<PAGE> 1
Registration No. 33-57020
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
Post-Effective Amendment No. 7
to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF l933
-------------------------
THE MANUFACTURERS LIFE
INSURANCE COMPANY OF AMERICA
(Exact name of registrant)
MICHIGAN
(State or Other Jurisdiction of
Incorporation or Organization)
-------------------------
500 N. Woodward Avenue
Bloomfield Hills, Michigan 48304
(Address of depositor's principal executive offices)
-------------------------
(I.R.S. Employer Number) (416) 926-6700 (Primary Standard Industrial
Classification Code Number)
23-2030787 6311
------------------------ -------------- ----------------------------
JAMES D. GALLAGHER, ESQ.
Secretary and General Counsel Copy to:
The Manufacturers Life Insurance W. Randolph Thompson, Esq., of Counsel
Company of America Jones & Blouch L.L.P., Suite 405W
500 N. Woodward Avenue 1025 Thomas Jefferson Street, N.W.
Bloomfield Hills, Michigan 48304 Washington, D.C. 20037-0805
(Name and Address of Agent for Service)
-------------------------
SS#6967
<PAGE> 2
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
Registration Statement on Form S-1
Cross-Reference Sheet Required by
Regulation S-K, Item 501
<TABLE>
<CAPTION>
Form S-1
Item No. and Caption Prospectus Heading
- -------------------- ------------------
<S> <C> <C>
1. Forepart of the Registration Cover Pages
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
Cover Pages of Prospectus
3. Summary Information, Risk Summary of Policies
Factors and Ratio of Earnings
to Fixed Charges
4. Use of Proceeds General Information about
Manufacturers Life of America;
General Information about
Manufacturers Life of America's
Separate Accounts; General
Information about NASL Series
Trust
5. Determination of Offering Price Not applicable
6. Dilution Not applicable
7. Selling Security Holders Not applicable
8. Plan of Distribution Other Matters ("Sale of the Policies")
9. Description of Securities to be General Information about
Registered Manufacturers Life of America's
Separate Accounts; General
Information about NASL Series
Trust; Description
of the Policies; Other Matters
10. Interests of Named Experts and Not applicable
Counsel
11. Information with Respect to the General Information about
Registrant Manufacturers Life of America;
Additional Information About
Manufacturers Life of America
12. Disclosure of Commission Not applicable
Position on Indemnification
for Securities Act Liabilities
</TABLE>
<PAGE> 3
PART I.
INFORMATION REQUIRED IN PROSPECTUS
<PAGE> 4
Lifestyle from Manulife Financial
Prospectus for
Multi-Account Flexible
Payment Variable Annuity
Issued by
The Manufacturers Life Insurance
Company of America
<PAGE> 5
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
investment portfolio ("Portfolio") of NASL Series Trust. The accompanying
prospectus for NASL Series Trust describes the investment objectives of the
Portfolios in which purchase payments may be invested. These Portfolios are:
the Emerging Growth Trust, the Balanced Trust, the Capital Growth Bond Trust,
the Money Market Trust, the Quantitative Equity Trust (formerly Common Stock
Fund), the Real Estate Securities Trust, the International Stock Trust, and the
Pacific Rim Emerging Markets Trust. Other subaccounts and Portfolios 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 NASL Series Trust and information about the investment
holdings of the various Portfolios will be sent to the Policyowner
semi-annually.
1
<PAGE> 6
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 NASL Series Trust.
The Securities and Exchange Commission maintains a Web site (http://www.sec.gov)
that contains material incorporated by reference and other information regarding
registrants that file electronically with the Commission.
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, 1997.
2
<PAGE> 7
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 NASL Series Trust..........................
Investment Objectives and Certain Policies Of The Portfolios....
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 Portfolio Shares................................
Policy Charges..................................................
Withdrawal Charge...........................................
Record-Keeping Charge.......................................
Dollar Cost Averaging Charge................................
