refund Life Annuity - An
annuity with full payments during the joint lifetime of the payee and a
designated co-payee and two-thirds payments during the lifetime of the
survivor. Since there is no guarantee that any minimum number of
payments will be made, a payee or co-payee may receive only one payment
if the payee and co-payee die prior to the date the second payment is
due.
Death Benefit under Annuity Payment Options
If annuity payments have been selected based on an annuity option
providing for payments for a guaranteed period, and the payee(s) dies, the
Company will make the remaining guaranteed payments to the payee's named
beneficiary. If no beneficiary is living, the Company will commute any unpaid
guaranteed payments to a single sum (on the basis of the interest rate used in
determining the payments) and pay that single sum to the estate of the payee.
TERMINATION
The contract will terminate and life insurance coverage will cease on
the earliest of the following:
(a) the date the owner surrenders the contract; or
(b) the maturity date of the contract; or
(c) the end of the grace period described below; or
(d) the death of the insured.
A grace period of 61 days commences on a monthly anniversary day on
which the contract's surrender value is less than zero. If sufficient payment is
not made by the end of the grace period, the contract will terminate without
value. The Company will mail the owner and any assignee written notice of the
amount of payment that will be required to continue the contact in force at
least 61 days before the end of the grace period. The payment required will be
no greater than the amount required to pay the monthly deduction for three
months as of the day the grace period began. If payment is not made by the end
of the grace period, the owner's contract will terminate without value.
Termination on the maturity date may be avoided if the insured is
living on that date and if the owner sends the Company written notice that the
owner elects the contract's extended maturity option prior to the maturity date.
If the extended maturity option is elected, the entire contract value will be
transferred to the fixed investment account on the maturity date and no further
cost of insurance charges will be incurred. Death benefit proceeds will then be
equal to the surrender value. A decision to elect, or not to elect, the extended
maturity option will have income tax consequences (see "FEDERAL TAX MATTERS").
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REINSTATEMENT
During the life of the insured, this contract may be reinstated within
two years from the end of the grace period unless it was surrendered for payment
of its surrender value. To reinstate, the Company must receive satisfactory
proof of the insurability of the insured, and any debt must be repaid or
reinstated. Sufficient payment must be made to cover:
(a) all monthly deductions that are due and unpaid during the grace
period, and
(b) three months of the guaranteed maximum cost of insurance as of
the date of reinstatement.
The contract value on the reinstated date will reflect:
(a) the contract value at the time of termination; plus
(b) payments made at the time of reinstatement.
The withdrawal charge will be based on the number of contract years from the
original contract date.
FIXED INVESTMENT OPTION
Investment Option. A one year fixed investment option is available
under the contract. Under the one year fixed investment option, the Company
guarantees the principal value of payments and the rate of interest credited to
the investment account until the next contract anniversary. The portion of the
contract value in the one year fixed investment option will reflect such
interest and principal guarantees. The guaranteed interest rates on new amounts
allocated or transferred to the fixed investment account are determined from
time-to-time by the Company in accordance with market conditions. The effective
interest rate credited at any time to the fixed investment account of a contract
is the weighted average of all guaranteed rates for the contract. In no event
will the guaranteed rate of interest be less than 3%. Once an interest rate is
guaranteed for an amount in the fixed investment account, it is guaranteed until
the next contract anniversary and may not be changed by the Company.
Pursuant to a Guarantee Agreement dated November 19, 1993, (originally
entered into by North American Life and assumed by Manulife in the merger),
Manulife, the ultimate parent of the Company, unconditionally guarantees to the
Company on behalf of and for the benefit of the Company and owners of fixed
contracts issued by the Company that it will, on demand, make funds available to
the Company for the timely payment of contractual claims under fixed contracts.
This Guarantee covers the fixed portion of the contracts described in this
Prospectus. This Guarantee may be terminated by Manulife on notice to the
Company. Termination will not affect Manulife's continuing liability with
respect to all fixed contracts issued prior to the termination of the Guarantee.
Investment Account. Contract owners may allocate payments, or make
transfers from the variable investment options, to the fixed investment option
at any time prior to the maturity date. The Company will establish an investment
account when amounts are allocated to the fixed investment option.
Renewals. At the end of a guarantee period, the contract owner 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 investment option,
all without the imposition of any charge. If the contract owner does not specify
the renewal option desired, the Company will select the fixed investment option.
Transfers. Prior to the maturity date, the contract owner may transfer
amounts from the fixed investment account to the variable investment options
within 30 days of the contract anniversary. Amounts in the fixed investment
account may be transferred prior to the end of the contract year pursuant to the
Dollar Cost Averaging program.
Withdrawals. The contract owner may make total and partial withdrawals
of amounts held in the fixed investment account at any time prior to the
maturity date or his or her death. Withdrawals from the fixed investment account
will be made in the same manner and be subject to the same limitations as set
forth under "WITHDRAWALS." The Company reserves the right to defer payment of
amounts withdrawn from the fixed investment account for up to six months from
the date it receives the written withdrawal request (if a withdrawal is
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deferred for more than 30 days pursuant to this right, the Company will pay
interest on the amount deferred at a rate not less than 3% per year or such
higher rate as may be required by the applicable state or jurisdiction).
Withdrawals allocated to the free withdrawal amount may be withdrawn
without the imposition of a withdrawal charge. If withdrawals are taken from
more than one investment account, the free withdrawal amount will be applied to
all investment accounts on a pro rata basis.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax (see "FEDERAL TAX MATTERS").
Securities Registration. Due to certain exemptive and exclusionary
provisions, interests in the fixed investment account are not registered under
the Securities Act of 1933 (the "1933 Act") and the Company's general account is
not registered as an investment company under the 1940 Act. Accordingly, neither
interests in the fixed investment account 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 investment account 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.
TEN DAY RIGHT TO REVIEW
The contract owner may cancel the contract by returning it to the
Service Office or agent at any time within 10 days after receipt of the
contract. Within 7 days of receipt of the contract by the Company, the Company
will refund the payment made for the contract, less any debt or partial
withdrawals.
No withdrawal charge is imposed upon return of the contract within the
ten day right to review period. The ten day right to review may vary in certain
states in order to comply with the requirements of insurance laws and
regulations in such states.
OWNERSHIP
The contract owner is the person entitled to exercise all rights under
the contract and is the person designated in the contract specifications page or
as subsequently named. If amounts become payable to any beneficiary under the
contract, the beneficiary is the contract owner.
Any change of ownership or assignment must be made in writing. Any
change must be approved by the Company. Any assignment and any change, if
approved, will be effective as of the date the Company receives the request at
the Service Office. The Company assumes no liability for any payments made or
actions taken before a change is approved or an assignment is accepted or
responsibility for the validity or sufficiency of any assignment. An absolute
assignment will revoke the interest of any revocable beneficiary.
BENEFICIARY
The beneficiary is the person, persons or entity designated in the
contract specifications page or as subsequently named. The beneficiary may be
changed subject to the rights of any irrevocable beneficiary. Any change must be
made in writing, approved by the Company and if approved, will be effective as
of the date on which written. The Company assumes no liability for any payments
made or actions taken before the change is approved. If no beneficiary is
living, the contingent beneficiary will be the beneficiary. The interest of any
revocable beneficiary is subject to that of any assignee. If no beneficiary or
contingent beneficiary is living, the beneficiary is the owner or the owner's
estate.
MISCELLANEOUS CONTRACT PROVISIONS
Limit on Right to Contest
With regard to the life of each insured, the contract will be
incontestable after it has been in force during the lifetime of the insured for
two years from the issue date. Any increase in face amount for which evidence of
insurability was obtained will be incontestable only after the increase has been
in force, during the insured's
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lifetime, for two years from the effective date of the increase. The two year
incontestability period may vary in certain states in order to comply with the
requirements of insurance laws and regulations in such states.
In issuing the contract, the Company has relied upon the application.
The statements in that application, in the absence of fraud, are considered
representations and not warranties. No statement made in connection with the
contract application will be used by the Company to void the contract or to deny
a claim unless that statement is a part of the contract application or any
amendments thereof.
Suicide Exclusion
If any insured commits suicide, while sane or insane, within two years
of the issue date, the Company will return payments made, less any debt and any
partial withdrawals. If any insured commits suicide, while sane or insane,
within two years from the effective date of any increase in face amount for
which evidence of insurability was established, the Company will return the
additional payment which increased the face amount.
Misrepresentation of Age or Sex
If the age or sex of any insured has been misstated, the death benefit
proceeds will be limited to those which would have been appropriate for the
insured's correct age and sex.
Assignment
While the insured is alive, the owner may assign the contract. No
assignment will be binding on the Company unless it is written in a form
acceptable to the Company and received at the Service Office. The Company will
not be liable for any payments made or actions taken before the Company accepts
the assignment. An absolute assignment will revoke the interest of any revocable
beneficiary. The Company will not be responsible for the validity of any
assignment. An assignment may result in income tax and a 10% penalty tax (see
"FEDERAL TAX MATTERS").
Creditors' Claims
To the extent permitted by law, no benefits payable under this contract
will be subject to the claims of the contract owner's or the beneficiary's
creditors.
Non-Participation
The contract is non-participating and will not share in the Company's
profits or surplus earnings. The Company will pay no dividends on the contract.
Notices and Elections
To be effective, all notices and elections made under the contract must
be in writing, signed by the owner and received by the Company at the Service
Office. Certain exceptions may apply (see "Telephone Transactions"). Unless
otherwise provided in the contract, all notices, requests and elections will be
effective when received at the Service Office, complete with all necessary
information.
Modification
The Company will not change or modify the contract without the owner's
consent except to the extent necessary to conform to any applicable law or
regulation or any ruling issued by a government agency. The provisions of the
contract shall be interpreted so as to comply with the requirements of Section
7702 of the Code.
CHARGES AND DEDUCTIONS
Charges and deductions under the contracts are assessed against
contract values. In addition, there are deductions from and expenses paid out of
the assets of the Trust Portfolios that are described in the accompanying
Prospectus of the Trust.
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MONTHLY DEDUCTION
On each monthly anniversary day, a deduction is made from contract
value to compensate the Company for the cost of insurance and certain other
expenses incurred in connection with the contract. The monthly deduction amount
is determined as of that valuation date, or if the monthly anniversary day is
not a valuation date, the immediately following valuation date is used. The
monthly deduction will be allocated among the investment accounts on a pro rata
basis. The monthly deduction will vary from month to month. If the surrender
value is insufficient to cover the monthly deduction due on any monthly
anniversary day, the contract may terminate without value (see "TERMINATION").
DISTRIBUTION CHARGE
During the first ten contract years, a distribution charge equal to an
annual rate of 0.25% of contract value will be deducted monthly as compensation
for a portion of the sales expenses the Company incurs with respect to the
contract (see "DISTRIBUTION OF THE CONTRACT"). The Company will monitor
distribution charges, Federal tax charges and contingent deferred sale charges
deducted under a contract to ensure that the sum of these charges will never
exceed 9% of aggregate payments made under that contract.
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PREMIUM TAX CHARGE
During the first ten contract years, a premium tax charge equal to an
annual rate of 0.25% of contract value will be deducted monthly to defray
premium taxes the Company pays to state and local governments in connection with
the contract. This charge is designed to offset the average premium tax the
Company expects to pay with respect to a contract (approximately 2.50% of
premium payments received), but will not necessarily equal the premium tax paid
by the Company with respect to a particular contract.
FEDERAL TAX CHARGE
During the first ten contract years, a Federal tax charge equal to an
annual rate of 0.15% of contract value will be deducted monthly to defray an
increased Federal tax liability resulting from the application of Section 848 of
the Code.
ADMINISTRATION CHARGE
An administration charge equal to an annual rate of 0.40% of contract
value will be deducted monthly as compensation for administrative expenses,
including those for insurance underwriting and contract issuance, establishing
and maintaining contract records, calculating contract values, providing reports
to contract owners, preparation and filing of tax records and forms and
processing contract transactions such as transfers, contract loans, partial
withdrawals and surrenders. The administration charge is guaranteed never to
increase over the life of the contract, and was established to cover average
anticipated administrative expenses to be incurred over the period this class of
contract will be in force.
An administrative charge of $2.50 per month will be imposed upon
contracts with less than $100,000 of total premium payments. This charge, when
imposed, offsets the lower asset base from which the Company can recover its
costs of contract administration through the asset-based administrative charge
described above.
COST OF INSURANCE CHARGE
The Company will make a monthly deduction for the cost of providing
life insurance coverage for the insured. This charge is guaranteed not to exceed
the maximum cost of insurance charge determined on the basis of the mortality
table guaranteed in the contract, calculated using the 1980 CSO Table.
Currently, a cost of insurance charge equal to an annual rate of 0.35% of
contract value (0.55% of contract value after the first ten contract years) will
be deducted monthly. If there is more than one insured, a cost of insurance
charge equal to an annual rate of 0.10% of contract value (0.30% of contract
value after the first ten contract years). The Company reserves the right to
increase or decrease this current cost of insurance charge so long as the
maximum charges guaranteed in the contract are not exceeded.
MORTALITY AND EXPENSE RISK CHARGE
A mortality and expense risk charge equal to an annual rate of 0.90% of
the value of variable investment accounts will be deducted monthly for assuming
the mortality and expense risks under the contract. The mortality risk assumed
under the contract is the risk that the cost of providing the death benefit will
exceed the maximum guaranteed cost of insurance charge. The expense risk assumed
under the contract is the risk that the cost of providing administrative
services will exceed the revenues from the administration charges.
WITHDRAWAL CHARGE
If the contract owner makes a partial withdrawal or surrenders the
contract during the first nine contract years, the Company will impose a
withdrawal charge which declines during that nine-year period, however, no
withdrawal charges will be imposed upon death of the insured. The withdrawal
charge consists of two components: a contingent deferred sales charge and an
unrecovered premium tax charge. The withdrawal charge is applicable only to that
portion of the proceeds of a surrender or partial withdrawal that exceeds the
"free withdrawal amount." The free withdrawal amount is the greater of (a) or
(b) as defined below; however, the free withdrawal amount may never exceed the
surrender value.
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(a) the excess of the contract value on the date of withdrawal or
surrender over the unliquidated payments; or
(b) 10% of total payments less all prior partial withdrawals in that
contract year.
The total amount of the withdrawal charge is determined by multiplying the
amount withdrawn or surrendered in excess of the free withdrawal amount by the
applicable total withdrawal charge percentage shown in the following table:
Total
Contract Unrecovered Withdrawal
Year Cdsc Premium Tax Charge
-------- ---- ----------- ------
1 6.75% 2.25% 9.00%
2 6.50% 2.00% 8.50%
3 6.25% 1.75% 8.00%
4 5.50% 1.50% 7.00%
5 4.75% 1.25% 6.00%
6 4.00% 1.00% 5.00%
7 3.25% 0.75% 4.00%
8 2.50% 0.50% 3.00%
9 1.75% 0.25% 2.00%
10+ 0% 0% 0%
The Company will monitor distribution charges, Federal tax charge and contingent
deferred sale charges deducted under a contract to ensure that the sum of these
charges will never exceed 9% of aggregate payments made under that contract.
The total withdrawal charge will be eliminated when a contract is
issued to an officer, director or employee (or a relative thereof) of the
Company, Manulife, the Trust or any of their affiliates.
Withdrawal Charge Waiver in Connection with Clinton's Administration's Fiscal
Year 1999 Budget Proposal
The Clinton administration's Fiscal Year 1999 Budget proposal dated
February 2, 1998 (the "Budget Proposal") contains proposals to change the
taxation of life insurance contracts. See "FEDERAL TAX MATTERS - Introduction."
While it is uncertain whether the Budget Proposal will become law, if the Budget
Proposal is enacted substantially as proposed, withdrawal charges will be waived
on purchase payments made on or after February 2, 1998, provided such amounts
are withdrawn within 60 days of the date that the Budget Proposal becomes law.
The Company reserves the right to terminate this withdrawal charge waiver at any
time. If the waiver is terminated, purchase payments made from February 2, 1998
to the termination date of the waiver will not be subject to withdrawal charge
as provided above. This waiver does not affect a contract owner's right to
cancel a contract within the ten day right to review period. See "DESCRIPTION OF
THE CONTRACT -- Ten Day Right to Review." Withdrawals may be subject to income
tax to the extent of earnings under the contract and, if the contract is a
modified endowments contract and the withdrawal is made prior to age 59 1/2,
generally will be subject to a 10% IRS penalty tax. See "FEDERAL TAX MATTERS -
Taxation of Partial and Full Withdrawals."
The revenues from the contingent deferred sales charge and the
distribution charge may be insufficient to defray all distribution expenses. If
there is a shortfall, the Company will bear the expense from its general account
assets. Such assets may include profits, if any, from the cost of insurance and
mortality and expense risk charges described above.
The unrecovered premium tax charge is designed to reimburse the Company
upon a surrender or partial withdrawal during the first nine contract years for
state premium taxes it will have paid in connection with receipt of contract
payments. The amounts deducted pursuant to the asset-based charge for premium
taxes prior to withdrawal, plus the deferred premium tax charges deducted upon
the amounts surrendered or withdrawn, will approximately equal the Company's
expected state premium tax obligations as a result of its receipt of contract
payments, based upon an estimated 2.5% average premium tax obligation.
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OTHER CHARGES
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets)
The Separate Account purchases shares of Portfolios at net asset value. The net
asset value of those shares reflects the following investment management fees
and expenses:
OTHER
EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
TRUST PORTFOLIO FEES REIMBURSEMENT)*** ANNUAL EXPENSES
Science & Technology................ 1.100% 0.160% 1.260%
International Small Cap............. 1.100% 0.210% 1.310%
Emerging Growth..................... 1.050% 0.060% 1.110%
Pilgrim Baxter Growth............... 1.050% 0.130% 1.180%
Small/Mid Cap....................... 1.000% 0.050% 1.050%
International Stock................. 1.050% 0.330% 1.380%
Global Equity....................... 0.900% 0.110% 1.010%
Equity.............................. 0.750% 0.050% 0.800%
Growth.............................. 0.850% 0.100% 0.950%
Blue Chip Growth.................... 0.925% 0.050% 0.975%***
Real Estate Securities.............. 0.700% 0.070% 0.770%***
Value............................... 0.800% 0.160% 0.960%
International Growth and Income..... 0.950% 0.170% 1.120%
Growth and Income................... 0.750% 0.040% 0.790%
Equity-Income....................... 0.800% 0.050% 0.850%
Aggressive Asset Allocation......... 0.750% 0.150% 0.900%
High Yield.......................... 0.775% 0.110% 0.885%
Moderate Asset Allocation........... 0.750% 0.100% 0.850%
Conservative Asset Allocation....... 0.750% 0.140% 0.890%
Strategic Bond...................... 0.775% 0.100% 0.875%
Global Government Bond.............. 0.800% 0.130% 0.930%
Investment Quality Bond............. 0.650% 0.090% 0.740%
U.S. Government Securities.......... 0.650% 0.070% 0.720%
Money Market........................ 0.500% 0.040% 0.540%
Lifestyle Aggressive 1000#.......... 0% 1.116%** 1.116%
Lifestyle Growth 820#............... 0% 1.048%** 1.048%
Lifestyle Balanced 640#............. 0% 0.944%** 0.944%
Lifestyle Moderate 460#............. 0% 0.850%** 0.850%
Lifestyle Conservative 280#......... 0% 0.708%** 0.708%
* Based on estimates of payments to be made during the current fiscal year.
