<PAGE> 1
This filing is made pursuant
to Rule 424(b)(3) under the
Securities Act of 1933 in
Lifestyle from Manulife Financial connection with Registration
No. 33-57020
Prospectus for
Multi-Account Flexible
Payment Variable Annuity
Issued by
The Manufacturers Life Insurance
Company of America
<PAGE> 2
Lifestyle from Manulife Financial
Multi-Account Flexible Payment
Variable Annuity
This prospectus describes Multi-Account Flexible Payment Variable Annuity
Policies ("Policies" or "Policy") issued by The Manufacturers Life Insurance
Company of America ("Manufacturers Life of America"). The Policies are designed
for use in connection with retirement plans that may or may not be entitled to
special income tax treatment. The Policies will be offered on both an
individual basis and in connection with group or sponsored arrangements.
During the Accumulation Period, the Policies provide for the accumulation of
value on a fixed, variable, or fixed and variable basis. Annuity payments are
available on a fixed basis only.
Policy Value accumulated on a variable basis will be held in one or more of the
sub-accounts of Manufacturers Life of America's Separate Account Two. The
assets of each sub-account will be used to purchase shares of a particular
portfolio ("Fund") of Manulife Series Fund, Inc. (the "Series Fund"). The
accompanying prospectus for the Series Fund describes the investment objectives
of the Funds in which purchase payments may be invested. The purchase payments
are: the Emerging Growth Equity Fund, the Balanced Assets Fund, the Capital
Growth Bond Fund, the Money-Market Fund, the Common Stock Fund, the Real Estate
Securities Fund,the International Fund,and the Pacific Rim Emerging Markets
Fund. Other subaccounts and Funds may be added in the future.
In some jurisdictions the Policyowner may allocate Policy Value to various Fixed
Accounts during the Accumulation Period. Policy Value so allocated will earn a
fixed rate of interest for a specified period of time (the "Guarantee Period");
however, the Policy Value so allocated and the interest earned thereon is
guaranteed only if the allocation is maintained to the Maturity Date. If the
allocation is not maintained to the Maturity Date, the value thereof may be
increased or decreased by the Market Value Adjustment. Fixed Account Value may
be held either in Manufacturers Life of America's Separate Account A or, if
applicable state law permits, in Manufacturers Life of America's General
Account.
The Policyowner may also allocate Policy Value to the Guaranteed Interest
Account during the Accumulation Period. Policy Value so allocated will earn a
rate of interest guaranteed not to be less than 3% per annum and may, at
Manufacturers Life of America's discretion, exceed that rate.
Prior to the Annuity Commencement Date, Manufacturers Life of America will
furnish to each Policyowner at least annually a report showing certain account
information including unit values, current rates, current purchase payment
allocations and cash surrender value. In addition, reports that include
financial statements of the Series Fund and information about the investment
holdings of the various Funds will be sent to the Policyowner semi-annually.
1
<PAGE> 3
This prospectus contains a detailed discussion of the information a prospective
purchaser ought to know before making a purchase. Please read this prospectus
carefully and keep it for future reference. It is valid only when accompanied
by a current prospectus for Manulife Series Fund, Inc.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Manufacturers Life Insurance
Company of America
500 N. Woodward Avenue
Bloomfield Hills, Michigan 48304
Service Office:
200 Bloor Street East
Toronto, Ontario, Canada M4W 1E5
Telephone: 1-800-827-4546 (1-800-VARILIN[E])
The date of this Prospectus is May 1, 1996.
2
<PAGE> 4
Prospectus Contents
Page
----
Definitions..........................................................
Summary Of Policies..................................................
Policyowner Inquiries................................................
Expense Table........................................................
Condensed Financial Information......................................
General Information About Manufacturers Life of America
Manufacturers Life of America And
Manufacturers Life..........................................
General Information about
Manufacturers Life of
America's Separate Accounts
Manufacturers Life of America's
Separate Account Two:
The Variable Accounts...........................................
General Information About Manulife
Series Fund, Inc.
Investment Objectives Of The Funds
Description Of The Policies..........................................
Purchasing A Policy.............................................
"Free Look" Right...............................................
Restrictions Applicable To
Purchase Payments...............................................
Policy Value....................................................
The Fixed Accounts..........................................
The Guaranteed Interest Account.............................
The Variable Accounts.......................................
Annuity Value Guarantee.........................................
Transfers of Policy Value
Dollar Cost Averaging.......................................
Asset Allocation Balancer
Surrender Or Withdrawal Rights
Special Policy Access...........................................
Provisions on Death.............................................
Survivor Benefit Amount
Death of the Policyowner
Death of the Annuitant
Commencement of Annuity Payments
Substitution of Fund Shares
Policy Charges..................................................
Withdrawal Charge...........................................
Record-Keeping Charge.......................................
Transfer Charge.............................................
Dollar Cost Averaging Charge
Asset Allocation Balancer
Charge
Special Policy Access Charge
3
<PAGE> 5
Page
----
Premium Tax Deduction.......................................
Mortality And Expense Risks
Charges.....................................................
Administration Charge.......................................
Market Value Adjustment.........................................
Other General Policy Provisions
Deferral of Payments........................................
Annual Statements...........................................
Rights of Ownership.........................................
Beneficiary.................................................
Modification................................................
Federal Tax Matters..................................................
Taxation of Manufacturers Life of
America.........................................................
Tax Treatment Of The Policies
Purchase of Policies by Qualified Plans.........................
Additional Information About
Manufacturers Life of America
Description of Business.........................................
Responsibilities Assumed By
Manufacturers Life..............................................
Selected Financial Data.........................................
Management Discussion and Analysis of Financial
Condition and Results of Operation..............................
Executive Officers and Directors
Executive Compensation..........................................
Legal Proceedings...............................................
State Regulations...............................................
Other Matters........................................................
Special Provisions For Group Or
Sponsored Arrangements..........................................
Sale of the Policies............................................
Voting Rights...................................................
Further Information.............................................
Legal Matters...................................................
Experts.........................................................
Performance and Other Comparative Information...................
Advertising Performance of Variable Accounts....................
Financial Statements.................................................
Appendix A...........................................................
Annuity Options.................................................
Appendix B...........................................................
Sample Calculations Of Market Value Adjustments
And Withdrawal Charges..........................................
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
4
<PAGE> 6
Definitions
"Accumulation Period" is the period from the date Manufacturers Life of America
receives the first purchase payment to the Elected Annuity Date.
"Annuitant" means a person upon whose life annuity payments are based. An
Annuitant has no rights under the Policy.
"Annuity Commencement Date" means the date on which the first annuity payment is
made.
"Business Day" is any day that the New York Stock Exchange is open for trading
and trading is not restricted. The net asset value of the underlying shares of
a Variable Account will be determined on each Business Day.
"Charitable Remainder Trust" means a trust established pursuant to Section 664
of the Internal Revenue Code of 1986, as amended.
"Cumulative Net Earnings" means the greater of (i) zero and (ii) the Policy
Value less the sum of Net Premiums remaining after adjustments for any prior
withdrawals.
"Elected Annuity Date" means the date selected by the Policyowner on which the
first annuity payment is due.
"Fixed Account" or "Fixed Accounts" are the various accounts in which
allocations are credited with a Guaranteed Rate for a set period of time if the
allocations are maintained until the Maturity Date.
"Fixed Account Value" is the sum of the values of a Policy's interest in the
Fixed Accounts prior to application of any Market Value Adjustment calculated as
set forth in Description of the Policies -- "Policy Value" (the Fixed Accounts).
"General Account" is all assets of Manufacturers Life of America except those
allocated to Separate Account Two, Separate Account A, or other separate
accounts of Manufacturers Life of America.
"Gross Withdrawal Amount" is the amount of any full surrender or partial
withdrawal prior to (i) the deduction of any applicable charges or withholding
taxes and (ii) any adjustment for applicable Market Value Adjustments.
"Guarantee Period" is a period during which a Guaranteed Rate will be paid on an
allocation to a Fixed Account.
"Guaranteed Interest Account" is the account in which allocations earn interest
at a rate guaranteed not to fall below 3% per annum and which can be reset
daily.
"Guaranteed Interest Account Value" is the value of a Policy's interest in the
Guaranteed Interest Account.
5
<PAGE> 7
"Guaranteed Rate" is the rate of interest credited by Manufacturers Life of
America on a Fixed Account for a given Guarantee Period.
"Market Value Adjustment" is an adjustment to any portion of the Fixed Account
Value which is surrendered, withdrawn, annuitized or transferred prior to the
Maturity Date.
"Maturity Date" is the last day of a Guarantee Period.
"Net Premiums" are gross premiums less deductions for applicable premium taxes.
"Payee" is a person designated by the Policyowner to receive the annuity
payments due and payable on and after the Annuity Commencement Date.
"Policy Value" means the value during the Accumulation Period of amounts
accumulated under the Policy. The Policy Value is the sum of the Variable
Policy Value, the Guaranteed Interest Account Value and the Fixed Account Value.
"Policy Years", "Policy Anniversaries" and "Policy Months" are determined from
the date the initial purchase payment is allocated. The first Policy
Anniversary will be on the same date of the same month one year later.
"Purchase Payment" is an amount paid under the Policy.
"Qualified Policy" means a Policy used in connection with a retirement plan
which receives favorable federal income tax treatment under sections 401 or 408
of the Internal Revenue Code of 1986, as amended ("Code").
"Service Office" is the office designated by Manufacturers Life of America to
service the Policy.
"Survivor Benefit Amount" is the amount to which the Policy Value may be set on
the death of the original Policyowner.
"Unit" is an index used to measure the value of a Policy's interest in a
Variable Account.
"Variable Account" or "Variable Accounts" are any one or more of the various
sub-accounts of Separate Account Two.
"Variable Policy Value" is the sum of the value of a Policy's interest in each
of the Variable Accounts calculated as set forth in Description of the Policies
- -- "Policy Value" (The Variable Accounts).
6
<PAGE> 8
Summary Of Policies
Eligible Purchasers. The Policies described in this prospectus are designed to
provide a flexible investment program for the accumulation of amounts for
retirement purposes under plans which receive favorable federal income tax
treatment pursuant to sections 401 or 408 of the Code ("Qualified Policies"), or
under plans and trusts not entitled to any special tax treatment ("Nonqualified
Policies"). The Policies, which will generally be issued to persons up to age
75, will be offered both on an individual basis and in connection with group or
sponsored arrangements. (See Description of the Policies -- "Purchasing A
Policy".)
Funding Arrangements. The Policies are designed to provide flexibility as to
the timing and amount of purchase payments and the available funding media.
Purchase payments may be allocated among three types of accounts -- the Variable
Accounts, the Guaranteed Interest Account and, in some jurisdictions, the Fixed
Accounts. The Variable Accounts are sub-accounts of Separate Account Two, each
sub-account investing in a corresponding Fund of the Series Fund. The
Guaranteed Interest Account is an account in which allocated purchase payments
earn interest at a rate which can be reset daily but is guaranteed not to be
less than 3% per annum. The Fixed Accounts are accounts which earn a fixed rate
of interest only if held to maturity.
Purchase Payments. The minimum initial purchase payment is $5,000 ($2,000 for
Qualified Plans). Subsequent purchase payments must be at least $500.
Manufacturers Life of America reserves the right to alter these minimum payment
amounts on 90 days written notice to the Policyowner and it further reserves the
right to institute a pre-authorized payment plan which provides for automatic
monthly deductions and which may permit smaller payments. Purchase payments may
be allocated among the Variable Accounts, Fixed Accounts and Guaranteed Interest
Account in any manner the Policyowner wishes. A Policyowner should specify how
each purchase payment is to be allocated. Allocations among the Variable
Accounts, Fixed Accounts and Guaranteed Interest Account are made as a
percentage of Net Premiums. The percentage allocation to any account may be any
whole number between 0 and 100, provided the total percentage allocations equal
100. A Policyowner may change the way in which Net Premiums are allocated at
any time without charge. If no allocation is specified, a purchase payment will
be allocated as set forth in the Policyowner's previous allocation request.
(See Description of the Policies -- "Restrictions Applicable To Purchase
Payments".)
Charges and Deductions. There is no deduction from purchase payments for sales
expenses. However, full surrender of a Policy or a partial withdrawal
thereunder may be subject to a withdrawal charge (contingent deferred sales
charge), which is a percentage of the Gross Withdrawal Amount subject to the
withdrawal charge. The applicable percentage will depend upon when the purchase
payment to which such amount is deemed attributable was made. The maximum
withdrawal charge is 8% of the Gross Withdrawal Amount, decreasing over time
until, beginning in the seventh year after the purchase payment was made, it is
0%. However, in no event may the charge exceed 8% of the total purchase
payments made. The Gross Withdrawal Amount will also be adjusted by
7
<PAGE> 9
any applicable Market Value Adjustment and reduced by any applicable
record-keeping charges or withholding taxes.
When amounts allocated to a Fixed Account are not maintained until the
applicable Maturity Date, whether as a result of a surrender, partial
withdrawal, transfer or the Annuity Commencement Date, the Market Value
Adjustment may cause a deduction from, or an addition to, the amounts
surrendered, withdrawn, transferred or annuitized. In an investment environment
of rapidly increasing interest rates, the Market Value Adjustment could cause
the amount available from a Fixed Account prior to the Maturity Date of that
Fixed Account upon surrender, withdrawal, transfer or on the Annuity
Commencement Date to be substantially less than the amount allocated to that
Fixed Account.
A record-keeping charge equal to 2% of the Policy Value up to a maximum of $30
will be deducted on the last day of each Policy Year or on the date of a full
surrender made prior to the end of a Policy Year.
Deductions are made for (i) mortality and expense risks charges, and (ii) an
administration charge. Mortality and expense risks charges are deducted daily
at an annual rate of .80% of assets of Separate Account Two, and monthly, at the
beginning of each Policy Month, at an annual rate of .45% of the Variable Policy
Value and Fixed Account Value. The administration charge is deducted daily at
an annual rate of .20% of the assets of Separate Account Two.
A deduction may be made for any applicable premium taxes attributable to the
Policies (currently such taxes range from 0% to 3%).
There is no charge for the first transfer between accounts in any Policy Month.
However, there is a charge of $35 for a second transfer in a Policy Month. For
this purpose, all transfer requests received by Manufacturers Life of America on
the same Business Day are treated as a single transfer and transfers pursuant to
the Dollar Cost Averaging and Asset Allocation Balancer provisions are ignored.
There is no charge for Dollar Cost Averaging transfers if Policy Value exceeds
$15,000; otherwise there is a charge of $5 per transfer. There is a charge of
$15 for each Asset Allocation Balancer transfer. (See Description of the
Policies -- "Policy Charges".)
Annuity Payments. Annuity payments will begin on the Elected Annuity Date and
will be on a fixed basis only. The Policyowner may change the Elected Annuity
Date to any date so long as payments will commence by the end of the year in
which the Annuitant reaches age 85. The date the first annuity payment is made
is the Annuity Commencement Date. Under some Qualified Policies, annuity
payments must commence no later than April 1 following the year the Annuitant
attains the age of 70. If application of the Policy Value would result in
annuity payments of less than $20 monthly, $60 quarterly, $100 semi-annually or
$200 annually, the Policy Value will be paid to the Policyowner in a single sum.
(See Description of the Policies -- "Commencement of Annuity Payments".)
8
<PAGE> 10
Surrenders or Withdrawals. At any time prior to the Annuity Commencement Date,
a Policyowner may fully surrender the Policy for, or make a cash withdrawal in
an amount not exceeding, its Policy Value, reduced by any applicable withdrawal
charge and record-keeping charge, and adjusted for any Market Value Adjustment.
A full surrender or cash withdrawal may be subject to a tax penalty. (See "Tax
Treatment Of The Policies".) The minimum cash withdrawal that may be requested
at any one time is $500. Some Qualified Policies must contain restrictions on
withdrawal rights. (See Description of the Policies -- "Surrender Or Withdrawal
Rights".)
Transfers. Subject to certain limitations, transfers may be made at any time
among the Guaranteed Interest Account, the Variable Accounts and the Fixed
Accounts (subject, in the case of transfers from Fixed Accounts, to any
applicable Market Value Adjustment). Transfers into the accounts may be made in
any amount. Transfers from any account of less than the entire account value
must be at least $500, including transfers under the Dollar Cost Averaging
program. Transfers from the Guaranteed Interest Account are limited in any one
Policy Year to the greater of $500 or 15% of the Guaranteed Interest Account
Value at the previous Policy Anniversary. (See Description of the Policies --
"Transfers of Policy Value".)
Free Look Right. Within ten days after receiving a Policy, the Policyowner may
return it for cancellation by mailing it to the Service Office. Within seven
days after receipt, except where state insurance law requires return of any
purchase payments, Manufacturers Life of America will refund the Policy Value
plus or minus any applicable Market Value Adjustment.
* * *
The above summary is qualified in its entirety by the detailed information
appearing elsewhere in this prospectus and the accompanying prospectus of the
Series Fund to which reference should be made.
Policyowner Inquiries
All communications or inquiries relating to a Policy should be addressed to the
Manufacturers Life of America Service Office at 200 Bloor Street East, Toronto,
Ontario, Canada, M4W 1E5. All notices and elections under a Policy must be
received at that Service Office to be effective.
9
<PAGE> 11
EXPENSE TABLE
<TABLE>
<CAPTION>
NUMBER OF COMPLETE
POLICY YEARS
SINCE
PURCHASE
PAYMENT WITHDRAWAL
WAS MADE CHARGE
------------------ ----------
<S> <C> <C>
1. POLICY AND TRANSACTION CHARGES: 0-2.99 8.00%
(a) Withdrawal Charge (contingent deferred sales charge) (as 3 6.00%
a percentage of the lesser of amount surrendered or 4 4.00%
purchase payments)1: 5 2.00%
6 or more None
(b) Record-Keeping Charge $ 30 2
(c) Transfer Charge (if applicable)3 $ 35
(d) Dollar Cost Averaging Charge (if selected and $ 5
applicable)4 $ 15
(e) Asset Allocation Balancer Charge (if selected)5
<CAPTION>
ANNUAL RATE
-----------
<S> <C> <C>
2. MORTALITY AND EXPENSE RISKS CHARGE
(a) Variable (Separate) Accounts
- Charged daily as a percentage of average Variable
Account Values 6 0.80%
- Charged monthly as a percentage of the policy
month-start Fixed Account Assets 6 0.45%
-----
1.25%
(b) Fixed Accounts
- Charged monthly as a percentage
of the policy month-start Fixed Account Assets 0.45%
(c) Guaranteed Interest Account 0.00%
3. OTHER SEPARATE ACCOUNT EXPENSES
Charge for administration charged daily as a
percentage of average Variable Account Values 0.20%
-----
TOTAL SEPARATE ACCOUNT AND OTHER ASSET BASED CHARGES 1.45%
</TABLE>
1 The withdrawal charge decreases over time depending on the number of
complete Policy Years elapsed since the purchase to which the withdrawal is
deemed attributable was made. A withdrawal other than one made pursuant to
the free withdrawal provision is deemed to be a liquidation of a purchase
payment. The free withdrawal provision allows the Policyowner to withdraw
in any Policy Year after the first up to 10% of the Policy Value as of the
most recent Policy Anniversary free of the withdrawal charge. In addition,
a Market Value Adjustment may cause a deduction from or addition to amounts
withdrawn from the Fixed Accounts.
2 A record-keeping charge of 2% of the Policy Value up to a maximum of $30 is
deducted during the Accumulation Period on the last day of a Policy Year.
The charge is also deducted upon full surrender of a Policy on a date other
than the last day of a Policy Year.
3 There is no charge for the first transfer in any Policy Month. One
additional transfer is allowed each Policy Month subject to a charge of
$35. In addition, a Market Value Adjustment may cause a deduction from or
addition to amounts transferred from or among the Fixed Accounts. Transfers
made pursuant to the Dollar Cost Averaging or Asset Allocation Balancer
Programs do not count as transfers for purposes of determining the
availability of free transfers or of transfers subject to the $35 charge.
4 Transfers pursuant to the optional Dollar Cost Averaging program are free
if Policy Value exceeds $15,000 at the time of the transfer, but otherwise
incur a $5 charge.
5 The Asset Allocation Balancer program is optional. If selected, there is a
charge of $15 for transfers under the program..
6 A mortality and expense risks charge of .80% per annum is deducted daily
from Separate Account Two assets, and a mortality and expense risks charge
of .45% per annum is deducted monthly from Variable Policy Values and Fixed
Account Values.
10
<PAGE> 12
<TABLE>
<CAPTION>
ANNUAL RATE
-----------
<S> <C> <C>
4. EXPENSES:
As a percentage of underlying fund's average net assets
MANULIFE SERIES FUND
International Fund
Management Fees .85% 7
Other Expenses .50%
Pacific Rim Emerging Markets Fund
Management Fees .85% 7
Other Expenses .65%
All Other Manulife Series Fund Portfolios
Management Fees .50%
TOTAL MANULIFE SERIES FUND ANNUAL EXPENSE
International Fund 1.35%
Pacific Rim Emerging Markets Fund 1.50%
All Other Manulife Series Fund Portfolios .50%
</TABLE>
7 The management fee will drop to .70% on assets over $100 million.
11
<PAGE> 13
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Example 8
If you surrender your Policy at the end of the
applicable time period:
You would pay the following expenses on a
$1,000 investment, assuming a 5% annual return
on assets:
MANULIFE SERIES FUND
INTERNATIONAL FUND $109 $147 $172 $320
PACIFIC RIM EMERGING MARKETS FUND $111 $151 $179 $334
EMERGING GROWTH EQUITY FUND $101 $123 $129 $235
COMMON STOCK FUND $101 $123 $129 $235
REAL ESTATE SECURITIES FUND $101 $123 $129 $235
BALANCED ASSETS FUND $101 $123 $129 $235
CAPITAL GROWTH BOND FUND $101 $123 $129 $235
MONEY-MARKET FUND $101 $123 $129 $235
If you do NOT surrender your Policy or if you
annuitize at the end of the applicable time
period:
You would pay the following expenses on a
$1,000 investment, assuming a 5% annual
return on assets:
MANULIFE SERIES FUND
INTERNATIONAL FUND $ 29 $ 89 $152 $320
PACIFIC RIM EMERGING MARKETS FUND $ 31 $ 93 $159 $334
EMERGING GROWTH EQUITY FUND $ 21 $ 64 $109 $235
COMMON STOCK FUND $ 21 $ 64 $109 $235
REAL ESTATE SECURITIES FUND $ 21 $ 64 $109 $235
BALANCED ASSETS FUND $ 21 $ 64 $109 $235
CAPITAL GROWTH BOND FUND $ 21 $ 64 $109 $235
MONEY-MARKET FUND $ 21 $ 64 $109 $235
</TABLE>
8 In the examples above, the $30 annual record-keeping charge has been
reflected in the calculation of annual expenses by converting it to a
percentage charge. In converting the charge to a percentage an average
account size of $40,000 was used. The 10% free withdrawal has been
incorporated where applicable.
The purpose of the above table is to assist a Policyowner in understanding the
various costs and expenses that he or she will bear directly or indirectly. The
table reflects expenses of Separate Account Two, the Fixed Accounts and Manulife
Series Fund, Inc., but it does not reflect any deduction made to cover any
premium taxes attributable to a Policy. Such taxes may be as much as 3%
depending on the law of the applicable state or local jurisdiction. In
addition, although the table does not reflect any charge for the Special Policy
Access feature, Manufacturers Life of America reserves the right to charge an
administrative fee not to exceed $150 for withdrawal under this provision.