Special Policy Access Charge................................
3
<PAGE> 8
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> 9
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> 10
"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> 11
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 Portfolio of NASL Series Trust. 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> 12
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 Dollar Cost Averaging transfers if Policy Value exceeds
$15,000; otherwise there is a charge of $5 per 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> 13
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, except transfers made pursuant to the Asset Allocation Balancer program
or transfers designed to change percentage allocations of assets among accounts.
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 NASL
Series Trust 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> 14
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) Dollar Cost Averaging Charge (if selected and $ 5
applicable)3
<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 4 0.80%
- Charged monthly as a percentage of the policy
month-start Fixed Account Assets 4 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 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.
4 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> 15
<TABLE>
<CAPTION>
ANNUAL RATE
-----------
<S> <C> <C>
4. NASL SERIES TRUST ANNUAL EXPENSES (after applicable fee waivers and expense reimbursements):
As a percentage of underlying Trust's average net assets
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT OTHER TOTAL TRUST
PORTFOLIO MANAGEMENT FEES EXPENSES* EXPENSES
--------- --------------- --------- -----------
<S> <C> <C> <C>
Pacific Rim Emerging Markets Trust....................... 0.85% 0.30% 1.15%
Emerging Growth Trust.................................... 1.05% .10% 1.15%
International Stock Trust................................ 1.05% .20% 1.25%
Quantitative Equity Trust (formerly Common Stock Fund)... .70% .06% .50%**
Real Estate Securities Trust............................. .70% .10% .50%**
Balanced Trust........................................... .80% .15% .95%
Capital Growth Bond Trust................................ .65% .10% .50%**
Money Market Trust....................................... .50% .05% .55%
</TABLE>
*Other Expenses include custody fees, registration fees, legal fees, audit fees,
trustees' fees, insurance fees and other miscellaneous expenses. The amounts set
forth in the table above are expense estimates for the current fiscal year
based upon historical NASL new portfolio cash inflows. NASL Financial has agreed
pursuant to its advisory agreement with NASL Series Trust to reduce its advisory
fee or reimburse NASL Series Trust to the extent that such other expenses
(excluding taxes, portfolio brokerage commissions, interest, litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of business) exceed .75% in the case of the International Stock
Trust and Pacific Rim Emerging Markets Trust and, in the case of each of the
other NASL Trusts listed above, .50% of the average annual net assets of such
NASL Portfolio. Such expense limitations with respect to the NASL Trusts will
continue in effect from year to year unless otherwise terminated at any year end
by NASL Financial on 30 days' notice to NASL Series Trust.
**NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to
it and/or to reimburse expenses for a period of one year beginning January 1,
1997 to the extent necessary to prevent the total of advisory fees and expenses
for the Quantitative Equity Trust (formerly Common Stock Fund), Real Estate
Securities Trust and Capital Growth Bond Trust for such period from exceeding
.50% of average net assets.
11
<PAGE> 16
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Example 5
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:
NASL SERIES TRUST
INTERNATIONAL STOCK TRUST 102 163 187 310
PACIFIC RIM EMERGING MARKETS TRUST 101 160 182 301
EMERGING GROWTH TRUST 101 160 182 301
QUANTITATIVE EQUITY TRUST
(formerly Common Stock Fund) 91 149 163 262
REAL ESTATE SECURITIES TRUST 97 151 165 266
BALANCED TRUST 99 155 173 281
CAPITAL GROWTH BOND TRUST 97 149 163 261
MONEY MARKET TRUST 95 144 153 241
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:
NASL SERIES TRUST
INTERNATIONAL STOCK TRUST 28 86 147 310
PACIFIC RIM EMERGING MARKETS TRUST 27 83 142 301
EMERGING GROWTH TRUST 27 83 142 301
QUANTITATIVE EQUITY TRUST
(formerly Common Stock Fund) 23 71 122 262
REAL ESTATE SECURITIES TRUST 24 73 124 266
BALANCED TRUST 25 77 132 281
CAPITAL GROWTH BOND TRUST 23 71 122 261
MONEY MARKET TRUST 21 65 112 241
</TABLE>
5 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 NASL
Series Trust, 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 NASL Series Trust is provided under the caption
"Management of the Trust" in the accompanying NASL Series Trust
prospectus.