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** Reflects expenses of the Underlying Portfolios. Manufacturers Securities
Services, LLC has voluntarily agreed to pay the expenses of each Lifestyle Trust
(excluding the expenses of the Underlying Portfolios). This voluntary expense
reimbursement may be terminated at any time. If such expense reimbursement was
not in effect, Total Trust Annual Expenses would be .04% higher (based on
expenses of the Lifestyle Trusts for the fiscal year ended December 31, 1997) as
noted in the chart below:
MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
Lifestyle Aggressive 1000......... 0% 1.156% 1.156%
Lifestyle Growth 820.............. 0% 1.088% 1.088%
Lifestyle Balanced 640............ 0% 0.984% 0.984%
Lifestyle Moderate 460............ 0% 0.890% 0.890%
Lifestyle Conservative 280........ 0% 0.748% 0.748%
# Each Lifestyle Trust will invest in shares of the Underlying Portfolios.
Therefore, each Lifestyle Trust will bear its pro rata share of the fees and
expenses incurred by the Underlying Portfolios and the investment return of each
Lifestyle Trust will be net of the Underlying Portfolio expenses. Each Lifestyle
Portfolio must also bear its own expenses. However, the Adviser is currently
paying these expenses as described in footnote ** above.
*** During the one year period ended December 31, 1997, MSS voluntarily waived
fees payable to it and/or reimbursed expenses to the extent necessary to prevent
"Total Trust Annual Expenses" for the Quantitative Equity, Real Estate and
Capital Growth Bond Trusts from exceeding .50% of the Trust's average net
assets. This voluntary fee waiver was terminated effective January 1, 1998.
Expenses shown in the table for these three Trusts do not reflect the fee
waiver.
OTHER TAXES
The Company reserves the right to make charges for any additional tax
obligations that may be incurred in the future as a result of establishing or
maintaining the Variable Account, issuing a contract, receiving payments under a
contract, or from commencing or continuing annuity option payments under a
contract.
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the Federal income tax treatment of the
contract is not exhaustive, does not purport to cover all situations, and is not
intended as tax advice. The Federal income tax treatment of the contract is
unclear in certain circumstances, and a qualified tax advisor should always be
consulted with regard to the application of law to individual circumstances.
This discussion is based on the Code, Treasury Department regulations, and
interpretations existing on the date of this Prospectus. These authorities,
however, are subject to change by Congress, the Treasury Department, and
judicial decisions.
The Clinton administration's Fiscal Year 1999 Budget Proposal dated
February 2, 1998 (the "Budget Proposal") contains proposals to change the
taxation of life insurance contracts. The Budget Proposal proposes to tax
exchanges of variable contracts for fixed contracts, exchanges of fixed
contracts for variable contracts, exchanges of variable contracts for variable
contracts and reallocation within variable contracts. Currently, owners of life
contracts may exchange their contracts for another life insurance contract
without currently incurring tax, and reallocations among investment options are
not treated as a taxable exchange. In addition, the Budget Proposal proposes
that the contract owner's basis in life insurance contracts be reduced by
certain amounts (related to the cost of insurance and possibly expenses) for
purposes of determining the taxable gain on in the contract. Currently, basis in
life insurance contracts is not reduced by this amount. The Budget Proposal
states that it generally would apply only to contracts issued after the date of
first congressional committee action, but that the new exchange and reallocation
rules would also apply to any existing contract that was materially changed.
While it is uncertain whether the Budget Proposal will become law, if the Budget
Proposal is enacted substantially as proposed, withdrawal charges will be
waived. See "CHARGES AND DEDUCTIONS - Withdrawal Charge."
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This discussion does not address state or local tax consequences
associated with the purchase of the contract. In addition, THE COMPANY MAKES NO
GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY
CONTRACT OR OF ANY TRANSACTION INVOLVING A CONTRACT.
THE COMPANY'S TAX STATUS
The Company is taxed as a life insurance company under the Code. Since
the operations of the Variable Account are a part of, and are taxed with, the
operations of the Company, the Variable Account is not separately taxed as a
"regulated investment company" under the Code. Under existing Federal income tax
laws, investment income and capital gains of the Variable Account are not taxed
to the extent they are applied under a contract. The Company does not anticipate
that it will incur any Federal income tax liability attributable to such income
and gains of the Variable Account, and therefore the Company does not intend to
make any provision for such taxes. If the Company is taxed on investment income
or capital gains of the Variable Account, then the Company may impose a charge
against the Variable Account to make provision for such taxes. The Company's
Federal tax liability is increased, however, in respect of the contracts because
of the Federal tax law's treatment of deferred acquisition costs (for which the
Company imposes a Federal tax charge) (see "CHARGES AND DEDUCTIONS").
TAXATION OF LIFE INSURANCE CONTRACTS IN GENERAL
Tax Status of the Contract
Section 7702 of the Code establishes a statutory definition of life
insurance for Federal tax purposes. The Company believes that the contract will
meet the statutory definition of life insurance, which places limitations on the
amount of premium payments that may be made and the contract values that can
accumulate relative to the death benefit. As a result, the death benefit payable
under the contract will generally be excludable from the beneficiary's gross
income, and interest and other income credited under the contract will not be
taxable unless certain withdrawals are made (or are deemed to be made) from the
contract prior to the insured's death, as discussed below. This tax treatment
will only apply, however, if (1) the investments of the Variable Account are
"adequately diversified" in accordance with Treasury Department regulations, and
(2) the Company, rather than the contract owner, is considered the owner of the
assets of the Variable Account for Federal income tax purposes.
DIVERSIFICATION REQUIREMENTS. The Code and Treasury Department
regulations prescribe the manner in which the investments of a segregated asset
account, such as the Variable Account, are to be "adequately diversified." If
the Variable Account fails to comply with these diversification standards, the
contract will not be treated as a life insurance contract for Federal income tax
purposes and the owner would generally be taxable currently on the income on the
contract (as defined in the tax law). The Company expects that the Variable
Account, through the Trust, will comply with these diversification requirements.
Although the investment adviser of the Trust is an affiliate of the Company, the
Company does not have control over the Trust or its investments. Nonetheless,
the Company believes that each Trust Portfolio in which the Variable Account
owns shares will be operated in compliance with the diversification requirements
prescribed by the Code and Treasury Department regulations.
OWNERSHIP TREATMENT. In certain circumstances, variable life insurance
contract owners may be considered the owners, for Federal income tax purposes,
of the assets of a segregated asset account, such as the Variable Account, used
to support their contracts. In those circumstances, income and gains from the
segregated asset account would be includible in the contract owners' gross
income. The Internal Revenue Service (the "IRS") has stated in published rulings
that a variable contract owner will be considered the owner of the assets of a
segregated asset account if the owner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. In
addition, the Treasury Department announced, in connection with the issuance of
regulations concerning investment diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular Sub-Accounts [of a segregated asset 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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<PAGE> 34
The ownership rights under the 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 the assets of a segregated
asset account. For example, the owner of this contract has the choice of many
more investment options to which to allocate premium payments and variable
investment account 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 a portion of the assets of the
Variable Account and thus subject to current taxation on the income and gains
from those assets . In addition, the Company does not know what standards will
be set forth in the regulations or rulings which the Treasury Department has
stated it expects to issue. The Company therefore reserves the right to modify
the contract as necessary to attempt to prevent contract owners from being
considered the owners of the assets of the Variable Account. However, there is
no assurance that such efforts would be successful.
The remainder of this discussion assumes that the contract will be
treated as a life insurance contract for Federal tax purposes.
Tax Treatment of Life Insurance Death Benefit Proceeds
In general, the amount of the death benefit payable from a contract by
reason of the death of the insured is excludable from gross income under Section
101 of the Code. Certain transfers of the contract for valuable consideration,
however, may result in a portion of the death benefit being taxable.
If the death benefit is not received in a lump sum and is, instead,
applied under one of the settlement options, payments generally will be prorated
between amounts attributable to the death benefit which will be excludable from
the beneficiary's income and amounts attributable to interest (accruing after
the insured's death) which will be includible in the beneficiary's income.
Tax Deferral During Accumulation Period
Under existing provisions of the Code, except as described below, any
increase in an owner's contract value is generally not taxable to the owner
unless amounts are received (or are deemed to be received) from the contract
prior to the insured's death. If there is a total withdrawal from the contract,
the surrender value will be includible in the owner's income to the extent the
amount received exceeds the "investment in the contract." (If there is any debt
at the time of a total withdrawal, such debt will be treated as an amount
received by the owner.) The "investment in the contract" generally is the
aggregate amount of premium payments and other consideration paid for the
contract, less the aggregate amount received under the contract previously to
the extent such amounts received were excludable from gross income. Whether
partial withdrawals (or other amounts deemed to be distributed) from the
contract constitute income to the owner depends, in part, upon whether the
contract is considered a "modified endowment contract" (a "MEC") for Federal
income tax purposes.
CONTRACTS WHICH ARE MECS
Characterization of a Contract as a MEC. In general, this contract will
constitute a MEC unless (1) it was received in exchange for another life
insurance contract which was not a MEC, and (2) no premium payments (other than
the exchanged contract) are paid into the contract during the first seven
contract years. In addition, even if the contract initially is not a MEC, it may
in certain circumstances become a MEC. These circumstances would include a later
increase in benefits, any other material change of the contract (within the
meaning of the tax law), and a withdrawal or reduction in the death benefit
during the first seven contract years.
Tax Treatment of Withdrawals, Loans, Assignments and Pledges under
MECs. If the contract is a MEC, withdrawals from the contract will be treated
first as withdrawals of income and then as a recovery of premium payments. Thus,
withdrawals will be includible in income to the extent the contract value
exceeds the investment in the contract. The amount of any loan (including unpaid
interest thereon) under the contract will be treated as a withdrawal from the
contract for tax purposes. In addition, if the owner assigns or pledges any
portion of the value of a contract (or agrees to assign or pledge any portion),
such portion will be treated as a withdrawal from the contract for tax purposes.
The owner's investment in the contract is increased by the amount includible in
income with respect to such assignment, pledge, or loan, though it is not
affected by any other aspect of the assignment, pledge, or loan (including its
release or repayment). Before assigning, pledging, or requesting a loan under a
contract which is a MEC, an owner should consult a qualified tax advisor.
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<PAGE> 35
Penalty Tax. Generally, withdrawals (or the amount of any deemed
withdrawals) from a MEC are subject to a penalty tax equal to 10% of the portion
of the withdrawal that is includible in income, unless the withdrawals are made
(1) after the owner attains age 59 1/2, (2) because the owner has become
disabled (as defined in the tax law), or (3) as substantially equal periodic
payments over the life or life expectancy of the owner (or the joint lives or
life expectancies of the owner and his or her beneficiary, as defined in the tax
law).
Aggregation of Contracts. All life insurance contracts which are MECs
and which are purchased by the same person from the Company or any of its
affiliates within the same calendar year will be aggregated and treated as one
contract for purposes of determining the amount of a withdrawal (including a
deemed withdrawal) that is includible in income. The effects of such aggregation
are not clear; however, it could affect the amount of a withdrawal (or a deemed
withdrawal) that is taxable and the amount which might be subject to the 10%
penalty tax described above.
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<PAGE> 36
CONTRACTS WHICH ARE NOT MECS
Tax Treatment of Withdrawals Generally. If the contract is not a MEC
(described above), the amount of any withdrawal from the contract will be
treated first as a non-taxable recovery of premium payments and then as income
from the contract. Thus, a withdrawal from a contract that is not a MEC will not
be includible in income except to the extent it exceeds the investment in the
contract immediately before the withdrawal.
Certain Distributions Required by the Tax Law in the First 15 Contract
Years. As indicated under "Payments", Section 7702 places limitations on the
amount of premium payments that may be made and the contract values that can
accumulate relative to the death benefit. Where cash distributions are required
under Section 7702 in connection with a reduction in benefits during the first
15 years after the contract is issued (or if withdrawals are made in
anticipation of a reduction in benefits, within the meaning of the tax law,
during this period), some or all of such amounts may be includible in income. A
reduction in benefits may result upon a decrease in the face amount, if
withdrawals are made, and in certain other instances.
Tax Treatment of Loans. If a contract is not a MEC, a loan received
under the contract generally will be treated as indebtedness of the owner. As a
result, no part of any loan under such a contract will constitute income to the
owner so long as the contract remains in force. Nevertheless, in those
situations where the interest rate credited to the loan account equals the
interest rate charged for the loan, it is possible that some or all of the loan
proceeds may be includible in income. If a policy lapses (or if all contract
value is withdrawn) when a loan is outstanding, the amount of the loan
outstanding will be treated as withdrawal proceeds for purposes of determining
whether any amounts are includible in the owner's income.
Last Survivor Contracts
Although the Company believes that the contract, when issued as a last
survivor contract, complies with Section 7702 of the Code, the manner in which
Section 7702 should be applied to last survivor contracts is not directly
addressed by Section 7702. In the absence of final regulations or other guidance
issued under Section 7702 regarding this form of contract, there is necessarily
some uncertainty whether a last survivor contract will meet the Section 7702
definition of a life insurance contract. Prospective owners considering purchase
of the contract as a last survivor contract should consult a qualified tax
advisor.
Where the owner of the contract is the last surviving insured, the
death proceeds will generally be includible in the contract owner's estate on
his or her death for purposes of the Federal estate tax. If the contract owner
dies and was not the last surviving insured, the fair market value of the
contract would be included in the contract owner's estate. In general, no part
of the contract value would be includible in the last surviving insured's estate
if he or she neither retained incidents of ownership at death nor had given up
ownership within three years before death.
Treatment of Maturity Benefits and Extension of Maturity Date
At the maturity date, the surrender value will be paid to the contract
owner, and this amount will be includible in income to the extent the amount
received exceeds the investment in the contract. If the contract owner elects to
extend the maturity date past the year in which the insured attains age 100
(which must be done prior to the original maturity date), the Company believes
the contract will continue to qualify as a life insurance contract for Federal
tax purposes. However, there is some uncertainty regarding this treatment, and
it is possible that the contract owner would be viewed as constructively
receiving the cash value in the year the insured attains age 100. If this were
the case, an amount equal to the excess of the cash value over the investment in
the contract would be includible in the contract owner's income at that time.
Actions to Ensure Compliance with the Tax Law
The Company believes that the maximum amount of premium payments it has
determined for the contracts will comply with the Federal tax definition of life
insurance. The Company will monitor the amount of premium payments, and, if the
premium payments during a contract year exceed those permitted by the tax law,
the Company will refund the excess premiums within 60 days of the end of the
contract year and will pay interest and other earnings (which will be includible
in income subject to tax) as required by law on the amount refunded. The Company
also reserves the right to increase the death benefit (which may result in
larger charges under a
31
<PAGE> 37
contract) or to take any other action deemed necessary to ensure the compliance
of the contract with the Federal tax definition of life insurance.
Other Considerations
Changing the owner, exchanging the contract, and other changes under
the contract may have tax consequences (in addition to those discussed herein)
depending on the circumstances of such change.
Federal estate tax, state and local estate and inheritance tax, and
other tax consequences of ownership or receipt of contract proceeds depend on
the circumstances of each contract owner or beneficiary. Federal estate tax is
integrated with Federal gift tax under a unified rate schedule. In general,
estates valued at less than the "applicable exclusion amount" will not incur a
Federal estate tax liability. The applicable exclusion amount for decedents
dying in 1998 is $625,000 and increases annually until it reaches $1,000,000 for
decedents dying in 2006 and after. In addition, an unlimited marital deduction
may be available for Federal estate and gift tax purposes.
If the contract owner (whether or not he or she is an insured)
transfers ownership of the contract to someone two or more generations younger,
the transfer may be subject to the generation-skipping tax, the amount subject
to tax being the value of the contract. The generation-skipping tax provisions
generally apply to transfers which would be subject to the gift or estate tax
rules. Individuals are generally allowed an aggregate generation-skipping tax
exemption of $1 million. For generation skipping transfers of decedents dying
after 1998, this exemption is indexed for inflation.
Because the Federal estate tax, gift tax, and generation skipping tax
rules are complex, prospective contract owners should consult a qualified tax
advisor before using this contract for estate planning purposes.
DISALLOWANCE OF INTEREST DEDUCTIONS
The contract generally will be characterized as a single premium life
insurance contract under Section 264 of the Code and, as a result, interest paid
on any loans under the contract will not be tax deductible, irrespective of
whether the owner is an individual or a non-natural entity, such as a
corporation or a trust. In addition, in the case of contracts issued to a
non-natural taxpayer, or held for the benefit of such an entity, a portion of
the taxpayer's otherwise deductible interest expenses may not be deductible as a
result of ownership of a contract even if no loans are taken under the contract.
An exception to the latter rule is provided for certain life insurance contracts
which cover the life of an individual who is a 20-percent owner, or an officer,
director, or employee of, a trade or business. Entities that are considering
purchasing the policy, or entities that will be beneficiaries under a contract,
should consult a tax advisor.
FEDERAL INCOME TAX WITHHOLDING
The Company will withhold and remit to the Federal government a part of
the taxable portion of withdrawals made under a contract unless the owner
notifies the Company in writing at or before the time of the withdrawal that he
or she elects not to have any amounts withheld. Regardless of whether the owner
requests that no taxes be withheld or whether the Company withholds a sufficient
amount of taxes, the owner will be responsible for the payment of any taxes and
early distribution penalties that may be due on the amounts received. The owner
may also be required to pay penalties under the estimated tax rules, if the
owner's withholding and estimated tax payments are insufficient to satisfy the
owner's total tax liability.
OTHER MATTERS
VOTING RIGHTS
The Company will vote shares of the Trust Portfolios held in the
Variable Account at meetings of shareholders of the Trust in accordance with
voting instructions received from the persons having the voting interest under
the contracts. The number of Portfolio shares for which voting instructions may
be given will be determined by the Company in the manner described below, not
more than 90 days prior to the meeting of the Trust. Trust proxy material will
be distributed to each person having the voting interest under the contract
together with appropriate forms for giving voting instructions. Portfolio shares
held in the Variable Account that are attributable to contract owners and as to
which no timely instructions are received and Portfolio shares held in
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<PAGE> 38
the Variable Account that are beneficially owned by the Company will be voted by
the Company in proportion to the instructions received.
Prior to the maturity date, the person having the voting interest under
a contract is the contract owner and the number of votes as to each Portfolio
for which voting instructions may be given is determined by dividing the value
of the investment account corresponding to the Sub-Account in which such
Portfolio shares are held by the net asset value per share of that Portfolio.
The Company may, if required by state insurance officials, disregard
voting instructions that would require shares to be voted to change the
sub-classification or investment policies of a Portfolio or to approve or
disapprove an investment advisory contract for a Portfolio. In addition, the
Company may disregard voting instructions that would require changes in the
investment policies or investment adviser or Subadviser of a Portfolio if the
Company reasonably disapproves of these changes in accordance with applicable
Federal regulations. If the Company disregards any voting instructions, it will
advise contract owners of that action, and its reasons therefore, in its next
communication to contract owners.