However, currently no charge is imposed. The example included in the above
table should not be considered a representation of past or future expenses, and
actual expenses may be greater or less than those shown.
Information concerning charges assessed under the Policies is set forth below.
See Description of the Policies -- "Policy Charges". Information concerning
the management fees paid by Manulife Series Fund is provided under the caption
"Investment Management Arrangements" in the accompanying Manulife Series Fund
prospectus.
12
<PAGE> 14
CONDENSED FINANCIAL INFORMATION
SCHEDULE OF ACCUMULATION UNIT VALUES AND
ACCUMULATION UNITS OUTSTANDING
The accumulation unit values set forth in the following table are accounting
data that do not reflect the impact of the following charges (which are not
deducted as part of the calculation of accumulation unit values): withdrawal
charges, record-keeping charges, the portion of the mortality and expense risk
charges deducted monthly, deductions for premium taxes (if any) or charges (if
any) for a second transfer in a policy month, Dollar Cost Averaging and Asset
Allocation Balancer transfers or Special Policy Access transactions.
Accordingly, the change in accumulation unit values over time should not be
viewed as an accurate measure of the investment performance of Separate Account
Two.
FOR THE PERIOD NOVEMBER 3, 1987 THROUGH DECEMBER 31, 1995
SUB-ACCOUNTS
<TABLE>
<CAPTION>
MANULIFE SERIES FUND
--------------------
EMERGING GROWTH EQUITY FUND
---------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 3 (Commencement) $10.00
January 1 value $10.87 $12.58 $17.72 $14.93 $ 25.33 $ 30.55 $ 37.47 $ 35.58
December 31 value $10.87 $12.58 $17.72 $14.93 $25.33 $ 30.55 $ 37.47 $ 35.58 $ 45.01
December 31 units 329 11,285 22,539 41,687 76,705 288,277 874,970 1,454,901 1,670,956
</TABLE>
<TABLE>
<CAPTION>
MANULIFE SERIES FUND
--------------------
BALANCED ASSETS FUND
--------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 3 (Commencement) $10.00
January 1 value $10.20 $10.87 $ 13.06 $ 13.13 $ 16.04 $ 16.87 $ 18.70 $ 17.75
December 31 value $10.20 $10.87 $13.06 $ 13.13 $ 16.04 $ 16.87 $ 18.70 $ 17.75 $ 21.91
December 31 units 1,645 21,509 47,074 118,664 201,901 515,812 1,293,922 2,001,928 2,189,632
</TABLE>
<TABLE>
<CAPTION>
MANULIFE SERIES FUND
--------------------
CAPITAL GROWTH BOND FUND
------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 3 (Commencement) $10.00
January 1 value $10.15 $10.77 $12.14 $12.81 $ 14.76 $ 15.47 $ 16.94 $ 16.02
December 31 value $10.15 $10.77 $12.14 $12.81 $14.76 $ 15.47 $ 16.94 $ 16.02 $ 19.07
December 31 units 1,039 17,737 36,191 51,268 69,024 168,747 499,877 672,365 789,655
</TABLE>
<TABLE>
<CAPTION>
MANULIFE SERIES FUND
--------------------
MONEY-MARKET FUND
-----------------
1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 3 (Commencement) $10.00
January 1 value $10.07 $10.68 $ 11.51 $ 12.28 $ 12.84 $ 13.15 $ 13.37 $ 13.75
December 31 value $10.07 $10.68 $11.51 $ 12.28 $ 12.84 $ 13.15 $ 13.37 $ 13.75 $ 14.38
December 31 units 7,161 23,091 32,907 160,484 122,681 176,160 328,922 918,869 1,290,129
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
MANULIFE SERIES FUND
--------------------
COMMON STOCK FUND
-----------------
1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 3 (Commencement) $10.00
January 1 value $10.43 $11.35 $14.68 $13.94 $ 17.97 $ 18.88 $ 21.19 $ 20.10
December 31 value $10.43 $11.35 $14.68 $13.94 $17.97 $ 18.88 $ 21.19 $ 20.10 $ 25.72
December 31 units 709 7,257 20,202 43,044 78,327 194,079 485,195 803,568 977,871
</TABLE>
<TABLE>
<CAPTION>
MANULIFE SERIES FUND
--------------------
REAL ESTATE SECURITIES FIMD
---------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 3 (Commencement) $10.00
January 1 value $ 9.99 $11.05 $11.95 $11.30 $ 15.78 $ 18.96 $ 23.01 $ 22.16
December 31 value $9.99 $11.05 $11.95 $11.30 $15.78 $ 18.96 $ 23.01 $ 22.16 $ 25.26
December 31 units 1,642 12,733 17,676 17,834 24,956 134,707 711,630 1,205,880 1,149,409
</TABLE>
<TABLE>
<CAPTION>
MANULIFE SERIES FUND
--------------------
INTERNATIONAL FUND
------------------
1994 1995
---- ----
<S> <C> <C>
October 4 (Commencement) $10.00 $ 9.72
December 31 value $ 9.72 $ 10.71
December 31 units 89,180 354,776
</TABLE>
<TABLE>
<CAPTION>
MANULIFE SERIES FUND
--------------------
PACIFIC EMERGING MARKETS FUND
-----------------------------
1994 1995
---- ----
<S> <C> <C>
October 4 (Commencement) $10.00 $ 9.41
December 31 value $ 9.41 $ 10.38
December 31 units 67,272 261,208
</TABLE>
14
<PAGE> 16
General Information About Manufacturers
Life of America
Manufacturers Life of America And
Manufacturers Life
Manufacturers Life of America, a wholly-owned subsidiary of Manulife Reinsurance
Corporation (U.S.A.) (formerly The Manufacturers Life Insurance Company of
Michigan), is a stock life insurance company organized under the laws of
Pennsylvania on April 11, 1977 and redomesticated under the laws of Michigan on
December 9, 1992. It is authorized to do business in the District of Columbia
and all states of the United States except New York. Manulife Reinsurance
Corporation (U.S.A.) is a life insurance company organized in 1983
under the laws of Michigan and is a wholly-owned subsidiary of The Manufacturers
Life Insurance Company ("Manufacturers Life"), a mutual life insurance company
based in Toronto, Canada. Manufacturers Life of America was acquired by
Manufacturers Life in 1982. Manufacturers Life and its subsidiaries, together,
constitute one of the largest life insurance companies in North America as
measured by assets. (See Additional Information about Manufacturers Life of
America -- "Management Discussion and Analysis of Financial Condition and
Results of Operation".)
General Information about Manufacturers Life
of America's Separate Accounts
Manufacturers Life of America is the legal owner of the assets in its separate
accounts. The income, gains and losses of the separate accounts, whether or not
realized, are, in accordance with applicable contracts, credited to or charged
against the accounts without regard to the other income, gains or losses of
Manufacturers Life of America. Manufacturers Life of America will at all times
maintain assets in the accounts with a total market value at least equal to the
reserves and other liabilities relating to Variable Account or Fixed Account
benefits under all Policies participating in the accounts. While the assets of
Separate Account Two may not be charged with liabilities which arise from any
other business Manufacturers Life of America conducts, the assets of Separate
Account A may be so charged. However, all obligations under the Policies are
general corporate obligations of Manufacturers Life of America.
The investments made by the separate accounts are subject to the requirements of
applicable state laws. These investment requirements may differ between those
for separate accounts supporting variable obligations and those for separate
accounts supporting fixed obligations.
Manufacturers Life of America's
Separate Account Two:
The Variable Accounts
Manufacturers Life of America established its Separate Account Two on May 25,
1983 as a separate account under Pennsylvania law. Since December 9, 1992 the
Separate Account has been operated under Michigan law. This account holds
assets that are segregated from all of Manufacturers Life of America's other
assets. Separate Account Two is currently used only to support the Variable
Account obligations under variable annuity contracts.
15
<PAGE> 17
Separate Account Two is registered with the Securities and Exchange Commission
("S.E.C.") under the Investment Company Act of 1940 ("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, rather than in a portfolio of unspecified securities.
Registration under the 1940 Act does not involve any supervision by the S.E.C.
of the management or investment policies or practices of Separate Account Two.
For state law purposes Separate Account Two is treated as a part or division of
Manufacturers Life of America.
General Information About
Manulife Series Fund, Inc.
Each sub-account of Separate Account Two will purchase shares only of a
particular Fund of the Series Fund. The Series Fund is registered under the
1940 Act as an open-end diversified management investment company. Separate
Account Two will purchase and redeem shares of the Series Fund at net asset
value. Shares will be redeemed to the extent necessary for Manufacturers Life
of America to provide benefits under the Policies, to transfer assets from one
sub-account to another or to the General Account or Separate Account A as
requested by Policyowners, and for other purposes consistent with the Policies.
Any dividend or capital gain distribution received from a Fund will be
reinvested immediately at net asset value in shares of that Fund and retained
as assets of the corresponding sub-account. Series Fund shares are issued to
fund benefits under both variable annuity contracts and variable life insurance
policies issued by Manufacturers Life of America, shares of Manulife Series
Fund are issued to its general account for certain limited investment purposes
including initial portfolio seed money. For a description of the procedures
for handling potential conflicts of interest arising from the funding of such
benefits, see the accompanying Manulife Series Fund prospectus.
The Series Fund receives investment management services from Manufacturers
Adviser Corporation. Manufacturers Adviser Corporation is a registered
investment adviser under the Investment Advisers Act of 1940. Certain expenses
are assessed against the assets of Manulife Series Fund. These are: (1) an
investment management fee of (a) .50% of the average daily value of the
aggregate net assets of the Emerging Growth Equity Fund, Common Stock Fund,
Real Estate Securities Fund, Balanced Assets Fund, Capital Growth Bond Fund and
Money-Market Fund and (b) .85% of the average daily value of the first $100
million of net assets and .70% of the average daily value of the net assets
over $100 million of each of the International Fund and the Pacific Rim
Emerging Markets Fund and (2) expenses of up to (a) .50% per annum assessed
against the assets of the International Fund and (b) .65% per annum assessed
against the assets of the Pacific Rim Emerging Markets Fund.
Investment Objectives Of The Funds
The investment objectives of the Funds currently available to Policyowners
through corresponding sub-accounts are set forth below. There is, of course,
no assurance that these objectives will be met.
16
<PAGE> 18
Emerging Growth Equity Fund
The investment objective of the Emerging Growth Equity Fund is to achieve growth
of capital by investing primarily in equity securities of companies believed to
offer growth potential over both the intermediate and the long term. Current
income is not a significant consideration. In selecting investments, emphasis
will be placed on securities of progressive companies with aggressive and
competent managements. A substantial portion of the Fund's assets may be
invested in emerging growth companies, which at the time of the Fund's
investment may be paying no dividends to their shareholders.
Common Stock Fund
The investment objective of the Common Stock Fund is to achieve intermediate and
long-term growth through capital appreciation and current income by investing in
common stocks and other equity securities of well established companies with
promising prospects for providing an above-average rate of return. In selecting
investments, emphasis will be placed on companies with good financial resources,
strong balance sheet, satisfactory rate of return on capital, good industry
position, superior management skills and earnings that tend to grow
consistently. The Fund's investments are not limited to any particular type or
size of company, but high quality growth stocks are emphasized.
Real Estate Securities Fund
The investment objective of the Real Estate Securities Fund is to achieve a
combination of long-term capital appreciation and satisfactory current income by
investing in real estate related equity and debt securities. In pursuit of its
objective, the Real Estate Securities Fund will invest principally in real
estate investment trust equity and debt securities and other securities issued
by companies which invest in real estate or interests therein. The Fund may
also purchase the common stocks, preferred stocks, convertible securities and
bonds of companies operating in industry groups relating to the real estate
industry. This would include companies engaged in the development of real
estate, building and construction, and other market segments related to real
estate. The Fund will not invest directly in real property nor will it purchase
mortgage notes directly. Under normal circumstances, at least 65% of the value
of the Fund's total assets will be invested in real estate related equity and
debt securities.
Balanced Assets Fund
The investment objective of the Balanced Assets Fund is to achieve intermediate
and long-term growth through capital appreciation and income by investing in
both debt and equity securities. The Fund will maintain at all times a balance
between debt securities or preferred stocks, on the one hand, and common stocks,
on the other. At least 25% of the Fund's assets will be invested in each of the
two basic categories.
17
<PAGE> 19
Capital Growth Bond Fund
The investment objective of the Capital Growth Bond Fund is to achieve growth of
capital by investing in medium grade or better debt securities with income as a
secondary consideration. The Capital Growth Bond Fund differs from most "bond"
funds in that its primary objective is capital appreciation, not income. The
Fund will be carefully positioned in relation to the term of debt obligations
and the anticipated movement of interest rates.
Money-Market Fund
The investment objective of the Money-Market Fund is to provide maximum current
income consistent with capital preservation and liquidity by investing in a
portfolio of high quality money market instruments.
International Fund
The investment objective of the International Fund is to achieve long-term
growth of capital by investing in a diversified portfolio that is comprised
primarily of common stocks and equity related securities of companies domiciled
in countries other than the United States and Canada. It invests primarily in
the securities markets of Western European countries, Australia, the Far East,
Mexico and South America. The Fund will under normal conditions, invest at
least 65% of its net assets in common stocks and equity related securities of
established larger capitalization companies that have attractive long-term
prospects for growth of capital.
Pacific Rim Emerging Markets Fund
The investment objective of the Pacific Rim Emerging Markets Fund is to achieve
long-term growth of capital by investing in a diversified portfolio that is
comprised primarily of common stocks and equity related securities of companies
domiciled in the countries of the Pacific Rim region. The Fund, under normal
conditions, invests at least 65% of its net assets in common stocks and equity
related securities of established larger capitalization companies that have
attractive long-term prospects for growth of capital.
A full description of the Manulife Series Fund, its investment objectives,
policies and restrictions, its expenses, the risks associated therewith, and
other aspects of its operation is contained in the accompanying Manulife Series
Fund prospectus, which should be read together with this prospectus.
18
<PAGE> 20
Description Of The Policies
Purchasing A Policy
The Policies are designed for use in connection with retirement plans entitled
to special tax treatment under Sections 401 or 408 of the Code and retirement
plans and trusts not entitled to any special tax treatment. The Policies are
appropriate for group or sponsored plans with individual accounts or for
purchase directly by individuals. (See Other Matters -- "Special Provisions
for Group or Sponsored Arrangements".) A Policy will generally be issued to
persons up to age 75. In certain circumstances Manufacturers Life of America
may, in its sole discretion, issue a Policy to persons above age 75.
Except where application information and the initial purchase payment are
supplied by electronic transmission, persons seeking to purchase Policies must
submit an application and a check for the initial purchase payment. The
application, whether written, or via electronic transmission, is subject to
underwriting standards adopted by Manufacturers Life of America and
Manufacturers Life of America reserves the right to reject any application. A
properly completed application that is accompanied by the initial purchase
payment and all information necessary for the processing of the application
will normally be accepted within two business days. An incomplete application
which is subsequently made complete will normally be accepted within two
business days of completion; however, if an application is not completed
properly or necessary information is not obtained within 5 working days,
Manufacturers Life of America will offer to return the purchase payment.
Special provisions for electronic transmission of application information and
purchase payments. In jurisdictions where it is not prohibited, Manufacturers
Life of America will accept transmittal of initial and subsequent purchase
payments by electronic transfer to the Service Office provided the transmission
is (i) initiated by a broker-dealer from whom Manufacturers Life of America has
agreed to accept such transfers and (ii) accompanied by the information
necessary to issue a Policy and/or allocate the premium payments.
Initial purchase payments made via electronic transfer and accompanied by the
information necessary to issue a Policy will normally be accepted within two
business days. If the accompanying information is incomplete but is
subsequently made complete, it will normally be accepted within two business
days; however, if the requested information cannot be obtained within five
business days, Manufacturers Life of America will inform the broker-dealer, on
the applicant's behalf, of the reasons for the delay and offer to return the
purchase payment.
Based on the information provided by the electronic transmission, Manufacturers
Life of America will generate an application and Policy to be forwarded to the
applicant for signature.
"Free Look" Right
Within ten days after receiving a Policy, the Policyowner may return it for
cancellation by mailing it to the Service Office. Within seven days after
receipt, except where state insurance law requires return of any purchase
19
<PAGE> 21
payments made, Manufacturers Life of America will refund the Policy Value plus
or minus any applicable Market Value Adjustment.
Restrictions Applicable To Purchase Payments
Purchase payments are made directly by the Policyowner. They may be made at any
time until the Annuity Commencement Date or until the Policy is fully
surrendered. If the Policyowner is an individual, purchase payments will not be
permitted after the Policyowner's death unless the beneficiary is the
Policyowner's spouse. If the Policyowner is not an individual, purchase
payments will not be permitted after the Annuitant's death, unless the
Policyowner is the trustee of a trust which is part of a qualified retirement
plan described in section 401(a) of the Code. See Description of the Policies
- -- "Provisions on Death" (Death of the Policyowner and Death of the Annuitant).
Purchase payments must be made to the Manufacturers Life of America Service
Office.
The minimum initial purchase payment is $5,000 ($2,000 for Qualified Plans).
This can be allocated to the Variable Accounts, the Guaranteed Interest Account
or the Fixed Accounts. Subsequent purchase payments must be at least $500. If
an additional purchase payment would cause the Policy Value to exceed
$1,000,000, or if the Policy Value should already exceed $1,000,000, the prior
approval of Manufacturers Life of America will be required for an additional
purchase payment. If, for any reason, the Policy Value should fall to zero, the
Policy and all rights of the Policyowner and any other person under the Policy,
will terminate and no further purchase payments may be made.
Manufacturers Life of America reserves the right to alter the minimum payment
amounts on 90 days written notice to the Policyowner and it further reserves
the right to institute a pre-authorized payment plan which will provide for
automatic monthly deductions and which may permit smaller payments.
A Policyowner should specify how each purchase payment is to be allocated. The
percentage allocation to any account may be any whole number between 0 and 100,
provided the total percentage allocations equal 100. A Policyowner may change
the way in which Net Premiums are allocated at any time without charge. The
change will take effect on the date a written or telephonic request for change
satisfactory to Manufacturers Life of America is received at its Service Office.
If no allocation is specified, a purchase payment will be allocated using the
same percentages as specified in the last allocation request received from the
Policyowner. Such allocation will be made at the end of the Business Day in
which the purchase payment is received at the Manufacturers Life of America
Service Office. Manufacturers Life of America will send a confirmation of its
receipt of each purchase payment.
Policy Value
The Policy Value at any time is equal to the sum of the Variable Policy Value,
the Fixed Account Value and the Guaranteed Interest Account Value. The Policy
Value is available to the Policyowner through a partial withdrawal or a full
surrender. See "Surrender or Withdrawal Rights" below. The portion of the
Policy Value based on the Variable Policy Value is not guaranteed and will vary
each Business Day with the investment performance of the underlying Funds.
20
<PAGE> 22
Reserves for Policy Values allocated to the Guaranteed Interest Account will be
held in the General Account of Manufacturers Life of America. Reserves for
Policy Values allocated to the Fixed Accounts will either be held in Separate
Account A or in the General Account of Manufacturers Life of America, depending
upon the requirements of the jurisdiction in which a Policy is purchased.
The Fixed Accounts
Manufacturers Life of America established its Separate Account A on December 1,
1992 as a separate account under Michigan law. It is not a registered
investment company. This account holds assets that are segregated from all of
Manufacturers Life of America's other assets. Separate Account A is currently
used only to support the Fixed Account obligations under variable annuity
contracts. These Fixed Account obligations are based on interest rates credited
to Fixed Accounts and do not depend on the investment performance of Separate
Account A. Any gain or loss in Separate Account A accrues solely to
Manufacturers Life of America and Manufacturers Life of America assumes any risk
associated with the possibility that the value of the assets in Separate Account
A might fall below the reserves and other liabilities that must be maintained.
Should the value of the assets in Separate Account A fall below reserve and
other liabilities, Manufacturers Life of America will transfer assets from its
General Account to Separate Account A to make up the shortfall. Manufacturers
Life of America reserves the right to transfer to its General Account any assets
of Separate Account A in excess of such reserves and other liabilities and to
maintain assets in Separate Account A which support any number of annuities
which Manufacturers Life of America offers or may offer. The assets of Separate
Account A are not insulated from the claims of Manufacturers Life of America's
creditors and may be charged with liabilities which arise from other business
conducted by Manufacturers Life of America. Thus Manufacturers Life of America
may, at its discretion if permitted by applicable state law, transfer existing
Fixed Account assets to, or place future Fixed Account allocations in, its
General Account for purposes of administration.
The assets of Separate Account A will be invested in those assets chosen by
Manufacturers Life of America and permitted by applicable state laws for
separate account investments.
The Policyowner may allocate Net Premiums directly to the Fixed Accounts or
transfer Policy Values to the Fixed Accounts provided such allocations are
permitted by the Policyowner's jurisdiction. Each allocation to a Fixed
Account is accounted for separately and earns a fixed rate of interest for a
set period of time called a "Guarantee Period".
Currently, Guarantee Periods ranging from 1 to 10 years are offered under the
Policies.
To the extent permitted by law, Manufacturers Life of America reserves the
right at any time to offer Guarantee Periods with durations that differ from
those available at the date of this prospectus. Manufacturers Life of America
also reserves the right at any time to stop accepting new allocations,
transfers or renewals for a particular Guarantee Period. These actions may be
taken upon 60 days written notice to the Policyowner.
21
<PAGE> 23
If the Policyowner surrenders, withdraws or transfers any Policy Value
attributable to the Fixed Accounts prior to the end of the applicable Guarantee
Period, a Market Value Adjustment will apply. (See Description of the Policies
- -- "Policy Charges" -- Market Value Adjustment).
If Manufacturers Life of America does not receive written notice at least 7
days prior to the end of the Guarantee Period of a Fixed Account indicating
what action to take with respect to funds in the Fixed Account upon maturity
thereof, the funds will be allocated to a new Fixed Account for the same
Guarantee Period as the matured Fixed Account. If the same Guarantee Period is
no longer available, we will use the next shortest available Guarantee Period;
provided that Manufacturers Life of America will not allocate funds to a
Guarantee period that extends beyond the Elected Annuity Date. If the required
Guarantee Period is not available, funds will be transferred to the Guaranteed
Interest Account.
Fixed Account Value. The value of a Policyowner's interest in a Fixed Account
reflects all interest credited to or accrued to date on the Fixed Account, all
purchase payments or transfers allocated to the Fixed Account, any withdrawals
or transfers from the Fixed Account, any applicable withdrawal or other charges
deducted from the account, and any applicable Market Value Adjustments
previously made.
The Guaranteed Interest Account
As noted above, Policyowners may accumulate value on a variable basis, by
allocating purchase payments to one or more sub-accounts of Separate Account
Two, or on a fixed basis by allocating purchase payments either to one or more
of the Fixed Accounts, or, if permitted by the Policyowner's jurisdiction, to
the Guaranteed Interest Account. Amounts allocated to the Guaranteed Interest
Account will earn a minimum interest rate of 3% per annum. Manufacturers Life
of America may credit interest at a rate in excess of 3% per annum; however, it
is not obligated to do so. The rate of interest credited is subject to change
daily. No specific formula governs the determination of the rate to be
credited in excess of 3% per annum.
Guaranteed Interest Account Value. The value of a Policyowner's interest in
the Guaranteed Interest Account reflects all interest credited to or accrued to
date on the account, all purchase payments or transfers allocated to the
Guaranteed Interest Account, any withdrawals or transfers from the Guaranteed
Interest Account and any applicable withdrawal and other charges deducted from
the Guaranteed Interest Account.