12
<PAGE> 17
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), Dollar Cost
Averaging, 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, 1996
SUB-ACCOUNTS
<TABLE>
<CAPTION>
EMERGING GROWTH TRUST
(FORMERLY EMERGING GROWTH EQUITY FUND)
---------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <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 $ 45.01
December 31 value $10.87 $12.58 $17.72 $14.93 $25.33 $ 30.55 $ 37.47 $ 35.58 $ 45.01 $ 46.79
December 31 units 329 11,285 22,539 41,687 76,705 288,277 874,970 1,454,901 1,670,956 1,681,075
</TABLE>
<TABLE>
<CAPTION>
BALANCED TRUST
(FORMERLY BALANCED ASSETS FUND)
--------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <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 $ 21.91
December 31 value $10.20 $10.87 $13.06 $ 13.13 $ 16.04 $ 16.87 $ 18.70 $ 17.75 $ 21.91 $ 23.98
December 31 units 1,645 21,509 47,074 118,664 201,901 515,812 1,293,922 2,001,928 2,189,632 2,312,513
</TABLE>
<TABLE>
<CAPTION>
CAPITAL GROWTH BOND TRUST
(FORMERLY CAPITAL GROWTH BOND FUND)
-----------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <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 $ 19.07
December 31 value $10.15 $10.77 $12.14 $12.81 $14.76 $ 15.47 $ 16.94 $ 16.02 $ 19.07 $ 19.35
December 31 units 1,039 17,737 36,191 51,268 69,024 168,747 499,877 672,365 789,655 851,595
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET TRUST
(FORMERLY MONEY-MARKET FUND)
----------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <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 $ 14.38
December 31 value $10.07 $10.68 $11.51 $ 12.28 $ 12.84 $ 13.15 $ 13.37 $ 13.75 $ 14.38 $ 14.95
December 31 units 7,161 23,091 32,907 160,484 122,681 176,160 328,922 918,869 1,290,129 1,375,204
</TABLE>
13
<PAGE> 18
<TABLE>
<CAPTION>
QUANTITATIVE EQUITY TRUST
(FORMERLY COMMON STOCK FUND)
----------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <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 $ 25.72
December 31 value $10.43 $11.35 $14.68 $13.94 $17.97 $ 18.88 $ 21.19 $ 20.10 $ 25.72 $ 30.03
December 31 units 709 7,257 20,202 43,044 78,327 194,079 485,195 803,568 977,871 1,274,256
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES TRUST
(FORMERLY REAL ESTATE SECURITIES FUND)
--------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <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 $ 25.26
December 31 value $9.99 $11.05 $11.95 $11.30 $15.78 $ 18.96 $ 23.01 $ 22.16 $ 25.26 $ 38.68
December 31 units 1,642 12,733 17,676 17,834 24,956 134,707 711,630 1,205,880 1,149,409 1,190,829
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL STOCK TRUST
(FORMERLY INTERNATIONAL FUND)
-----------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
October 4 (Commencement) $10.00
January 1 value $ 9.72 $ 10.71
December 31 value $ 9.72 $ 10.71 11.71
December 31 units 89,180 354,776 652,940
</TABLE>
<TABLE>
<CAPTION>
PACIFIC RIM EMERGING MARKETS TRUST
(FORMERLY PACIFIC RIM EMERGING MARKETS FUND)
--------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
October 4 (Commencement) $10.00
January 1 value $ 9.41 $ 10.38
December 31 value $ 9.41 $ 10.38 11.29
December 31 units 67,272 261,208 502,325
</TABLE>
14
<PAGE> 19
General Information About Manufacturers
Life of America
Manufacturers Life of America And
Manufacturers Life
Manufacturers Life of America, a wholly-owned subsidiary of The Manufacturers
Life Insurance Company (U.S.A.) ("Manufacturers USA"), 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 a licensed
life insurance company in the District of Columbia and all states of the United
States except New York. Manufacturers USA, a life insurance company organized in
1955 under the laws of Maine and redomesticated under the laws of Michigan on
December 30, 1992, is a wholly-owned subsidiary of Manulife Reinsurance
Corporation (U.S.A.), a life insurance company organized in 1983 under the laws
of Michigan which in turn is a wholly-owned subsidiary of The Manufacturers Life
Insurance Company ("Manufacturers Life"), a mutual life insurance company based
in Toronto, Canada. Manufacturers Life and its subsidiaries, together,
constitute one of the largest life insurance companies in North America and rank
among the 60 largest life insurers in the world as measured by assets.