The Company reserves the right to make any changes in the voting rights
described above that may be permitted by the securities laws or regulations or
interpretations of these laws or regulations. In particular, if applicable
securities laws or regulations are amended or present interpretations of them
change, and, as a result, the Company determines that it is permitted to vote in
its own right shares of the Portfolios held in the Variable Account, the Company
may elect to do so.
NOTICES AND REPORTS TO CONTRACT OWNERS
Within 30 days after each calendar quarter, the Company will send the
owner a statement showing, among other things, the contract value and
information concerning any loans. Within 10 days after any transaction involving
purchase, sale or transfer of amounts allocated to the Variable Account, the
owner will be sent a confirmation statement. The owner also will be sent an
annual and semi-annual report for the Variable Account and each Portfolio, which
will include a list of the securities held in each Portfolio.
At least once each contract year, the Company will send to contract
owners a statement showing the face amount and the contract value of the
contract and any outstanding loan secured by the contract as of the date of the
statement. The statement will also show premium payments, and monthly deductions
under the contract since the last statement, and any other information required
by any applicable law or regulation.
DISTRIBUTION OF CONTRACTS
MSS, located at 73 Tremont Street, Boston, Massachusetts 02108, a
Delaware limited liability company controlled by the Company, is the principal
underwriter of the contracts in addition to providing advisory services to the
Trust. MSS is a broker-dealer registered under the Securities Exchange Act of
1934 (the "1934 Act") and a member of the National Association of Securities
Dealers, Inc. ("NASD"). MSS has entered into a non-exclusive promotional agent
agreement with Wood Logan Associates, Inc. ("Wood Logan"). Wood Logan is a
broker-dealer registered under the 1934 Act and a member of the NASD. Wood Logan
is a wholly owned subsidiary of a holding company that is 62.5% owned by The
Manufacturers Life Insurance Company (U.S.A.), 22.5% owned by MRL Holding, LLC
and approximately 15% owned by the principals of Wood Logan. Sales of the
contracts will be made by registered representatives of broker-dealers
authorized by MSS to sell them. Such registered representatives will also be
licensed insurance agents of the Company. Under the promotional agent agreement,
Wood Logan will recruit and provide sales training and licensing assistance to
such registered representatives. In addition, Wood Logan will prepare sales and
promotional materials for the Company's approval. MSS will pay distribution
compensation to selling brokers in varying amounts which under normal
circumstances are not expected to exceed 7% of purchase payments. In addition,
MSS may pay trail compensation after the first contract year, which under normal
circumstances will not exceed 0.25% of contract value per year. MSS may from
time to time pay additional compensation pursuant to promotional contests.
Additionally, in some circumstances, MSS will provide reimbursement of certain
sales and marketing expenses. MSS will pay the promotional agent for providing
marketing support for the distribution of the contracts.
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<PAGE> 39
OFFICERS AND DIRECTORS OF THE COMPANY
The directors and executive officers of the Company, together with
their principal occupations during the past five years, are as follows:
NAME POSITION WITH THE COMPANY PRINCIPAL OCCUPATION
John D. DesPrez III Director* and President Senior Vice President, U.S.
Annuities, Manulife,
Age: 41 September 1996 to present;
Director and President of the
Company, September 1996 to
present; Vice President,
Mutual Funds, Manulife,
January, 1995 to September
1996, President and Chief
Executive Officer, North
American Funds, March 1993 to
September 1996; Vice
President and General Counsel
of the Company, January 1991
to June 1994.
Peter S. Hutchison Director* Senior Vice President,
Corporate Taxation, Manulife,
Age: 48 January 1996 to present;
Director of the Company
January 1991 to present;
Executive Vice President and
Chief Financial Officer,
North American Life,
September 1994 to December
31, 1995; Senior Vice
President and Chief Actuary,
North American Life, April
1992 to August 1994.
John D. Richardson Director* and Chairman Executive Vice President and
of the Board General Manager, U.S.
Age: 60 Operations, Manulife, January
1995 to present; Director and
Chairman of the Board of the
Company, March 1997 to
present; Senior Vice
President and General
Manager, Canadian Operations,
Manulife, June 1992 to
January 1995.
Robert Boyda Vice President, Investment Vice President, Investment
Management Services Management Services of the
Age: 41 Company, January 1997 to
present; Assistant Vice
President, Management
Service, Manulife, August
1994 to January 1997; General
Manager, Retail Banking,
CIBC, January 1987 to April
1994.
James R. Boyle Vice President, Vice President,
Administration Administration Accumulation
Age: 38 Products, Manulife September
1996 to present; Vice
President, Administration of
the Company, September 1996
to present; Vice President,
Treasurer and Chief
Administrative Officer, North
American Funds, June 1994 to
September 1996; Corporate
Controller of the Company,
July 1993 to June 1994;
Mutual Fund Accounting
Executive of the Company,
June 1992 to July 1993.
James D. Gallagher Vice President, Secretary Vice President, Legal
and General Counsel Services U.S. Operations,
Age: 43 Manulife, January 1996 to
present; Vice President,
Secretary and General Counsel
of the Company, June 1994 to
present; Vice President and
Associate General Counsel,
The Prudential Insurance
Company of America,
1990-1994.
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<PAGE> 40
NAME POSITION WITH THE COMPANY PRINCIPAL OCCUPATION
Richard C. Hirtle Vice President, Strategic Vice President, Strategic
Development & Accumulation Development, Annuities,
Age: 42 Life Products Manulife, December 1997 to
present; Vice President,
Strategic Development &
Accumulation Life Products of
the Company December 1997 to
present; Vice President,
Treasurer, Chief Financial
Officer of the Company
November 1988 to December
1997.
Hugh C. McHaffie Vice President, U.S. Vice President, U.S.
Annuities and Product Annuities and Product
Age: 39 Development Development, Manulife,
January 1996 to present; Vice
President U.S. Annuities and
Product Development of the
Company August 1994 to
present; Product Development
Executive of the Company,
August 1990 to August 1994.
David W. Libbey Vice President, Treasurer, Vice President and Chief
and Chief Financial Officer Financial Officer, Annuities,
Age: 50 Manulife, December 1997 to
present; Vice President,
Treasurer and Chief Financial
Officer of the Company
December 1997 to present;
Vice President, Finance of
the Company June 1997 to
December 1997; Vice President
& Actuary, Paul Revere
Insurance Group June 1970 to
March 1997.
Janet Sweeney Vice President, Corporate Vice President, Human
Services Resources, U.S. Operations,
Age: 47 Manulife, January 1996 to
present; Vice President,
Corporate Services of the
Company, January 1995 to
present; Executive, Corporate
Services of the Company, July
1989 to December 1994.
John G. Vrysen Vice President and Chief Vice President and Chief
Actuary Financial Officer, U.S.
Age: 42 Operations, Manulife, January
1996 to present; Vice
President and Chief Actuary
of the Company, January 1986
to present.
CONFIRMATION STATEMENTS
Owners will be sent confirmation statements for certain transactions in
their account. Owners should carefully review these statements to verify their
accuracy. Any mistakes should immediately be reported to the Company's Service
Office. If the owner fails to notify the Company's Service Office of any mistake
within 60 days of the mailing of the confirmation statement, the owner will be
deemed to have ratified the transaction.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party
or to which the assets of the Variable Account are subject. Neither the Company
nor MSS are involved in any litigation that is of material importance in
relation to their total assets or that relates to the Variable Account.
LEGAL MATTERS
All matters of applicable state law pertaining to the contract,
including the Company's right to issue the contract thereunder, have been passed
upon by James D. Gallagher, Esq., Vice President, Secretary and General Counsel
of the Company. Certain matters relating to the Federal securities laws have
been passed upon by Jones & Blouch L.L.P., Washington, D.C.
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<PAGE> 41
INDEPENDENT AUDITORS
The financial statements of the Company and the Variable Account at
December 31, 1997 and 1996 and for the years then ended appearing in this
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The consolidated statements of income, changes in shareholder's equity
and cash flows of the Company for the year ended December 31, 1995, appearing in
this Registration Statement have been included elsewhere herein in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The financial statements of the Company which are included in the Part
II should be considered only as bearing on the ability of the Company to meet
its obligations under the contracts. They should not be considered as bearing on
the investment performance of the assets held in the Variable Account.
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
The assets of the Variable Account are held by the Company. The assets
of the Variable Account are kept physically segregated and held separate and
apart from the general account of the Company. The Company maintains records of
all purchases and redemptions of shares of each Trust Portfolio. Additional
protection for the assets of the Variable Account is afforded by the Company's
blanket fidelity bond issued by American Home Assurance Company, in the
aggregate amount of $50 million ($25 million for any one claim) , covering all
of the officers and employees of the Company.
OTHER INFORMATION
A registration statement has been filed with the SEC under the 1933 Act, as
amended, with respect to the variable portion of the contracts discussed in the
Prospectus. Not all the information set forth in the registration statement,
amendments and exhibits thereto has been included in this Prospectus. Statements
contained in this Prospectus concerning the content of the contracts and other
legal instruments are only summaries. For a complete statement of the terms of
these documents, reference should be made to the instruments filed with the SEC.
YEAR 2000 ISSUES
Like other business organizations and individuals, the Company would be
adversely affected if its computer systems and those of its service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. The Company is completing an assessment of the Year 2000
impact on its systems and business processes. Management believes that the
Company will complete its Year 2000 project for all critical systems and
processes by September 30, 1998, prior to any anticipated impact on the critical
systems and processes.
The date on which the Company believes it will complete the Year 2000 project is
based on management's best estimates, which were derived utilizing numerous
assumptions of future events. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer code, and
other similar uncertainties.
CONTRACT OWNER INQUIRIES
All contract owner inquiries should be directed to the Service Office.
CONTRACT ILLUSTRATIONS
The following tables have been prepared to illustrate the way in which
a contract operates. The tables assume that an initial premium payment of
$25,000 is allocated equally among the Sub-Accounts of the Variable
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<PAGE> 42
Account, with no allocation to the fixed investment account, and that no
subsequent payments, transfers, partial withdrawals, or loans have been made. A
female nonsmoker age 55 and a male nonsmoker age 65 with face amounts of $85,564
and $51,179, respectively, are illustrated for an individual insured. The
illustration for a contract with two insureds assumes a joint equal age of 65
with a face amount of $79,644.
The tables illustrate how the contract value, the surrender value and
the death benefit of a contract would vary over time if the investment return on
the assets of each Portfolio were a uniform, gross (i.e., before taking into
consideration fees or expenses incurred by each Portfolio, other than
transaction expenses such as brokerage commissions) after-tax annual rates of
0%, 6% or 12%. The contract value, surrender value and death benefit would be
different from those shown if the returns averaged 0%, 6% or 12%, but fluctuated
over and under those averages throughout the years.
The charges reflected in the tables include the (1) distribution charge
equal to an annual rate of 0.25% of contract value for the first ten contract
years, (2) premium tax charge equal to an annual rate of 0.25% of contract value
for the first ten contract years, (3) Federal tax charge equal to an annual rate
of 0.15% of contract value for the first ten contract years, (4) administration
charge equal to an annual rate of 0.40% of contract value, (5) mortality and
expense charge equal to an annual rate of 0.90% of variable investment account
values, (6) $2.50 monthly maintenance fee, (7) current and guaranteed cost of
insurance charges, and (8) any withdrawal charge which may be applicable in the
first nine contract years. A simple average of total trust expenses for the
twenty-nine investment portfolios of 0.95% is also reflected in the tables. The
expenses of the Portfolios may fluctuate from year to year, but are assumed to
remain constant for purposes of these tables.
The tables reflect the fact that no charges (other than those described
above) for Federal, state or local taxes are currently made against the Variable
Account. If such a charge is made in the future, it would take a higher gross
rate of return to produce after-tax returns of 0%, 6% and 12% than it does now.
Surrender values in the tables do not reflect any tax consequences of a
surrender, as those consequences would vary according to the individual
circumstances of the contract owner. It should be noted that surrenders of the
contract may be subject to income tax and a 10% penalty tax (see "FEDERAL TAX
MATTERS").
Upon request, the Company will furnish comparable illustrations based
on the insured's age, gender, smoking status, risk class, the initial premium
payment, and the investment option selected by the contract owner or prospective
owner.
From time to time, in supplemental sales literature for the contract
that quotes performance data for one or more of the Trust Portfolios, the
Company may include surrender values and death benefit figures computed using
the same methodology as that used in the following illustrations, but with the
average annual total return of the Portfolio for which performance data is shown
in the sales literature replacing the hypothetical rates of return in the
following tables. This information may be shown in the form of graphs, charts,
tables and examples. The contract will be offered to the public only on or after
the date of this Prospectus. However, total return data may be used in sales
literature for as long a period as a Portfolio has been in existence. The
results for any period prior to the contract being offered would be calculated
as if the contract had been offered during that period of time, with all charges
assumed to be those applicable to the contract.
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<PAGE> 43
$25,000 INITIAL PAYMENT: $51,179 FACE AMOUNT
MALE NONSMOKER: AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
------------------------------- ------------------------------- -------------------------------
Payment
Plus Contract Contract Contract
Policy Interest Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
- ------ -------- -------- --------- ------- -------- --------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $26,250 $24,170 $22,220 $51,179 $25,622 $23,541 $51,179 $27,073 $24,861 $51,179
2 27,563 23,367 21,594 51,179 26,260 24,240 51,179 29,320 27,195 51,179
3 28,941 22,590 20,983 51,179 26,914 24,961 51,179 31,757 29,757 51,179
4 30,388 21,838 20,484 51,179 27,586 25,836 51,179 34,399 32,649 51,179
5 31,907 21,109 19,993 51,179 28,275 26,775 51,179 37,263 35,763 51,179
6 33,502 20,404 19,509 51,179 28,982 27,732 51,179 40,368 39,118 51,179
7 35,178 19,722 19,033 51,179 29,708 28,708 51,179 43,734 42,734 51,179
8 36,936 19,061 18,564 51,179 30,452 29,702 51,179 47,384 46,634 52,596
9 38,783 18,422 18,103 51,179 31,216 30,716 51,179 51,341 50,841 55,961
10 40,722 17,803 17,803 51,179 32,000 32,000 51,179 55,631 55,631 59,525
15 51,973 15,336 15,336 51,179 37,064 37,064 51,179 85,726 85,726 90,012
20 66,332 13,191 13,191 51,179 42,956 42,956 51,179 131,197 131,197 137,757
25 84,659 11,327 11,327 51,179 49,810 49,810 52,301 200,809 200,809 210,850
30 108,049 9,706 9,706 51,179 57,891 57,891 58,470 308,028 308,028 311,109
</TABLE>
ASSUMPTIONS : (1) No loans or partial withdrawals have been made. (2) Current
values reflect current cost of insurance charges and a $2.50 monthly maintenance
fee. (3) Net investment returns are calculated as the hypothetical gross
investment return less all current contract charges and deductions shown in the
prospectus and current average fund expense of 0.95%.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing economic conditions,
prevailing rates and rates of inflation. The death benefit and contract value
would be different from those shown if the actual rates of return averaged 0%,
6%, and 12% over a period of years but also fluctuated above or below those
averages for individual contract years. No representation can be made by The
Manufacturers Life Insurance Company of North America or the Trust that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
38
<PAGE> 44
$25,000 INITIAL PAYMENT: $85,564 FACE AMOUNT
FEMALE NONSMOKER: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
------------------------------- ------------------------------- -------------------------------
Payment
Plus Contract Contract Contract
Policy Interest Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
- ------ -------- -------- --------- ------- -------- --------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $26,250 $24,170 $22,220 $85,564 $25,622 $23,541 $85,564 $27,073 $24,861 $85,564
2 27,563 23,367 21,594 85,564 26,260 24,240 85,564 29,320 27,195 85,564
3 28,941 22,590 20,983 85,564 26,914 24,961 85,564 31,757 29,757 85,564
4 30,388 21,838 20,484 85,564 27,586 25,836 85,564 34,399 32,649 85,564
5 31,907 21,109 19,993 85,564 28,275 26,775 85,564 37,263 35,763 85,564
6 33,502 20,404 19,509 85,564 28,982 27,732 85,564 40,368 39,118 85,564
7 35,178 19,722 19,033 85,564 29,708 28,708 85,564 43,734 42,734 85,564
8 36,936 19,061 18,564 85,564 30,452 29,702 85,564 47,384 46,634 85,564
9 38,783 18,422 18,103 85,564 31,216 30,716 85,564 51,341 50,841 85,564
10 40,722 17,803 17,803 85,564 32,000 32,000 85,564 55,631 55,631 85,564
15 51,973 15,336 15,336 85,564 37,064 37,064 85,564 85,563 85,563 99,254
20 66,332 13,191 13,191 85,564 42,956 42,956 85,564 132,547 132,547 141,825
25 84,659 11,327 11,327 85,564 49,810 49,810 85,564 205,879 205,879 216,173
30 108,049 9,706 9,706 85,564 57,784 57,784 85,564 316,770 316,770 332,608
</TABLE>
ASSUMPTIONS : (1) No loans or partial withdrawals have been made. (2) Current
values reflect current cost of insurance charges and a $2.50 monthly maintenance
fee. (3) Net investment returns are calculated as the hypothetical gross
investment return less all current contract charges and deductions shown in the
prospectus and current average fund expense of 0.95%.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing economic conditions,
prevailing rates and rates of inflation. The death benefit and contract value
would be different from those shown if the actual rates of return averaged 0%,
6%, and 12% over a period of years but also fluctuated above or below those
averages for individual contract years. No representation can be made by The
Manufacturers Life Insurance Company of North America or the Trust that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
39
<PAGE> 45
$25,000 INITIAL PAYMENT: $79,644 FACE AMOUNT
LAST SURVIVOR: JOINT EQUIVALENT AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
------------------------------- ------------------------------- -------------------------------
Payment
Plus Contract Contract Contract
Policy Interest Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
- ------ -------- -------- --------- ------- -------- --------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $26,250 $24,240 $22,283 $79,644 $25,696 $23,609 $79,644 $27,152 $24,934 $79,644
2 27,563 23,494 21,709 79,644 26,402 24,370 79,644 29,480 27,355 79,644
3 28,941 22,769 21,148 79,644 27,128 25,158 79,644 32,010 30,010 79,644
4 30,388 22,066 20,697 79,644 27,875 26,125 79,644 34,760 33,010 79,644
5 31,907 21,384 20,251 79,644 28,644 27,144 79,644 37,749 36,249 79,644
6 33,502 20,722 19,811 79,644 29,434 28,184 79,644 40,998 39,748 79,644
7 35,178 20,080 19,377 79,644 30,247 29,247 79,644 44,529 43,529 79,644
8 36,936 19,457 18,948 79,644 31,084 30,334 79,644 48,366 47,616 79,644
9 38,783 18,852 18,525 79,644 31,944 31,444 79,644 52,537 52,037 79,644
10 40,722 18,265 18,265 79,644 32,829 32,829 79,644 57,071 57,071 79,644
15 51,973 15,936 15,936 79,644 38,509 38,509 79,644 88,592 88,592 93,022
20 66,332 13,887 13,887 79,644 45,200 45,200 79,644 137,470 137,470 144,343
25 84,659 12,083 12,083 79,644 53,081 53,081 79,644 213,072 213,072 223,725
30 108,049 10,495 10,495 79,644 62,366 62,366 79,644 330,777 330,777 334,085
</TABLE>
ASSUMPTIONS : (1) No loans or partial withdrawals have been made. (2) Current
values reflect current cost of insurance charges and a $2.50 monthly maintenance
fee. (3) Net investment returns are calculated as the hypothetical gross
investment return less all current contract charges and deductions shown in the
prospectus and current average fund expense of 0.95%.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing economic conditions,
prevailing rates and rates of inflation. The death benefit and contract value
would be different from those shown if the actual rates of return averaged 0%,
6%, and 12% over a period of years but also fluctuated above or below those
averages for individual contract years. No representation can be made by The
Manufacturers Life Insurance Company of North America or the Trust that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
40
<PAGE> 46
$25,000 INITIAL PAYMENT: $51,179 FACE AMOUNT
MALE NONSMOKER: AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
------------------------------- ------------------------------- -------------------------------
Payment
Plus Contract Contract Contract
Policy Interest Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
- ------ -------- -------- --------- ------- -------- --------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $26,250 $23,660 $21,755 $51,179 $25,118 $23,082 $51,179 $26,577 $24,410 $51,179
2 27,563 22,260 20,580 51,179 25,178 23,250 51,179 28,271 26,146 51,179
3 28,941 20,789 19,326 51,179 25,171 23,358 51,179 30,101 28,101 51,179
4 30,388 19,232 18,061 51,179 25,089 23,508 51,179 32,087 30,337 51,179
5 31,907 17,570 16,665 51,179 24,917 23,572 51,179 34,255 32,755 51,179
6 33,502 15,776 15,113 51,179 24,637 23,531 51,179 36,635 35,385 51,179
7 35,178 13,820 13,367 51,179 24,226 23,357 51,179 39,266 38,266 51,179
8 36,936 11,656 11,381 51,179 23,651 23,017 51,179 42,195 41,445 51,179
9 38,783 9,235 9,100 51,179 22,877 22,469 51,179 45,491 44,991 51,179
10 40,722 6,499 6,499 51,179 21,859 21,859 51,179 49,221 49,221 52,666
15 51,973 * * * 11,779 11,779 51,179 75,827 75,827 79,618
20 66,332 * * * * * * 115,519 115,519 121,295
25 84,659 * * * * * * 172,808 172,808 181,449
30 108,049 * * * * * * 260,522 260,522 263,127
</TABLE>
ASSUMPTIONS : (1) No loans or partial withdrawals have been made. (2) Guaranteed
values reflect guaranteed cost of insurance charges and a $2.50 monthly
maintenance fee. (3) Net investment returns are calculated as the hypothetical
gross investment return less all guaranteed contract charges and deductions
shown in the prospectus and current average fund expense of 0.95%.