The Variable Accounts
Variable Policy Value. Upon receipt of a purchase payment at its Service
Office, Manufacturers Life of America credits the Policy with a number of units
for each Variable Account based upon the portion of the purchase payment
allocated to the Variable Account. Units are also credited to reflect any
transfers to a Variable Account. Units are cancelled whenever amounts are
deducted, transferred or withdrawn from a Variable Account, any charge or
deduction is assessed against a Variable Account, on the Annuity Commencement
Date, or on payment of proceeds payable on death.
22
<PAGE> 24
The number of units credited or cancelled for a specific transaction is based
on the dollar amount of the transaction divided by the value of the unit on the
Business Day on which the transaction occurs. The number of units credited
with respect to an initial payment submitted with a completed purchase
application will be based on the applicable unit values for either the Business
Day on which the payment is received at the Manufacturers Life of America's
Service Office or other office or entity so designated by Manufacturers Life of
America or the following Business Day, depending on when the application is
accepted. Units will be credited with respect to any subsequent purchase
payments allocated to, or transfers into, a Variable Account based on the
applicable unit values of the Business Day on which the payment or transfer
request is so received. The number of units cancelled in connection with
partial withdrawals, transfers out of a Variable Account or deduction of
charges from a Variable Account will also be based on the applicable unit
values of the Business Day on which the requests for a partial withdrawal or
transfer are so received, or on which deductions are made.
Units are valued at the end of each Business Day. A Business Day is deemed to
end at the time of the determination of the net asset value of the Fund shares.
When an order involving the crediting or cancelling of units is received after
the end of a Business Day or on a day which is not a Business Day, the order
will be processed on the basis of unit values determined on the next Business
Day. Similarly, any determination of Policy Value or Variable Account Value to
be made on a day which is not a Business Day will be made on the next Business
Day.
The value of a unit of each Variable Account was initially fixed at $10.00.
For each subsequent Business Day the unit value of a particular Variable
Account is the value of the adjusted net assets of that account at the end of
the Business Day divided by the total number of units.
The value of a unit may increase, decrease or remain the same, depending on the
investment performance of a Variable Account from one Business Day to the next.
The unit value for any Variable Account for any Business Day is the result of
(a) minus (b) divided by (c), where:
(a) is the net assets of the Variable Account as of the end of such Business
Day;
(b) is a charge not exceeding .000027397 for each calendar day since the
preceding Business Day, multiplied by the net assets of the Variable
Account as of the end of such Business Day, corresponding to a charge of
0.80% per annum for mortality and expense risks, and 0.20% per annum for
the administration charge; and
(c) is the total number of units of the Variable Account.
Manufacturers Life of America reserves the right to adjust the above formula to
provide for any taxes determined by it to be attributable to the operations of
Separate Account Two.
23
<PAGE> 25
Annuity Value Guarantee
The Annuity Value Guarantee guarantees that, in those jurisdictions where
permitted, under certain conditions the Policy Value available at the Annuity
Commencement Date will be the greater of the Policy Value or an amount
reflecting the purchase payments and withdrawals made by the Policyowner.
Such amount is calculated as follows: (1) when the Policy is issued, the amount
is set equal to the initial purchase payment; (2) each time a purchase payment
is made the amount is increased by the amount of the purchase payment; and (3)
each time a withdrawal is made, the amount is reduced by the same percentage as
the Gross Withdrawal Amount bears to the Policy Value.
This Guarantee will be effective only for Policies owned individually or
jointly with another individual, unless otherwise required by state law, and
only if the Annuity Commencement Date is a date within 30 days of the later of
the tenth Policy Anniversary or the first Policy Anniversary after the original
policyowner (or the older of two original joint Policyowners) is age 65. If
the Annuity Commencement Date does not fall within this time frame, the Policy
may still be eligible for this Guarantee. Thereafter eligibility will re-occur
every fifth anniversary, provided the Annuity Commencement Date is within 30
days thereof.
The Policyowner will cease to be eligible for the Annuity Value Guarantee if,
at any time, (i) the Policyowner makes a withdrawal or transfers money out of a
Fixed Account prior to that account's Maturity Date or (ii) the Annuity
Commencement Date is prior to the Maturity Date of any Fixed Account to which
the Policyowner has allocated values.
Transfers of Policy Value
Subject to the restrictions described below, transfers may be made among any of
the accounts at any time during the Policy Year. A Policyowner may direct one
transfer per Policy Month free of charge. One additional transfer in a Policy
Month will be permitted at a cost of $35.00. For this purpose all transfer
requests received by Manufacturers Life of America on the same Business Day are
treated as a single transfer and transfers pursuant to the Asset Allocation
Balancer and Dollar Cost Averaging provisions are ignored. Transfer requests
must be satisfactory to Manufacturers Life of America and in writing, or by
telephone if a currently valid telephone transfer authorization form is on
file.
The minimum dollar amount of all transfers pursuant to a single transfer
request, except for Asset Allocation Balancer transfers, is $500. The maximum
amount that may be transferred from the Guaranteed Interest Account in any one
Policy Year is the greater of $500 or 15% of the Guaranteed Interest Account
Value at the previous Policy anniversary. Any transfer which involves a
transfer out of the Guaranteed Interest Account may not involve a transfer to
the Variable Accounts' Money-Market Fund.
24
<PAGE> 26
Transfer requests must be satisfactory to Manufacturers Life of America and in
writing, or by telephone if a currently valid telephone transfer authorization
form is on file. Although failure to follow reasonable procedures may result in
Manufacturers Life of America's liability for any losses due to unauthorized or
fraudulent telephone transfers, Manufacturers Life of America will not be liable
for following instructions communicated by telephone that it reasonably believes
to be genuine. Manufacturers Life of America will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. Such
procedures shall consist of confirming a valid telephone authorization form is
on file, tape recording all telephone transactions and providing written
confirmation thereof.
Limitations. To the extent that surrenders, partial withdrawals and transfers
out of a Variable Account exceed net premium allocations and transfers into
that Variable Account, portfolio securities of the underlying Fund may have to
be sold. Excessive sales of the Fund's portfolio securities in such a
situation could be detrimental to that Fund and to Policyowners with Policy
Values allocated to Variable Accounts investing in that Fund. To protect the
interests of all Policyowners, the Policy's transfer privilege is limited as
described below.
So long as effecting all requested transfers out of a Variable Account in a
particular Business Day would not reduce the number of shares of the underlying
Fund outstanding at the close of the prior Business Day by more than 5%, all
such requests will be effected. However, net transfers out of a Variable
Account greater than 5% would be permitted only if, and to the extent that, in
the judgment of Manufacturers Adviser Corporation, they would not result in
detriment to the underlying Fund or to the interests of Policyowners or others
with assets allocated to that Fund. If and when transfers must be limited to
avoid such detriment, some requests will not be effected. In determining which
requests will be effected, transfers pursuant to the Dollar Cost Averaging
program will be effected first, followed by Asset Allocation Balancer
transfers, written requests next and telephone requests last. Within each such
group, requests will be processed in the order received, to the extent
possible. Policyowners whose transfer requests are not effected will be so
notified. Current S.E.C. rules preclude Manufacturers Life of America from
processing at a later date those requests that were not effected. Accordingly,
a new transfer request would have to be submitted in order to effect a transfer
that was not effected because of the limitations described in this paragraph.
Manufacturers Life of America may be permitted to limit transfers in certain
other circumstances. (See Description of the Policies -- "Other General Policy
Provisions" -- Deferral of Payments).
Dollar Cost Averaging
Manufacturers Life of America will offer Policyowners a Dollar Cost Averaging
program. Under this program amounts will be automatically transferred at
predetermined intervals from one Variable Account to any other Variable
Account(s), or a Fixed Account or the Guaranteed Interest Account.
Under the Dollar Cost Averaging program the Policyowner will designate a dollar
amount of available assets to be transferred at predetermined intervals from one
Variable Account into any other Variable Account(s) or a Fixed Account or the
25
<PAGE> 27
Guaranteed Interest Account. Each transfer under the Dollar Cost Averaging
program must be at least $500 and Manufacturers Life of America reserves the
right to change this minimum at any time upon notice to the Policyowner.
Currently, there is no charge for this program if Policy Value exceeds $15,000;
otherwise a charge of $5 per transfer or series of transfers occurring on the
same transfer date will apply. If insufficient funds exist to effect a Dollar
Cost Averaging transfer, including the charge, if applicable, the transfer will
not be effected and the Policyowner will be so notified. Manufacturers Life of
America reserves the right to cease to offer the Dollar Cost Averaging program
on 90 days' written notice to the Policyowner.
Asset Allocation Balancer
Manufacturers Life of America will also offer Policyowners the ability to have
amounts automatically transferred among stipulated accounts to maintain an
allocated percentage in each stipulated account.
Under the Asset Allocation Balancer program the Policyowner will designate an
allocation of Policy Value among the Variable Accounts. Every six Policy
Months, Manufacturers Life of America will move amounts out of Variable
Accounts and into other Variable Accounts as necessary to maintain the
Policyowner's chosen allocation. Currently, the charge for this program is $15
per transfer or series of transfers occurring on the same transfer date. This
charge will be deducted from all accounts affected by the transfer in the same
proportion that the value in each account bears to the Policy Value immediately
after the transfer. A change to the policyowner's premium allocation
instructions will automatically result in a change in Asset Allocation Balancer
instructions so that the two are identical unless the Policyowner instructs
Manufacturers Life of America otherwise or has a Dollar Cost Averaging request
in effect. Manufacturers Life of America reserves the right to cease to offer
the Asset Allocation Balancer Program on 90 days' written notice to the
Policyowner.
Surrender Or Withdrawal Rights
At any time prior to the Elected Annuity Date, a Policyowner may fully surrender
the Policy for, or make a partial withdrawal in an amount not exceeding, its
Policy Value, reduced by any applicable withdrawal or record-keeping charge and
any applicable withholding taxes and reduced or augmented by any applicable
Market Value Adjustment. (See Description of the Policies -- "Policy Charges".)
For certain Qualified Policies, exercise of the right to surrender may require
the consent of the Policyowner's spouse under regulations promulgated by the
Treasury or Labor Department.
In any Policy Year after the first and before the Elected Annuity Date, up to
10% of the Policy Value as of the most recent Policy Anniversary may be
surrendered or withdrawn free of the withdrawal charge. In states where
permitted, if the Policyowner is a Charitable Remainder Trust, in any Policy
Year after the first and before the Elected Annuity Date, the Policyowner may
withdraw, free of the withdrawal charge, the greater of (i) 10% of the Policy
Value as of the most recent Policy Anniversary or (ii) Cumulative Net Earnings
under the Policy. During the first Policy Year, if the Policyowner is a
Charitable Remainder Trust, the Policyowner may withdraw, free of the withdrawal
charge, up to 10% of the
26
<PAGE> 28
cumulative Net Premiums as reduced by prior withdrawals. The amount received on
withdrawal will be adjusted for any applicable Market Value Adjustment. Amounts
surrendered or withdrawn during a Policy Year which exceed the foregoing sums
will be subject to a withdrawal charge.
In the case of a full surrender of a Policy, Manufacturers Life of America will
pay the Policy Value reduced by any applicable withdrawal or record-keeping
charges and any applicable withholding taxes, and adjusted by any applicable
Market Value Adjustment as of the Business Day on which the request for
surrender is received at its Service Office, and the Policy will be cancelled.
In the case of a partial withdrawal from the Variable Accounts, Manufacturers
Life of America will pay the amount requested and cancel that number of units
credited to each Variable Account necessary to equal the amount of the partial
withdrawal plus any applicable withdrawal charges and withholding taxes. In the
case of a partial withdrawal from the Fixed Account or the Guaranteed Interest
Account, Manufacturers Life of America will pay the amount requested. The Fixed
Account Value and/or the Guaranteed Interest Account Value will be reduced by
the amount withdrawn and any applicable withdrawal charges and withholding
taxes, and adjusted by any applicable Market Value Adjustment. In any event,
should there not be sufficient funds available in the designated account or
accounts equal to the Gross Withdrawal Amount, Manufacturers Life of America
will notify the Policyowner and await further instruction before effecting any
withdrawal. (For a discussion of withholding taxes see Federal Tax Matters --
"Tax Treatment of the Policies".)
For a partial withdrawal, the Policyowner should specify the account(s) from
which the withdrawal should be made. If no specification is indicated, the
withdrawal will not be made and the Policyowner will be so notified.
There is no limit on the frequency of partial withdrawals; however, the
requested withdrawal must be at least $500. Any request for a partial
withdrawal or a full surrender of a Policy must be in writing and delivered to
the Manufacturers Life of America Service Office. If the amount to be
withdrawn exceeds $10,000, it must be accompanied by a guarantee of the
Policyowner's signature by a commercial bank, trust company, member of the
National Association of Securities Dealers, Inc., a notary public, or any other
individual or association designated by Manufacturers Life of America.
Special Policy Access
In those states where permitted, if the Policyowner should become terminally
ill, he or she will be permitted to make one full surrender or partial
withdrawal without imposition of withdrawal charges. If partial withdrawal is
chosen, the Survivor Benefit Amount and Annuity Value Guarantee, if applicable,
will be reduced accordingly. To be eligible, Manufacturers Life of America must
receive written evidence acceptable to Manufacturers Life of America, including
a written statement from a licensed medical doctor, that the Policyowner is
terminally ill and has a life expectancy of one year or less and the consent of
any irrevocable beneficiary and any assignee.
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<PAGE> 29
There is currently no charge associated with this feature. However,
Manufacturers Life of America reserves the right to impose an administrative
charge not to exceed $150 for a partial withdrawal or full surrender pursuant to
this provision.
Provisions on Death
In the discussions that follow, references to the age, death, life expectancy,
or marital status of a Policy owner do not apply to a Policyowner who owns a
Policy other than individually or jointly with another person, except the
Survivor Benefit amount which will apply upon death of the annuitant if the
Policyowner is a charitable remainder trust. In addition, references to the
death of the original Policyowner include the first to die of two joint
Policyowners.
Survivor Benefit Amount
Upon occurrence of the death of the original Policyowner, Manufacturers Life of
America will compare the Policy Value to the Survivor Benefit Amount and, if
the Policy Value is lower, Manufacturers Life of America will deposit
sufficient funds into the Money-Market Variable Account to make the Policy
Value equal the Survivor Benefit Amount. Any funds which Manufacturers Life of
America deposits into the Money-Market Variable Account will not be deemed a
purchase payment for purposes of calculating withdrawal charges.
The Survivor Benefit Amount is calculated as follows: (1) when the Policy is
issued, the Survivor Benefit Amount is set equal to the initial purchase
payment; (2) each time a purchase payment is made, the Survivor Benefit Amount
is increased by the amount of the purchase payment; (3) each time a withdrawal
is made, the Survivor Benefit Amount is reduced by the same percentage as the
Gross Withdrawal Amount bears to the Policy Value; (4) in jurisdictions where
it is allowed, on every sixth Policy Anniversary Manufacturers Life of America
will set the Survivor Benefit Amount to the greater of its current value or the
Policy Value on that Policy Anniversary, provided the original Policyowner is
still alive and is not older than age 85.
Subsequent to the death of the original Policyowner, the Variable Policy Value
will continue to reflect the investment performance of the selected Variable
Accounts.
Joint Ownership
If the Policy is owned jointly, the proceeds of the Survivor Benefit Amount will
be payable on the first death of a Policyowner. However, if the surviving
Policyowner is the spouse of the deceased and elects to continue the Policy,
payment of the Survivor Benefit Amount will be deferred. The Survivor Benefit
Amount will continue to be calculated as described above if payment is deferred.
If the surviving Policyowner is not the spouse of the deceased Policyowner, the
proceeds of the Survivor Benefit Amount will be payable as set out in the
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<PAGE> 30
non-spousal ownership provisions of the section entitled Provisions on Death --
"Death of the Policyowner".
Death of the Policyowner
Death Prior to Annuity Commencement Date. If any Policyowner dies before the
Elected Annuity Date, all amounts will remain as allocated by that Policyowner
until Manufacturers Life of America receives further instructions from the new
Policyowner, or the surviving Policyowner if the Policy was owned jointly. The
new or surviving Policyowner can make withdrawals, transfer amounts, assign the
policy and name a payee, prior to payment of the Policy Value as described
below.
If the new or surviving Policyowner is the spouse, he or she can:
(a) continue the Policy and may make further purchase payments; or
(b) make a full surrender or partial withdrawal of the Policy Value within 60
days after the death without imposition of a Market Value Adjustment or
withdrawal charge except with respect to withdrawal of purchase payments
received after the death of the Policyowner; or
(c) elect to receive payment under a guaranteed annuity option. If the
payment is made as an annuity, the Policy Value used to provide the
annuity will be determined as of the date Manufacturers Life of America
receives written notification of the election at its Service Office.
However, if a partial withdrawal or a full surrender of the Policy Value occurs
more than 60 days after the death of the Policyowner, the payment will be based
on the Policy Value determined as of the date of payment, adjusted for any
applicable Market Value Adjustment and withdrawal charge. (See Description of
the Policies -- "Market Value Adjustment" and "Policy Charges".)
The Policy will continue under option (a) in the absence of a written
notification from the surviving spouse to do otherwise.
If the new or surviving Policyowner is not the spouse, he or she can:
(a) continue the Policy. If this option is selected, no further purchase
payments can be made, and the Policy must be surrendered within 5 years of
the death. Applicable Market Value Adjustments and withdrawal charges
will be imposed. (See Description of the Policies -- "Market Value
Adjustment" and "Policy Charges".); or
(b) make a full surrender or partial withdrawal of the Policy Value within 60
days after the death without imposition of a Market Value Adjustment or
withdrawal charge; or
(c) elect to receive payment under a guaranteed annuity option. If the
payment is made as an annuity, (i) the Policy Value used to provide the
annuity will be determined as of the date Manufacturers Life of America
receives written notification of the election at its Service Office, (ii)
the only Annuity Options available are options 1, 2(b), or 2(c) of the
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<PAGE> 31
Annuity Options described in Appendix A, (iii) the period selected for
payment must not extend beyond the new or surviving Policyowner's life
expectancy, and (iv) payments under the Annuity Option selected must begin
no later than December 31 of the year following death of the Policyowner.
The Policy will continue under option (a) in the absence of written
notification to do otherwise.
Death After Annuity Commencement Date. If the Policyowner dies after the
Annuity Commencement Date, payments will continue under the annuity option
selected if the terms of the annuity so provide.
Death of the Annuitant
Death Prior to Annuity Commencement Date. If the Policyowner is an individual
who is not the Annuitant, and the Annuitant dies before the Annuity Commencement
Date, the Policy will continue and the Policyowner may continue to make purchase
payments. If the Policyowner has appointed a contingent Annuitant, he or she
will become the new Annuitant. If no such appointment has been made, the Policy
owner must appoint a new Annuitant within 60 days of the death of the original
Annuitant; otherwise the Policyowner will be deemed to be the new Annuitant.
If the Policyowner is not an individual, the Policy is not a Qualified Policy
owned by the trustee of a plan described in Section 401 of the Code, and the
Annuitant dies before the Annuity Commencement Date, the Policyowner can:
(a) continue the Policy. If this option is selected, no further purchase
payments can be made, and the Policy must be surrendered for a lump sum
within 5 years of the Annuitant's death. Market Value Adjustments and all
applicable charges will continue to be imposed. (See Description of the
Policies -- "Market Value Adjustment" and "Policy Charges".); or
(b) make a full surrender or partial withdrawal of the Policy Value within 60
days after the Annuitant's death without imposition of a Market Value
Adjustment or withdrawal charge.
The Policy will continue under option (a) in the absence of written
notification to do otherwise.
If the Policyowner is not an individual, the Policy is a Qualified Policy owned
by a trustee of a plan described in Section 401 of the Code, and the Annuitant
dies before the Annuity Commencement Date, the Policyowner can:
(a) continue the Policy. If this option is selected, a new Annuitant must be
appointed and no further purchase payments can be made. Market Value
Adjustments and all applicable charges will continue to be imposed. (See
Description of the Policies -- "Market Value Adjustment" and "Policy
Charges".); or
(b) make a full surrender or partial withdrawal of the Policy Value within 60
days after the Annuitant's death without imposition of a Market Value
Adjustment or withdrawal charge.
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<PAGE> 32
The Policy will continue under option (a) in the absence of written notification
to do otherwise.
Death After Annuity Commencement Date. If the Policyowner is an individual who
is not the Annuitant and the Annuitant dies after the Elected Annuity Date,
payments will continue under the annuity option selected if the terms of the
annuity so provide.
Commencement of Annuity Payments
The Policyowner elects an annuity date in the application (the "Elected Annuity
Date"). The Policyowner may change the Elected Annuity Date to any date prior
to the end of the Policy Year in which the Annuitant reaches age 85 except in
the case of Qualified Policies and Policies where the owner is a Charitable
Remainder Trust. If the Policyowner is a Charitable Remainder Trust there is
no required annuitization age. Written request for change of the Elected
Annuity Date must be received by the Manufacturers Life of America Service
Office at least thirty days prior to the new Elected Annuity Date.
Annuity payments will be made by application of the Policy Value to provide an
annuity. Annuity payments will be made on a fixed basis only; the Policy Value
will no longer reflect the investment performance of the Variable Accounts, the
Fixed Accounts or the Guaranteed Interest Account. The annuity options
available are described in Appendix A under "Annuity Options". The date on
which the first annuity payment is made is the Annuity Commencement Date.
There are legal restrictions on the Elected Annuity Date selected for Qualified
Policies. In general, the Annuity Commencement Date for Qualified Policies
owned by an individual cannot be later than April 1 following the calendar year
in which the Policyowner attains age 70 1/2. There are some exceptions to this
requirement. If the Policy is owned by the trustee of a trust established
pursuant to an employer retirement plan, the Elected Annuity Date is determined
by the terms of the trust and plan.
Annuity payments may be made monthly, quarterly, semi-annually or annually. If
application of the Policy Value would result in annuity payments of less than
$20 monthly, $60 quarterly, $100 semi-annually or $200 annually, Manufacturers
Life of America will pay the Policy Value to the Policyowner in a single sum in
lieu of annuity payments.
Substitution of Fund Shares
Although Manufacturers Life of America believes it to be highly unlikely, it is
possible that in the judgment of its management, one or more of the Funds may
become unsuitable for investment by Separate Account Two because of a change in
investment policy or a change in the tax laws, because the shares are no longer
available for investment, or for some other reason. In that event,
Manufacturers Life of America may seek to substitute the shares of another Fund
or of an entirely different mutual fund. Before this can be done, the approval
of the S.E.C. and one or more state insurance departments may be required.
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<PAGE> 33
Manufacturers Life of America also reserves the right to combine other
registered separate accounts with Separate Account Two investing in additional
Funds of the Series Fund or another investment company, to establish additional
sub-accounts within Separate Account Two, to operate Separate Account Two as a
management investment company or other form permitted by law, to transfer assets
from Separate Account Two to another registered separate account and from
another registered separate account to Separate Account Two, and to deregister
Separate Account Two under the 1940 Act. Any such change would be made only if
permissible under applicable federal and state law.
Policy Charges
The various charges and deductions applicable to the Policy and the separate
accounts are set forth below.