Manufacturers Life and Manufacturers Life of America have received the following
ratings from independent rating agencies: Standard and Poor's Insurance Rating
Service -- AA+ (for claims paying ability), A.M. Best Company -- A++ (for
financial strength), Duff & Phelps Credit Rating Co. -- AAA (for claims paying
ability), and Moody's Investors Service, Inc. -- Aa3 (for financial strength).
However, neither Manufacturers Life of America nor Manufacturers Life guarantees
the investment performance of the Separate Account.
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> 20
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
NASL Series Trust
Each sub-account of Separate Account Two will purchase shares only of a
particular portfolio of NASL Series Trust. NASL Series Trust is registered under
the 1940 Act as an open-end management investment company. Separate Account Two
will purchase and redeem shares of NASL Series Trust 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 portfolio will be reinvested
immediately at net asset value in shares of that portfolio and retained as
assets of the corresponding sub-account. NASL Series Trust shares are issued to
fund benefits under both variable annuity contracts and variable life insurance
policies issued by Manufacturers Life of America, or other insurance companies
affiliated with the Company. Shares of NASL Series Trust will also be issued to
Manufacturers Life of America's 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 NASL Series Trust prospectus.
NASL Series Trust receives investment advisory services from NASL Financial
Services, Inc. NASL Financial Services, Inc. is a registered investment adviser
under the Investment Advisers Act of 1940. NASL Series Trust also employs
subadvisers. The following subadvisers provide investment subadvisory services
to the indicated portfolios:
PORTFOLIO SUBADVISER
Aggressive Growth Portfolios
Pacific Rim Emerging Markets Trust Manufacturers Adviser Corporation*
Emerging Growth Trust Warburg, Pincus Counsellors, Inc.
International Stock Trust Rowe Price-Fleming International, Inc.
Equity Portfolios
Quantitative Equity Trust
(formerly Common Stock Fund) Manufacturers Adviser Corporation*
Real Estate Securities Trust Manufacturers Adviser Corporation*
Balanced Portfolio
Balanced Trust Founders Asset Management, Inc.
Bond Portfolio
Capital Growth Bond Trust Manufacturers Adviser Corporation*
Money Market Portfolio
Money Market Trust Manufacturers Adviser Corporation*
*Manufacturers Adviser Corporation is an indirect wholly-owned subsidiary of
Manufacturers Life.
16
<PAGE> 21
Investment Objectives and Certain Policies Of The Portfolios
The investment objectives and certain policies of the Portfolios currently
available to policyowners through corresponding sub-accounts are set forth
below. There is, of course, no assurance that these objectives will be met.
Emerging Growth Trust. The investment objective of the Emerging Growth Trust is
maximum capital appreciation. Warburg, Pincus Counsellors, Inc. manages the
Emerging Growth Trust and will pursue this objective by investing primarily in
a portfolio of equity securities of domestic companies. The Emerging Growth
Trust ordinarily will invest at least 65% of its total assets in common stocks
or warrants of emerging growth companies that represent attractive
opportunities for maximum capital appreciation.