* Unless additional payment is made, the contract will not stay in force
resulting in loss of insurance coverage. See "TERMINATION" and "REINSTATEMENT".
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing economic conditions,
prevailing rates and rates of inflation. The death benefit and contract value
would be different from those shown if the actual rates of return averaged 0%,
6%, and 12% over a period of years but also fluctuated above or below those
averages for individual contract years. No representation can be made by The
Manufacturers Life Insurance Company of North America or the Trust that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
41
<PAGE> 47
$25,000 INITIAL PAYMENT: $85,564 FACE AMOUNT
FEMALE NONSMOKER: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
------------------------------- ------------------------------- -------------------------------
Payment
Plus Contract Contract Contract
Policy Interest Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
- ------ -------- -------- --------- ------- -------- --------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $26,250 $23,870 $21,947 $85,564 $25,322 $23,268 $85,564 $26,773 $24,588 $85,564
2 27,563 22,738 21,018 85,564 25,626 23,661 85,564 28,686 26,561 85,564
3 28,941 21,601 20,073 85,564 25,915 24,042 85,564 30,756 28,756 85,564
4 30,388 20,461 19,203 85,564 26,187 24,529 85,564 32,998 31,248 85,564
5 31,907 19,310 18,302 85,564 26,438 25,002 85,564 35,430 33,930 85,564
6 33,502 18,144 17,362 85,564 26,663 25,455 85,564 38,067 36,817 85,564
7 35,178 16,950 16,372 85,564 26,852 25,878 85,564 40,925 39,925 85,564
8 36,936 15,716 15,319 85,564 26,993 26,258 85,564 44,023 43,273 85,564
9 38,783 14,424 14,186 85,564 27,071 26,580 85,564 47,382 46,882 85,564
10 40,722 13,063 13,063 85,564 27,077 27,077 85,564 51,031 51,031 85,564
15 51,973 5,227 5,227 85,564 26,713 26,713 85,564 77,764 77,764 90,206
20 66,332 * * * 22,422 22,422 85,564 120,447 120,447 128,878
25 84,659 * * * 7,218 7,218 85,564 187,068 187,068 196,421
30 108,049 * * * * * * 287,743 287,743 302,130
</TABLE>
ASSUMPTIONS : (1) No loans or partial withdrawals have been made. (2) Guaranteed
values reflect guaranteed cost of insurance charges and a $2.50 monthly
maintenance fee. (3) Net investment returns are calculated as the hypothetical
gross investment return less all guaranteed contract charges and deductions
shown in the prospectus and current average fund expense of 0.95%.
* Unless additional payment is made, the contract will not stay in force
resulting in loss of insurance coverage. See "TERMINATION" and "REINSTATEMENT".
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing economic conditions,
prevailing rates and rates of inflation. The death benefit and contract value
would be different from those shown if the actual rates of return averaged 0%,
6%, and 12% over a period of years but also fluctuated above or below those
averages for individual contract years. No representation can be made by The
Manufacturers Life Insurance Company of North America or the Trust that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
42
<PAGE> 48
$25,000 INITIAL PAYMENT: $79,644 FACE AMOUNT
LAST SURVIVOR: JOINT EQUIVALENT AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
------------------------------- ------------------------------- -------------------------------
Payment
Plus Contract Contract Contract
Policy Interest Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
- ------ -------- -------- --------- ------- -------- --------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $26,250 $24,240 $22,283 $79,644 $25,696 $23,609 $79,644 $27,152 $24,934 $79,644
2 27,563 23,465 21,683 79,644 26,377 24,348 79,644 29,459 27,334 79,644
3 28,941 22,666 21,052 79,644 27,035 25,072 79,644 31,930 29,930 79,644
4 30,388 21,831 20,478 79,644 27,661 25,911 79,644 34,574 32,824 79,644
5 31,907 20,947 19,841 79,644 28,242 26,742 79,644 37,404 35,904 79,644
6 33,502 19,998 19,123 79,644 28,766 27,516 79,644 40,432 39,182 79,644
7 35,178 18,964 18,306 79,644 29,216 28,216 79,644 43,673 42,673 79,644
8 36,936 17,822 17,362 79,644 29,573 28,823 79,644 47,150 46,400 79,644
9 38,783 16,549 16,268 79,644 29,818 29,318 79,644 50,889 50,389 79,644
10 40,722 15,105 15,105 79,644 29,921 29,921 79,644 54,921 54,921 79,644
15 51,973 4,254 4,254 79,644 28,259 28,259 79,644 84,414 84,414 88,635
20 66,332 * * * 16,948 16,948 79,644 130,939 130,939 137,486
25 84,659 * * * * * * 201,589 201,589 211,669
30 108,049 * * * * * * 311,016 311,016 314,127
</TABLE>
ASSUMPTIONS : (1) No loans or partial withdrawals have been made. (2) Guaranteed
values reflect guaranteed cost of insurance charges and a $2.50 monthly
maintenance fee. (3) Net investment returns are calculated as the hypothetical
gross investment return less all guaranteed contract charges and deductions
shown in the prospectus and current average fund expense of 0.95%.
* Unless additional payment is made, the contract will not stay in force
resulting in loss of insurance coverage. See "TERMINATION" and "REINSTATEMENT".
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing economic conditions,
prevailing rates and rates of inflation. The death benefit and contract value
would be different from those shown if the actual rates of return averaged 0%,
6%, and 12% over a period of years but also fluctuated above or below those
averages for individual contract years. No representation can be made by The
Manufacturers Life Insurance Company of North America or the Trust that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
43
<PAGE> 49
AUDITED FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT B (FORMERLY
NASL VARIABLE LIFE ACCOUNT OF
NORTH AMERICAN SECURITY LIFE
INSURANCE COMPANY)
Years ended December 31, 1997 and 1996
<PAGE> 50
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Audited Financial Statements
Years ended December 31, 1997 and 1996
CONTENTS
Report of Independent Auditors..............................................1
Audited Financial Statements
Statement of Assets and Contract Owners' Equity.............................2
Statements of Operations and Changes in Contract Owners' Equity.............3
Notes to Financial Statements..............................................11
<PAGE> 51
Report of Independent Auditors
To the Contract Owners of
The Manufacturers Life Insurance Company of
North America Separate Account B
We have audited the accompanying statement of assets and contract owners' equity
of The Manufacturers Life Insurance Company of North America Separate Account B
(formerly NASL Variable Life Account of North American Security Life Insurance
Company) of The Manufacturers Life Insurance Company of North America (formerly
North American Security Life Insurance Company and hereinafter referred to as
the Company) as of December 31, 1997, and the related statements of operations
and changes in contract owners' equity for each of the two years in the period
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Manufacturers Life
Insurance Company of North America Separate Account B at December 31, 1997, and
the results of its operations and the changes in its contract owners' equity for
each of the two years in the period then ended in conformity with generally
accepted accounting principles.
February 5, 1998
/s/ Ernst & Young LLP
1
<PAGE> 52
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Statement of Assets and Contract Owners' Equity
December 31, 1997
<TABLE>
<CAPTION>
ASSETS
Investments at market value:
Sub-accounts:
<S> <C>
Equity Portfolio--198,364 shares (cost $4,147,364) $ 4,270,633
Investment Quality Bond Portfolio--105,378 shares (cost $1,230,221) 1,278,241
Growth and Income Portfolio--340,625 shares (cost $7,012,539) 8,137,537
Blue Chip Growth Portfolio--263,895 shares (cost $3,665,402) 3,958,430
Money Market Portfolio--540,111 shares (cost ($5,401,106) 5,401,106
Global Equity Portfolio--128,555 shares (cost $2,299,260) 2,491,401
Global Government Bond Portfolio--29,827 shares (cost $423,129) 419,669
U.S. Government Securities Portfolio--63,334 shares (cost $833,269) 855,014
Conservative Asset Allocation Portfolio--13,744 shares (cost 161,909
$154,405)
Moderate Asset Allocation Portfolio--52,607 shares (cost $647,242) 681,264
Aggressive Asset Allocation Portfolio--13,609 shares (cost $184,966) 195,425
Equity-Income Portfolio--253,694 shares (cost $3,900,616) 4,373,688
Strategic Bond Portfolio--155,133 shares (cost $1,843,060) 1,920,543
International Growth and Income Portfolio--217,766 shares (cost
$2,472,487) 2,397,609
Growth Portfolio--108,573 shares (cost $1,718,899) 1,868,547
Small/Mid Cap Portfolio--249,648 shares (cost $3,532,999) 3,847,080
International Small Cap Portfolio--121,751 shares (cost $1,664,557) 1,667,987
Science & Technology Portfolio--54,079 shares (cost $783,997) 736,557
Emerging Growth Portfolio--31,150 shares (cost $672,915) 751,657
Pilgrim Baxter Growth Portfolio--55,806 shares (cost $680,740) 697,578
International Stock Portfolio--42,415 shares (cost $521,742) 486,494
Value Trust Portfolio--85,898 shares (cost $1,273,914) 1,271,286
Real Estate Securities Portfolio--21,978 shares (cost $419,257) 441,093
High Yield Portfolio--56,233 shares (cost $782,152) 762,521
Lifestyle Aggressive 1000 Portfolio--40,389 shares (cost $516,473) 544,039
Lifestyle Growth 820 Portfolio--377,513 shares (cost $5,112,973) 5,198,349
Lifestyle Balanced 640 Portfolio--107,090 shares (cost $1,395,102) 1,452,141
Lifestyle Moderate 460 Portfolio--40,623 shares (cost $535,512) 542,314
Lifestyle Conservative 280 Portfolio--35,762 shares (cost $447,840) 465,259
-----------
Total assets $57,275,371
===========
CONTRACT OWNERS' EQUITY
Variable life contracts $57,275,371
-----------
Total contract owners' equity $57,275,371
===========
</TABLE>
2
See accompanying notes.
<PAGE> 53
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract Owners' Equity
<TABLE>
<CAPTION>
SUB-ACCOUNT
-------------------------------------------------------------------------------------------
EQUITY INVESTMENT QUALITY BOND GROWTH AND INCOME
-------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1997 1996 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 592,101 $ 28,154 $ 110,842 $ 1,295 $ 274,767 $ 7,243
Expenses:
Mortality and expense risk and
administrative charges 45,189 12,172 17,497 2,245 66,718 10,409
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 546,912 15,982 93,345 (950) 208,049 (3,166)
Net realized gain (loss) 43,853 2,428 1,850 (6) 171,967 1,877
Unrealized appreciation
(depreciation) during the period (21,480) 144,611 34,220 13,800 924,927 199,709
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
contract owners' equity from 569,285 163,021 129,415 12,844 1,304,943 198,420
operations ----------- ----------- ----------- ----------- ----------- -----------
Changes from principal transactions:
Purchase payments (7,526) 501,112 (9,463)
Transfers between sub-accounts
and the Company 1,517,315 2,128,334 200,946 481,362 4,444,195 2,333,367
Withdrawals (77,134) (12,213) (30,855) 0 (120,641) (11,518)
Annual contract fee (37,959) (10,224) (14,697) (1,886) (56,044) (8,744)
----------- ----------- ----------- ----------- ----------- -----------
Net increase in contract owners'
equity from principal
transactions 1,394,696 2,105,897 656,506 479,476 4,258,047 2,313,105
----------- ----------- ----------- ----------- ----------- -----------
Total increase in contract owners'
equity 1,963,981 2,268,918 785,921 492,320 5,562,990 2,511,525
Contract owners' equity at
beginning of period 2,306,652 37,734 492,320 2,574,547 63,022
----------- ----------- ----------- ----------- ----------- -----------
Contract owners' equity at end of
period $ 4,270,633 $ 2,306,652 $ 1,278,241 $ 492,320 $ 8,137,537 $ 2,574,547
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 54
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract Owners' Equity
(continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
--------------------------------------------------------------------------------------------
BLUE CHIP GROWTH MONEY MARKET GLOBAL EQUITY
--------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1997 1996 1997 1996
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 366,709 $ 143 $ 186,530 $ 53,005 $ 126,954 $ 1,350
Expenses:
Mortality and expense risk and
administrative charges 33,336 5,878 26,218 4,102 21,341 3,546
----------- ------------ ------------ ------------ ----------- ---------
Net investment income (loss) 333,373 (5,735) 160,312 48,903 105,613 (2,196)
Net realized gain (loss) 78,617 3,632 13,108 21,148 270
Unrealized appreciation
(depreciation) during the period 181,546 111,393 143,923 48,218
----------- ------------ ------------ ------------ ----------- ---------
Net increase (decrease) in
contract owners' equity from 593,536 109,290 173,420 48,903 270,684 46,292
operations ----------- ------------ ------------ ------------ ----------- ---------
Changes from principal transactions:
Purchase payments (3,665) 39,460,941 18,413,863 (1,168) (9,883)
Transfers between sub-accounts
and the Company 1,945,640 1,349,571 (36,277,277) (15,915,805) 1,412,601 848,441
Withdrawals (5,026) (10,595) (72,863) (404,608) (54,509) (152)
Annual contract fee (28,002) (4,937) (22,023) (3,445) (17,927) (2,978)
----------- ------------ ------------ ------------ ----------- ---------
Net increase in contract owners'
equity from principal
transactions 1,908,947 1,334,039 3,088,778 2,090,005 1,338,997 835,428
----------- ------------ ------------ ------------ ----------- ---------
Total increase in contract owners'
equity 2,502,483 1,443,329 3,262,198 2,138,908 1,609,681 881,720
Contract owners' equity at
beginning of period 1,455,947 12,618 2,138,908 881,720
----------- ------------ ------------ ------------ ----------- ---------
Contract owners' equity at end of
period $ 3,958,430 $ 1,455,947 $ 5,401,106 $ 2,138,908 $ 2,491,401 $ 881,720
=========== ============ ============ ============ =========== =========
</TABLE>
See accompanying notes
4
<PAGE> 55
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract Owners' Equity
(continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
GLOBAL GOVERNMENT BOND U.S. GOVERNMENT SECURITIES CONSERVATIVE ASSET ALLOCATION
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1997 1996 1997 1996
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 29,535 $ 2,225 $ 29,032 $ 14,096 $ 6,136 $ 62
Expenses:
Mortality and expense risk and
administrative charges 4,598 1,034 6,371 3,488 1,351 317
--------- --------- --------- --------- --------- --------
Net investment income (loss) 24,937 1,191 22,661 10,608 4,785 (255)
Net realized gain (loss) 839 (391) 7,109 (11,342) 1,829 (23)
Unrealized appreciation
(depreciation) during the period (15,873) 12,413 7,944 13,783 5,010 2,494
--------- --------- --------- --------- --------- --------
Net increase (decrease) in
contract owners' equity from 9,903 13,213 37,714 13,049 11,624 2,216
operations --------- --------- --------- --------- --------- --------
Changes from principal transactions:
Purchase payments 80 (1,179) (1,186)
Transfers between sub-accounts
and the Company 166,010 235,194 431,478 373,224 134,150 47,181
Withdrawals (3,538) (30,674)
Annual contract fee (3,863) (868) (5,351) (2,930) (1,135) (267)
--------- --------- --------- --------- --------- --------
Net increase in contract owners'
equity from principal
transactions 162,227 234,326 421,410 370,294 101,155 46,914
--------- --------- --------- --------- --------- --------
Total increase in contract owners'
equity 172,130 247,539 459,124 383,343 112,779 49,130
Contract owners' equity at
beginning of period 247,539 395,890 12,547 49,130
--------- --------- --------- --------- --------- --------
Contract owners' equity at end of
period $ 419,669 $ 247,539 $ 855,014 $ 395,890 $ 161,909 $ 49,130
========= ========= ========= ========= ========= ========
</TABLE>
See accompanying notes.