Withdrawal Charge
A withdrawal charge (contingent deferred sales charge) may be imposed on partial
withdrawals from, and the full surrender of, a Policy. In any Policy Year after
the first and before the Elected Annuity Date, up to 10% of the Policy Value as
of the most recent Policy Anniversary may be surrendered or withdrawn free of
the withdrawal charge. In states where permitted, if the Policyowner is a
Charitable Remainder Trust, in any Policy Year after the first and before the
Elected Annuity Date, the Policyowner may withdraw, free of the withdrawal
charge, the greater of (i) 10% of the Policy Value as of the most recent Policy
Anniversary, or (ii) the Cumulative Net Earnings under the Policy. During the
first Policy Year, if the Policyowner is a Charitable Remainder Trust, the
Policyowner may withdraw, free of the withdrawal charge, up to 10% of the
cumulative Net Premiums as reduced by prior withdrawals. The amount received on
withdrawal will be adjusted for any applicable Market Value Adjustment. The
withdrawal charge is deducted as a percentage of amounts withdrawn in a Policy
Year in excess of the foregoing sums minus any applicable record-keeping charge
(imposed on Policy Anniversaries and on full surrenders made on other than a
Policy Anniversary) and plus or minus any applicable Market Value Adjustment.
The withdrawal charge is designed to partially compensate Manufacturers Life of
America for the cost of selling and distributing the Policies. The cost
includes agents' commissions, advertising, agent training and the printing of
prospectuses and sales literature.
The withdrawal charge is determined by applying a percentage to the Gross
Withdrawal Amount subject to the withdrawal charge. The applicable percentage
depends upon when the purchase payments to which the withdrawal or surrender is
deemed attributable were made, as indicated in the following schedule:
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<PAGE> 34
<TABLE>
<CAPTION>
Number of complete Policy Years elapsed The Withdrawal
since purchase payment was made: Charge is
<S> <C>
0-2.99 8%
3 6%
4 4%
5 2%
6 or more None
</TABLE>
Where the Gross Withdrawal Amount is deemed attributable to purchase payments
made in different Policy Years, different percentages will be applied to the
portions of the Gross Withdrawal Amount attributable to such payments.
For purposes of determining the withdrawal charge applicable to a full
surrender or partial withdrawal, any Gross Withdrawal Amount, other than an
amount not subject to a withdrawal charge by reason of the free withdrawal
provisions described above, will be deemed to be a liquidation of a purchase
payment. The oldest previously unliquidated purchase payment will be deemed to
have been liquidated first, then the next oldest and so forth. In addition,
all purchase payments made during a Policy Year will be deemed to have been
made on the first day of that year. Once all purchase payments have been
liquidated, additional amounts surrendered or withdrawn will not be subject to
a withdrawal charge. Thus, in no event may aggregate withdrawal charges exceed
8% of the total purchase payments made.
No withdrawal charge will be applied: (1) if the Policy Value is applied to an
annuity, (2) when a full surrender or partial withdrawal is made within 60 days
of the death of the original Policyowner (except that a withdrawal charge will
be applied to a Gross Withdrawal Amount consisting of purchase payments made
after the date of death of the original Policyowner), (3) when the Policyowner
is not an individual and a full surrender or partial withdrawal is made within
60 days of the death of the Annuitant, or (4) upon a full surrender or the
first partial withdrawal made after the Policyowner becomes terminally ill.
(See Description of the Policies -- "Provisions on Death" and "Special Policy
Access".)
On a full surrender of the Policy, the Gross Withdrawal Amount is the Policy
Value. Upon full surrender, the Policyowner will receive the Gross Withdrawal
Amount adjusted by any applicable Market Value Adjustment, less applicable
withdrawal charges and withholding taxes, and less the record-keeping charge.
On a partial withdrawal, the Policyowner will receive the amount he or she
requests. Manufacturers Life of America will calculate the Gross Withdrawal
Amount such that after all applicable withdrawal charges, withholding taxes and
Market Value Adjustments have been applied, the Policyowner will receive the
amount requested. See Appendix B for examples of the application of withdrawal
charges.
Withdrawal charges on a partial withdrawal will be deducted from the accounts
proportionately to the Gross Withdrawal Amount, adjusted by any applicable
Market Value Adjustments attributable to the respective accounts. Should there
not be
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<PAGE> 35
sufficient funds available in the designated account or accounts equal
to the Gross Withdrawal Amount, Manufacturers Life of America will notify the
Policyowner and await further instruction before effecting any withdrawal.
Manufacturers Life of America does not expect to recover its total sales
expenses through the withdrawal charge. To the extent that the withdrawal
charge is insufficient to recover sales expenses, Manufacturers Life of America
will pay sales expenses from its other assets or surplus. These assets may
include proceeds from the mortality and expense risks charges described below.
Record-Keeping Charge
A record-keeping charge equal to 2% of the Policy Value up to a maximum of $30
will be deducted from Policy Value on the last day of each Policy Year during
the Accumulation Period. This charge will also be deducted upon full surrender
of a Policy on a date other than the last day of a Policy Year. The charge
will be taken before any withdrawal charge is applied and before any applicable
Market Value Adjustment. It will be deducted from the Variable Policy Value,
the Fixed Account Value and the Guaranteed Interest Account Value in the same
proportion that the value in each account bears to the Policy Value.
The record-keeping charge is paid to Manufacturers Life of America to
compensate it for certain costs associated with the Policies and the operations
of the separate accounts, including the establishing and maintaining of account
and tax records for each Policyowner; communicating with Policyowners by
mailing confirmations of transactions, Policy Anniversary statements, annual
reports of the Series Fund and annually updated prospectuses for the Series
Fund and the Policy and by responding to Policyowner requests to change
information contained in his or her records such as names, addresses,
allocation percentages, beneficiary or Annuitant designation, participation in
the Dollar Cost Averaging or Asset Allocation Balancer programs, certain Fixed
Account transactions such as calculations of Market Value Adjustments and
transfers solely between Fixed Accounts, and responding to written or oral
inquiries by Policyowners regarding the operations of the Policy, the separate
accounts or the Series Fund. Although these expenses may rise in the future,
Manufacturers Life of America guarantees that it will not increase the amount
of the record-keeping charge applicable to outstanding Policies. Moreover,
Manufacturers Life of America does not expect to recover from this charge any
amount in excess of its accumulated applicable expenses.
Transfer Charge
Each Policy Month a Policyowner is allowed to direct one transfer of Policy
Value among the accounts free of charge. One additional transfer per Policy
Month will be permitted at a cost of $35. For this purpose all transfer
requests received by Manufacturers Life of America on the same Business Day are
treated as a single transfer and transfers pursuant to the Dollar Cost
Averaging or Asset Allocation Balancer provisions are ignored. This charge
will be deducted from the first account from which funds are transferred. (See
Description of the Policies--"Transfers of Policy Value".)
Dollar Cost Averaging Charge
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<PAGE> 36
Currently, there is no charge for Dollar Cost Averaging transfers if Policy
Value exceeds $15,000, otherwise there is a charge of $5.00 per transfer or
series of transfers taking place on the same transfer date. This charge will be
deducted from the account from which funds are transferred. If insufficient
funds exist to effect a Dollar Cost Averaging transfer, including the charge, if
applicable, the transfer will not be effected.
Asset Allocation Balancer Charge
The current charge for Asset Allocation Balancer transfers is $15 for each
transfer or series of transfers taking place on the same transfer date. This
charge will be deducted from all accounts affected by the Asset Allocation
Balancer transfer in the same proportion that the value in each account bears
to the Policy Value immediately after the transfer.
Special Policy Access Charge
There is currently no charge associated with this feature. However,
Manufacturers Life of America reserves the right to impose an administrative
charge not to exceed $150 for a partial withdrawal or full surrender pursuant
to the provision.
Premium Tax Deduction
Manufacturers Life of America will deduct any premium or similar state or local
tax attributable to a Policy. Currently, such taxes, if any, range up to 3%
depending on applicable law. Although the deduction can be made from purchase
payments or from Policy Value, it is anticipated that premium taxes will be
deducted from the Policy Value at the time it is applied to provide an annuity
unless required otherwise by applicable law. When deducted at the Annuity
Commencement Date, the premium tax deduction will be taken from the Variable
Policy Value, the Fixed Account Value and the Guaranteed Interest Account Value
in the same proportion that the value in each account bears to the Policy
Value.
Other than the premium taxes above, Manufacturers Life of America makes no
charge for federal, state or local taxes that may be attributable to the
separate accounts or to the operations of Manufacturers Life of America with
respect to the Policies. However, if Manufacturers Life of America incurs any
such such taxes, it may make a charge therefor, in addition to the foregoing.
Mortality And Expense Risks Charges
A charge at an annual rate of .45% is made for mortality and expense risks that
Manufacturers Life of America assumes. This charge is deducted monthly at
.0375% of assets at the beginning of each Policy Month from the Variable
Account Value and the Fixed Account Value.
A charge at an annual rate of .80% is also made for mortality and expense risks
that Manufacturers Life of America assumes. This charge is deducted daily from
the assets of Separate Account Two.
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<PAGE> 37
The mortality risks assumed are (i) the risk that Annuitants may live for
longer periods of time than the periods indicated in the mortality tables on
which Manufacturers Life of America calculated the annuity tables in the
Policies, (ii) the risk that mortality will cause a Policy to terminate before
the assumed Annuity Commencement Date and (iii) the risk that mortality will
cause Manufacturers Life of America to incur higher costs than anticipated for
the Survivor Benefit Amount. The expense risks assumed are that the expenses
of administration of and recordkeeping for the Policies will be greater than
Manufacturers Life of America estimated. Manufacturers Life of America will
realize a gain from these charges to the extent they are not needed to pay
expenses under the Policies.
Although it is difficult to specify precisely the breakdown between expense and
mortality risk elements of the mortality and expense risks charge,
Manufacturers of America estimates that approximately .85% is for mortality
risks and .40% for expense risks. A little more than half of the mortality
risk element is estimated to be attributable to risks taken in connection with
the Survivor Benefit Amount (a death benefit guarantee). As both the daily and
monthly charges are imposed in connection with the same risks, each charge
could be estimated to be divided into mortality risk and expense risk
components at the same ratio as for the overall estimate.
Administration Charge
A charge at an annual rate of 0.20% of the Variable Account Value is made for
the administration of the Policy. This charge is deducted daily by assessing a
charge against the assets of Separate Account Two.
The administration charge is paid to Manufacturers Life of America to
compensate it for costs associated with administration of the Policies and the
separate accounts including those related to allocation of initial and
subsequent purchase payments, processing purchase applications, withdrawals,
surrenders, unit value calculations, transfers, calculation of proceeds payable
on death, payment of proceeds payable on death, cash management prior to Policy
issue, and establishing and maintaining computer system support for those or
other administrative functions. Manufacturers Life of America reserves the
right to increase the amount of the administration charge applicable to
outstanding Policies in the future if costs associated with the Policies and
the operations of the separate accounts should rise above current levels.
Manufacturers Life of America does not expect to recover from this charge any
amount in excess of its accumulated administrative expenses.
Market Value Adjustment
A Market Value Adjustment ("MVA") will apply when money is removed from a Fixed
Account prior to the Maturity Date for any of the following reasons: full
surrender, partial withdrawal, transfer to another account (including another
Fixed Account), or to purchase an annuity. However, the MVA will be waived if
the amount is removed within the one month period prior to the Maturity Date.
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<PAGE> 38
The MVA will be applied after any transfer or contract charge is deducted, but
before the application of any withdrawal charges.
The MVA reflects the difference between the Guaranteed Rate for the applicable
Fixed Account, and the current Guaranteed Rate for the time period equal to the
remaining Guarantee Period ("Current Rate"). Generally, if the Guaranteed Rate
is higher than the Current Rate, the MVA will be positive. If the Guaranteed
Rate is lower than the Current Rate, the MVA will be negative.
On a full surrender, a positive MVA will increase the amount received by the
Policyowner, while a negative MVA will decrease the amount received by the
Policyowner.
On a transfer, the amount of the requested transfer from a Fixed Account will
not reflect any adjustment by the MVA. Any such adjustment will be reflected in
the amount transferred to the new account(s). A positive MVA will increase the
amount transferred into the new account(s), while a negative MVA will decrease
the amount so transferred.
On the Annuity Commencement Date, a positive MVA will increase the amount
applied to provide an annuity, while a negative MVA will decrease the amount
applied to provide an annuity.
On a partial withdrawal, a positive MVA will decrease the Gross Withdrawal
Amount required to provide the requested amount. A negative MVA will increase
the Gross Withdrawal Amount so required.
The actual MVA is a proportion of the Gross Withdrawal Amount, determined by
the following formula:
(1+G) exp N
----- - 1
(1+C)
where:
G is the Guaranteed Rate for the money being subjected to the MVA.
C is the Guaranteed Rate offered by Manufacturers Life of America for deposits
for a time period equal to the number of years remaining in the Guarantee
Period, rounded up to the next full year (the "Current Rate"). If at the time
of the MVA calculation, Manufacturers Life of America does not offer a
Guarantee Period with the required number of years, then the rate J will be
found by linear interpolation of the current rates for available Guarantee
Periods.
N is the number of full months remaining in the Guarantee Period divided by 12.
See Appendix B for examples of MVA calculations.
Other General Policy Provisions
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<PAGE> 39
Deferral of Payments
Manufacturers Life of America reserves the right to postpone the transfer or
payment of any value or benefit available under a Policy based upon the assets
allocated to Separate Account Two for any period during which:
(1) the New York Stock Exchange ("Exchange") is closed for trading (other
than customary weekend and holiday closings) or trading on the Exchange is
otherwise restricted; or
(2) an emergency exists as defined by the S.E.C. or the S.E.C. requires
that trading be restricted; or
(3) the S.E.C., by order, so permits a delay for the protection of security
holders.
Manufacturers Life of America also reserves the right to delay transfer or
payment of assets from the Fixed Accounts or the Guaranteed Interest Account
for up to six months and will pay interest at a rate determined by it if there
is a delay in payment for more than 30 days. In addition, transfers may be
denied under the circumstances previously set forth. (See Description of the
Policies -- "Provisions on Transfers".)
Annual Statements
Within 30 days after each Policy Anniversary, Manufacturers Life of America
will send the Policyowner a statement showing:
(1) the summary of each active account up to the most recent Policy
Anniversary including the Policy Value up to the Policy Anniversary date;
and
(2) a description of the transactions affecting each active account during
the Policy Year including total units cancelled, amounts deducted from
each account for fees, and total units and amounts credited to each
account as allocations or interest.
Rights of Ownership
The Policyowner is the person entitled to exercise all rights under a Policy.
As such, any Policy rights or privileges may be exercised without the consent
of the Annuitant, beneficiary or any other individual, except as provided by
the Policyowner.
Except as discussed below, ownership of the Policy may be changed or the Policy
collaterally assigned at any time prior to the Annuity Commencement Date,
subject to the rights of any irrevocable beneficiary or other person. Any
change of ownership or assignment must be made in writing and will not take
effect until received at the Manufacturers Life of America Service Office.
Manufacturers Life of America assumes no responsibility for the validity of any
assignment.
38
<PAGE> 40
In the case of a Qualified Policy, there may be restrictions on the privileges
of ownership. Some plans do not permit the exercise of certain of the
Policyowner's rights without the written consent of the Policyowner's spouse.
Among the rights limited are the right to choose an optional form of payment;
to make withdrawals; or to surrender the Policy.
A Qualified Policy which is not owned by a trustee of a trust which qualifies
under section 401(a) of the Code, may not be sold, assigned, transferred,
discounted or pledged as collateral for a loan or as security for the
performance of an obligation or for any other purpose to any person other than
to Manufacturers Life of America except as may be provided by applicable state
or federal law. Ownership of a Qualified Policy which is owned by a trustee of
a Qualified Plan may not be transferred to a participant prior to the Annuity
Commencement Date. The transfer of a Qualified Policy to a participant prior
to the Annuity Commencement Date would jeopardize the plan's qualified status
as the Policy does not contain the restrictions on a participant's rights on
withdrawal or on and after the Annuity Commencement Date required for plans
under the Employee Retirement Income Security Act.
Change of Annuitant. The Policyowner may change the Annuitant prior to the
Annuity Commencement Date. Eligible Annuitants are: (i) the Policyowner, (ii)
Policyowner's spouse, or (iii) the Policyowner's parent(s), brother(s),
sister(s), or child(ren).
If the Policyowner is not an individual, the Annuitant(s) may not be changed
except with respect to certain Qualified Plans. In any event, the Annuitant(s)
may not be changed after the Annuity Commencement Date.
Change of Elected Annuity Date. The Elected Annuity Date may be changed from
that stated in the application to an earlier or later date. The new date cannot
be later than the end of the Policy Year in which the Annuitant reaches age 85.
A written request to change the Elected Annuity Date must be received by the
Manufacturers Life of America Service Office at least 30 days prior to the new
Elected Annuity Date. (See Description of the Policies -- "Annuity Value
Guarantee").
Selection of Payee. The Policyowner must select a Payee to receive any
payments due under the Policy. If the Payee is the Policyowner, any payments
remaining on the Policyowner's death will be paid to the beneficiary. If a
Payee other than the Policyowner has been selected, any payments remaining on
the Policyowner's death will continue to be made to the Payee until
Manufacturers Life of America receives written notice from the beneficiary to
change the Payee.
The Payee for annuity payments should be chosen from the following:
(a) The Annuitant;
(b) The Annuitant's spouse, parent(s), brother(s), sister(s), child(ren); or
(c) The Policyowner, if the Policyowner is an individual.
39
<PAGE> 41
Any other choice of Payee will require the consent of Manufacturers Life of
America:
Change of Payee. The Policyowner may change the Payee at any time upon 30
days' written notice to Manufacturers Life of America. Such notice must
specify the date on which payments to the new Payee should begin. A change in
the Payee will not require the Payee's consent.
Beneficiary
Ownership of the Policy will pass to the designated beneficiary on the death of
the Policyowner. The beneficiary is the person designated in the application
or as subsequently designated. The beneficiary may be changed at any time by
written notice to Manufacturers Life of America. Any change will be effective
on the date written notice is received at the Manufacturers Life of America
Service Office. If no beneficiary survives the Policyowner, ownership will
pass to the Policyowner's estate. In the case of Qualified Policies,
regulations promulgated by the Departments of Labor and Treasury prescribe
certain limitations on the designation of a beneficiary.
Modification
A Policy may not be modified by Manufacturers Life of America without the
consent of the Policyowner, except where required to conform to any applicable
law or regulation or any ruling issued by a government agency.
Federal Tax Matters
Taxation of Manufacturers Life of America
Manufacturers Life of America is taxed as a life insurance company under
Subchapter L of the Code. Since the operations of Separate Account Two are part
of, and are taxed with, the operations of Manufacturers Life of America,
Separate Account Two is not separately taxed as a "regulated investment company"
under Subchapter M of the Code. Under existing federal income tax laws,
investment income and capital gains of Separate Account Two are not taxed to the
extent they are applied to increase reserves under the Policies. Since, under
the Policies, investment income and realized capital gains of Separate Account
Two are automatically applied to increase reserves, Manufacturers Life of
America does not anticipate that it will incur any federal income tax liability
attributable to Separate Account Two, other than a federal income tax based on
premiums received which is currently absorbed by Manufacturers Life of America,
and therefore Manufacturers Life of America does not intend to make provision
for any such taxes. However, if changes in the federal tax laws or
interpretations thereof result in Manufacturers Life of America being taxed on
such income or gains, or taxes currently absorbed are increased, then
Manufacturers Life of America may impose a charge against Separate Account Two
in order to make provision for such taxes.
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<PAGE> 42
Tax Treatment Of The Policies
The Policies are designed for use in connection with retirement savings plans
that may or may not qualify for special income tax treatment under the
provisions of the Code. The following discussion of federal income tax aspects
of amounts received under a variable annuity contract is not exhaustive, does
not purport to cover all situations, and is not intended as tax advice. A
qualified tax adviser should always be consulted with regard to the application
of law to individual circumstances.
The United States Congress has, in the past, considered legislation that, if
enacted, would have taxed the inside build-up in certain annuities. While this
proposal was not enacted, Congress remains interested in the taxation of the
inside build-up of annuity contracts. Policyholders should consult their tax
advisor regarding the status of new, similar provisions before purchasing the
Policy.
Section 72 of the Code governs taxation of annuities in general. Under
existing provisions of the Code, except as described below, any increase in the
value of a Policy is not taxable to the Policyowner or Annuitant until
received, either in the form of annuity payments, as contemplated by the
Policy, or in some other form of distribution. However, as a general rule,
deferred Policies held by a corporation, trust or other similar entity, as
opposed to a natural person, are not treated as annuity contracts for federal
tax purposes. The investment income on such Policies is taxed as ordinary
income that is received or accrued by the Policyowner during the taxable year.
In certain circumstances policies will be treated as held by a natural person
if the nominal owner is a non-natural person and the beneficial owner is a
natural person, but this special exception will not apply in the case of any
employer who is the nominal owner of a Policy providing non-qualified deferred
compensation for its employees. Exceptions to the general rule (of immediate
taxation) for Policies held by a corporation, trust or similar entity may apply
with respect to (1) annuities held by an estate of a decedent, (2) Policies
issued in connection with qualified retirement plans, or IRAs, (3) certain
annuities purchased by employers upon the termination of a qualified retirement
plan, (4) certain annuities used in connection with structured settlement
agreements, and (5) annuities purchased with a single premium when the annuity
starting date is no later than a year from purchase of the annuity.
When annuity payments commence, each payment is taxable under Section 72 of the
Code as ordinary income in the year of receipt if the Policyowner has not
previously been taxed on any portion of the purchase payments. If any portion
of the purchase payments has been included in the taxable income of the
Policyowner, this aggregate amount will be considered the "investment in the
contract." For fixed annuity payments, there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the annuity payments for the term of the
annuity; the remainder of each payment is taxable. However, once the total
41
<PAGE> 43
amount of the taxpayer's "investment in the contract" is excluded using this
ratio, annuity payments will be fully taxable. If annuity payments cease
before the total amount of the taxpayer's "investment in the contract" is
recovered, the unrecovered amount will be allowed as a deduction to the
Policyowner in his or her last taxable year.
In the case of a withdrawal, amounts received are taxable as ordinary income to
the extent that the Policy Value (determined without regard to any withdrawal
charges) before the withdrawal exceeds the "investment in the contract."
Amounts loaned under an annuity or amounts received pursuant to an assignment
or pledge of an annuity are treated as withdrawals. There are special rules
for loans to participants from annuities held in connection with qualified
retirement plans or IRA's. With respect to contracts issued after April 22,
1987, if an individual transfers an annuity without adequate consideration to a
person other than his or her spouse (or to his or her former spouse incident to
divorce), he or she will be taxed on the difference between the value of the
annuity minus any withdrawal charges and the "investment in the contract" at
the time of transfer. In such case, the transferee's "investment in the
contract" will be increased to reflect the increase in the transferor's income.
In addition, there is a 10% penalty tax on the taxable amount of any payment
unless the payment is: (a) received on or after the date that the Policyowner
reaches age 59 1/2; (b) attributable to the Policyowner's becoming disabled as
defined in the Code; (c) made to a beneficiary on the death of the Policyowner;
(d) made to a beneficiary on the death of the primary annuitant if the
Policyowner is not a natural person; (e) made as a series of substantially
equal periodic payments for the life of the taxpayer (or the joint lives of the
taxpayer and beneficiary), subject to certain recapture rules; (f) made under
an annuity that is purchased with a single premium whose annuity starting date
is no later than a year from purchase of the annuity; (g) attributable to
"investment in the contract" before August 14, 1982; or (h) made with respect
to certain annuities issued in connection with structured settlement
agreements. Special rules may apply to annuities issued in connection with
qualified retirement plans.