Balanced Trust. The investment objective of the Balanced Trust is current
income and capital appreciation. Founders Asset Management, Inc. is the manager
of the Balanced Trust and seeks to attain this objective by investing in a
balanced portfolio of common stocks, U.S. and foreign government obligations
and a variety of corporate fixed-income securities.
Capital Growth Bond Trust. The investment objective of the Capital Growth Bond
Trust is to achieve growth of capital by investing in medium-grade or better
debt securities, with income as a secondary consideration. Manufacturers
Adviser Corporation manages the Capital Growth Bond Trust. The Capital Growth
Bond Trust differs from most "bond" funds in that its primary objective is
capital appreciation, not income.
Money Market Trust. The investment objective of the Money Market Trust is to
obtain maximum current income consistent with preservation of principal and
liquidity. Manufacturers Adviser Corporation manages the Money Market Trust and
seeks to achieve this objective by investing in high quality, U.S. dollar
denominated money market instruments.
17
<PAGE> 22
Quantitative Equity Trust (formerly Common Stock Fund). The investment objective
of the Quantitative Equity Trust 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. Manufacturers Adviser
Corporation manages the Quantitative Equity Trust.
Real Estate Securities Trust. The investment objective of the Real Estate
Securities Trust is to achieve a combination of long-term capital appreciation
and satisfactory current income by investing in real estate related equity and
debt securities. Manufacturers Adviser Corporation manages the Real Estate
Securities Trust.
International Stock Trust. The investment objective of the International Stock
Trust is to achieve long-term growth of capital. Rowe Price-Fleming
International, Inc. manages the International Stock Trust and seeks to obtain
this objective by investing primarily in common stocks of established, non-U.S.
companies.
Pacific Rim Emerging Markets Trust. The investment objective of the Pacific Rim
Emerging Markets Trust is to achieve long-term growth of capital. Manufacturers
Adviser Corporation manages the Pacific Rim Emerging Markets Trust and seeks to
achieve this investment objective by investing in a diversified portfolio that
is comprised primarily of common stocks and equity-related securities of
corporations domiciled in countries of the Pacific Rim region.
A full description of the NASL Series Trust, its investment objectives,
policies and restrictions, the risks associated therewith, its expenses, and
other aspects of its operation is contained in the accompanying NASL Series
Trust prospectus, which should be read together with this prospectus.
18
<PAGE> 23
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> 24
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 Portfolios.
20
<PAGE> 25
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 such reserves
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> 26
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> 27
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> 28
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 free of charge. Manufacturers
Life of America does, however, reserve the right to limit, upon notice, the
maximum number of transfers a Policyowner may make to one per month or six at
any time within a Policy Year. In addition, Manufacturers Life of America also
reserves the right to modify or terminate the transfer privilege at any time in
accordance with applicable law.
The minimum dollar amount of all transfers pursuant to a single transfer
request, except for transfers pursuant to the Asset Allocation Balancer program
or transfers designed to reallocate assets among accounts, 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 Trust.
24
<PAGE> 29
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> 30
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, there is no charge for this program. 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 institute a charge for this program or 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> 31
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> 32
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> 33
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> 34
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> 35
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 Portfolio 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 Portfolios
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
Portfolio 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> 36
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> 37
<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> 38
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
NASL Series Trust and annually updated prospectuses for NASL Series Trust 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
NASL Series Trust. 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.
Dollar Cost Averaging Charge
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<PAGE> 39
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.
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> 40
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.
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> 41
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 C 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
37
<PAGE> 42
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> 43
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> 44
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.
40
<PAGE> 45
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> 46
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.