5
<PAGE> 56
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract Owners' Equity
(continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
MODERATE ASSET ALLOCATION AGGRESSIVE ASSET ALLOCATION EQUITY-INCOME
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1997 1996 1997 1996
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income:
Dividends $ 50,077 $ 19,951 $ 1,890 $ 286,072 $ 2,648
Expenses:
Mortality and expense risk and
administrative charges 6,852 $ 1,039 2,563 903 35,849 5,459
--------- --------- --------- --------- ----------- -----------
Net investment income (loss) 43,225 (1,039) 17,388 987 250,223 (2,811)
Net realized gain (loss) 5,122 30 13,762 49,325 720
Unrealized appreciation
(depreciation) during the period 24,489 9,533 3,348 6,993 388,779 84,293
--------- --------- --------- --------- ----------- -----------
Net increase (decrease) in
contract owners' equity from 72,836 8,524 34,498 7,980 688,327 82,202
operations --------- --------- --------- --------- ----------- -----------
Changes from principal transactions:
Purchase payments (3,656)
Transfers between sub-accounts
and the Company 416,079 220,908 104,475 88,581 2,371,221 1,322,582
Withdrawals (30,455) -- (62,381) -- (46,646) (5,643)
Annual contract fee (5,756) (872) (2,153) (758) (30,113) (4,586)
--------- --------- --------- --------- ----------- -----------
Net increase in contract owners'
equity from principal
transactions 379,868 220,036 39,941 87,823 2,290,806 1,312,353
--------- --------- --------- --------- ----------- -----------
Total increase in contract owners'
equity 452,704 228,560 74,439 95,803 2,979,133 1,394,555
Contract owners' equity at
beginning of period 228,560 120,986 25,183 1,394,555
--------- --------- --------- --------- ----------- -----------
Contract owners' equity at end of
period $ 681,264 $ 228,560 $ 195,425 $ 120,986 $ 4,373,688 $ 1,394,555
========= ========= ========= ========= =========== ===========
</TABLE>
See accompanying notes
6
<PAGE> 57
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract Owners' Equity
(continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------
INTERNATIONAL GROWTH
STRATEGIC BOND AND INCOME GROWTH (1)
-----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 PERIOD ENDED DECEMBER 31
1997 1996 1997 1996 1997 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 70,868 $ 3,068 $ 83,998 $ 48 $ 19 $ 3,100
Expenses:
Mortality and expense risk and
administrative charges 18,516 3,585 20,836 4,432 13,293 1,028
---------- --------- ---------- --------- ---------- ---------
Net investment income (loss) 52,352 (517) 63,162 (4,384) (13,274) 2,072
Net realized gain (loss) 39,259 9,899 9,031 78 29,344 302
Unrealized appreciation
(depreciation) during the period 43,192 34,291 (124,439) 49,561 150,550 (902)
---------- --------- ---------- --------- ---------- ---------
Net increase (decrease) in
contract owners' equity from 134,803 43,673 (52,246) 45,255 166,620 1,472
operations ---------- --------- ---------- --------- ---------- ---------
Changes from principal transactions:
Purchase payments 16,511 (789) (2,752)
Transfers between sub-accounts
and the Company 997,315 790,429 1,552,542 895,937 1,223,382 500,520
Withdrawals (31,300) (12,323) (21,865) (2,990) (5,675)
Annual contract fee (15,553) (3,012) (17,503) (3,722) (11,167) (863)
---------- --------- ---------- --------- ---------- ---------
Net increase in contract owners'
equity from principal
transactions 950,462 791,605 1,512,385 892,215 1,206,473 493,982
---------- --------- ---------- --------- ---------- ---------
Total increase in contract owners'
equity 1,085,265 835,278 1,460,139 937,470 1,373,093 495,454
Contract owners' equity at
beginning of period 835,278 937,470 495,454
---------- --------- ---------- --------- ---------- ---------
Contract owners' equity at end of
period $1,920,543 $ 835,278 $2,397,609 $ 937,470 $1,868,547 $ 495,454
========== ========= ========== ========= ========== =========
</TABLE>
(1) From commencement of operations July 15, 1996
See accompanying notes.
7
<PAGE> 58
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract Owners' Equity
(continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
SCIENCE &
TECHNOLOGY EMERGING
SMALL/MID CAP (2) INTERNATIONAL SMALL CAP (2) (3) GROWTH (4)
-----------------------------------------------------------------------------------------------
PERIOD ENDED DECEMBER 31 PERIOD ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1997 1996 1997 1996 1997
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 554 $ 2,976 $ 11,461
Expenses:
Mortality and expense risk and
administrative charges $ 31,517 $ 4,921 16,460 2,284 4,513 $ 3,949
----------- ----------- ----------- --------- --------- ---------
Net investment income (loss) (31,517) (4,921) (15,906) 692 6,948 (3,949)
Net realized gain (loss) 39,736 (33) 4,545 3 19,476 12
Unrealized appreciation
(depreciation) during the period 280,098 33,983 (21,768) 25,198 (47,440) 78,742
----------- ----------- ----------- --------- --------- ---------
Net increase (decrease) in
contract owners' equity from 288,317 29,029 (33,129) 25,893 (21,016) 74,805
operations ----------- ----------- ----------- --------- --------- ---------
Changes from principal transactions:
Purchase payments (794) (944) (2,797) 24
Transfers between sub-accounts
and the Company 2,154,794 1,420,092 906,095 793,633 765,191 681,164
Withdrawals (13,653) (97) (7,717) (100) (1,031) (1,018)
Annual contract fee (26,474) (4,134) (13,826) (1,918) (3,790) (3,318)
----------- ----------- ----------- --------- --------- ---------
Net increase in contract owners'
capital from principal
transactions 2,113,873 1,415,861 883,608 791,615 757,573 676,852
----------- ----------- ----------- --------- --------- ---------
Total increase in contract owners'
equity 2,402,190 1,444,890 850,479 817,508 736,557 751,657
Contract owners' equity at
beginning of period 1,444,890 817,508
----------- ----------- ----------- --------- --------- ---------
Contract owners' equity at end of
period $ 3,847,080 $ 1,444,890 $ 1,667,987 $ 817,508 $ 736,557 $ 751,657
=========== =========== =========== ========= ========= =========
</TABLE>
(2) From commencement of operations March 4, 1996
(3) From commencement of operations January 1, 1997
(4) Denotes former Manulife Series Fund, Inc., which merged into Manufacturers
Investment Trust on December 31, 1996
See accompanying notes.
8
<PAGE> 59
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract Owners' Equity
(continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
PILGRIM REAL LIFESTYLE
BAXTER INTERNATIONAL VALUE ESTATE HIGH AGGRESSIVE
GROWTH (3) STOCK (4) TRUST (3) SECURITIES (4) YIELD (3) 1000 (3)
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1997
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income:
Dividends $ 6,585 $ 38,157 $ 28,578 $ 5,462
Expenses:
Mortality and expense risk and
administrative charges $ 3,493 2,593 5,522 $ 1,798 3,058 4,213
--------- --------- ----------- --------- --------- ---------
Net investment income (loss) (3,493) 3,992 32,635 (1,798) 25,520 1,249
Net realized gain (loss) 2,634 4,011 8,477 8,774 16,176 30,067
Unrealized appreciation
(depreciation) during the period 16,838 (35,248) (2,628) 21,836 (19,631) 27,566
--------- --------- ----------- --------- --------- ---------
Net increase (decrease) in
contract owners' equity from 15,979 (27,245) 38,484 28,812 22,065 58,882
operations --------- --------- ----------- --------- --------- ---------
Changes from principal transactions:
Purchase payments (1,852) 18 12 (10,072)
Transfers between sub-accounts
and the Company 687,386 517,030 1,238,563 413,981 745,448 498,768
Withdrawals (1,000) (1,112) (1,141) (201) (2,423)
Annual contract fee (2,935) (2,179) (4,638) (1,511) (2,569) (3,539)
--------- --------- ----------- --------- --------- ---------
Net increase in contract owners'
equity from principal
transactions 697,578 486,494 1,271,286 441,093 762,521 544,039
Total increase in contract owners'
equity 697,578 486,494 1,271,286 441,093 762,521 544,039
--------- --------- ----------- --------- --------- ---------
Contract owners' equity at
beginning of period
--------- --------- ----------- --------- --------- ---------
Contract owners' equity at end of
period $ 697,578 $ 486,494 $ 1,271,286 $ 441,093 $ 762,521 $ 544,039
========= ========= =========== ========= ========= =========
</TABLE>
(3) From commencement of operations January 1, 1997
(4) Denotes former Manulife Series Fund, Inc., which merged into Manufacturers
Investment Trust on December 31, 1996
See accompanying notes.
9
<PAGE> 60
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Statements of Operations and Changes in Contract Owners' Equity
(continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
LIFESTYLE LIFESTYLE LIFESTYLE LIFESTYLE
GROWTH BALANCED MODERATE CONSERVATIVE
820 (3) 640 (3) 460 (3) 280 (3) TOTAL
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
------------------------------
YEAR ENDED DECEMBER 31, 1997 1997 1996
---------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 41,394 $ 17,517 $ 7,218 $ 5,520 $ 2,396,037 $ 121,303
Expenses:
Mortality and expense risk and
administrative charges 24,594 8,413 2,405 2,577 435,633 66,842
----------- ----------- --------- --------- ------------ ------------
Net investment income (loss) 16,800 9,104 4,813 2,943 1,960,404 54,461
Net realized gain (loss) 80,747 8,078 102 10 709,008 7,444
Unrealized appreciation
(depreciation) during the period 85,376 57,039 6,802 17,419 2,211,137 789,371
----------- ----------- --------- --------- ------------ ------------
Net increase (decrease) in
contract owners' equity from 182,923 74,221 11,717 20,372 4,880,549 851,276
operations
----------- ----------- --------- --------- ------------ ------------
Changes from principal transactions:
Purchase payments 39,914,344 18,420,491
Transfers between sub-accounts
and the Company 5,037,069 1,400,607 532,618 447,052 (3,334,162) (2,086,449)
Withdrawals (984) (15,620) (636,777) (462,924)
Annual contract fee (20,659) (7,067) (2,021) (2,165) (365,937) (56,144)
----------- ----------- --------- --------- ------------ ------------
Net increase in contract owners'
equity from principal
transactions 5,015,426 1,377,920 530,597 444,887 35,577,468 15,814,974
----------- ----------- --------- --------- ------------ ------------
Total increase in contract owners'
equity 5,198,349 1,452,141 542,314 465,259 40,458,017 16,666,250
Contract owners' equity at 16,817,354 151,104
beginning of period ----------- ----------- --------- --------- ------------ ------------
Contract owners' equity at end of
period $ 5,198,349 $ 1,452,141 $ 542,314 $ 465,259 $ 57,275,371 $ 16,817,354
=========== =========== ========= ========= ============ ============
</TABLE>
(3) From commencement of operations January 1, 1997
See accompanying notes.
10
<PAGE> 61
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Notes to Financial Statements
December 31, 1997
1. ORGANIZATION
The Manufacturers Life Insurance Company of North America Separate Account B
(formerly NASL Variable Life Account of North American Security Life Insurance
Company and hereinafter referred to as the Account) is a separate account
established by The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company and hereinafter
referred to as the Company). The Account commenced operations on November 1,
1995 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 twenty-nine sub-accounts of Manufacturers Investment Trust (formerly
NASL Series Trust and hereinafter referred to as the Trust). The Account is a
funding vehicle for variable life contracts (the Contracts) issued by the
Company. The Company is a wholly-owned subsidiary of Manulife Wood Logan Holding
Company, Inc. (formerly NAWL Holding Company, Inc. and hereinafter referred to
as MWL). MWL holds all the outstanding shares of the Company and Wood Logan
Associates, Inc. (Wood Logan). The Manufacturers Life Insurance Company (MLI)
owns all Class A shares of MWL, representing 85% of the voting shares of MWL.
Certain employees of Wood Logan own all Class B shares, which represent the
remaining 15% voting interest in MWL. Prior to January 1, 1996, The Company was
a wholly-owned subsidiary of North American Life Assurance Company (NAL), a
Canadian mutual life insurance company. NAL merged with The Manufacturers Life
Insurance Company of Canada effective January 1, 1996. The surviving company is
conducting business under the name "The Manufacturers Life Insurance Company."
Effective after the close of business on December 31, 1996, the portfolios of
the Manulife Series Funds, Inc. (a series trust of MLI) were merged with the
Manufacturers Investment Trust. As a result of this merger, three additional
portfolios became available as investment options to the contract owners of the
Account and include the Emerging Growth, Real Estate Securities and
International Stock portfolios. Also, effective after the close of business on
December 31, 1996, nine new portfolios were created and became available as
investment options for contract owners in 1997 and include the five Lifestyle
portfolios and the Science & Technology, Pilgrim Baxter Growth, Value Trust and
High Yield portfolios.
On March 4, 1996, two new sub-accounts, Small/Mid Cap and International Small
Cap, commenced operations. On July 15, 1996, the Growth sub-account commenced
operations.
11
<PAGE> 62
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES
Investments are made in the portfolios of the Trust and are valued at the
reported net asset values of such portfolios. Transactions are recorded on the
trade date. Income from dividends is recorded on the ex-dividend date. Realized
gains and losses on the sales of investments are computed on the basis of the
identified cost of the investment sold.
In addition to the Account, a contract holder may also allocate funds to the
Fixed Account, which is part of the Company's general account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933, and the Company's general
account has not been registered as an investment company under the Investment
Company act of 1940.
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.
Such estimates and assumptions could change in the future as more information
becomes known, which could impact the amounts reported and disclosed herein.
Certain 1996 balances have been reclassified to permit comparison with the 1997
presentation.
3. AFFILIATED COMPANY TRANSACTIONS
Administrative services necessary for the operation of the Account are performed
by the Company. The Company had an underwriting agreement with its wholly-owned
subsidiary, NASL Financial Services, Inc. (NASL Financial). NASL Financial had
an agreement with Wood Logan to promote the sale of annuity contracts. On
October 1, 1997, NASL Financial ceased operations, and certain assets and
liabilities of NASL Financial were contributed to form a new company,
Manufacturers Securities Services LLC (MSS), for a 99.9% ownership interest. MSS
has an Administrative Services Agreement with Wood Logan for marketing services
for the sale of annuity contracts. Certain officers of the Account are officers
and directors of the Company or the Trust.
12
<PAGE> 63
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Notes to Financial Statements (continued)
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. A monthly
administrative charge of $2.50 per month is imposed upon contracts with less
than $100,000 of total premium payments.
On each monthly contract anniversary day, charges are deducted proportionately
from all investment accounts. Certain charges are expressed as an annual
percentage of the owner's contract value.
Three of these charges are deducted only during the first ten contract
years:
(i) 0.25% for distribution cost incurred by the Company.
(ii) 0.25% for state premium taxes to be paid by the Company as a
result of receipt of premium payments.
(iii) 0.15% for the Company's increased federal taxes caused by its
receipt of premium payments.
Three of these charges are deducted for all contract years:
(i) 0.40% charge for contract administration
(ii) 0.35% charge for the death benefit provided by the contract
(0.55% after the first ten contract years). If there is more than
one insured, this charge is 0.10% (0.30% after the first ten
contract years).
(iii) A charge at an annual rate of 0.90% of the value of each
variable investment account is deducted monthly for the mortality
and expense risks assumed by the Company in connection with the
contract.
13
<PAGE> 64
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Notes to Financial Statements (continued)
5. PURCHASES AND SALES OF INVESTMENTS
The following table shows aggregate cost of shares purchased and proceeds from
sales of each sub-account for the year ended December 31, 1997.
<TABLE>
<CAPTION>
PURCHASES SALES
-----------------------------------
<S> <C> <C>
Equity Portfolio $ 2,889,912 $ 948,302
Investment Quality Bond Portfolio 2,136,732 1,386,881
Growth and Income Portfolio 5,235,569 769,473
Blue Chip Growth Portfolio 3,030,373 788,053
Money Market Portfolio 22,861,612 19,612,522
Global Equity Portfolio 1,688,042 243,432
Global Government Bond Portfolio 287,630 100,466
U.S. Government Securities Portfolio 812,463 368,392
Conservative Asset Allocation Portfolio 140,017 34,077
Moderate Asset Allocation Portfolio 480,977 57,884
Aggressive Asset Allocation Portfolio 175,547 118,218
Equity-Income Portfolio 2,879,686 338,657
Strategic Bond Portfolio 1,559,948 557,134
International Growth and Income Portfolio 1,730,139 154,592
Growth Portfolio 1,443,217 250,018
Small/Mid Cap Portfolio 2,433,577 351,221
International Small Cap Portfolio 939,160 71,458
Science & Technology Portfolio 909,210 144,689
Emerging Growth Portfolio 706,066 33,163
Pilgrim Baxter Growth Portfolio 691,865 13,759
International Stock Portfolio 550,287 32,556
Value Trust Portfolio 1,341,165 75,728
Real Estate Securities Portfolio 478,382 67,899
High Yield Portfolio 1,069,471 303,495
Lifestyle Aggressive 1000 Portfolio 1,417,699 931,293
Lifestyle Growth 820 Portfolio 5,959,141 926,915
Lifestyle Balanced 640 Portfolio 1,426,829 39,805
Lifestyle Moderate 460 Portfolio 538,716 3,306
Lifestyle Conservative 280 Portfolio 452,343 4,513
----------------------------------
$66,265,775 $28,727,901
==================================
</TABLE>
14
<PAGE> 65
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Notes to Financial Statements (continued)
6. UNIT VALUES
A summary of the accumulation unit values at December 31, 1996 and 1997 and the
accumulation units and dollar values outstanding at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
1996 1997
UNIT VALUE UNIT VALUE UNITS DOLLARS
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity sub-account $127.042679 $151.493201 28,190 $ 4,270,633
Investment Quality Bond sub-account 106.831619 117.248426 10,902 1,278,241
Growth and Income sub-account 129.813549 172.430739 47,193 8,137,537
Blue Chip Growth sub-account 131.314663 166.684739 23,748 3,958,430
Money Market sub-account 106.319450 111.795504 48,312 5,401,106
Global Equity sub-account 115.632438 139.681912 17,836 2,491,401
Global Government Bond sub-account 119.411568 122.930668 3,414 419,669
U.S. Government Securities sub-account 106.417541 115.436261 7,407 855,014
Conservative Asset Allocation sub-account 111.458090 124.205032 1,304 161,909
Moderate Asset Allocation sub-account 115.168639 133.447210 5,105 681,264
Aggressive Asset Allocation sub-account 118.726211 141.395960 1,382 195,425
Equity-Income sub-account 124.357387 161.297994 27,116 4,373,688
Strategic Bond sub-account 120.025315 133.203020 14,418 1,920,543
International Growth and Income sub-account
118.110145 118.011806 20,317 2,397,609
Growth sub-account 110.532600 138.552181 13,486 1,868,547
Small Mid/Cap sub-account 106.960000 123.280000 31,206 3,847,080
International Small Cap sub-account 109.201969 110.060149 15,155 1,667,987
Science & Technology sub-account --- 104.916453 7,020 736,557
Emerging Growth sub-account --- 117.363813 6,405 751,657
Pilgrim Baxter Growth sub-account --- 100.240577 6,959 697,578
International Stock sub-account --- 102.185953 4,761 486,494
Value Trust sub-account --- 119.094932 10,675 1,271,286
Real Estate Securities sub-account --- 118.546958 3,721 441,093
High Yield sub-account --- 112.591102 6,772 762,521
Lifestyle Aggressive 1000 sub-account --- 110.448120 4,926 544,039
Lifestyle Growth 820 sub-account --- 112.936137 46,029 5,198,349
Lifestyle Balanced 640 sub-account --- 113.281100 12,819 1,452,141
Lifestyle Moderate 460 sub-account --- 112.952180 4,801 542,314
Lifestyle Conservative 280 sub-account --- 111.482410 4,173 465,259
-----------
$57,275,371
===========
</TABLE>
15
<PAGE> 66
The Manufacturers Life Insurance Company of North America
Separate Account B (formerly NASL Variable Life Account of North American
Security Life Insurance Company)
Notes to Financial Statements (continued)
7. DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code, a variable
life contract will not be treated as a life contract for federal tax purposes
for any period for which the investments of the segregated asset account on
which the contract is based are not adequately diversified. The Code provides
that the "adequately diversified" requirement may be met if the underlying
investments satisfy either a statutory safe harbor test or diversification
requirements set forth in regulations issued by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of the
Code. The Company believes that the Account satisfies the current requirements
of the regulations, and it intends that the Account will continue to meet such
requirements.