For both withdrawals and annuity payments under some types of plans qualifying
for special federal income tax treatment ("qualified plans"), there may be no
"investment in the contract" and the total amount received may be taxable.
Where the Policy is owned by an individual, Manufacturers Life of America will
withhold and remit to the U.S. Government a part of the taxable portion of each
distribution made under a Policy unless the distributee notifies Manufacturers
Life of America at or before the time of the distribution that he or she elects
not to have any amounts withheld. The withholding rates applicable to the
taxable portion of periodic annuity payments are the same as the withholding
rates generally applicable to payments of wages. The withholding rate
applicable to the taxable portion of nonperiodic payments (including
withdrawals prior to the annuity commencement date) is 10%. Where the Policy
is not owned by an individual or it is owned in connection with a qualified
plan, or when the owner is a non-resident alien, special withholding rules may
apply.
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<PAGE> 44
In connection with the issuance of temporary regulations relating to
diversification requirements for separate accounts or funds underlying variable
life and annuity policies, the Treasury Department has announced that such
regulations do not provide guidance concerning the extent to which Policyowners
may direct their investments to particular sub-accounts of the Account.
Regulations in this regard are expected in the future. It is not clear what
these regulations will provide or whether they will be prospective only. It is
possible that when regulations are issued, the Policy may need to be modified to
comply with such regulations.
For purposes of determining a Policyowner's gross income from distributions
which are not in the form of an annuity, the Code provides that all deferred
annuities issued by the same company to the same Policyowner during any
calendar year shall be treated as one annuity. Additional rules may be
promulgated under this provision to prevent avoidance of its effect. For
further information on current aggregation rules under this and other Code
provisions, the Policyowner should consult his or her tax adviser.
Purchase of Policies by Qualified Plans
The Policies are available for use with several types of qualified plans. The
tax rules applicable to participants in such qualified plans vary according to
the type of plan and the terms and conditions of the plan itself. Therefore,
no attempt is made to provide more than general information about the use of
the Policies with the various types of qualified plans. Policyowners,
Annuitants and beneficiaries are cautioned that the rights of any person to any
benefits under such qualified plans may be subject to the terms and conditions
of the Policy. Following are brief descriptions of the various types of
qualified plans in connection with which Manufacturers Life of America will
issue a Policy.
Individual Retirement Annuities. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"Individual Retirement Annuity" or "IRA". These IRAs are subject to limits on
the amount that may be contributed, the persons who may be eligible and on the
time when distributions may commence. Distributions from certain other types
of qualified plans may be "rolled over" on a tax-deferred basis into an IRA.
Sales of the Policies for use with IRAs may be subject to special requirements
of the Internal Revenue Service. Distributions from these qualified plans are
subject to special withholding rules. Consult your plan administrator before
taking a distribution which you wish to roll over. A direct rollover from a
qualified plan is permitted and is exempt from the special withholding rules.
When issued in connection with an IRA, a Policy will be amended as necessary to
conform to the requirements of federal laws governing such plans.
Corporate and Self-Employed (H.R. 10 and Keogh) Pension and Profit Sharing
Plans. Section 401(a) of the Code permits corporate employers to establish
various types of tax-favored retirement plans for employees. Self-employed
individuals may establish plans for themselves and their employees. Such
retirement plans may permit the purchase of the Policies in order to provide
benefits under the plans. Employers intending to use Policies in connection
with such plans should seek competent advice.
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<PAGE> 45
Purchase of Policies by Charitable Remainder Trusts
The Policies may be purchased by Charitable Remainder Trusts. If a Charitable
Remainder Trust is the Policyowner, the character of amounts received by the
income beneficiary of the Charitable Remainder Trust depends on the character of
the income in the trust. To the extent the trust has any undistributed ordinary
income, amounts received by the income beneficiary from the trust are taxed as
ordinary income. The Internal Revenue Service has held in at least one private
letter ruling that any increase in the value of a Policy will be treated as
income to the trust in the year it accrues regardless whether it is actually
received by the trust. However, a private letter ruling cannot be relied on as
precedent by anyone other than the taxpayer who requests it.
State and Local Government Deferred Compensation Plans
Section 457 of the Code permits employees of state and local governments, rural
electric cooperatives and tax-exempt organizations to defer a portion of their
compensation without paying current taxes. The employees must be participants
in an eligible deferred compensation plan. To the extent Policies are used in
connection with an eligible plan, employees are considered general creditors of
the employer and the employer as owner of the Policy has the sole right to the
proceeds of the Policy. Those who intend to use Policies in connection with
such plans should seek qualified advice as to the tax and legal consequences of
such an investment.
Additional Information About
Manufacturers Life of America
Description of Business
Manufacturers Life of America's primary purpose is to issue and sell variable
universal life and variable annuity products in the United States. However,
Manufacturers Life of America also commenced establishment of branch operations
in Taiwan to develop and market traditional insurance for the Taiwanese market.
Manufacturers Life of America began capitalizing this operation in 1993.
Of approximately 1800 life insurance companies in the United States, fewer than
100 offer variable life products. In an industry where financial strength
provides competitive advantage, Manufacturers Life of America is well
positioned competitively.
Responsibilities Assumed By Manufacturers Life
Manufacturers Life has entered into an agreement with ManEquity, Inc. pursuant
to which Manufacturers Life, on behalf of ManEquity, Inc., will pay the sales
commissions in respect of the Policies and certain other policies issued by
Manufacturers Life of America, prepare and maintain all books and records
required to be prepared and maintained by ManEquity, Inc. with respect to the
Policies and such other policies, and send all confirmations required to be
sent by ManEquity, Inc. with respect to the Policies and such other policies.
ManEquity, Inc. will promptly reimburse Manufacturers Life for all sales
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<PAGE> 46
commissions paid by Manufacturers Life and will pay Manufacturers Life for its
other services under the agreement in such amounts and at such times as agreed
to by the parties.
Manufacturers Life has also entered into a Service Agreement with Manufacturers
Life of America pursuant to which Manufacturers Life will provide to
Manufacturers Life of America in Toronto, Ontario, Canada all issue,
administrative, general services and record-keeping functions on behalf of
Manufacturers Life of America with respect to all of its insurance policies
including the Policies. Under this agreement Manufacturers Life of America is
obligated to reimburse operating expenses and costs incurred by Manufacturers
Life on behalf of Manufacturers Life of America. For 1993, 1994, and 1995,
Manufacturers Life of America paid $12,467,474, $21,326,446, and $23,211,484,
respectively, to Manufacturers Life pursuant to the agreement.
Finally, Manufacturers Life has entered into an excess reinsurance arrangement
with Manufacturers Life of America for certain obligations arising under the
Survivor Benefit Amount. Except for its obligations to Manufacturers Life of
America under this reinsurance agreement, Manufacturers Life has no financial
obligation for any Policy benefits.
Manufacturers Life of America's ultimate parent company, Manufacturers Life, is
a Canadian-based mutual life insurance company with worldwide operations and
assets of $39.9 Billion (Canadian Dollars) and surplus of $3.5 Billion
(Canadian Dollars) as of December 31, 1995. As in the past, Manufacturers Life
of America may look to its ultimate parent company to provide the necessary
capital to finance its operations.
The vast majority of Manufacturers Life's business in the United States is sold
directly through the parent company; however, subsidiary companies are used for
certain special purposes. The primary purpose of this subsidiary, Manufacturers
Life of America, is to issue and sell variable universal life and variable
annuity products. Manufacturers Life of America has no direct employees.
Manufacturers Life of America owns no property.
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SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
REVENUES
Premiums, Annuity Deposits and
Other Revenue $159,768 $193,649 $125,948 $ 39,885 $14,410
Investment Income, Net of
Investment Expenses 5,841 3,589 3,324 1,431 781
Commissions and Expense
Allowances on Reinsurance
Ceded 147 188 -- -- --
-------- -------- -------- -------- -------
165,756 197,426 129,272 41,316 15,191
-------- -------- -------- -------- -------
BENEFITS AND EXPENSES
Policyholder Benefits 120,371 159,215 109,571 32,720 9,252
Other Expenses 59,751 52,899 32,229 12,799 4,363
Commissions and Expense
Allowances on Reinsurance
Assumed 1,014 810 330 269 81
-------- -------- -------- -------- -------
181,136 212,924 142,130 45,788 13,696
-------- -------- -------- -------- -------
Gain (Loss) Before Policyholder
Dividends and Federal
Income Tax Provision (Benefit) (15,380) (15,498) (12,858) (4,472) 1,495
Dividends to Policyholders 2,367 1,150 837 634 25
-------- -------- -------- -------- -------
Gain (Loss) Before Federal
Income Tax (Benefit) (17,747) (16,648) (13,695) (5,106) 1,470
Federal Income Tax (Benefit) 4,116 -- (325) 340 1,351
-------- -------- -------- -------- -------
Net Gain (Loss) from
Operations After
Policyholders Dividends and
Federal Income Tax (13,631) (16,648) (13,370) (5,446) 119
Net Realized Capital Gains (74) (3,012) 93 139 --
-------- -------- -------- -------- -------
Net Gain (Loss) from Operations $(13,705) $(19,660) $(13,277) $ (5,307) $ 119
======== ======== ======== ======== =======
Total Assets $588,742 $403,086 $253,392 $136,065 $92,501
======== ======== ======== ======== =======
</TABLE>
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<PAGE> 48
Management Discussion and Analysis
Overview
Manufacturers Life of America is a wholly-owned subsidiary of Manulife
Reinsurance Corporation (U.S.A.), (the Parent), which is in turn a wholly-owned
subsidiary of Manufacturers Life, a Canadian mutual life insurance company with
world wide operations and assets of $39.9 billion (Canadian Dollars) and a
surplus of $3.5 billion (Canadian Dollars). Manufacturers Life and Manufacturers
Life of America have received the following ratings from independent rating
agencies: Standard & Poor's Insurance Rating Service - AA+, A. M. Best Company
- - A++, Moody's Investors Service, Inc. - Aa3 and Duff & Phelps Credit Rating
Co. - AAA. The Board of Directors of Manufacturers Life has resolved to
currently provide a claims paying guarantee to the U.S. policyholders.
Manufacturers Life of America has two fundamental businesses:
(1) sale of variable products: U.S.
(2) branch operations in Taiwan (start-up)
With respect to its U.S. business, Manufacturers Life of America during the
past four years has experienced a significant growth in the sale of its
variable products. Manufacturers Life of America experienced year over year
premium growth in variable products of 226% in 1992; 241% in 1993; 48% in
1994. During 1995, variable life insurance premiums remained flat reflecting
strong persistency, while single premium variable annuity premiums declined.
Total first-year premiums are approximately 70% and 48% of the same period in
1994 for Variable Universal Life, (VUL) and Variable Annuity, (VA),
respectively.
This decline in new sales is considered temporary and has been triggered in
part by a combination of industry wide and internal factors:
Industry Factors
- - Impact of negative investment performance in 1994 (both stocks and bonds)
- - General concern related to investment practices/risk associated with fund
holdings. This was created by the Mexican debt crisis and high profile
business failures due to the use of derivatives.
- - Shifting consumer preference toward more guaranteed "insurance products".
Internal Factors
- - A desire amongst our policyholders and producers for diversification of
investment options (investment funds/fund management style).
- - Our policyholders' desire for more guarantees relating to potential lapses
in a volatile market.
A number of actions were implemented to address these issues:
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<PAGE> 49
- - A five year no-lapse guarantee on Horizon VUL was launched which prevents
policy lapses triggered by negative investment performance, provided
minimum premium requirements are met.
- - In February 1996, Manufacturers Life of America introduced seven new
investment accounts. These will be managed by Fidelity Management Trust
Company, Goldman Sachs Asset Management, Salomon Brothers Asset Management
Inc., and Wellington Management Trust. At the same time Manulife Series
Fund, Inc. is adding an Equity Index Fund. These options will address our
policyholders' concerns for investment diversification.
In 1993 Manufacturers Life of America entered Taiwan as a startup venture
recognizing the vast potential of this market. During 1995 Manufacturers Life of
America commenced full operations that have resulted in significant recruitment
and training expenditures. These expenditures are expected to positively impact
future operations as market share increases.
Financial Position
Financial results have been prepared on the basis of statutory accounting
practices which are currently considered by the insurance industry to be in
accordance with GAAP for all mutual life insurance companies and their
wholly-owned subsidiaries. A description of the accounting policies can be
found in Note 2 to the December 31, 1995 financial statements.
Assets
1995 Compared to 1994
At December 31, 1995, Manufacturers Life of America's total assets were $588.7
million, an increase of $185.6 million or 46% from year-end 1994. This change
is principally a result of Separate Account asset growth of $177.7 million,
reflecting net cash transfers to the separate accounts of $99.8 million plus
$77.9 million in gains due to strong investment performance of the underlying
investment funds.
General Account invested assets remained relatively flat. While bonds increased
by $10.6 million, short term investments decreased $10.9 million. Short term
investments were utilized to pay operating expenses while capital received
during the year was invested in longer term bonds.
Taxes recoverable increased by $3.3 million reflecting the benefit achieved
through the company filing a consolidated tax return with its parent.
Investments in subsidiaries increased by $1.1 million representing
Manufacturers Life of America's investment in Manufacturers Adviser Corporation
(MAC). MAC is the investment adviser to Manulife Series Fund, Inc. (the
investment funds underlying the separate accounts). During 1995, Manufacturers
Life of America's Parent, through a capital contribution, transferred its
ownership in MAC to Manufacturers Life of America.
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<PAGE> 50
1994 Compared to 1993
At December 31, 1994 the total assets of Manufacturers Life of America were
$403.1 million, an increase of $149.7 million or 59% from year-end 1993. The
main contributors to this growth were:
(1) General Account assets increased by $21.1 million.
Bonds and short-term investments increased by $28.8 million and $10
million respectively due to:
(a) A $20.0 million capital infusion in December, 1994.
(b) Receipt of $21.5 million related to a block of participating whole
life contracts assumed from Manufacturers Life.
Common Stocks decreased by $14.9 million. The investment in common stocks
represents Manufacturers Life of America's seed money investment in the
Series Fund. This investment decreased because:
(a) Manufacturers Life of America withdrew $13.0 million of seed money to
pay operating expenses.
(b) The values of the common stock decreased by $1.9 million due to
underlying investment performance of the Series Fund.
Manufacturers Life of America's debt securities consist mainly of U.S.
Treasury notes and bonds, mortgage backed securities, investment grade
corporate bonds and money market securities.
(2) Separate Account assets increased by $128.6 million.
Consistent with Manufacturers Life of America's primary business operations
of marketing variable products, the majority of "policy premium" is
transferred immediately into the Separate Accounts.
Liabilities
1995 Compared to 1994
Manufacturers Life of America's liabilities have increased by $179 million over
year-end 1994 mainly due to Separate Account liabilities increasing $177.7
million. Separate Account liabilities move in tandem with changes in Separate
Account assets.
The interest maintenance,(IMR) and asset valuation (AVR) reserves increased by
a total of $4.6 million. The IMR increases are a result of a statutory formula
designed to smooth the impact of realized and unrealized capital gains on bonds
of $1.6 million net of taxes. The AVR increases are to establish reserves
against future asset default. These amounts increased significantly over 1994
as a result of realized and unrealized capital gains recognized during 1995.
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<PAGE> 51
1994 Compared to 1993
At December 31, 1994, Manufacturers Life of America's total liabilities were
$353.7 million, reflecting an increase of $151.0 million over year-end 1993.
This increase is comprised of:
(1) General Account liabilities increased by $22.4 million. This increase was
primarily the result of Manufacturers Life of America's increasing the face
amount it assumes from Manufacturers Life on a participating whole life
block of business. Manufacturers Life of America increased the amount it
assumes from the first $50,000 to the first $100,000 of initial face amount
per policy. This transaction resulted in an initial premium transfer and
the establishment of reserves totaling $21.5 million.
(2) Separate Account liabilities increased by $128 million. Separate Account
liabilities increase in tandem with, and are fully secured by, Separate
Account assets.
Capital and Surplus
1995 Compared to 1994
At December 31, 1995, Manufacturers Life of America's capital and surplus
totalled $56 million, an increase of $6.9 million over year-end 1994 as a
result of:
- - Operating losses totalling $13.7 million.
- - Offsetting the operating losses were three capital contributions of (1)
$12.5 million from issuance of common shares, (2) $8.5 million from
issuance of a surplus note and (3) $1.1 million from transfer of
Manufacturers Adviser Corporation from the Parent.
- - The increase in AVR which flows through the statement of changes in capital
surplus of $3.3 million was largely offset by the unrealized gains of $2.9
million on Manufacturers Life of America's seed money investment in
Manulife Series Funds, Inc.
Manufacturers Life of America's surplus to general account liability ratio
increased from 96.9% to 108.2%
1994 Compared to 1993
At the end of 1994, Manufacturers Life of America's capital and surplus
totalled $49.4 million, a decrease of $1.3 million over year-end 1993. The
following details the changes made to capital and surplus during 1994:
50
<PAGE> 52
<TABLE>
<CAPTION>
(millions)
----------
<S> <C>
Loss from Operations $(19.7)
Issue of Common Stock/Contributed Surplus 20.0
Miscellaneous Changes (1.6)
------
Net Decrease in Capital and Surplus $ (1.3)
======
</TABLE>
The loss from operations increased from a loss of $13.3 million in 1993 to a
loss of $19.7 million primarily as a result of new business strain on increased
sales. This reflects significant growth in the sale of both variable annuities
and variable universal life products.
The $20 million in proceeds from the sale of common stock is a result of
Manufacturers Life of America issuing one common share with a par value $1 with
the balance being treated as contributed surplus.
During 1994, Manufacturers Life of America restructured its capital and surplus
by exchanging 230,000 preferred shares, (par value $100), for 3,000,000 common
shares, (par value $1) and contributed surplus of $20 million. This
restructuring was done to ensure Manufacturers Life of America satisfied
continued compliance with all state regulations regarding surplus. Total
capital and surplus was unchanged by this restructuring.
1993 Compared to 1992
At the end of 1993, Manufacturers Life of America's capital and surplus
totalled $50.7 million, a decrease of $4.9 million over 1992. The following
details the contributions made to capital and surplus during 1992:
<TABLE>
<CAPTION>
(millions)
----------
<S> <C>
Loss from Operations $(13.3)
Unrealized Capital Losses (1.6)
Gain on Surplus in the Separate Account 4.3
Sale of Common Stock/Contributed Surplus 5.9
Miscellaneous Changes in Capital (0.2)
------
Net decrease in Capital and Surplus $ (4.9)
======
</TABLE>
Earnings declined from a loss of $5.3 million in 1992 to a loss of $13.3 million
in 1993, primarily as a result of new business strain on dramatically increased
sales. Premiums for 1993 represented an increase of 216% over 1992. This
reflects significant growth in the sale of both variable annuities and variable
universal life products.
The Unrealized Capital Loss of $1.6 million represents the difference between
the December 31, 1993 market value of the seed money shares and the actual cost
of these shares. The unrealized loss occurred because the Series Fund paid a
dividend shortly after the shares were transferred to the General Account. The
impact of the dividend, while increasing investment income, simultaneously
reduced the market value of the shares, giving rise to an unrealized loss.
51
<PAGE> 53
The gain on surplus in the Separate Account represents the investment income
earned on Manufacturers Life of America's seed money in the Series Fund, while
it was still in the Separate Account.
The $5.9 million in proceeds from the sale of common stock is a result of
Manufacturers Life of America's issuing one common share (par value $1) with the
balance being treated as contributed surplus. These funds were subsequently
transferred to fund start-up operations in Taiwan.
Results of Operations
1995 Compared to 1994
The loss from operations for the year ended December 31, 1995 decreased from
$19.7 million in 1994 to $13.7 million in 1995. The main contributors to these
losses were:
<TABLE>
1995 1994
---- ----
<S> <C> <C>
U.S.Operations ($8.8) ($15.9)
Taiwan Operations (9.0) (3.8)
Tax recovery 4.1
------ ------
($13.7) ($19.7)
====== ======
</TABLE>
U.S. operations improved due to reduction of capital losses of $2.9 million
through improved investment performance and $4.2 million resulting from
decreased new business strain on reduced sales and increased policy fees as
business matures.
Taiwan's operating loss increased as a result of significant start up costs
associated with Manufacturers Life of America's growing Taiwan Branch. In
particular, costs associated with producer recruitment are heavy.
1994 Compared to 1993
The loss from operations increased from $13.3 million in 1993 to $19.7 million
in 1994, principally as a result of higher new business strain from increased
sales. The loss of $19.7 million in 1994 was derived as follows:
(1) Under statutory accounting practices, all growing life insurance companies
will experience operating losses in direct proportion to increased sales.
During 1994, Manufacturers Life of America lost $15.9 million primarily due
to the increased new business strain. In accordance with statutory life
insurance accounting, high first-year business costs fall primarily to
operations as higher expenses. These expenses are recovered over the life
of the policy through policy/expense loads and will enhance future profit;
52
<PAGE> 54
(2) $3.8 million due to start-up operations in Taiwan.
Manufacturers Life of America continues to expect significant growth in the
sale of variable products. Given this, Manufacturers Life of America
expects to experience statutory losses until the late 1990's at which time
economies of scale should be achieved and profits should begin to emerge on
business sold previously.
1993 Compared to 1992
The loss from operations increased from $5.3 million in 1992 to $13.3 million
mainly as a result of higher new business strain from increased sales. The
1993 loss of $13.3 million was derived as follows:
(1) $10.2 million primarily due to the increased new business strain from
dramatically higher variable sales;
(2) $3.1 million due to start-up operations in Taiwan.
Cash Flow
The majority of Manufacturers Life of America's cash flows arise from
policyholder transactions related to the Separate Account and, as such, the
assets and liabilities of these products are exactly matched. In the case of
death benefits, Manufacturers Life of America cedes a substantial portion of
the risk to Manulife Financial and its risk is therefore minimized.
Manufacturers Life of America's cash flows on the policies are adequate to meet
the obligations retained on these contracts.
Because of the excess of expense over income, which arises from first policy
year issue, the continued success in generating sales will not only result in
losses in the Results of Operations, but will create a cash flow strain as
well. As a result, Manufacturers Life of America may look to Manufacturers Life
to provide the necessary capital to support its operations. In this respect
Manufacturers Life of America received an additional $15 million in capital
contributions subsequent to the end of the period to fund continuing growth in
Taiwan. Manufacturers Life has provided a claims guarantee for all U.S.
policyowners. The guarantee does not cover the performance of any Separate
Accounts.
Manufacturers Life of America has no material commitments for capital
expenditures. With the exception of the claims paying guarantee, Manufacturers
Life of America is not the beneficiary of any financing commitments not
reflected on the balance sheet.
53
<PAGE> 55
Executive Officers and Directors
The directors and executive officers of Manufacturers Life of America, together
with their principal occupations during the past five years, are as follows:
<TABLE>
<CAPTION>
Position With
Manufacturers Life
Name of America Principal Occupation
---- ------------------ --------------------
<S> <C> <C>
William Atherton Director Vice President U.S. Annuities
(57) -- 1996-present, The Manufacturers
Life Insurance Company;
President -- 1957-1996,
North American Life Assurance
Company
Sandra M. Cotter Director Attorney 1989-present, Dykema
(34) Gossett
James D. Gallagher Director, Secretary, Vice President, Legal Services
(42) and General Counsel -- January 1996-present, The
Manufacturers Life Insurance
Company; Vice President,
Secretary and General Counsel
-- 1994-present, North American
Security Life; Vice President
and Associate General Counsel
-- 1991-1994, The Prudential
Insurance Company of America
Bruce Gordon* Director Vice President, U.S. Operations
(53) - Pensions -- 1990-present, The
Manufacturers Life Insurance
Company
Donald A. Guloien Director and President Senior Vice President, Business
(39) Development 1994-present, The
Manufacturers Life Insurance
Company; Vice President, U.S.