42
<PAGE> 47
In certain circumstances, owners of variable annuity policies may be considered
the owners, for federal income tax purposes, of the assets of the separate
account used to support their policies. In those circumstances, income and
gains from the separate account assets would be includible in the variable
policyowner's gross income. The IRS has stated in published rulings that a
variable policyowner will be considered the owner of separate account assets if
the policyowner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury Department
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated
asset account may cause the investor (i.e., the policyowner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyowners may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has
been issued.
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> 48
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 and
commenced full operations in 1995.
Responsibilities Assumed By Manufacturers Life
Manufacturers Life and Manufacturers USA have entered into an agreement with
ManEquity, Inc. pursuant to which Manufacturers Life or Manufacturers USA, 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 or Manufacturers USA for all sales
44
<PAGE> 49
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 and Manufacturers USA have also entered into a Service
Agreement with Manufacturers Life of America pursuant to which Manufacturers
Life and Manufacturers USA will provide to Manufacturers Life of America 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 or Manufacturers USA on behalf of Manufacturers Life of America. For 1994,
1995 and 1996, Manufacturers Life of America paid $21,326,446, $23,211,484, and
$26,982,466, respectively, to Manufacturers Life pursuant to the agreement.
Finally, Manufacturers USA 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 USA has no financial
obligation for any variable 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 $68.6 Billion (Canadian Dollars) and surplus of $4.3 Billion
(Canadian Dollars) as of December 31, 1996. 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 will be
sold directly through Manufacturers USA after December 31, 1996. 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.
45
<PAGE> 50
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
1996 1995 1994 1993* 1992*
--------- -------- ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
UNDER GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES:
Total Revenues $73,532 $62,174 $60,322
Net loss (8,407) (6,846) (6,726)
Total Assets 1,062,603 854,814 654,968
Long Term Obligations 8,500 167,390 159,019
Capital and Surplus 116,630 110,520 101,839
</TABLE>
* selected financial data under generally accepted accounting principles is not
available for the 1993 and 1992 fiscal years. See Management's Discussion and
Analysis and Notes to the Consolidated Financial Statements for additional
information.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
1996 1995 1994 1993 1992
--------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
ON STATUTORY BASIS**:
Total Revenues $202,666 $165,756 $197,426 $129,272 $41,316
Net loss (15,961) (13,705) (19,661) (13,277) (5,307)
Total Assets 795,083 588,742 403,086 253,392 136,065
Long Term Obligations 8,500 8,500 - - -
Capital and Surplus 76,202 56,298 49,396 50,656 55,544
</TABLE>
** Statutory accounting practices differ in certain respects from generally
accepted accounting principles. The significant differences relate to
consolidation accounting, investments, deferred acquisition costs, deferred
income taxes, non-admitted asset balances and reserve calculation
assumptions. All information presented elsewhere in this document is
presented under generally accepted accounting principles.
46
<PAGE> 51
Management Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The following analysis of the consolidated results of operations and
financial condition of the Manufacturers Life Insurance Company of America,
(hereafter referred to as the Company) should be read in conjunction with the
Consolidated Financial Statements and the related Notes to Consolidated
Financial Statements.
CORPORATE STRUCTURE
The Company is a U.S. direct wholly-owned subsidiary of The Manufacturers
Life Insurance Company (U.S.A.), which in turn is a direct wholly-owned
subsidiary of the Manulife Reinsurance Corporation (U.S.A.) ("MRC"). MRC is an
indirectly wholly-owned subsidiary of The Manufacturers Life Insurance Company
("Manufacturers Life"), a Canadian mutual insurance company. Manufacturers
Life, with consolidated assets of $68.6 billion ($Can), actively operates in
fourteen countries worldwide. Manufacturers Life has been doing business in the
United States since 1903.
Manufacturers Life and its subsidiaries have consistently received
excellent ratings from Standard & Poor's Insurance Rating Service, A. M. Best
Company, Moody's Investors Service Inc. and Duff & Phelps Credit Rating Co.