8. YEAR 2000 ISSUES (UNAUDITED)
Like other investment funds, financial and business organizations and
individuals, the Account would be adversely affected if the computer systems
used by the Company and other service providers do not properly process and
calculate date-related information and data from and after January 1, 2000. The
Company is completing an assessment of the year 2000 impact on its systems and
business processes. Management believes that the Company will complete its Year
2000 project for all critical systems and processes by September 30, 1998, prior
to any anticipated impact on the critical systems and processes.
The date on which the Company believes it will complete the Year 2000 project is
based on management's best estimates, which were derived utilizing numerous
assumptions of future events. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer code, and
other similar uncertainties.
16
<PAGE> 67
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE
INSURANCE COMPANY OF NORTH
AMERICA (FORMERLY NORTH
AMERICAN SECURITY LIFE
INSURANCE COMPANY)
Years ended December 31, 1997, 1996
and 1995
<PAGE> 68
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Audited Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995
CONTENTS
Report of Independent Auditors............................................... 1
Audited Consolidated Financial Statements
Consolidated Balance Sheets.................................................. 3
Consolidated Statements of Income............................................ 4
Consolidated Statements of Changes in Shareholder's Equity................... 5
Consolidated Statements of Cash Flows........................................ 6
Notes to Consolidated Financial Statements................................... 7
<PAGE> 69
Report of Independent Auditors
The Board of Directors and Shareholder
The Manufacturers Life Insurance Company of North America
We have audited the accompanying consolidated balance sheets of The
Manufacturers Life Insurance Company of North America (formerly North American
Security Life Insurance Company and hereinafter referred to as the Company) as
of December 31, 1997 and 1996, and the related consolidated statements of
income, changes in shareholder's equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1997 and 1996 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Manufacturers Life Insurance Company of North America at December 31, 1997 and
1996, and the consolidated results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
- ---------------------
Boston, Massachusetts
February 26, 1998
1
<PAGE> 70
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and
Shareholder of The Manufacturers Life Insurance
Company of North America:
We have audited the accompanying statements of income, changes in stockholder's
equity and cash flows of The Manufacturers Life Insurance Company of North
America (formerly North American Security Life Insurance Company) for the year
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of The
Manufacturers Life Insurance Company of North America for the year ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Financial Accounting Standards Board Interpretation No. 40 (FIN 40) and
Statement of Financial Accounting Standards No. 120 (SFAS 120), which required
implementation of several accounting pronouncements not previously adopted.
The effects of adopting FIN 40 and SFAS 120 were retroactively applied to the
Company's previously issued financial statements, consistent with the
implementation guidance of those standards.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Boston, Massachusetts
May 29, 1997, except for Note 14,
as to which the date is February 26, 1998
2
<PAGE> 71
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available-for-sale, at fair value $ 143,307,365 $ 97,431,343
Marketable equity securities available-for-sale,
at fair value 1,177
Short-term investments 14,991,793 4,294,370
Foreclosed real estate -- 2,268,120
Policy loans 3,275,654 637,096
--------------------------------------
161,574,812 104,632,106
Cash and cash equivalents 7,338,690 12,073,302
Accrued investment income 2,640,707 1,806,106
Deferred policy acquisition costs 364,983,732 290,610,274
Receivable from affiliates 4,605,036
Other assets 9,625,844 8,229,825
Due from reinsurers 553,833,869 573,418,610
Separate account assets 9,529,160,219 6,820,599,385
--------------------------------------
Total assets $10,633,762,909 $7,811,369,608
======================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Policyholder funds $ 92,750,188 $ 82,619,372
Payable to affiliates 1,462,021
Amounts on deposit from reinsurer 3,000,000 6,000,000
Amount payable to reinsurers 571,881,943 593,909,628
Notes payable to affiliates 183,955,075 158,200,680
Deferred tax liability 16,428,278 288,800
Other liabilities 27,861,648 21,219,254
Separate account liabilities 9,529,160,219 6,820,599,385
--------------------------------------
Total liabilities 10,425,037,351 7,684,299,140
Shareholder's equity:
Common stock (par value $1,000 per share--authorized, 3,000
shares; issued and outstanding, 2,600 shares) 2,600,000 2,600,000
Additional paid-in capital 179,052,696 131,322,072
Unrealized appreciation on securities available-for-sale 1,199,890 508,601
Retained earnings (deficit) 25,872,972 (7,360,205)
--------------------------------------
Total shareholder's equity 208,725,558 127,070,468
--------------------------------------
Total liabilities and shareholder's equity $10,633,762,909 $7,811,369,608
======================================
</TABLE>
See accompanying notes.
3
<PAGE> 72
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
Revenues:
Fees from separate accounts and policyholder funds $126,636,872 $ 95,323,185 $ 77,572,040
Advisory fees and other distribution revenues 67,677,977 46,232,682 27,911,710
Net investment income 7,905,545 5,452,083 28,701,102
Net realized investment gains 530,886 764,139 9,711,168
-------------------------------------------------
202,751,280 147,772,089 143,896,020
Benefits and expenses:
Benefits to policyholders 4,986,244 4,241,628 27,128,685
Amortization of deferred policy acquisition costs 40,648,703 30,830,214 43,287,070
Other insurance expenses 100,385,240 71,255,354 58,745,087
Financing costs 14,267,785 15,820,730 9,282,164
-------------------------------------------------
160,287,972 122,147,926 138,443,006
-------------------------------------------------
Income from continuing operations before provision
for income tax (benefit) 42,463,308 25,624,163 5,453,014
Provision for income tax (benefit):
Current (723,741) 1,464,291 2,022,624
Deferred 15,767,246 7,614,476 (9,063,710)
-------------------------------------------------
15,043,505 9,078,767 (7,041,086)
-------------------------------------------------
Income from continuing operations 27,419,803 16,545,396 12,494,100
Discontinued operations
Loss from operations, net of tax (141,134) (809,948) (1,461,888)
Gain on disposal, net of tax 5,954,508
-------------------------------------------------
Net income $ 33,233,177 $ 15,735,448 $ 11,032,212
=================================================
</TABLE>
See accompanying notes.
4
<PAGE> 73
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Consolidated Statements of Changes in Shareholder's Equity
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION ON RETAINED TOTAL
ADDITIONAL SECURITIES EARNINGS SHAREHOLDER'S
COMMON STOCK PAID-IN CAPITAL AVAILABLE-FOR-SALE (DEFICIT) EQUITY
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 as
previously reported $2,600,000 $110,633,000 $(53,824,868) $ 59,408,132
Cumulative effect on prior years
of applying the new basis of
accounting 1,830,140 $ (8,664,619) 19,697,003 12,862,524
------------------------------------------------------------------------------------
Balance at January 1, 1995 2,600,000 112,463,140 (8,664,619) (34,127,865) 72,270,656
Net income 11,032,212 11,032,212
Reversal of deferred tax
valuation allowance 858,932 858,932
Change in unrealized
appreciation on securities
available-for-sale, net of tax 11,094,515 11,094,515
------------------------------------------------------------------------------------
Balance at December 31, 1995 2,600,000 113,322,072 2,429,896 (23,095,653) 95,256,315
Capital contribution 18,000,000 18,000,000
Net income 15,735,448 15,735,448
Change in unrealized
appreciation on securities
available-for-sale, net of
tax and DPAC adjustments (1,921,295) (1,921,295)
------------------------------------------------------------------------------------
Balance at December 31, 1996 2,600,000 131,322,072 508,601 (7,360,205) 127,070,468
Capital contribution 47,730,624 47,730,624
Net income 33,233,177 33,233,177
Change in unrealized
appreciation on securities
available-for-sale, net of
tax and DPAC adjustments 691,289 691,289
------------------------------------------------------------------------------------
Balance at December 31, 1997 $2,600,000 $179,052,696 $ 1,199,890 $ 25,872,972 $208,725,558
====================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 74
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 33,233,177 $ 15,735,448 $ 11,032,212
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Write-down of foreclosed real estate 342,025 1,235,620
Amortization of bond discount and premium 400,488 196,315 56,458
Benefits to policyholders 4,986,244 4,241,628 27,128,685
Gain on interest rate swap (1,632,000) (475,407)
Provision for deferred income tax (benefit) 15,767,246 7,944,703 (7,929,766)
Net realized investment gains (530,886) (764,139) (9,711,168)
Amortization of deferred policy acquisition costs 40,648,703 30,830,214 43,287,070
Amortization of deferred policy acquisition costs
included in discontinued operations 1,706,547 2,213,505 1,035,069
Policy acquisition costs deferred (123,964,814) (89,535,239) (61,103,093)
Gain on disposal of discontinued operations (9,393,984)
Changes in assets and liabilities:
Accrued investment income (834,601) 146,322 5,575,157
Other assets (1,396,019) 2,061,204 (2,456,292)
Receivable from affiliates (4,605,036)
Payable to affiliates (1,462,021) (4,203,687) (4,233,252)
Other liabilities 6,642,395 (1,788,725) 12,081,461
------------------------------------------------------
Net cash (used in) provided by operating activities (38,802,561) (34,212,426) 15,522,754
INVESTING ACTIVITIES
Purchase of fixed maturities (118,765,270) (48,300,025) (506,524,031)
Purchase of marketable equity securities (250,000) (6,033,533) (10,137,860)
Mortgage loans issued (136,101)
Proceeds from fixed maturities sold, matured or repaid 74,625,632 41,269,218 781,840,143
Proceeds from marketable equity securities sold 1,239 12,737,787 5,080,010
Proceeds from sales of foreclosed real estate 2,268,120 1,602,064 860,375
Proceeds from disposal of discontinued operations 16,337,562
Proceeds from sales of mortgage loans 110,791,046
Net change in short-term investments (10,697,423) (3,984,370)
Net change in policy loans (2,638,558) (569,773) 2,511,985
------------------------------------------------------
Net cash (used in) provided by investing activities (39,118,698) (3,278,632) 384,285,567
FINANCING ACTIVITIES
Net reinsurance (consideration) proceeds (2,442,944) (1,116,114) 4,785,845
Repayment of amounts on deposit from reinsurers (3,000,000) (3,000,000) (3,000,000)
Receipts credited to policyholder funds 20,606,428 20,923,239 302,496,632
Return of policyholder funds (15,461,856) (24,657,906) (69,404,163)
Transfer of policyholder funds to reinsurer (745,950,764)
Increase in notes payable to affiliates 25,754,395 138,200,680
Increase in notes payable 29,843,003
Notes payable repaid (109,866,565) (20,000,000)
Capital contribution 47,730,624 18,000,000
------------------------------------------------------
Net cash provided by (used in) financing activities 73,186,647 38,483,334 (501,229,447)
------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (4,734,612) 992,276 (101,421,126)
Cash and cash equivalents at beginning of year 12,073,302 11,081,026 112,502,152
------------------------------------------------------
Cash and cash equivalents at end of year $ 7,338,690 $ 12,073,302 $ 11,081,026
======================================================
Non-cash transactions:
Mortgage loans transferred to foreclosed real estate $2,405,052
======================================================
</TABLE>
See accompanying notes.
6
<PAGE> 75
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements
December 31, 1997
1. ORGANIZATION
The Manufacturers Life Insurance Company of North America (formerly North
American Security Life Insurance Company and hereinafter referred to as MNA or
the Company) is a stock life insurance company domiciled in the State of
Delaware. The Company is a wholly-owned subsidiary of Manulife Wood Logan
Holding Company, Inc. (formerly NAWL Holding Company, Inc. and hereinafter
referred to as MWL or the Parent). On January 1, 1996, North American Life
Assurance Company of North York, Canada (NAL), the former parent of the Company,
merged with The Manufacturers Life Insurance Company. The surviving company
conducts business under the name The Manufacturers Life Insurance Company (MLI).
Concurrent with the merger, the Company's Parent went through a corporate
restructuring which resulted in the formation of a newly organized holding
corporation, MWL. At that time, all of the assets and liabilities of MNA and its
subsidiaries, The Manufacturers Life Insurance Company of New York (formerly
First North American Life Assurance Company and hereinafter referred to as MNY)
and NASL Financial Services, Inc. (NASL Financial), were transferred from MLI to
MWL. In addition, MLI's 20.2% ownership interest in Wood Logan Associates, Inc.
and its majority-owned subsidiary, Wood Logan Distributors, Inc., (collectively
Wood Logan) was transferred to MWL. In exchange, MLI received all Class A shares
of MWL common stock representing an 85% ownership interest. On January 1, 1997,
MLI contributed 62.5% of its 85% ownership interest to its indirect wholly-owned
subsidiary, The Manufacturers Life Insurance Company (U.S.A.) (MANUSA).
Effective December 18, 1997, MLI transferred its remaining 22.5% interest in MWL
to MRL Holding, LLC, (MRL) a newly formed Delaware limited liability company.
Also effective January 1, 1996, as part of the restructuring, the remaining
79.8% of Wood Logan was purchased by MWL. In exchange for the remaining shares
of Wood Logan, certain employees and former owners of Wood Logan received the
Class B voting shares of MWL representing a 15% ownership interest. Wood Logan
provides marketing services for the sale of the annuity products of MNA and MNY.
7
<PAGE> 76
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
The Company issues individual life, variable life and annuity insurance
contracts (the contracts) in forty-eight states, including New York. Amounts
invested in the fixed portion of the contracts are allocated to the general
account of the Company. Amounts invested in the variable portion of the
contracts are allocated to the separate accounts of the Company. The separate
account assets are invested in shares of the Manufacturers Investment Trust
(formerly NASL Series Trust and hereinafter referred to as MIT), a no-load,
open-end management investment company organized as a Massachusetts business
trust.
NASL Financial acted as investment adviser to MIT and the North American Funds
(NAF), a no-load, open-end management investment company organized as a
Massachusetts business trust. NASL Financial also acted as principal underwriter
of the annuity and life insurance contracts issued by the Company. NASL
Financial had an agreement with Wood Logan to act as the promotional agent for
the sale of the variable annuity and variable life insurance products issued by
MNA and MNY.
Effective October 1, 1997, Manufacturers Securities Services, LLC (MSS),
replaced NASL Financial as the investment advisor to MIT and as the principal
underwriter of the annuity contracts. Wood Logan provides marketing services for
the sale of annuity contracts under an Administrative Services Agreement dated
October 7, 1997, between the Company and MLI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company and its
majority and wholly-owned subsidiaries have been prepared in conformity with
generally accepted accounting principles (GAAP).
8
<PAGE> 77
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION (CONTINUED)
Prior to 1996, the Company prepared its financial statements in conformity with
accounting practices prescribed or permitted by the Delaware Insurance
Department which practices were considered GAAP for mutual life insurance
companies. FASB Interpretation 40, Applicability of Generally Accepted
Accounting Principles to Mutual Life Insurance and other Enterprises (FIN 40),
as amended, which is effective for 1996 annual financial statements, no longer
permits statutory-basis financial statements to be described as being prepared
in conformity with GAAP. Accordingly, the Company has adopted various accounting
pronouncements, principally Statement of Financial Accounting Standards No. 120,
Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts (SFAS No. 120),
which addresses the accounting for long-duration insurance contracts.
Pursuant to the requirements of the above pronouncements, the effect of the
changes in accounting have been applied retroactively and the previously issued
1995 financial statements have been restated for the change. The effect of the
change applicable to years prior to January 1, 1995 has been presented as a
restatement of shareholder's equity as of this date.
The adoption had the effect of increasing net income for 1995 by approximately
$18,320,197.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and the
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts reported and
disclosed herein.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts and
operations, after intercompany eliminations, of the Company and its majority and
wholly-owned subsidiaries, MNY and MSS (NASL Financial through October 1, 1997).
9
<PAGE> 78
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS AND INVESTMENT INCOME
The Company accounts for its fixed maturities and marketable equity securities
in accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115).
SFAS 115 requires that fixed maturities and marketable equity securities be
designated as either held-to-maturity, available-for-sale or trading at the time
of purchase. Held-to-maturity fixed maturities are reported at amortized cost
and the remainder of fixed maturities and marketable equity securities are
reported at fair value with unrealized holding gains and losses reported in
income for those designated as trading and as a separate component of
shareholder's equity for those designated as available-for-sale.
The Company has classified all of its fixed maturities and marketable equity
securities as available-for-sale. As a result, these securities are reported in
the accompanying financial statements at fair value. Changes in fair values,
after adjustment for deferred policy acquisition costs (DPAC) and deferred
income taxes, are reported as unrealized appreciation or depreciation directly
in shareholder's equity, and accordingly, have no effect on net income. The DPAC
offset to the unrealized appreciation or depreciation represents valuation
adjustments or reinstatements of DPAC that would have been required as a charge
or credit to operations had such unrealized amounts been realized.
The amortized cost of fixed maturities is adjusted for the amortization of
premiums and accretion of discounts using the interest method. This amortization
or accretion is included in net investment income.
For the mortgage-backed bond portion of the fixed maturities portfolio, the
Company recognizes amortization using a constant effective yield based on
anticipated prepayments and the estimated economic life of the securities. When
actual prepayments differ significantly from anticipated prepayments, the
effective yield is recalculated to reflect actual payments to date and
anticipated future payments. The net investment in the security is adjusted to
the amount that would have existed had the new effective yield been applied
since the acquisition of the security. That adjustment is included in net
investment income.
Short-term investments generally consist of instruments which have a maturity of
less than one year at the time of acquisition. Short-term investments are
reported at cost, which approximates fair value.
10
<PAGE> 79
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
Real estate acquired in satisfaction of debt is stated at the lower of the
appraised fair value or the outstanding principal loan balance plus accrued
interest and foreclosure costs.
Policy loans are reported at unpaid balances, not in excess of the underlying
cash value of the policies.
Realized gains or losses on investments sold and declines in value judged to be
other-than-temporary are determined on the specific identification basis.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity date of three months or less to be cash equivalents. Cash
equivalents are stated at cost plus accrued interest, which approximates fair
value.
DEFERRED POLICY ACQUISITION COSTS
Commissions, net of commission allowances for reinsurance ceded, and other costs
of acquiring new business that vary with and are primarily related to the
production of new business have been deferred. These acquisition costs are being
amortized generally in proportion to the present value of expected gross profits
from surrender charges and investment, mortality and expense margins. That
amortization is adjusted retrospectively when estimates of current or future
gross profits to be realized from a group of products are revised.