Individual Business -- 1990-1994,
The Manufacturers Life Insurance
Company
</TABLE>
* Bruce Gordon is also a director of ManEquity, Inc.
54
<PAGE> 56
<TABLE>
Position With
Manufacturers Life
Name of America Principal Occupation
---- ------------------ --------------------
<S> <C> <C>
Theodore Kilkuskie, Jr. Director Vice President, U.S. Individual
(41) Insurance -- June 1995-present,
The Manufacturers Life Insurance
Company; Executive Vice President,
Mutual Funds -- January 1995-
May 1995, State Street Research;
Vice President, Mutual Funds --
1987-1994, Metropolitan Life
Insurance Company
Joseph J. Pietroski Director Senior Vice President, General
(58) Counsel and Corporate Secretary --
1988-present, The Manufacturers
Life Insurance Company
John D. Richardson Chairman and Director Senior Vice President and General
(58) Manager, U.S. Operations
1995-present, The Manufacturers
Life Insurance Company; Senior
Vice President and General
Manager, Canadian Operations
1992-1994, The Manufacturers Life
Insurance Company; Senior Vice
President, Financial Services
1992, The Manufacturers Life
Insurance Company; Executive Vice
Chairman and CFO -- 1989-1991,
Canada Trust
John R. Ostler Vice President, Chief Financial Vice President -- 1992-
(43) Actuary and Treasurer present, The Manufacturers Life
Insurance Company; Vice President,
Insurance Products -- 1990-1992,
The Manufacturers Life Insurance
Company
Douglas H. Myers* Vice President, Assistant Vice President and
(42) Finance and Compliance Controller, U.S. Operations --
1988-present, The Manufacturers
Life Insurance Company
</TABLE>
* Douglas Myers is also a director and president of ManEquity, Inc.
55
<PAGE> 57
<TABLE>
Position With
Manufacturers Life
Name of America Principal Occupation
---- ------------------ --------------------
<S> <C> <C>
Hugh McHaffie Vice President Vice President & Product Actuary --
(37) June 1990-present, North American
Security Life
</TABLE>
Legal fees were paid to the firm of Dykema Gossett during Manufacturers Life of
America's last fiscal year. A director of Manufacturers Life of America is
associated with that firm; however, legal fees so paid did not exceed 5% of
Dykema Gossett's consolidated gross revenues during its last full fiscal year.
Executive Compensation
All of the executive officers of Manufacturers Life of America also serve as
officers of Manufacturers Life and receive no compensation directly from
Manufacturers Life of America. Allocations have been made as to such officers'
time devoted to duties as executive officers of Manufacturers Life of America
and its subsidiaries. The aggregate allocated cash compensation of the
president of Manufacturers Life of America for services rendered in all
capacities to Manufacturers Life of America and its subsidiaries during 1995
was $22,173. This consisted of salary ($16,176), profit-sharing ($4,056),
flexible spending benefits ($1,941) and incentive plans (not eligible). No
executive officer had allocated cash compensation in excess of $100,000. These
figures include salary, applicable profit-sharing and incentive plans and
flexible spending benefits.
In addition to cash compensation, all officers are entitled to a standard
benefit package including medical, health and pension. There are no other
benefit packages which currently enhance overall compensation by more than 10%.
Directors of Manufacturers Life of America who are also officers or employees
of Manufacturers Life or its affiliates receive no compensation in addition to
their compensation as officers or employees of Manufacturers Life or its
affiliates. Directors who are not also officers or employees will receive
compensation as set by the Board. No shares of Manufacturers Life of America
are owned by any executive officer or director.
Executive officers participate in certain plans sponsored by Manufacturers
Life. A short-term profit sharing plan is in place for all employees of
Manufacturers Life and its subsidiaries at "director" level and above.
Pay-outs under the short-term profit sharing plan are based on a percentage of
salary and the employee's level in the organization. Manufacturers Life also
maintains a Long Term Incentive Plan for officers of Manufacturers Life who
have attained the title of Vice President. Benefits are directly linked to
long-term growth as measured by changes in Manufacturers Life's surplus.
Manufacturers' Life Insurance Company maintains a defined benefit pension plan
for the benefit of all Canadian Staff which vests at two years of service.
Benefit pay-out is a function of years of service and salary including all
contractual incentive compensation.
56
<PAGE> 58
Pay-outs under this program are regulated by the various provincial benefit
acts and Section 248 of the Income Tax Act (Canada).
The maximum yearly pension benefit as permitted by Section 248 of the Income
Tax Act (Canada) is $1,266 per year of service. There are no years of service
restrictions limiting overall pay-outs under this section. The maximum yearly
benefit is currently earned at a salary of $72,127. The yearly allowable
benefit will be indexed commencing 1999 based on increases in average
industrial wages.
All executive officers of Manufacturers Life of America currently accrue
maximum yearly benefits under this plan.
In addition there is a supplemental pension arrangement available to officers
of Manufacturers Life who have attained the title of Vice President. This is
an unfunded, non-qualified arrangement intended to provide additional pension
income consistent with the executive's pre-retirement income.
Combined pension benefits at age 65 under these arrangements is as follows:
<TABLE>
<CAPTION>
Years of Service
----------------
Remuneration* 15 20 25 30 35
- ------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$125,000 24,931 33,241 41,551 49,861 58,171
150,000 30,445 40,594 50,742 60,890 71,039
200,000 41,475 55,300 69,124 82,949 96,774
250,000 52,504 70,005 87,507 105,008 122,509
300,000 63,533 84,711 105,889 127,067 148,245
400,000 85,592 114,123 142,654 171,185 199,715
500,000 107,651 143,535 179,419 215,302 251,186
</TABLE>
* Remuneration table is based on a 100% time allocation to Manufacturers
Life of America.
Normal retirement age is 65. Pay-out is annuity based with either single life
with a ten year guarantee or joint life with a five year guarantee.
Donald Guloien, President and Chief Operating Officer, has 14 years and 9
months of credited service.
Legal Proceedings
There are no pending legal proceedings affecting Separate Account Two or
Manufacturers Life of America.
State Regulations
Manufacturers Life of America is subject to regulation and supervision by the
Michigan Department of Insurance, which periodically examines its financial
condition and operations. It is also subject to the insurance laws and
57
<PAGE> 59
regulations of all jurisdictions in which it is authorized to do business. The
Policy has been filed with insurance officials and meets all standards set by
law in each jurisdiction where it is sold.
Manufacturers Life of America is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
Other Matters
Special Provisions For Group Or
Sponsored Arrangements
Where permitted by state insurance laws, Policies may be purchased under group
or sponsored arrangements, as well as on an individual basis. A "group
arrangement" includes a program under which a trustee, employer or similar
entity purchases Policies covering a group of individuals on a group basis. A
"sponsored arrangement" includes a program under which an employer permits group
solicitation of its employees or an association permits group solicitation of
its members for the purchase of Policies on an individual basis.
Charges and deductions described above (see Description of the Policies--"Policy
Charges") may be reduced for Policies issued in connection with group or
sponsored arrangements. Such arrangements may also include sales without
withdrawal charges and certain other charges to employees, officers, directors,
agents, immediate family members of the foregoing and employees of agents of
Manufacturers Life and its subsidiaries. Manufacturers Life of America will
reduce the charges and deductions in accordance with its rules in effect as of
the date an application for a Policy is approved. To qualify for such a
reduction, a group or sponsored arrangement must satisfy certain criteria as to,
for example, size of the group, expected number of participants and anticipated
premium payments from the group. Generally, the sales contacts and effort,
administrative costs and mortality risks and expense risks costs per Policy vary
based on such factors as the size of the group or sponsored arrangements, the
purposes for which Policies are purchased and certain characteristics of its
members.
The amount of reduction and the criteria for qualification will reflect the
reduced sales effort and administrative, mortality and expense risks costs
resulting from sales to qualifying groups and sponsored arrangements.
Manufacturers Life of America may modify from time to time on a uniform basis,
both the amounts of reductions and the criteria for qualification. Reductions
in these charges will not be unfairly discriminatory against any person,
including the affected Policyowners and all other owners of the Policies.
Sale of the Policies
ManEquity, Inc., an indirect wholly-owned subsidiary of Manufacturers Life,
will act as the principal underwriter of, and continuously offer, the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
58
<PAGE> 60
ManEquity, Inc. is registered as a broker-dealer under the Securities Exchange
Act of 1934 and is a member of the National Association of Securities Dealers.
The Policies will be sold by registered representatives of either ManEquity,
Inc. or other broker-dealers having distribution agreements with ManEquity,
Inc. who are also authorized by state insurance departments to do so.
For the years ended December 31, 1993, December 31, 1994 and December 31, 1995,
ManEquity, Inc. received $2,053,988, $2,389,494, and $3,355,185 respectively,
as compensation for sales of other variable annuity policies issued by Separate
Account Two by its registered representatives. Of these amounts $1,898,178,
$2,283,353, and $3,262,711 respectively, were remitted to Manufacturers Life to
reimburse it for commissions paid to such registered representatives. The
total of all compensation received by ManEquity, Inc. for sales of variable
products, including products issued by Separate Account Two, for the year ended
December 31, 1995 was $15,817,793.
Agents will receive commissions on purchase payments not to exceed 4% thereof
and, each year beginning with the seventh Policy Anniversary, 0.50% of the
Policy Value at the respective Policy Anniversary. Under certain circumstances
agents may be eligible for a bonus payment of not exceeding 1% of purchase
payments. In addition, agents who meet certain productivity and persistency
standards will be eligible for additional compensation.
Voting Rights
As stated above, all of the assets held in the Variable Accounts will be
invested in shares of a particular Fund of the Series Fund. Manufacturers Life
of America is the legal owner of those shares and as such has the right to vote
upon certain matters that are required by the 1940 Act to be approved or
ratified by the shareholders of a mutual fund and to vote upon any other matters
that may be voted upon at a shareholders' meeting. However, Manufacturers Life
of America will vote shares held in the Variable Accounts in accordance with
instructions received from Policyowners having an interest in such Accounts.
Shares held in each Variable Account for which no timely instructions from
Policyowners are received, including shares not attributable to Policies, will
be voted by Manufacturers Life of America in the same proportion as those shares
in that Variable Account for which instructions are received. Should the
applicable federal securities laws or regulations change so as to permit
Manufacturers Life of America to vote shares held in the Variable Accounts in
its own right, it may elect to do so.
The number of shares in each Variable Account for which instructions may be
given by a Policyowner is determined by dividing the portion of that Policy's
Variable Policy Value derived from participation in that Variable Account, if
any, by the value of one share of the corresponding Fund. The number will be
determined as of a date chosen by Manufacturers Life of America, but not more
than 90 days before the shareholders' meeting. Fractional votes are counted.
Voting instructions will be solicited in writing at least 14 days prior to the
shareholders' meeting.
59
<PAGE> 61
Further Information
A registration statement under the Securities Act of 1933 has been filed with
the S.E.C. relating to the offering described in the prospectus. The
prospectus does not include all the information set forth in the registration
statement. The omitted information may be obtained at the S.E.C.'s principal
office in Washington, D.C. upon payment of the prescribed fee.
For further information you may also contact Manufacturers Life of America's
Service Office, the address and telephone number of which are on the first page
of this prospectus.
Legal Matters
The legal validity of the Policies has been passed on by Stephen C. Nesbitt,
Esq., former Secretary and General Counsel of Manufacturers Life of America.
Jones & Blouch L.L.P., Washington, D.C. has passed on certain matters
relating to the federal securities laws.
Experts
The financial statements of The Manufacturers Life Insurance Company of America
and of The Manufacturers Life Insurance Company of America Separate Account Two
appearing in this prospectus have been audited by Ernst & Young LLP,
independent auditors, to the extent indicated in their reports thereon also
appearing elsewhere herein. Such financial statements have been included
herein in reliance upon such reports given upon the authority of such firm as
experts in auditing and accounting.
Performance and Other Comparative Information
From time to time, in advertisements or in reports to Policyowners,
Manufacturers Life of America may quote various independent quotation services
for the purpose of comparing Manufacturers Life of America's Policies'
performance and other rankings with other companies' variable annuity policies
and for the purpose of comparing any of the Portfolios of Manulife Series Fund
or NASL Series Trust with other mutual funds with similar investment objectives.
Performance rankings are not to be considered indicative of the future
performance of the Portfolios. The quotation services which are currently
followed by Manufacturers Life of America include Lipper Analytical Services,
Inc.("Lipper"), Morningstar, Inc., Variable Annuity Research and Data Service,
and Money Magazine; however, other nationally recognized rating services may be
quoted in the future. The performance of certain indices may also be quoted in
advertisements or in reports to Policyowners. These indices include Standard &
Poor's 500 Index, National Association of Real Estate A11 REIT's Index, Salomon
Brothers (broad corporate index), Dow Jones Industrial Average, Donoghue Prime
Money Fund Index, 3 month Treasury Bills, the National Association of Securities
Dealers Automated Quotation System, the Financial Times Actuaries World Index,
and the following Lipper Indices: Money-Market Funds, Corporate Bond Funds,
Balanced Funds, Growth Funds, Small-Company Growth Funds, Real Estate Funds,
International Funds and Pacific Region Funds. These comparisons may include
graphs, charts, tables or examples.
60
<PAGE> 62
Advertising Performance of Variable Accounts
Manufacturers Life of America may publish advertisements or distribute sales
literature that contain performance data relating to the sub-accounts of
Separate Account Two. Performance data will include average annual return
quotations for one year, five year (when applicable) and ten year (when
applicable) periods ending the last day of the month. Quotations for the
period since inception of the Fund underlying a sub-account will replace such
periods for a Fund that has not been in existence for a full five year or ten
year period. In the case of a new Fund that is less than one year old, the one
year figure would be replaced by an aggregate for the period since inception.
Average annual total returns may also be advertised for three year periods and
one year periods as of the last day of any month.
Average annual total return is the average annual compounded rate of return
that equates a purchase payment to the market value of that purchase payment on
the last day of the period for which the return is calculated. Aggregate total
return, which will also be advertised from time to time, is the percentage
change that equates a purchase payment to the market value of that purchase
payment on the last day of the period. For the purpose of the calculations it
is assumed that an initial payment of $1000 is made on the first day of the
period for which the total return is calculated. All recurring charges are
reflected in the calculations. Asset charges are reflected in changes in unit
values. For purposes of the calculations, the annual administration charge is
estimated by dividing the total administration charges collected during a given
year by the average total assets attributable to the Policies during that year
(including amounts allocated to both Separate Account Two and the Guaranteed
Interest Account), multiplying that percentage by the average of the beginning
and ending values of the hypothetical investment and subtracting the result
from the year end account value. The contingent deferred sales charge that
would be applicable to withdrawals at the end of periods for which the total
return is measured are assumed to be deducted at the end of the period.
The Policies have been offered to the public only since May 4, 1994. However,
total return data may be advertised for as long a period of time as the
underlying separate account has been active. The results for any period prior
to the policies being offered would be calculated as if the policies had been
offered during that period, deducting all recurring charges, including the
annual record-keeping charge of $30 per policy, the daily mortality and expense
and administration charges and the additional mortality and expense charge of
.449928% annually (deducted monthly at a rate of .037494%). The average Policy
Value for any period prior to the first full year in which the Policies are
offered is determined assuming an initial deposit of $40,000 per Policy.
61
<PAGE> 63
Total returns if surrendered for the period ending December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
AVG. AVG. AVG. AVG. AVG. ANNUAL AGGREGATE
ANNUAL ANNUAL ANNUAL ANNUAL OTAL TOTAL
TOTAL TOTAL TOTAL TOTAL RETURN RETURN
RETURN RETURN RETURN RETURN SINCE SINCE
MANULIFE FUNDS ONE YEAR THREE YEARS FIVE YEARS** TEN YEARS** INCEPTION* INCEPTION*
- -------------- -------- ----------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Emerging Growth Equity 17.82% 11.60% 23.86% 13.08% 13.61% 334.57%
Balanced Assets 14.80% 6.81% 9.92% 8.70% 10.81% 225.83%
Capital Growth Bond 10.42% 4.86% 7.41% 7.71% 9.84% 194.55%
Common Stock 19.27% 8.61% 12.17% N/A 8.25% 98.82%
Real Estate Securities 5.39% 7.76% 16.62% N/A 9.50% 119.59%
Money-Market -3.97% 0.61% 2.30% 4.06% 4.35% 63.27%
International 1.60% N/A N/A N/A -0.39% -0.48%
Pacific Rim Emerging Markets 1.78% N/A N/A N/A -3.89% -4.78%
</TABLE>
* June 26, 1984 for the Emerging Growth Equity, Balanced Assets, Capital
Growth Bond and Money-Market Funds; May 1, 1987 for the Common Stock and
Real Estate Securities Funds; October 4, 1994 for the International and
Pacific Rim Emerging Markets Funds.
** Policies have only been offered since May 4, 1994. Performance data for
earlier periods are hypothetical figures based on the performance of the
Fund in which policy assets may be invested.
Total returns if not surrendered are as follows:
<TABLE>
AVG. AVG. AVG. AVG. AVG. ANNUAL AGGREGATE
ANNUAL ANNUAL ANNUAL ANNUAL TOTAL TOTAL
TOTAL TOTAL TOTAL TOTAL RETURN RETURN
RETURN RETURN RETURN RETURN SINCE SINCE
MANULIFE FUNDS ONE YEAR THREE YEARS FIVE YEARS** TEN YEARS** INCEPTION* INCEPTION*
- -------------- -------- ----------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Emerging Growth Equity 25.82% 13.18% 24.03% 13.08% 13.61% 334.57%
Balanced Assets 22.80% 8.54% 10.20% 8.70% 10.81% 225.83%
Capital Growth Bond 18.42% 6.64% 7.71% 7.71% 9.84% 194.55%
Common Stock 27.27% 10.28% 12.43% N/A 8.25% 98.82%
Real Estate Securities 13.39% 9.46% 16.83% N/A 9.50% 119.59%
Money-Market 4.03% 2.50% 2.66% 4.06% 4.35% 63.27%
International 9.60% N/A N/A N/A 6.02% 7.52%
Pacific Rim Emerging Markets 9.78% N/A N/A N/A 2.59% 3.22%
</TABLE>
* June 26, 1984 for the Emerging Growth Equity, Balanced Assets, Capital
Growth Bond and Money-Market Funds; May 1, 1987 for the Common Stock and
Real Estate Securities Funds; October 4, 1994 for the International and
Pacific Rim Emerging Markets Funds.
** Policies have only been offered since May 4, 1994. Performance data for
earlier periods are hypothetical figures based on the performance of the
Fund in which policy assets may be invested.
62
<PAGE> 64
Aggregate total returns if surrendered as of the end of each year since
inception are as follows:
<TABLE>
<CAPTION>
Manulife Funds 1995 1994 1993 1992 1991 1990 1989 1988
- -------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Emerging Growth Equity 17.82% -13.11% 14.01 11.96% 60.76% -22.90% 32.05% 7.15%
Balanced Assets 14.80% -13.16% 2.30 -3.40% 13.51% -7.92% 11.50% -2.03%
Capital Growth Bond 10.42% -13.46% 0.89 -3.72% 6.62% -3.04% 4.16% -2.49%
Common Stock 19.27% -13.19% 3.67 -3.53% 20.20% -13.08% 20.68% 0.20%
Real Estate Securities 5.39% -11.90% 12.75 11.46% 30.95% -13.50% -0.42% 2.03%
Money-Market -3.97% -5.69% -6.82 -6.17% -4.00% -1.82% -0.76% -2.57%
International 1.60% -9.75% N/A N/A N/A N/A N/A N/A
Pacific Rim Emerging Markets 1.78% -13.50% N/A N/A N/A N/A N/A N/A
<CAPTION>
Manulife Funds 1987 1986 1985 1984
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Emerging Growth Equity -13.80% -15.37% 13.52% -3.40%
Balanced Assets -10.98% 7.56% 17.37% 4.88%
Capital Growth Bond -10.92% 12.51% 16.22% 4.86%
Common Stock -22.58% N/A N/A N/A
Real Estate Securities -16.61% N/A N/A N/A
Money-Market -3.92% -3.54% -2.49% -4.02%
International N/A N/A N/A N/A
Pacific Rim Emerging Markets N/A N/A N/A N/A
</TABLE>
Aggregate total returns as of the end of each year since inception, if not
surrendered are as follows:
<TABLE>
<CAPTION>
Manulife Funds 1995 1994 1993 1992 1991 1990 1989 1988
- -------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Emerging Growth Equity 25.82% -5.55% 22.01% 19.96% 68.76% -16.19% 40.05% 15.16%
Balanced Assets 22.80% -5.60% 10.30% 4.60% 21.51% 0.08% 19.50% 5.97%
Capital Growth Bond 18.42% -5.93% 8.89% 4.28% 14.62% 4.96% 12.16% 5.51%
Common Stock 27.27% -5.64% 11.67% 4.47% 28.20% -5.52% 28.68% 8.20%
Real Estate Securities 13.39% -4.24% 20.75% 19.46% 38.95% -5.98% 7.58% 10.03%
Money-Market 4.03% 2.31% 1.18% 1.83% 4.00% 6.18% 7.24% 5.43%
International 9.60% -1.90% N/A N/A N/A N/A N/A N/A
Pacific Rim Emerging Markets 9.78% -5.97% N/A N/A N/A N/A N/A N/A
<CAPTION>
Manulife Funds 1987 1986 1985 1984
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Emerging Growth Equity -6.31% -8.01% 21.52% 4.60%
Balanced Assets -3.24% 15.56% 25.37% 12.88%
Capital Growth Bond -3.17% 20.51% 24.22% 12.86%
Common Stock -15.85% N/A N/A N/A
Real Estate Securities -9.35% N/A N/A N/A
Money-Market 4.08% 4.46% 5.51% 3.98%
International N/A N/A N/A N/A
Pacific Rim Emerging Markets N/A N/A N/A N/A
</TABLE>
All of the above performance data are based on the actual historical performance
of the Funds for specified periods, and the figures are not intended to indicate
future performance.
63
<PAGE> 65
FINANCIAL STATEMENTS
The financial statements of Manufacturers Life of America included herein should
be distinguished from the financial statements of the Account and should be
considered only as bearing upon the ability of Manufacturers Life of America to
meet its obligations under the Policies.
64
<PAGE> 66
Report of Independent Auditors
To the Board of Directors
The Manufacturers Life Insurance
Company of America
We have audited the accompanying statement of assets and liabilities of Separate
Account Two of The Manufacturers Life Insurance Company of America (comprising,
respectively, Emerging Growth Equity Sub-Account, Common Stock Sub-Account, Real
Estate Securities Sub-Account, Balanced Assets Sub-Account, Capital Growth Bond
Sub-Account, Money Market Sub-Account, International Sub-Account and Pacific Rim
Emerging Markets Sub-Account) as of December 31, 1995 and the related statement
of operations for the year then ended, and the statements of changes in net
assets for each of the periods presented herein. These financial statements are
the responsibility of The Manufacturers Life Insurance Company of America'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 Separate Account Two of The
Manufacturers Life Insurance Company of America at December 31, 1995, and the
results of its operations for the year then ended and the changes in its net
assets for each of the periods presented herein, in conformity with generally
accepted accounting principles.