The Company, through the date of the NAF sale, deferred NAF commissions and
promotional agent fees (NAF commission) up to the amount recoverable from
contingent deferred sales charges (CDSC). Deferred NAF commissions were
recognized on a straight-line basis over the period in which the CDSC's were in
effect.
11
<PAGE> 80
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNT ASSETS AND LIABILITIES
Separate account assets and liabilities that are reported in the accompanying
consolidated balance sheet represent investments in MIT, which are mutual funds
that are separately administered for the exclusive benefit of the variable life
and annuity policyholders and are reported at fair value. Such policyholders,
rather than the Company, bear the investment risk. The operations of the
separate accounts are not included in the accompanying consolidated financial
statements. Fees charged on separate account policyholder funds are included in
revenues.
POLICYHOLDER FUNDS AND BENEFITS TO POLICYHOLDERS
Policyholder funds for the fixed portion of variable life and annuity contracts
are computed under a retrospective deposit method and represent account balances
before applicable surrender charges. Benefits to policyholders include interest
credited to policyholders and other benefits that are charged to expense
including benefit claims incurred in the period in excess of the related
policyholder account balances. Interest crediting rates for the fixed portion of
variable life and annuity contracts ranged from 4.10% to 6.15% in 1997; 4.00% to
6.15% in 1996 and 4.20% to 7.15% in 1995.
RECOGNITION OF REVENUES
Fees from separate accounts and policyholder funds represent fees assessed
against policyholder account balances, and include mortality and expense risk
charges, surrender charges and an annual administrative charge.
MSS, and formerly NASL Financial (collectively the Advisor), are responsible for
managing the corporate and business affairs of MIT and act as investment advisor
to MIT. As compensation for its investment advisory services, the Advisor
receives advisory fees based on the daily average net assets of the portfolios.
The Advisor, as part of its advisory services, is responsible for selecting and
compensating subadvisors to manage the investment and reinvestment of the assets
of each portfolio, subject to the supervision of the Board of Trustees of MIT.
The Company's discontinued operations include the compensation of NASL Financial
for investment advisory fees and subadvisor compensation from NAF through
October 1, 1997 the date the Company sold NAF. Subadvisor compensation, for MIT,
is included in other insurance expenses.
12
<PAGE> 81
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCING AGREEMENTS
The Company has entered into various financing agreements with reinsurers. All
assets and liabilities related to these contracts are reported on a gross basis.
Due to the nature of the Company's products, these agreements are accounted for
under the deposit method whereby the net premiums paid to the reinsurer are
recorded as deposits.
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that likely will be in effect when the differences are expected to reverse. The
measurement of deferred tax assets is reduced by a valuation allowance if, based
upon the available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
RECLASSIFICATIONS
Certain 1995 balances have been reclassified to permit comparison with the 1997
and 1996 presentations.
13
<PAGE> 82
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS
The major components of net investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Fixed maturities $7,250,366 $ 5,197,363 $21,980,896
Marketable equity securities 34,993 137,862
Mortgage loans 5,620,613
Short-term investments 1,126,181 1,187,368 3,133,008
Foreclosed real estate 432,648 (164,540)
----------------------------------------------
8,376,547 6,852,372 30,707,839
Less: investment expenses (471,002) (1,400,289) (2,006,737)
----------------------------------------------
Net investment income $7,905,545 $ 5,452,083 $28,701,102
==============================================
</TABLE>
The proceeds from sales of available-for-sale fixed maturities for the year
ended December 31, 1997, 1996 and 1995 were $53,325,435, $15,151,764 and
$755,538,955, respectively.
The gross realized gains and losses on the sales of investments for the year
ended December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
YEAR DECEMBER 31
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Gross realized gains $ 787,645 $ 429,786 $10,913,975
Gross realized losses (6,759) (3,814) (2,042,666)
Marketable equity securities:
Gross realized gains 988,022 80,010
Gross realized losses (250,000) (15,308)
Mortgage loans:
Gross realized gains 967,301
Foreclosed real estate:
Gross realized gains 12,063
Gross realized losses (634,547) (219,515)
--------------------------------------------
Net realized gain $ 530,886 $ 764,139 $ 9,711,168
============================================
</TABLE>
14
<PAGE> 83
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
The gross unrealized gains and losses for fixed maturities available-for-sale
and marketable equity securities held at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed maturities:
U.S. Treasury securities and
obligations of U.S. Government
agencies $ 14,333 $ 566 $ 13 $ 14,886
Corporate securities 110,191 1,905 23 112,073
Mortgage-backed securities 10,455 74 3 10,526
States, territories and possessions 5,594 228 5,822
---------------------------------------------------
Total $140,573 $2,773 $ 39 $143,307
===================================================
DECEMBER 31, 1996
Fixed maturities:
U.S. Treasury securities and
obligations of U.S. Government
agencies $ 10,160 $ 337 $ 27 $ 10,470
Corporate securities 79,375 1,084 208 80,251
Mortgage-backed securities 1,940 19 9 1,950
States, territories and possessions 4,578 182 4,760
---------------------------------------------------
Total fixed-maturity securities 96,053 1,622 244 97,431
Marketable equity securities 1 1
---------------------------------------------------
Total $ 96,054 $1,622 $244 $ 97,432
===================================================
</TABLE>
15
<PAGE> 84
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
The amortized cost and fair value of fixed maturities available-for-sale at
December 31, 1997, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers or lenders may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------------------------
(In Thousands)
<S> <C> <C>
FIXED MATURITIES AVAILABLE-FOR-SALE
Due in one year or less $ 13,870 $ 13,870
Due after one year through five years 61,741 63,235
Due after five years through ten years 32,936 33,350
Due after ten years through twenty years 2,050 2,127
Due after twenty years 19,521 20,199
Mortgage-backed securities 10,455 10,526
----------------------------
Total fixed maturities available-for-sale $140,573 $143,307
============================
</TABLE>
Investments with a fair value of $6,283,750 and $5,820,150 at December 31, 1997
and 1996 respectively were on deposit with, or in custody accounts on behalf of,
state insurance departments to satisfy regulatory requirements.
4. FEDERAL INCOME TAXES
Beginning in 1996, the Company participated as a member of the MWL affiliated
group consolidated federal income tax return. In 1995, the Company filed a group
consolidated federal income tax return with MNY and NASL Financial. The Company
files separate state income tax returns. The method of allocation between
companies is subject to a written tax sharing agreement. The tax liability is
allocated to each member on a pro rata basis based on the relationship that the
member's tax liability computed on a separate return basis bears to the tax
liability of the consolidated group. The tax charge to the Company shall not be
more than the Company would have paid on a separate return basis.
16
<PAGE> 85
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
4. FEDERAL INCOME TAXES (continued)
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
Statutory federal income rate applied to income
before federal income taxes 35% 35% 35%
Add (deduct):
Non-deductible meals and entertainment 1 1 2
Nondeductible consulting fees 4
Change in prior year income taxes (1) (1)
Reversal of deferred asset valuation allowance (285)
---------------------------------
Effective income tax rate 35% 35% (244)%
=================================
</TABLE>
The Company maintained a valuation allowance of approximately $11,982,000 at
December 31, 1994 as the Company had current and cumulative net losses. During
1997, 1996 and 1995, no valuation allowance has been established as the Company
believes that it is more likely than not that its deferred tax assets will be
realized from the generation of future taxable income.
17
<PAGE> 86
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
4. FEDERAL INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 10,313,135
Financing arrangements $ 2,699,371 4,222,611
Interest on notes payable 1,282,776 677,823
Guaranty fund assessment liabilities 315,000 490,000
Alternative minimum tax credit 313,839
Real estate 607,920 241,266
Other 116,862 500,524
--------------------------------
Total deferred tax assets 5,021,929 16,759,198
--------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs (18,429,529) (15,336,265)
Unrealized appreciation on securities
available-for-sale (646,094) (273,863)
Other (2,374,584) (1,437,870)
--------------------------------
Total deferred tax liabilities (21,450,207) (17,047,998)
--------------------------------
Net deferred tax liability $(16,428,278) $ (288,800)
================================
</TABLE>
The Company made estimated tax payments of $530,666, $0 and $164,260 in 1997,
1996 and 1995, respectively.
18
<PAGE> 87
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
5. FINANCING AGREEMENTS
All financing agreements entered into with reinsurance companies relate solely
to the products sold by the Company and not its subsidiaries. The Company's
reinsured products are considered investment products under generally accepted
accounting principles and, as such, the reinsurance agreements are considered
financing arrangements and are accounted for under the deposit method. Under
this method, net premiums received by the reinsurer are recorded as deposits.
Financing transactions have been entered into primarily to improve cash flow and
statutory capital. All financing agreements discussed below were in effect for
the full year in 1997, 1996 and 1995 unless otherwise indicated.
On June 30, 1995, the Company entered into an indemnity coinsurance agreement
with Peoples Security Life Insurance Company (Peoples), a AA+ rated subsidiary
of the Aegon Corporation, to reinsure 100% of the fixed portion of the variable
annuity business written by the Company. In 1997, the treaty was amended to
cover the Company's Market Value Adjusted fixed annuity product.
The indemnity aspects of the agreement provide that the Company remains liable
for the contractual obligations whereas Peoples agrees to indemnify the Company
for any contractual claims incurred. The coinsurance aspects of the agreement
require the Company to transfer to Peoples all receipts of the fixed portion of
premiums and transfers from variable to the fixed portion of the variable
annuity contracts. Once transferred, the assets belong to Peoples. In exchange,
Peoples reimburses the Company for all claims and provides expense allowances to
cover commissions and other costs associated with the acquisition of the fixed
portion of the variable annuity business. Under this agreement, the Company will
continue to administer the fixed portion of the annuity business for which it
will earn an expense allowance.
Peoples is responsible for investing the premiums received for the fixed portion
of the contracts and is at risk for any potential investment gains and losses.
There is no recourse to the Company if investment losses are incurred. As of
October, 1997, the assets are maintained at Bankers Trust under a trust
agreement owned by Peoples. The Company is the beneficiary of the trust.
19
<PAGE> 88
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
5. FINANCING AGREEMENTS (CONTINUED)
Effective July 1, 1995 and August 1, 1995, the Company entered into treaties
with the Connecticut General Life Insurance Company (CIGNA) and Swiss Re Life
Insurance Company, respectively, to reinsure the minimum death benefit guarantee
risks of the Company. Each company has assumed 50% of the risk. In addition, the
Company reinsured 50% of its risk related to the waiving of surrender charges at
death with CIGNA. The Company is paying the reinsurers an asset-based premium,
the level of which varies with both the amount of exposure to this risk and the
realized experience.
Effective November 1, 1995, the Company entered into a modified coinsurance
treaty with Transamerica Occidental Life Insurance Company (Transamerica).
Transamerica reinsures a 50% quota share of the variable portion of the
Company's variable life insurance contracts. At inception, Transamerica
reinsured 80% of this product's net amount at risk in excess of the Company's
retention limit on a yearly renewable term basis. At December 31, 1997, this
contract was amended to increase this percentage to 100%.
The Company entered into a modified coinsurance agreement with RGA/Swiss,
formerly ITT Lyndon Life, to cede 64% of certain variable annuity contracts
(policy form 203-VA) and 95% of certain other variable annuity contracts
(VISION.001). At the time of the transaction, the Company received $25 million
in cash representing withheld premiums of $15 million and $10 million of ceding
commissions. The withheld premiums are being repaid with interest over five
years. The ceding commission is payable out of future profits generated by the
business reinsured. Effective December 31, 1994, the agreement was amended to
increase the percentage of ceded business on policy form 203-VA to 95%. In
return, the Company received additional ceding commissions of $5,200,000 which
is reflected as a due to reinsurers and is expected to be paid back over a five
year period. Policies issued under the applicable policy forms after December
31, 1996, in accordance with a 1997 amendment, are not reinsured under this
agreement.
20
<PAGE> 89
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
5. FINANCING AGREEMENTS (CONTINUED)
The Company entered into an indemnity quota share reinsurance agreement with
PaineWebber Life to reinsure a portion of its policy forms 207-VA, VFA,
VENTURE.001, and VENTURE.003. The quota share percentage for business written
prior to January 1, 1997 varies between 15% and 35% depending on the policy
form. Effective January 1, 1997, the agreement was amended to change the quota
share to 20% for policies written thereafter. The form of reinsurance is
modified coinsurance and only covers the variable portion of contracts written
by PaineWebber brokers. All elements of risk (including persistency, investment
performance, and mortality) have been transferred.
During 1997, the Company entered into a modified coinsurance agreement with
Merrill Lynch Life to cede 50% of the variable portion of its Merrill Lynch
policies. The agreement only covers the variable portion of contracts sold by
Merrill Lynch brokers. All elements of risk (including persistency, investment
performance, and mortality) have been transferred.
In the event of insolvency of a reinsurer, the Company remains primarily liable
to its policyholders. Failure of reinsurers to honor their obligations could
result in losses to the Company and accordingly, the Company periodically
monitors the financial condition of its reinsurers.
6. SHAREHOLDER'S EQUITY
Generally, the net assets of the Company and its insurance subsidiary available
for the Parent as dividends are limited to and cannot be made except from earned
statutory basis profits. The maximum amount of dividends that may be paid by
life insurance companies without prior approval of the Insurance Commissioners
of the States of Delaware and New York is subject to restrictions relating to
statutory surplus and net gain from operations on a statutory basis.
21
<PAGE> 90
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
6. SHAREHOLDER'S EQUITY (CONTINUED)
Net income (loss) and capital and surplus, as determined in accordance with
statutory accounting principles, for the Company and its insurance subsidiary,
MNY, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
MNA:
Net income (loss) $ 22,259,385 $ 3,066,908 $(7,287,985)
Net capital and surplus 139,170,756 69,553,706 50,157,994
MNY:
Net (loss) income (1,562,544) 231,315 (578,899)
Net capital and surplus 68,336,238 22,265,070 8,821,782
</TABLE>
The Company's broker dealer subsidiaries, MSS and formerly NASL Financial
(through October 1, 1997), are subject to the Securities and Exchange
Commission's (SEC) "Net Capital Rule" as defined under rule 15c3-1. At December
31, 1997 and 1996, the net capital of each of the broker dealers exceeded the
SEC's minimum capital requirements.
The components of the balance sheet caption "Unrealized appreciation on
securities available-for-sale" in shareholder's equity are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------------------
(In Thousands)
<S> <C> <C>
Fair value of securities $143,307 $97,432
Amortized cost of securities 140,573 96,054
------------------------
Unrealized appreciation 2,734 1,378
Adjustment to deferred policy
acquisition costs (888) (595)
Deferred income taxes (646) (274)
------------------------
Unrealized appreciation on securities
available-for-sale $ 1,200 $ 509
========================
</TABLE>
22
<PAGE> 91
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
7. RELATED-PARTY TRANSACTIONS
In connection with the indemnity coinsurance agreement (see Note 5) of the fixed
portion of annuities, the Company pooled its mortgage portfolio (book value of
approximately $106 million) and transferred a senior participation interest to
an affiliate of Peoples. The senior interest was transferred for a purchase
price of approximately $72 million and entitles an affiliate of Peoples to 100%
of the cash flows produced by the portfolio until it recovers in full the
purchase price with interest at a rate of 7.52%. The remaining residual interest
was transferred to First North American Realty, Inc., which at the time of the
transaction was a wholly-owned subsidiary of NAL, the former Parent, for a
purchase price of $33 million. As a result of the sale of the senior and
residual interests in the Company's mortgages, the Company has no further
economic interest in any mortgages.
The Company utilizes various services administered by MLI in 1997 and 1996 and
NAL in 1995, such as legal, personnel, investment accounting and other corporate
services. The charges for these services were approximately $8,229,000,
$6,053,000 and $295,000 in 1997, 1996 and 1995, respectively. During 1996, MLI
changed the allocation method of expenses subsequent to the merger with NAL. At
December 31, 1997 and 1996, the Company had a net liability to MLI for these
services and interest accrued on notes payable of $3,646,308 and $3,172,259,
respectively. At December 31, 1997, the payable is offset by a receivable from
MIT and MLI for expenses paid on their behalf of $8,251,344. At December 31,
1996, payable to affiliates was offset by a receivable from MIT and NAF of
$1,710,238 for expenses paid on behalf of those entities.
The financial statements have been prepared from the records maintained by the
Company and may not necessarily be indicative of the financial conditions or
results of operations that would have occurred if the Company had been operated
as an unaffiliated corporation (see also Notes 1, 4, 6, 8, 10, 11 and 13 for
additional related-party transactions).
23
<PAGE> 92
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
8. NOTES PAYABLE TO AFFILIATES AND LINES OF CREDIT
The Company has a promissory note dated March 27, 1997, from MANUSA for
$138,500,000. Interest on the loan is calculated at a fluctuating rate equal to
LIBOR plus 32.5 basis points and is payable in quarterly installments starting
June 15, 1997. Principal and accrued interest are payable within 45 days of
demand. On June 15, 1997, the Company borrowed an additional $25,000,000
increasing the principal outstanding to $163,500,000.
During 1996 and through March 26, 1997 the Company had a revolving credit line
with Manufacturers Investment Corporation (MIC), an affiliated company. The
original term of the agreement was seven years. Each additional borrowing under
the agreement had a seven year term from the date of that additional borrowing.
Principal and interest was payable in quarterly installments. The interest rate
was LIBOR plus 32.5 basis points. This revolving credit line was replaced by the
demand promissory note. The balance outstanding for the borrowings at December
31, 1997 and 1996 is $163,500,000 and $137,864,052, respectively. Accrued
interest payable at December 31, 1997 and 1996 is $455,075 and $336,628,
respectively.
During 1995, the Company had a $150 million revolving credit and term loan
agreement with the Canadian Imperial Bank of Commerce and Deutsche Bank AG. The
amount outstanding at December 31, 1995 was in the form of a term loan of $107
million. In April of 1996, this loan was paid in full and the credit line with
MIC described above was established.
The Company received $20,000,000 from its former Parent, NAL, in the form of a
surplus note agreement with interest at 8%. This note agreement was assumed by
MLI upon the merger described in Note 1. The note and accrued interest are
subordinated to payments due to policyholders and other claimants. Principal and
interest payments can be made only upon prior approval of the Insurance
Department of the State of Delaware. Interest accrued at December 31, 1997 and
1996 was $3,191,231 and $1,591,232, respectively.
The Company and its insurance subsidiaries have unsecured lines of credit with
State Street Bank and Trust totaling $15,000,000, bearing interest at the bank's
money market rate plus 50 basis points. There were no outstanding advancements
under the line of credit at December 31, 1997 and 1996.
24
<PAGE> 93
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
8. NOTES PAYABLE TO AFFILIATES AND LINES OF CREDIT (CONTINUED)
Interest expense and interest paid in 1997 were $11,072,791 and $9,354,343,
respectively. Interest expense and interest paid in 1996 were $8,774,643 and
$11,727,002, respectively. Interest expense and interest paid in 1995 were
$8,981,532 and $8,980,132.