Philadelphia, Pennsylvania ERNST & YOUNG LLP
February 2, 1996
65
<PAGE> 67
Separate Account Two of
The Manufacturers Life Insurance Company of America
Statement of Assets and Liabilities
December 31, 1995
<TABLE>
<CAPTION>
EMERGING COMMON REAL ESTATE
GROWTH EQUITY STOCK SECURITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Investment in Manulife Series
Fund, Inc.--at market value:
Emerging Growth Equity Fund,
3,253,525 shares (cost $63,821,544) $ 75,184,182
Common Stock Fund,
1,455,513 shares (cost $21,291,543) $ 25,135,478
Real Estate Securities Fund,
1,920,277 shares (cost $27,596,075) $ 29,002,463
Balanced Assets Fund,
2,796,100 shares (cost $42,199,124)
Capital Growth Bond Fund,
1,330,622 shares (cost $14,917,846)
Money Market Fund,
1,703,408 shares (cost $18,029,071)
International Fund,
356,021 shares (cost $3,579,877)
Pacific Rim Emerging Markets Fund,
261,205 shares (cost $2,552,133)
------------ ------------ ------------
75,184,182 25,135,478 29,002,463
Receivable for policy-related transactions 25,534 15,359 31,606
------------ ------------ ------------
Net assets $ 75,209,716 $ 25,150,837 $ 29,034,069
============ ============ ============
Units outstanding 1,670,956 977,871 1,149,409
============ ============ ============
Net asset value per unit $45.01 $25.72 $25.26
============ ============ ============
</TABLE>
See accompanying notes.
2
<PAGE> 68
<TABLE>
<CAPTION>
PACIFIC RIM
BALANCED CAPITAL EMERGING
ASSETS GROWTH BOND MONEY MARKET INTERNATIONAL MARKETS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
----------- ----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in Manulife Series
Fund, Inc.--at market value:
Emerging Growth Equity Fund,
3,253,525 shares (cost $63,821,544) $75,184,182
Common Stock Fund,
1,455,513 shares (cost $21,291,543) 25,135,478
Real Estate Securities Fund,
1,920,277 shares (cost $27,596,075) 29,002,463
Balanced Assets Fund,
2,796,100 shares (cost $42,199,124) $47,961,811 47,961,811
Capital Growth Bond Fund,
1,330,622 shares (cost $14,917,846) $15,031,374 15,031,374
Money Market Fund,
1,703,408 shares (cost $18,029,071) $18,464,059 18,464,059
International Fund,
356,021 shares (cost $3,579,877) $3,798,197 3,798,197
Pacific Rim Emerging Markets Fund,
261,205 shares (cost $2,552,133) $2,704,903 2,704,903
----------- ----------- ----------- ---------- ---------- ------------
47,961,811 15,031,374 18,464,059 3,798,197 2,704,903 217,282,467
Receivable for policy-related transactions 13,017 27,345 88,003 1,450 6,438 208,752
----------- ----------- ----------- ---------- ---------- ------------
Net assets $47,974,828 $15,058,719 $18,552,062 $3,799,647 $2,711,341 $217,491,219
=========== =========== =========== ========== ========== ============
Units outstanding 2,189,632 789,655 1,290,129 354,776 261,208
=========== =========== =========== ========== ========== ============
Net asset value per unit $21.91 $19.07 $14.38 $10.71 $10.38
=========== =========== =========== ========== ========== ============
</TABLE>
3
<PAGE> 69
Separate Account Two of
The Manufacturers Life Insurance Company of America
Statement of Operations
Year ended December 31, 1995
<TABLE>
<CAPTION>
EMERGING COMMON REAL ESTATE
GROWTH EQUITY STOCK SECURITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------- -----------
<S> <C> <C> <C>
Investment income:
Dividend income $1,809,461 $ - $483,929
Expenses:
Mortality and expense risks charge 630,475 199,735 270,300
------------ ---------- ---------
Net investment income (loss) 1,178,986 (199,735) 213,629
------------ ---------- ---------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) from security transactions:
Proceeds from sales 8,790,460 1,833,948 5,825,223
Cost of securities sold 7,106,591 1,582,299 5,602,096
------------ ---------- ---------
Net realized gain (loss) 1,683,869 251,649 223,127
------------ ---------- ---------
Unrealized (depreciation) appreciation
of investments:
Beginning of year (546,353) (1,126,818) (1,736,824)
End of year 11,362,638 3,843,935 1,406,388
------------ ---------- ---------
Net unrealized appreciation
during the year 11,908,991 4,970,753 3,143,212
------------ ---------- ---------
Net realized and unrealized gain on
investments 13,592,860 5,222,402 3,366,339
------------ ---------- ---------
Net increase in net assets derived
from operations $14,771,846 $5,022,667 $3,579,968
=========== ========== ==========
</TABLE>
See accompanying notes.
4
<PAGE> 70
<TABLE>
<CAPTION>
PACIFIC RIM
BALANCED CAPITAL EMERGING
ASSETS GROWTH BOND MONEY MARKET INTERNATIONAL MARKETS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
----------- ----------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $57,666 $1,046,495 $ 668 $89,871 $32,371 $3,520,461
Expenses:
Mortality and expense risks charge 411,536 127,065 155,913 25,067 16,867 1,836,958
---------- ---------- -------- -------- -------- -----------
Net investment income (loss) (353,870) 919,430 (155,245) 64,804 15,504 1,683,503
---------- ---------- -------- -------- -------- -----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) from security transactions:
Proceeds from sales 4,206,198 2,183,478 13,837,707 270,103 731,924 37,679,041
Cost of securities sold 3,972,255 2,260,461 13,514,965 264,304 708,114 35,011,085
---------- ---------- -------- -------- -------- -----------
Net realized gain (loss) 233,943 (76,983) 322,742 5,799 23,810 2,667,956
---------- ---------- -------- -------- -------- -----------
Unrealized (depreciation) appreciation
of investments:
Beginning of year (3,067,645) (1,230,071) (96,137) (5,646) (14,100) (7,823,594)
End of year 5,762,687 113,528 434,988 218,320 152,770 23,295,254
---------- ---------- -------- -------- -------- -----------
Net unrealized appreciation
during the year 8,830,332 1,343,599 531,125 223,966 166,870 31,118,848
---------- ---------- -------- -------- -------- -----------
Net realized and unrealized gain on
investments 9,064,275 1,266,616 853,867 229,765 190,680 33,786,804
---------- ---------- -------- -------- -------- -----------
Net increase in net assets derived
from operations $8,710,405 $2,186,046 $698,622 $294,569 $206,184 $35,470,307
========== ========== ======== ======== ======== ===========
</TABLE>
5
<PAGE> 71
Separate Account Two of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
EMERGING GROWTH COMMON STOCK REAL ESTATE SECURITIES
EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------ ------------ ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $1,178,986 $(235,238) $(199,735) $661,874 $213,629 $383,354
Net realized gain (loss) 1,683,869 281,851 251,649 114,996 223,127 166,653
Unrealized appreciation
(depreciation) of
investments
during the year 11,908,991 (2,010,919) 4,970,753 (1,522,706) 3,143,212 (1,864,424)
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets
derived from operations 14,771,846 (1,964,306) 5,022,667 (745,836) 3,579,968 (1,314,417)
----------- ----------- ----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 9,075,130 20,192,208 3,138,683 6,307,192 2,395,793 11,495,742
Transfer on death (40,037) (34,481) (7,409) (9,742) (17,513) (32,754)
Transfer on terminations (3,053,099) (1,175,021) (681,944) (211,937) (1,232,704) (365,263)
Transfer of maturity 83,583 (85,686) 67,266 (88,804) 4,515 (51,701)
Net interfund transfers 2,606,912 2,047,524 1,459,853 619,575 (2,418,292) 616,085
----------- ----------- ----------- ----------- ----------- -----------
8,672,489 20,944,544 3,976,449 6,616,284 (1,268,201) 11,662,109
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net
assets 23,444,335 18,980,238 8,999,116 5,870,448 2,311,767 10,347,692
NET ASSETS
Beginning of year 51,765,381 32,785,143 16,151,721 10,281,273 26,722,302 16,374,610
----------- ----------- ----------- ----------- ----------- -----------
End of year $75,209,716 $51,765,381 $25,150,837 $16,151,721 $29,034,069 $26,722,302
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
6
<PAGE> 72
<TABLE>
<CAPTION>
BALANCED ASSETS CAPITAL GROWTH MONEY MARKET
SUB-ACCOUNT BOND SUB-ACCOUNT SUB-ACCOUNT
--------------- ---------------- ------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $(353,870) $1,558,050 $919,430 $610,867 $(155,245) $290,192
Net realized gain (loss) 233,943 126,212 (76,983) (126,465) 322,742 33,679
Unrealized appreciation
(depreciation) of
investments
during the year 8,830,332 (3,343,719) 1,343,599 (1,003,242) 531,125 (76,402)
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets
derived from operations 8,710,405 (1,659,457) 2,186,046 (518,840) 698,622 247,469
----------- ----------- ----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 5,071,298 14,684,868 2,368,800 4,091,955 10,039,733 9,297,572
Transfer on death (84,545) (51,630) (12,196) (2,484) (27,370) --
Transfer on terminations (1,647,362) (715,314) (719,239) (530,903) (2,420,434) (504,302)
Transfer of maturity 12,834 (59,741) 25,737 (49,450) (38,588) (2,334)
Net interfund transfers 377,983 (860,845) 438,281 (686,906) (2,334,352) (801,647)
----------- ----------- ----------- ----------- ----------- -----------
3,730,208 12,997,338 2,101,383 2,822,212 5,218,989 7,989,289
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net
assets 12,440,613 11,337,881 4,287,429 2,303,372 5,917,611 8,236,758
NET ASSETS
Beginning of year 35,534,215 24,196,334 10,771,290 8,467,918 12,634,451 4,397,693
----------- ----------- ----------- ----------- ----------- -----------
End of year $47,974,828 $35,534,215 $15,058,719 $10,771,290 $18,552,062 $12,634,451
=========== =========== =========== =========== =========== ===========
</TABLE>
7
<PAGE> 73
Separate Account Two of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets (continued)
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
PACIFIC RIM
INTERNATIONAL EMERGING MARKETS
SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------- ---------------- -----
YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94
--------- ------------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $64,804 $1,326 $15,504 $1,553 $1,683,503 $3,271,978
Net realized gain (loss) 5,799 (89) 23,810 (873) 2,667,956 595,964
Unrealized appreciation
(depreciation) of investments
during the year 223,966 (5,646) 166,870 (14,100) 31,118,848 (9,841,158)
---------- -------- ---------- -------- ------------ ------------
Increase (decrease) in net assets
derived from operations 294,569 (4,409) 206,184 (13,420) 35,470,307 (5,973,216)
---------- -------- ---------- -------- ------------ ------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 1,231,995 266,607 988,086 162,380 34,309,518 66,498,524
Transfer on death -- -- -- -- (189,070) (131,091)
Transfer on terminations (61,097) (69) (45,863) (40) (9,861,742) (3,502,849)
Transfer of maturity -- -- -- -- 155,347 (337,716)
Net interfund transfers 1,467,355 604,696 929,903, 484,111 2,527,643 2,022,593
---------- -------- ---------- -------- ------------ ------------
2,638,253 871,234 1,872,126 646,451 26,941,696 64,549,461
---------- -------- ---------- -------- ------------ ------------
Net increase in net
assets 2,932,822 866,825 2,078,310 633,031 62,412,003 58,576,245
NET ASSETS
Beginning of year 866,825 -- 633,031 -- 155,079,216 96,502,971
---------- -------- ---------- -------- ------------ ------------
End of year $3,799,647 $866,825 $2,711,341 $633,031 $217,491,219 $155,079,216
========== ======== ========== ======== ============ ============
</TABLE>
* Reflects the period from commencement of operations October 4, 1994 through
December 31, 1994.
8
<PAGE> 74
Separate Account Two of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
December 31, 1995
1. ORGANIZATION
Separate Account Two of The Manufacturers Life Insurance Company of America (the
"Separate Account") is a unit investment trust registered under the Investment
Company Act of 1940, as amended. The Separate Account is currently comprised of
eight investment sub-accounts, one for each series of shares of Manulife Series
Fund, Inc., available for allocation of net premiums under variable annuity
policies (the "Policies") issued by The Manufacturers Life Insurance Company of
America ("Manufacturers Life of America").
The Separate Account was established by Manufacturers Life of America, a
wholly-owned subsidiary of Manulife Reinsurance Corporation (U.S.A.)
("MRC"), as a separate investment account on November 3, 1987. MRC is a life
insurance holding company organized in 1983 under Michigan law and a
wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manulife
Financial"), a mutual life insurance company based in Toronto, Canada.
The assets of the Separate Account are the property of Manufacturers Life of
America. The portion of the Separate Account's assets applicable to the Policies
will not be charged with liabilities arising out of any other business
Manufacturers Life of America may conduct.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Account in preparation of its financial statements:
a. Valuation of Investments - Investments are made among the eight Funds of
Manulife Series Fund, Inc. and are valued at the reported net asset values
of these Funds. Transactions are recorded on the trade date. Net investment
income and net realized and unrealized gain (loss) on investments in
Manulife Series Fund, Inc. are reinvested.
b. Realized gains and losses on the sale of investments are computed on the
first-in, first-out basis.
c. Dividend income is recorded on the ex-dividend date.
9
<PAGE> 75
Separate Account Two of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d. Federal Income Taxes - Manufacturers Life of America, the Separate
Account's sponsor, is taxed as a "life insurance company" under the
Internal Revenue Code. Under these provisions of the Code, the operations
of the Separate Account form part of the sponsor's total operations and are
not taxed separately.
The current year's operations of the Separate Account are not expected to
affect the sponsor's tax liabilities and, accordingly, no charges were made
against the Separate Account for federal, state and local taxes. However,
in the future, should the sponsor incur significant tax liabilities related
to Separate Account operations, it intends to make a charge or establish a
provision within the Separate Account for such taxes.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. MORTALITY AND EXPENSE RISKS CHARGE
Manufacturers Life of America deducts from the assets of the Separate Account a
daily charge equivalent to an annual rate of 1.0% of the average net value of
the Separate Account's assets for mortality and expense risks.
4. PURCHASES AND SALES OF MANULIFE SERIES FUND, INC. SHARES
Purchases and sales of the shares of common stock of Manulife Series Fund, Inc.
for the year ended December 31, 1995 were $66,126,070 and $37,679,041,
respectively and for the year ended December 31, 1994 were $83,423,197 and
$15,243,525, respectively.
10
<PAGE> 76
Separate Account Two of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
Registered representatives of either ManEquity, Inc. or other broker-dealers
having distribution agreements with ManEquity, Inc. who are also authorized as
variable life insurance agents under applicable state insurance laws, sell the
Policies. Registered representatives are compensated on a commission basis.
Manufacturers Life of America has a formal service agreement with its affiliate,
Manulife Financial, which can be terminated by either party upon two months'
notice. Under this Agreement, Manufacturers Life of America pays for legal,
actuarial, investment and certain other administrative services.
11
<PAGE> 77
Report of Independent Auditors
The Board of Directors
The Manufacturers Life Insurance
Company of America
We have audited the accompanying balance sheets of The Manufacturers Life
Insurance Company of America as of December 31, 1995 and 1994, and the related
statements of operations, changes in capital and surplus, and cash flows for
each of the three years in the period 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 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 America at December 31, 1995 and 1994, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles and with reporting practices prescribed or permitted by the Insurance
Department of the State of Michigan.
Ernst & Young LLP
Philadelphia, Pennsylvania ERNST & YOUNG LLP
February 22, 1996
66
<PAGE> 78
The Manufacturers Life Insurance Company of America
Balance Sheets
<TABLE>
DECEMBER 31
1995 1994
-----------------------------
<S> <C> <C>
ASSETS
Bonds, at amortized cost (market $66,046,733--
1995 and $51,082,395--1994) $ 62,757,202 $ 52,149,080
Stocks 22,584,259 25,629,580
Short-term investments -- 10,914,561
Policy loans 6,955,292 4,494,390
------------ ------------
Total investments 92,296,753 93,187,611
Cash 9,674,362 5,069,197
Life insurance premiums deferred and uncollected 504,818 13,646
Accrued investment income 1,059,536 796,333
Separate account assets 480,404,450 302,736,198
Funds receivable on reinsurance assumed -- 880,284
Receivable for undelivered securities 146,328 69,003
Taxes recoverable 3,308,316 --
Investment in subsidiary 1,080,184 --
Other assets 267,015 333,651
------------ ------------
Total assets $588,741,762 $403,085,923
============ ============
LIABILITIES, CAPITAL AND SURPLUS
Aggregate policy reserves $26,683,090 $29,761,174
Other contract deposits 1,238,943 3,938,425
Interest maintenance and asset valuation reserves 4,742,400 111,566
Policy and contract claims 582,853 94,346
Provision for policyholder dividends payable 2,346,258 1,385,409
Amounts due to affiliates 9,049,217 7,377,108
Payable for undelivered securities 80,821 3,512,459
Accrued liabilities 7,315,315 4,773,565
Separate account liabilities 480,404,450 302,736,198
------------ ------------
Total liabilities 532,443,347 353,690,250
Capital and surplus:
Common shares, par value $1.00; authorized,
5,000,000 shares; issued and outstanding
4,501,857 shares (4,501,855 shares in 1994) 4,501,857 4,501,855
Preferred shares, par value $100; authorized
5,000,000 shares; issued and outstanding
105,000 shares 10,500,000 10,500,000
Surplus note 8,500,000 --
Capital paid in excess of par value 63,500,180 49,849,998
Deficit (30,703,622) (15,456,180)
------------ ------------
Total capital and surplus 56,298,415 49,395,673
------------ ------------
Total liabilities, capital and surplus $588,741,762 $403,085,923
============ ============
</TABLE>
See accompanying notes.
2
<PAGE> 79
The Manufacturers Life Insurance Company of America
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C>
Revenues:
Life and annuity premiums, principally
reinsurance assumed $ 5,956,997 $ 25,385,628 $ 12,745,981
Other life and annuity considerations 153,859,957 168,075,003 113,332,974
Investment income, net of investment
expenses 5,840,560 3,588,629 3,323,962
Amortization of interest maintenance reserve 23,975 19,527 32,866
Commission and expense allowance
on reinsurance ceded 147,109 187,694 --
Foreign exchange (loss) gain (284,127) 114,728 (197,971)
Other revenue 211,191 54,763 33,935
------------ ------------ ------------
Total revenues 165,755,662 197,425,972 129,271,747
Benefits paid or provided:
(Decrease) increase in aggregate policy reserves (3,078,084) 16,741,569 5,168,484
(Decrease) increase in liability for deposit funds (2,699,482) 654,214 2,820,520
Transfers to separate accounts, net 99,807,392 136,896,150 98,601,141
Death benefits 3,981,377 640,875 582,534
Disability benefits 123,786 -- --
Maturity benefits 207,719 580,615 79,253
Surrender benefits 22,028,224 3,701,591 2,319,926
------------ ------------ ------------
120,370,932 159,215,014 109,571,858
Insurance expenses:
Management fee 22,864,000 21,222,310 12,378,288
Commissions 21,411,198 23,416,110 14,742,130
General expenses 15,475,621 8,260,467 5,108,104
Commissions and expense allowances
on reinsurance assumed 1,014,163 810,252 329,634
------------ ------------ ------------
60,764,982 53,709,139 32,558,156
------------ ------------ ------------
Loss before policyholders' dividends
and federal income tax (15,380,252) (15,498,181) (12,858,267)
Dividends to policyholders 2,367,002 1,149,719 837,454
------------ ------------ ------------
Loss before federal income tax (17,747,254) (16,647,900) (13,695,721)
Federal income tax benefit (4,115,770) -- (324,643)
------------ ------------ ------------
Net loss from operations after policyholders'
dividends and federal income tax (13,631,484) (16,647,900) (13,371,078)
Net realized capital gains (net of capital
gains tax of $807,453 in 1995; $0 in 1994,
and $236,415 in 1993, and $1,567,770 in
1995, $(554,000) in 1994, and $347,292 in
1993 transferred (from) to the interest
maintenance reserve) (73,343) (3,012,485) 93,618
------------ ------------ ------------
Net loss from operations $(13,704,827) $(19,660,385) $(13,277,460)
============ ============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 80
The Manufacturers Life Insurance Company of America
Statements of Changes in Capital and Surplus
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF SURPLUS
CAPITAL PAR VALUE (DEFICIT) TOTAL
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 $35,001,853 $4,000,000 $16,542,195 $55,544,048
Net loss from operations (13,277,460) (13,277,460)
Issuance of preferred shares 1 5,849,999 5,850,000
Increase in asset valuation reserve (13,076) (13,076)
Increase in nonadmitted assets (133,575) (133,575)
Change in net unrealized capital
losses (1,592,242) (1,592,242)
Change in liability for reinsurance
in unauthorized companies (29,905) (29,905)
Company's share of increase in
separate account assets, net 4,308,148 4,308,148
----------- ----------- ------------ -----------
Balance, December 31, 1993 35,001,854 9,849,999 5,804,085 50,655,938
Net loss from operations (19,660,385) (19,660,385)
Issuance of common stocks 1 19,999,999 20,000,000
Capital restructuring of preference
shares (20,000,000) 20,000,000 --
Increase in asset valuation reserve (55,286) (55,286)
Increase in nonadmitted assets (1,021,357) (1,021,357)
Change in net unrealized capital
losses (425,082) (425,082)
Change in liability for reinsurance
in unauthorized companies (98,155) (98,155)
----------- ----------- ------------ -----------
Balance, December 31, 1994 15,001,855 49,849,998 (15,456,180) 49,395,673
Net loss from operations (13,704,827) (13,704,827)
Issuance of common shares 2 12,569,998 12,570,000
Issuance of surplus note 8,500,000 8,500,000
Contribution of Manufacturers
Adviser Corporation 1,080,184 1,080,184
Increase in asset valuation reserve (3,285,208) (3,285,208)
Increase in nonadmitted assets (1,053,124) (1,053,124)
Change in net unrealized capital
losses 2,921,742 2,921,742
Change in liability for reinsurance
in unauthorized companies (126,025) (126,025)
----------- ----------- ------------ -----------
Balance, December 31, 1995 $23,501,857 $63,500,180 $(30,703,622) $56,298,415
=========== =========== ============ ===========
</TABLE>
See accompanying notes.
4
<PAGE> 81
The Manufacturers Life Insurance Company of America
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums collected, net $159,337,079 $193,478,637 $126,075,035
Policy benefits paid, net (25,827,767) (4,982,444) (2,829,812)
Commissions and other expenses paid (62,302,890) (48,141,400) (35,203,997)
Net investment income 5,570,951 3,343,515 3,197,892
Other income and expenses (3,607,415) (1,946,063) (1,592,957)
Transfers to separate accounts, net (98,031,353) (136,950,482) (98,220,292)
Net cash (used in) provided by ------------ ------------ ------------
operating activities (24,861,395) 4,801,763 (8,574,131)
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments 74,009,501 73,187,733 28,248,633
Purchase of investments (77,607,686) (91,063,874) (73,688,735)
------------ ------------ ------------
Net cash used in investing activities (3,598,185) (17,876,141) (45,440,102)
FINANCING ACTIVITIES
Issuance of shares 12,570,000 20,000,000 5,850,000
Contribution of Manufacturers Adviser
Corporation 1,080,184 -- --
Issuance of surplus notes 8,500,000 -- --
Surplus withdrawn from separate account -- -- 48,701,076
------------ ------------ ------------
Net cash provided by financing activities 22,150,184 20,000,000 54,551,076
------------ ------------ ------------
Net (decrease) increase in cash and
short-term investments (6,309,396) 6,925,622 536,843
Cash and short-term investments
at beginning of year 15,983,758 9,058,136 8,521,293
------------ ----------- ------------
Cash and short-term investments
at end of year $ 9,674,362 $15,983,758 $ 9,058,136
============ =========== ============
</TABLE>
See accompanying notes.
5
<PAGE> 82
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
December 31, 1995
1. ORGANIZATION
ORGANIZATION
The Manufacturers Life Insurance Company of America (Manufacturers Life of
America or the Company) is a wholly-owned subsidiary of Manulife Reinsurance
Corporation (U.S.A.) (the Parent), (formerly Manufacturers Life Insurance
Company of Michigan), which is in turn a wholly-owned subsidiary of The
Manufacturers Life Insurance Company (Manulife Financial), a Canadian-based
mutual life insurance company (Notes 4 and 5).
The Company issues and sells variable universal life and variable annuity
products in the United States. The Company also has a branch operation in Taiwan
to develop and market traditional insurance for the Taiwanese market. At
December 31, 1995 the Company had assets of $11,234,000 and liabilities of
$5,696,000 in the Taiwan branch.
During 1995, the Company's parent contributed $12,570,000 of capital in return
for 2 shares of the Company's common stock par value $1 with the remaining
$12,569,998 being recorded as contributed surplus. During 1995, the Company's
parent transferred 100% of the outstanding stock of Manufacturers Adviser
Corporation to the Company which was recorded at book values as contributed
surplus. During 1995, the Company's parent also contributed $8,500,000 in return
for a 10-year surplus note bearing interest at 6.625%.
Subsequent to the year end, the Parent contributed $15,000,000 capital in return
for 1 share of the Company's common stock par value $1 with the remaining
$14,999,999 being recorded as contributed surplus.
During 1994, the Company's parent contributed $20,000,000 of capital in return
for 1 share of the Company's common stock par value $1 with the remaining
$19,999,999 being recorded as contributed surplus. During 1994, the Company
restructured its capital by exchanging 230,000 shares of preferred stock with a
par value of $23,000,000 for 3,000,000 shares of common stock par value
$3,000,000 with the remaining $20,000,000 being recorded as contributed surplus.
The Parent contributed $5,850,000 in capital in return for 1 share of common
stock during 1993.
6
<PAGE> 83
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements of Manufacturers Life of America have been
prepared in accordance with accounting practices prescribed or permitted by the
Insurance Department of Michigan, which are considered generally accepted
accounting principles for mutual life insurance companies and their wholly-owned
direct and indirect subsidiaries. Such practices differ in certain respects from
generally accepted accounting principles followed by stock life insurance
companies in determining financial position and results of operations. In
general, the differences are: (1) commissions and other costs of acquiring and
writing policies are charged to expense in the year incurred rather than being
amortized over the related policy term; (2) certain non-admitted assets are
excluded from the balance sheet; (3) deferred income taxes are not provided for
timing differences in recording certain items for financial statement and tax
purposes; (4) certain transactions are reflected directly to surplus rather than
reflected in net income from operations (for example, certain transactions
related to the separate accounts); and (5) debt securities are carried at
amortized cost.
In April 1993, the Financial Accounting Standards Board issued Interpretation
No. 40, "Applicability of Generally Accepted Accounting Principles to Mutual
Life Insurance and Other Enterprises." The Interpretation as amended is
effective for 1996 annual financial statements and thereafter, and will no
longer allow statutory financial statements to be described as being prepared in
conformity with generally accepted accounting principles (GAAP). Upon the
effective date of the Interpretation, in order for financial statements to be
described as being prepared in accordance with GAAP, life insurance companies
will be required to adopt all applicable standards promulgated by the FASB in
any general purpose financial statements such companies may issue. While GAAP
standards have recently been developed for mutual life insurance companies, the
Company has not yet completed the complex and extensive historical calculations
and thus is unable to quantify the effects of the Interpretation on its
financial statements.
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect 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.
All amounts presented are expressed in U.S. Dollars. Certain amounts from prior
periods have been reclassified to conform with current-period presentation.
7
<PAGE> 84
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCKS
Stocks are carried at market value.
BONDS
Bonds not backed by other loans are carried at amortized cost as computed using
the interest method. Loan backed bonds and other structured securities are
valued at amortized cost using the interest method including anticipated
prepayments. Prepayment assumptions are updated periodically and are accounted
for using the prospective method. Gains and losses on sales of bonds are
calculated on the specific identification method and recognized into income
based on NAIC prescribed formulas. Short-term investments include investments
with maturities of less than one year at the date of acquisition. Market values
disclosed are based on NAIC quoted values.
POLICY LOANS
Policy loans are reported at unpaid principal balances which approximate fair
value.
ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE
The Asset Valuation Reserve and Interest Maintenance Reserve were determined by
NAIC prescribed formulas and are reported as liabilities rather than as
valuation allowances or appropriations of surplus.
POLICY AND CONTRACT CLAIMS
Policy and contract claims are determined on an individual case basis for
reported losses. Estimates of incurred but not reported losses are developed on
the basis of past experience.
8
<PAGE> 85
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNTS
Separate account assets and liabilities reported in the accompanying financial
statements represent funds that are separately administered, principally for
variable annuity and variable life contracts. For the majority of these
contracts the contractholder, rather than the Company, bears the investment
risk. Separate account assets are recorded at market value. Operations of the
separate accounts are not included in the accompanying financial statements.
REVENUE RECOGNITION
Both premium and investment income are recorded when due.
INVESTMENT IN SUBSIDIARIES
The investment in Manufacturers Adviser Corporation ("MAC") is carried at net
equity of MAC as computed under generally accepted accounting principles.
Undistributed income and loss is treated as a component of unrealized gains and
losses and applies directly to capital and surplus.
REINSURANCE
Reinsurance premiums and claims are accounted for on a basis consistent with
that used in accounting for the original policies issued and the terms of the
reinsurance contracts. Premiums and claims are reported net of reinsured
amounts.
POLICY RESERVES
Certain policy reserves are calculated based on statutorily required interest
and mortality assumptions.
9
<PAGE> 86
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
3. INVESTMENTS AND INVESTMENT INCOME
The amortized cost and market value of investments in fixed maturities (bonds)
as of December 31, 1995 is summarized as follows:
<TABLE>
<CAPTION>
QUOTED OR
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
NAME OF PERSON COST GAINS LOSSES VALUE
- -------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
United States Government $15,145,033 $681,032 $ (57,916) $15,768,149
Foreign governments 6,071,376 157,635 -- 6,229,011
Corporate 31,046,219 2,508,780 -- 33,554,999
Mortgage-backed securities:
U.S. Government agencies 9,522,771 -- -- 9,522,771
Corporate 971,803 -- -- 971,803
----------- ---------- ---------- -----------
$62,757,202 $3,347,447 $ (57,916) $66,046,733
=========== ========== ========== ===========
</TABLE>
Proceeds from sales of investments in debt securities during 1995 were
$67,506,660. Gross gains of $2,630,790 and gross losses of $218,778 were
realized on those sales.
The amortized cost and market value of investments in fixed maturities (bonds)
as of December 31, 1994 is summarized as follows:
<TABLE>
<CAPTION>
QUOTED OR
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
NAME OF PERSON COST GAINS LOSSES VALUE
- -------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
United States Government $31,784,581 $ 243,971 $(441,592) $31,586,960
Foreign governments 7,388,458 -- (294,385) 7,094,073
Corporate 9,986,244 2,457 (577,136) 9,411,565
Mortgage-backed securities:
U.S. Government agencies 2,480,571 -- -- 2,480,571
Corporate 509,226 -- -- 509,226
----------- --------- ----------- -----------
$52,149,080 $ 246,428 $(1,313,113) $51,082,395
=========== ========= =========== ===========
</TABLE>
Proceeds from sales of investments in debt securities during 1994 were
$43,175,845. Gross gains of $167,738 and gross losses of $1,006,702 were
realized on those sales.
10
<PAGE> 87
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
The amortized cost and market value of fixed maturities at December 31, 1995 by
contractual maturities, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
YEARS TO MATURITY AMORTIZED COST MARKET VALUE
- ------------------------------ -------------- ------------
<S> <C> <C>
One year or less $564,857 $564,857
Greater than 1; up to 5 years 4,079,679 4,181,361
Greater than 5; up to 10 years 14,786,283 15,858,075
Due after 10 years 32,831,809 34,947,866
Mortgage-backed securities 10,494,574 10,494,574
----------- -----------
$62,757,202 $66,046,733
=========== ===========
</TABLE>
At December 31, 1995, $6,617,749 of bonds at amortized cost were on deposit
with government insurance departments to satisfy regulatory regulations.
Major categories of net investment income for each year were as follows:
<TABLE>
<CAPTION>
NET INVESTMENT INCOME
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Gross investment income:
Dividends; Manulife Series Fund,
Inc. (Note 9) $645,908 $1,244,794 $1,440,392
Bond income 4,430,236 1,712,294 1,422,064
Policy loans 360,406 236,972 166,514
Short-term investments 754,346 501,477 384,178
---------- ---------- ----------
6,190,896 3,695,537 3,413,148
Investment expenses (350,336) (106,908) (89,186)
---------- ---------- ----------
Net investment income $5,840,560 $3,588,629 $3,323,962
========== ========== ==========
</TABLE>
11
<PAGE> 88
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS
Manufacturers Life of America has a formal service agreement with Manulife
Financial which can be terminated by either party upon two months' notice. Under
the Agreement, Manufacturers Life of America will pay direct operating expenses
incurred each year by Manulife Financial on behalf of Manufacturers Life of
America. Services provided under the Agreement include legal, actuarial,
investment, data processing and certain other administrative services. Costs
incurred under this Agreement were $23,211,484 in 1995, $21,326,446 in 1994, and
$12,467,474 in 1993. In addition, there were $5,052,062 agents' bonuses in 1995,
$7,795,184 in 1994, and $5,363,558 in 1993 which were allocated to the Company
and are included in commissions.
In addition, the Company has several reinsurance agreements with Manulife
Financial which may be terminated upon the specified notice by either party.
These agreements are summarized as follows:
(a) The Company assumes two blocks of insurance from Manulife Financial under
coinsurance treaties. The Company's risk is limited to $100,000 of initial
face amount per claim plus a pro-rata share of any increase in face amount.
(b) The Company cedes the risk in excess of $25,000 per life to Manulife
Financial under the terms of an automatic reinsurance agreement.
(c) The Company cedes a substantial portion of its risk on its Flexible Premium
Variable Life policies to Manulife Financial under the terms of a stop loss
reinsurance agreement.
(d) Under the terms of an automatic coinsurance agreement, the Company cedes
its risk on structured settlements to Manulife Financial.
12
<PAGE> 89
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
Selected amounts relating to the above treaties reflected in the financial
statements are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Life and annuity premiums
assumed $5,956,997 $25,385,628 $12,745,981
Other life and annuity
considerations ceded (598,330) (437,650) (201,685)
Commissions and expense
allowances
on reinsurance assumed (1,014,163) (810,252) (329,634)
Policy reserves assumed 48,714,791 47,672,591 23,070,952
Policy reserves ceded 3,833,247 3,786,647 3,782,156
</TABLE>
During 1993, the Company assumed the first $50,000 of initial face amount on
two blocks of business. This resulted in transfers of $10,837,000 to establish
the initial reserves. In 1994 the treaties were amended to assume the first
$100,000 of initial face amount for the same blocks of business. This resulted
in a transfer of $21,477,000 to establish the additional reserve. Commissions
equal to 17% are charged for all renewed premiums related to these contracts.
During 1994, the Company terminated another treaty resulting in a premium to
Manulife Financial to transfer the reserve of $799,874.
Manulife Financial provides a claims paying guarantee to all U.S. policyholders.
5. FEDERAL INCOME TAX
The Company joins the Parent, The Manufacturers Life Insurance Co. (U.S.A.) and
Manufacturers Reinsurance Limited in filing a U.S. consolidated income tax
return as a life insurance group under provisions of the Internal Revenue Code.
In accordance with an income tax-sharing agreement dated December 29, 1983, the
Company's income tax provision (or benefit) is computed as if the Company filed
a separate income tax return. The Company receives no surtax exemption. Tax
benefits from operating losses are provided at the U.S. statutory rate plus any
tax credits attributable to the Company, provided the consolidated group
utilizes such benefits currently. Taxes recoverable in the financial statements
represent tax-related amounts receivable from affiliates.
13
<PAGE> 90
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
5. FEDERAL INCOME TAX
The Company, Parent and The Manufacturers Life Insurance Co. (U.S.A.) have
available consolidated net operating losses of approximately $51,400,000 which
will expire in the year 2009 and capital loss carryforwards of approximately
$102,800,000 which will expire in 1999. The losses of the Company, Parent and
the Manufacturers Life Insurance Co. (U.S.A.) may be used to offset the
ordinary and capital gain income of Manufacturers Reinsurance Limited.
6. STATUTORY RESTRICTIONS ON DIVIDENDS
The Company is subject to statutory limitations on the payment of dividends to
its Parent. The Company cannot pay dividends during 1995 without the prior
approval of insurance regulatory authorities.
7. REINSURANCE
The Company cedes reinsurance as a party to several reinsurance treaties with
major unrelated insurance companies. The Company remains obligated for amounts
ceded in the event reinsurers do not meet their obligations.
Summary financial information related to these reinsurance activities is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Life insurance premiums ceded $275,145 $218,767 $130,913
</TABLE>
14
<PAGE> 91
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
8. RESERVES
Aggregate policy reserves for life policies including variable life, are based
on statutory mortality tables and interest assumptions using either the net
level or commissioners' reserve valuation method. The composition of the
aggregate policy reserves at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
MORTALITY INTEREST
AGGREGATE RESERVES TABLE RATES
------------------ ----- --------
1995 1994
---- ----
<S> <C> <C> <C>
$25,561,456 $28,553,885 1980 CSO 4%
(173,768) (189,080) Reinsurance ceded
1,295,402 1,396,369 Miscellaneous
- ----------- -----------
$26,683,090 $29,761,174
=========== ===========
</TABLE>
At December 31, 1995 the Company's annuity reserves and deposit fund liabilities
are comprised as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
(in 000's)
<S> <C> <C>
Subject to discretionary withdrawal:
With market value adjustment $222,994 97.8%
At book value less current surrender charge 1,239 .5%
Not subject to discretionary withdrawal 3,863 1.7%
-------- -----
Total gross annuity actuarial reserves and
deposit fund liabilities $228,096 100%
======== =====
</TABLE>
9. INVESTMENT IN SEPARATE ACCOUNTS
During 1984, the Company initiated plans to market variable life insurance
products through Separate Account One of The Manufacturers Life Insurance
Company of America ("Separate Account One") using Manulife Series Fund, Inc. as
its investment vehicle. Initial capitalization was $15,000,000. Through 1988,
the Company provided an additional capitalization of $6,000,000.
15
<PAGE> 92
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
9. INVESTMENT IN SEPARATE ACCOUNTS (CONTINUED)
In December 1993, the Company transferred all of its shares, related to seed
money, in Manulife Series Fund, Inc. out of Separate Account One to the General
Account. At December 31, 1995, the $22,584,259 common stock represents the
Company's seed money investment in Manulife Series Fund, Inc.
During 1995, 1994, and 1993, the following dividends were received from Manulife
Series Fund, Inc.:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Separate Account One $24,041 $38,732 $1,610,693
Separate Account Two 3,520,461 4,574,620 7,377,861
Separate Account Three 1,693,796 1,490,374 666,141
Separate Account Four 2,445,127 3,072,376 4,966,559
General Account 645,908 1,244,794 1,440,392
</TABLE>
Dividends have been reinvested by the Company in Manulife Series Fund, Inc.
During 1993, the Company withdrew $8,000,000 of its seed money and accumulated
earnings from Separate Account One and the Manulife Series Fund, Inc. and
utilized these funds to pay down its intercompany debt.
During 1994, the Company withdrew $13,011,137 of its seed money and accumulated
earnings from the Manulife Series Fund, Inc. and utilized these funds to pay
down its intercompany debt.
During 1995, the Company withdrew $6,500,000 of its seed money and accumulated
earnings from the Manulife Series Fund, Inc. and utilized these funds to pay
down its intercompany debt.
16
<PAGE> 93
APPENDIX A
ANNUITY OPTIONS
The Policyowner may elect one of the following annuity options described
below. If no option is specified, annuity payments will be made as a life
annuity with a ten year certain period. Treasury or Labor Department
regulations may require a different annuity option if no option is specified and
may preclude the availability of certain options in connection with Qualified
Policies. There may also be state insurance law requirements that limit the
availability of certain options. The amounts payable under each option will be
no less than amounts determined on the basis of tables contained in each Policy.
Such tables are based on the 1983 Individual Annuity Mortality Tables and an
assumed interest rate of 3% per year.
OPTION 1: ANNUITY CERTAIN -- payments in equal installments for a period of
not less than five years and not more than twenty years.
OPTION 2(A): LIFE ANNUITY WITHOUT REFUND -- payments in equal installments
during the lifetime of an Annuitant. Upon the death of the
Annuitant, payments will cease. Since there is no guarantee that
any minimum number of payments will be made, the payee may
receive only one payment if he or she dies before the date the
second payment is due.
OPTION 2(B): LIFE ANNUITY WITH CERTAIN PERIOD -- payments in equal
installments during the lifetime of an Annuitant and if the
Annuitant dies before installments have been paid for a
designated period, either five, ten or twenty years, payments
will continue for the remainder of the period selected.
OPTION 2(C): LIFE ANNUITY WITH INSTALLMENT REFUND -- payments in equal
installments during the lifetime of an Annuitant and if the
Annuitant dies before the total installments paid equal the
Policy Value applied to provide the annuity, payments will
continue until the Policy Value has been paid.
OPTION 3(A): JOINT AND SURVIVOR ANNUITY WITHOUT REFUND -- payments in equal
installments during the lifetime of two Annuitants with payments
continuing in full amount to the survivor upon death of either.
Since there is no guarantee that any minimum number of payments
will be made, the payees may receive only one payment if they
both die before the date the second payment is due.
OPTION 3(B): JOINT AND SURVIVOR ANNUITY WITH CERTAIN PERIOD -- payments in
equal installments during the lifetime of two Annuitants and if
both die before installments have been paid for a ten year
period, payments will continue for the remainder of the period.
Under Options 2(b), 2(c) and 3(b), upon the death of the Annuitant or second to
die of joint Annuitants, the beneficiary may elect to receive the commuted value
of any remaining payments. Any such commutation will be at the interest rate
used to determine the amount of the annuity payments plus 1/2%.
67
<PAGE> 94
APPENDIX B
SAMPLE CALCULATIONS OF MARKET VALUE ADJUSTMENTS
AND WITHDRAWAL CHARGES 1
MVA FORMULA
The MVA factor is equal to:
(1+G) exp N
----- -1
(1+C)
EXAMPLE ONE: NEGATIVE MVA AND NO WITHDRAWAL CHARGE
Assume the following:
Type of Account: Fixed
Type of Transaction: Transfer
Time remaining in the Guarantee Period: 30 months, 5 days
Guaranteed Rate: 6%
Current Rate for new 3-year deposits: 8%
Transfer Requested: $10,000
Withdrawal Charge: 0%
Other Charges: $35 transfer charge
In this example,
N = 30/12 = 2.5
G = .06
C = .08
The MVA factor equals:
1.06 exp 2.5 - 1 = -0.0457
1.08
Manufacturers Life of America will deduct a Gross Withdrawal Amount of
$10,000.00.
From this, Manufacturers Life of America will deduct the transfer charge of
$35. This will leave $9,965.00.
The amount of the MVA adjustment would be $9,965.00 x -0.0457, or -$455.40.
The cash transferred to another account(s) would be $9,965.00 -$455.40, or
$9,509.60.
1 The assumed fixed interest rates used in the examples in this Appendix
illustrate the operation of the Market Value Adjustment and are not
intended to reflect the levels of interest rates currently offered on the
Fixed Accounts.
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EXAMPLE TWO: POSITIVE MVA AND NO WITHDRAWAL CHARGE
Assume the following:
Type of Account: Fixed
Type of Transaction: Partial Withdrawal
Time remaining in the Guarantee Period: 47 months
Guaranteed Rate: 6%
Current Rate for new 3-year deposits: 4%
Current Rate for new 4-year deposits: Not Offered
Current Rate for new 5-year deposits: 6%
Cash Withdrawal Requested: $10,000
Withdrawal Charge: 0%
Other Charges: None
In this example,
N = 47/12 = 3.91677
G = .06
C = .05
The time remaining in the Guarantee Period, rounded to the next full year, is 4
years. Since the 4-year deposit is not available, interpolate between the
3-year rate and the 5-year rate, to get a rate of 5%.
The MVA factor equals:
1.06 exp. 3.91677 - 1
1.05
= 0.0378
We will take out a Gross Withdrawal Amount of $9,635.77
The amount of the MVA adjustment would be $9,635.77 x 0.0378, or $364.23.
The cash received by the Policyowner would be $9,635.77 + $364.23, or $10,000.
EXAMPLE THREE: WITHDRAWAL CHARGE AND NO MVA
Assume the following:
Type of Account: Variable
Type of Transaction: Partial Withdrawal
Cash Withdrawal Requested: $10,000
Withdrawal Charge: 6%*
Other Charges: None
The Gross Withdrawal Amount will be $10,638.30.
The withdrawal charge will be $10,638.30 x 6%, or $638.30.
The cash received by the Policyowner would be $10,638.30 -- $638.30, or
$10,000.
* In this example, Manufacturers Life of America assumes that a 10% free
withdrawal has already been taken earlier in the year, and that the
withdrawal charge percentage applies to the total Policy Value. In other
situations the withdrawal charge may not apply to the total Policy Value.
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EXAMPLE FOUR: NEGATIVE MVA AND WITHDRAWAL CHARGE
Assume the following:
Type of Account: Fixed
Type of Transaction: Surrender
Time remaining in the Guarantee Period: 30 months, 5 days
Guaranteed Rate: 6%
Current Rate for new
3-year deposits: 8%
Policy Value: $10,000
Withdrawal Charge: 6%*
Other Charges: $30 record-keeping charge
In this example,
N = 30/12 = 2.5
G = .06
C = .08
The MVA factor equals:
1.06 exp. 2.5 - 1
1.08
= - 0.0457
On a surrender, the Gross Withdrawal Amount is the Policy Value, or $10,000 in
this example.
Manufacturers Life of America will deduct the record-keeping charge of $30,
leaving $9,970.
The amount of the MVA adjustment would be $9,970 x -0.0457, or $455.63.
This leaves an amount of $9,970.00 - $455.63, or $9,514.37.
The withdrawal charge will be $9,514.37 x 6%, or $570.86.
The cash received by the Policyowner would be $9,514.37 - $570.86, or
$8,943.51.
* In this example, Manufacturers Life of America assumes that a 10% free
withdrawal has already been taken earlier in the year, and that the
withdrawal charge percentage applies to the total Policy Value. In other
situations the withdrawal charge may not apply to the total Policy Value.
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