9. OTHER INSURANCE EXPENSES
Other insurance expenses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
Selling and administrative expenses $ 42,580,888 $29,207,640 $28,058,234
Subadvisory fees 26,364,212 15,882,860 12,007,940
General operating expenses 31,440,140 26,164,854 18,678,913
-------------------------------------------------
$100,385,240 $71,255,354 $58,745,087
=================================================
</TABLE>
10. RETIREMENT PLANS
MLI, and formerly NAL prior to the merger, sponsors a defined benefit pension
plan (the Plan) covering substantially all of the Company's employees. The
benefits are based on years of service and the employee's compensation during
the last five years of employment. MLI's funding policy is to contribute
annually the normal cost up to the maximum amount that can be deducted for
federal income tax purposes and to charge each subsidiary for its allocable
share of such contributions based on a percentage of payroll. No pension costs
were allocated to the Company in 1997, 1996 or 1995, as the Plan was subject to
the full funding limitation under the Internal Revenue Code.
The Company sponsors a defined contribution retirement plan pursuant to
regulation 401(k) of the Internal Revenue Code. All employees who are 21 years
old are eligible after one year of service. The Company contributes two percent
of base pay plus fifty percent of the employee savings contribution. The
employee savings contribution is limited to six percent of base pay. The Company
contributed $352,867, $306,989 and $209,423 in 1997, 1996 and 1995,
respectively.
25
<PAGE> 94
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
11. LEASES
The Company leases its office space and various office equipment under operating
lease agreements. For the years ended December 31, 1997, 1996 and 1995, the
Company incurred rent expense of $1,315,567, $1,224,352 and $1,461,475,
respectively. The Company negotiated a ten-year lease for new office space which
commenced in March 1992. In connection with the lease, the Company was required
to deposit $1,500,000 in an escrow account as security toward fulfilling the
future lease commitment. The balance of the escrow at December 31, 1997 and 1996
is $750,000 and $900,000, respectively. The lease for the offices of MNY expires
in 1999 and is subject to a renewal option at market rates prevailing at the
time of renewal.
The minimum lease payments associated with the office space and various office
equipment under operating lease agreements are as follows:
<TABLE>
<CAPTION>
MINIMUM LEASE
PAYMENTS
-------------
<S> <C>
Year ended:
1998 $1,285,808
1999 1,261,159
2000 1,197,368
2001 1,197,368
2002 197,651
----------
Total $5,139,354
==========
</TABLE>
12. INTEREST RATE SWAP
The Company entered into a variable-for-fixed interest rate swap in 1995 with
Canadian Imperial Bank of Commerce and Deutsche AG for the purpose of minimizing
exposure to fluctuations in interest rates on a portion of the variable-rate
outstanding debt held by the Company. This interest rate swap was prematurely
terminated in 1996 concurrent with the restructuring of the Company's revolving
line of credit resulting in a gain of $1,632,000 recorded as an offset to
interest expense.
26
<PAGE> 95
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
13. GUARANTEE AGREEMENT
Pursuant to a guarantee agreement, MLI unconditionally guarantees that it will,
on demand, make funds available to the Company for the timely payment of
contractual claims made under the fixed portion of the variable annuity
contracts issued by its subsidiaries. The guarantee covers the outstanding fixed
portion of variable annuity contracts, including those issued prior to the date
of the guarantee agreement.
14. DISCONTINUED OPERATIONS
On May 6, 1997, the Company signed a letter of intent to sell their mutual fund
operations. This disposal has been accounted for as discontinued operations in
accordance with Accounting Principles Board Opinion No. 30, which among other
provisions, requires the plan of disposal to be carried out within one year. On
October 1, 1997, the Company sold its advisory operations for NAF and the
pre-existing deferred commission assets related to the mutual fund operations.
The Company realized a gain of $9,160,782, before applicable taxes of
$3,206,274. Included in the gain is a provision of $9,758, before applicable
taxes of $3,415, for the loss from continuing operations during the phase-out
period. Expenses of $223,444 were incurred on the sale and netted against the
realized gain.
The operating results related to discontinued operations are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Advisory fees, commissions
and distribution revenues $4,605,110 $12,444,560 $10,336,334
==============================================
Loss from operations before provision for
income (tax) benefit $ (217,129) $(1,246,074) $(2,249,058)
Provision for income (tax) benefit:
Current 75,995 766,353 1,921,114
Deferred (330,227) (1,133,944)
----------------------------------------------
75,995 436,126 787,170
Loss from operations, net of tax $ (141,134) $ (809,948) $(1,461,888)
==============================================
</TABLE>
27
<PAGE> 96
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
14. DISCONTINUED OPERATIONS (CONTINUED)
The sale agreement contains a contingent payment option where the Company could
earn an additional $1,000,000, before income taxes, if certain conditions are
met. This amount, if earned, would be reflected in discontinued operations
during 1998.
15. FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
consolidated balance sheet, for which it is practicable to estimate that value.
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
SFAS No. 107 also excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements and allows companies to forego the
disclosures when those estimates can only be made at excessive cost.
Accordingly, the aggregate fair value amounts presented herein are limited by
each of these factors and do not purport to represent the underlying value of
the Company.
The following methods and assumptions were used by the Company in estimating the
fair value disclosures for financial instruments:
Investments: Fair values for fixed maturities are obtained from an
independent pricing service. The fair value for marketable equity
securities are based on quoted market prices.
Short-term investment and cash and cash equivalents: The carrying amounts
reported in the consolidated balance sheets for short-term investments and
cash and cash equivalents approximate their fair values.
Policy loans: The carrying amount in the consolidated balance sheets for
policy loans approximates their fair value.
28
<PAGE> 97
The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company)
Notes to Consolidated Financial Statements (continued)
15. FINANCIAL INSTRUMENTS (CONTINUED)
Due from reinsurers: The fair value of the amount due from reinsurers is
equal to deposits made under the contract and approximates the carrying
value.
Policyholder funds: Fair values of the Company's liabilities under
contracts not involving significant mortality risk (deferred annuities)
are estimated to be the cash surrender value, or the cost the Company
would incur to extinguish the liability.
Amounts on deposit from and payable to reinsurers: Amounts on deposit from
and payable to reinsurers reflects the net reinsured cash flow related to
financing agreements which is primarily a current liability. As such, fair
value approximates carrying value.
Notes payable to affiliates: Fair value is considered to approximate
carrying value as the majority of notes payable are at variable interest
rates that fluctuate with market interest rate levels.
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Fixed maturities $143,307,365 $143,307,365 $ 97,431,343 $ 97,431,343
Marketable equity securities 1,177 1,177
Short-term investments 14,991,793 14,991,793 4,294,370 4,294,370
Policy loans 3,275,654 3,275,654 637,096 637,096
Cash and cash equivalents 7,338,690 7,338,690 12,073,302 12,073,302
Due from reinsurers 553,833,869 553,833,869 573,418,610 573,418,610
Liabilities:
Policyholder funds 92,750,188 87,375,237 82,619,372 81,123,255
Amounts on deposit from and
payable to reinsurers 574,881,943 574,881,943 599,909,628 599,909,628
Notes payable to affiliates 183,955,075 183,955,075 158,200,680 158,200,680
</TABLE>
29
<PAGE> 98
PART II
UNDERTAKINGS
REPRESENTATION OF INSURER PURSUANT TO SECTION 26 OF THE INVESTMENT COMPANY ACT
OF 1940, AS AMENDED.
The Manufacturers Life Insurance Company of North America (the "Company") hereby
represents that the fees and charges deducted under the contracts issued
pursuant to this registration statement, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by the Company.
RULE 484 UNDERTAKING.
Section IX, paragraph D of the Promotional Agent Agreement among the Company,
formerly North American Security Life Insurance Company (referred to therein as
"Security Life"), Manufacturers Securities Services, LLC, formerly NASL
Financial Services, Inc. (referred to therein as "NASL Financial") and Wood
Logan Associates, Inc. (referred to therein as "Promotional Agent") provides as
follows:
a. NASL Financial and Security Life agree to indemnify and hold harmless
Promotional Agent, its officers, directors and employees against any and
all losses, claims, damages or liabilities to which they may become
subject under the Securities Act of 1933 ("1933 Act"), the 1934 Act or
other federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact or any omission
or alleged omission to state a material fact required to be stated or
necessary to make the statements made not misleading in any registration
statement for the Contracts filed pursuant to the 1933 Act or any
prospectus included as a part thereof, as from time to time amended and
supplemented, or any advertisement or sales literature approved in
writing by NASL Financial or Security Life pursuant to Section VI,
paragraph B of this Agreement.
b. Promotional Agent agrees to indemnify and hold harmless NASL Financial
and Security Life, their officers, directors and employees against any
and all losses, claims, damages or liabilities to which they may become
subject under the 1933 Act, the 1934 Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon: (i) any oral or written misrepresentation
by Promotional Agent or its officers, directors, employees or agents
unless such misrepresentation is contained in any registration statement
for the Contracts or Fund shares, any prospectus included as a part
thereof, as from time to time amended and supplemented, or any
advertisement or sales literature approved in writing by NASL Financial
pursuant to Section VI, paragraph B of this Agreement or, (ii) the
failure of Promotional Agent or its officers, directors, employees or
agents to comply with any applicable provisions of this Agreement.
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<PAGE> 99
Notwithstanding the foregoing, Registrant hereby makes the following undertaking
pursuant to Rule 484 under the Securities Act of 1933:
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event a
claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet
The cross-reference sheet
The Prospectus consisting of 39 pages
The undertaking required by Section 26 of the Investment Company Act
of 1940 The undertaking pursuant to Rule 484 The signatures Written
consents of the following persons:
(a) Coopers & Lybrand, L.P.P., certified public accountants.(1)
(b) Ernst & Young LLP, certified public accountants.(1)
(c) James D. Gallagher, Esq.(1)
(d) Jones & Blouch L.L.P.(1)
(e) Brian Kroll, FSA, MAAA(1)
The following exhibits:
EXHIBITS
1. The following exhibits correspond to those required by the instructions to
Form S-6:
(A)(1)(a)(i) Resolution of the Board of Directors of North American
Security Life Insurance Company, dated April 30, 1986,
establishing the NASL
2
<PAGE> 100
Variable Life Account.(6)
(A)(1)(a)(ii) Resolution of the Board of Directors of North American
Security Life Insurance Company, dated May 30, 1995,
amending the terms of the NASL Variable Life Account.(6)
(A)(1)(a)(iii) Resolution of the Board of Directors of North American
Security Life Insurance Company, dated September 30, 1996,
amending the terms of the NASL Variable Life Account.(2)
(A)(2) Not Applicable
(A)(3)(a)(i) Underwriting Agreement.(3)
(A)(3)(a)(ii)(a) Promotional Agent Agreement.(7)
(A)(3)(a)(ii)(b) Amendment to Promotional Agent Agreement.(3)
(A)(3)(b) Form of Selling Agreement Agreement.(3)
(A)(3)(c) Not Applicable
(A)(4) Not Applicable
(A)(5) Form of Modified Single Payment Variable Life Insurance
Policy.(6)
(A)(6)(a)(i) Certificate of Incorporation of North American Security
Life Insurance Company.(4)
(A)(6)(a)(ii) Certificate of Amendment of Certificate of Incorporation
of the Company, Name Change July 1984.(4)
(A)(6)(a)(iii) Certificate of Amendment of Certificate of Incorporation
of the Company, Authorization of Capital December 1994.(4)
(A)(6)(a)(iv) Certificate of Amendment of Certificate of Incorporation,
Name change March 1997.(5)
(A)(6)(a)(v) Certificate of Amendment of Certificate of Incorporation
of the Company, Registered Agent July 1997.(4)
(A)(6)(b) Amended and Restated By-laws of The Manufacturers Life
Insurance Company of North America.(4)
3
<PAGE> 101
(A)(7) Not Applicable
(A)(8) Not Applicable
(A)(9) Not Applicable
(A)(10) Form of Application for Modified Single Payment Variable
Life Insurance Policies.(6)
(2) Opinion and Consent of James D. Gallagher, Esq.(2)
(6) Memorandum describing Issuance, Transfer, Redemption and
Exchange Procedures for the Policy.(6)
(7)(a) Power of Attorney- John D. Richardson, Director and
Chairman of North American Security Life Insurance
Company.(2)
(7)(b) Power of Attorney - David W. Libbey (Principal Financial
Officer, North American Security Life Insurance
Company).(4)
(7)(c) Power of Attorney - Peter Hutchison (Director, The
Manufacturers Life Insurance Company of North America).(3)
(27) Not Applicable(1)
2. Consents of the following:
(a) Ernst & Young LLP(1)
(b) Coopers & Lybrand, L.L.P.(1)
(c) James D. Gallagher, Esq.(1)
(d) Jones & Blouch L.L.P.(1)
(e) Brian Kroll, FSA, MAAA(1)
3. No financial statement will be omitted from the Prospectus pursuant to
Instruction 1(b) or (c) of Part I.
- -----------
(1) Filed herewith.
(2) Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form S-6 for NASL Variable Life Account, filed with the SEC on
April 29, 1997, File No. 33-92466.
4
<PAGE> 102
(3) Incorporated by reference to Post-Effective Amendment No. 4 to Registration
Statement on Form N-4 for The Manufacturers Life Insurance Company of North
America, filed with the SEC on February 25, 1998, File No. 33-76162.
(4) Incorporated by reference to Form 10Q of The Manufacturers Life Insurance
Company of North America, filed with the SEC on November 14, 1997, File No.
812-06037.
(5) Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 for The Manufacturers Life Insurance Company of North
America, filed with the SEC on October 9, 1997, File No. 333-6011.
(6) Incorporated by reference to Post-Effective Amendment No. 4 to Registration
Statement on Form S-6 for The Manufacturers Life Insurance Company Separate
Account B, filed with the SEC on February 26, 1998, File No. 33-92466.
(7) Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 for The Manufacturers Life Insurance Company of North
America, filed with the SEC on April 29, 1997, File No. 33-76162
5
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,The
Manufacturers Life Insurance Company of North America Separate Account B,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and Commonwealth of Massachusetts on the 27th
day of April, 1998.
THE MANUFACTURERS LIFE INSURANCE COMPANY OF
NORTH AMERICA SEPARATE ACCOUNT B
(Registrant)
By: THE MANUFACTURERS LIFE INSURANCE COMPANY OF
NORTH AMERICA
-------------------------------------------
(Depositor)
By: /s/ John D. DesPrez
-------------------------------------------
John D. DesPrez III, President
Attest:
/s/ James D. Gallagher
- -----------------------------
James D. Gallagher, Secretary
Pursuant to the requirements of the Securities Act of 1933, the Depositor has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned on the 27th day of April, 1998 in the city of Boston,
and Commonwealth of Massachusetts.
THE MANUFACTURERS LIFE INSURANCE COMPANY OF
NORTH AMERICA SEPARATE ACCOUNT B
(Registrant)
By: THE MANUFACTURERS LIFE INSURANCE COMPANY OF
NORTH AMERICA
-------------------------------------------
(Depositor)
By: /s/ John D. DesPrez
-------------------------------------------
John D. DesPrez III, President
Attest:
/s/ James D. Gallagher
- -----------------------------
James D. Gallagher, Secretary
<PAGE> 104
Pursuant to the requirements of the Securities Act of 1933, this
amended Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
/s/ John D. DesPrez Iii Director And President 4/27/98
- -----------------------------
John D. DesPrez III
* Director 4/27/98
- -----------------------------
Peter S. Hutchison
* Director and Chairman 4/27/98
- ----------------------------- of the Board of Directors
John D. Richardson
/s/ David W. Libbey Vice President, Treasurer 4/27/98
- ----------------------------- and Chief Financial Officer
David W. Libbey (Principal Financial Officer)
*By: /s/ James D. Gallagher 4/27/98
------------------------
James D. Gallagher
Attorney-in-Fact
Pursuant to Powers
of Attorney
<PAGE> 105
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2(a) Consent of Coopers & Lybrand, L.P.P.
2(b) Consent of Ernst & Young LLP
2(c) James D. Gallagher, Esq.
2(d) Jones & Blouch L.L.P.
2(e) Brian Kroll, FSA, MAAA
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post Effective Amendment No. 5 to this
Registration Statement under the Securities Act of 1933 on Form S-6 (File No.
33-92466) of our report which includes an explanatory paragraph, regarding the
adoption of Financial Accounting Standards Board Interpretation No. 40 and
Statement of Financial Accounting Standards No. 120, dated May 29, 1997, except
for Note 14, as to which the date is February 26, 1998, on our audit of the
financial statements of The Manufacturers Life Insurance Company of North
America (formerly North American Security Life Insurance Company). We also
consent to the reference to our firm under the caption "Independent Auditors."
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 27, 1998
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our reports dated February 26, 1998 with respect to the
financial statements of The Manufacturers Life Insurance Company of North
America and February 5, 1998 with respect to the financial statements of The
Manufacturers Life Insurance Company of North America Separate Account B, in
Post Effective Amendment No. 5 to the Registration Statement (Form S-6, File
No. 33-92466).
Ernst & Young LLP
Boston, Massachusetts
April 27, 1998
<PAGE> 1
April 27, 1998
To whom it may concern,
I consent to the reference to my name in the prospectus included as part of this
post-effective amendment no. 5 to the Registration Statement of The
Manufacturers Life Insurance Company of North America Separate Account B on
Form S-6 (file No. 33-92466).
Very Truly Yours,
/s/ James D. Gallagher
James D. Gallagher
Vice President, Secretary and
General Counsel
<PAGE> 1
April 27, 1998
The Manufacturers Life Insurance Company of North America
116 Huntington Avenue
Boston, MA 02116
Dear Sirs:
We hereby consent to the reference to this firm under the caption
"Legal Matters" in the prospectus contained in Post-Effective Amendment No. 5 to
the registration statement on Form S-6 of The Manufacturers Life Insurance
Company of North America, File No. 33-92466, to be filed with the Securities and
Exchange Commission.
Very Truly Yours,
/s/ Jones & Blouch L.L.P.
Jones & Blouch L.L.P.
<PAGE> 1
April 27, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Actuarial Opinion on Illustrations in Registration Statement
Dear Sirs:
This opinion is furnished in connection with post effective amendment No. 5 (the
"Amendment") to the registration statement under the Securities Act of 1933, as
amended, (file No. 33-92466) of a modified single premium variable life
insurance contract (the "Contract") that will be offered and sold by The
Manufacturers Life Insurance Company of North America, formerly North American
Security Life Insurance Company.
The hypothetical illustrations of death benefits, contract values and surrender
values used in this registration statement are consistent with the provisions of
the Contract and the Company's administrative procedures. The rate structure of
the contract has not been designed so as to make the relationship between
premiums and benefits, as shown in the illustrations, appear disproportionately
more favorable to a prospective purchaser of the contract for the age and risk
class illustrated than for any other prospective purchaser. The particular
illustrations shown are for a commonly used risk class and for premium amounts
and ages appropriate to the markets in which the contract is sold.
I hereby consent to the use of this opinion as an exhibit to the Amendment.
Sincerely,
/s/ Brian Kroll
Brian Kroll, FSA, MAAA
Assistant Vice President and Product Actuary