RECENT DEVELOPMENTS
REORGANIZATION
In 1996, the ownership of the Company was transferred from MRC, to The
Manufacturers Life Insurance Company (U.S.A.) ("ManUSA").
This was part of a more general corporate reorganization of Manufacturers
Life's U.S. operations. This transfer of ownership had no material effect
on the operations or consolidated financial statements of the Company.
Also in 1996, the ownership of Manulife Holding Corporation was transferred
from MRC to the Company. Manulife Holding Corporation is a holding company for
a number of U.S. non-insurance subsidiaries primarily supporting variable
products, as well as for Manufacturers Life Mortgage Securities Corporation
(hereafter referred to as MLMSC), which is an issuer of $159 million of mortgage
backed U.S. dollar bonds. See note 2 to the consolidated financial statements
for additional information.
ADOPTION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
During 1996, the Company adopted generally accepted accounting principles
("GAAP") in conformity with the requirements of the Financial Accounting
Standards Board. Prior to 1996, the Company prepared its financial statements in
conformity with statutory accounting practices prescribed or permitted by the
Insurance Department of the State of Michigan which were considered GAAP for
mutual life insurance companies and their wholly-owned direct and indirect
subsidiaries. As discussed in note 2 to the consolidated financial statements,
the effect of the adoption of GAAP has been reflected retroactively and the
previously issued 1995 and 1994 financial statements have been restated for the
change. A description of the accounting policies can be found in note 3 to the
consolidated financial statements. Selected financial data presented in this
annual report has been presented on a GAAP basis and also on a statutory basis
for the most recent five years. GAAP information was not available prior to
1994, and is not comparable to statutory basis information presented for 1993
and 1992.
MARKETING AND PRODUCT DISTRIBUTION
The Company focuses on two major businesses:
VARIABLE PRODUCTS IN THE U.S.: Products sold include both Variable
Universal Life and Variable Annuities. In recent years the Company has
experienced significant growth in the sale of its variable products due to
increasing estate planning needs from aging baby-boomers as estates are
passed from generation to generation.
TAIWAN: In 1993 the Company entered the Taiwan market as a startup venture
to sell traditional insurance products. The Company anticipates a large
potential for this market. The Company operates in Taiwan using a branch of
the Company. During 1995 the Company commenced full operations which have
resulted in significant recruitment and training expenditures. These
expenditures are expected to positively impact future operations as market
share increases. The business written in Taiwan consists of traditional
individual life insurance, such as whole life and endowment contracts, and
is marketed by the Company's own agency force.
In addition, the Company has assumed reinsurance from its parent company,
ManUSA. The Company reinsures an in force individual participating life
insurance block of business which does not include any new business.
47
<PAGE> 52
REVIEW OF CONSOLIDATED OPERATING RESULTS
<TABLE>
<CAPTION>
FINANCIAL SUMMARY (In '000's) 1996 1995 1994
- ------------------------------- ---------- --------- ---------
<S> <C> <C> <C>
Premiums $ 12,898 $ 15,293 $ 27,578
Fee Income 40,434 24,986 18,259
Net Investment Income 19,651 18,729 17,691
Other Revenues 668 82 361
Realized Capital Gains (Losses) (119) 3,084 (3,567)
- ------------------------------- ---------- --------- ---------
Total Revenues 73,532 62,174 60,322
Policyholder Benefits 14,473 16,905 28,768
Policyholder Dividends 872 1,886 965
- ------------------------------- ---------- --------- ---------
Loss Before Taxes (12,316) (10,806) (10,269)
Income Tax Benefit 3,909 3,960 3,543
Net Loss $ (8,407) $ (6,846) $ (6,726)
- ------------------------------- ---------- --------- ---------
General Account Assets 394,509 374,409 352,232
Separate Account Assets 668,094 480,405 302,736
- ------------------------------- ---------- --------- ---------
Total Assets $1,062,603 $ 854,814 $ 654,968
General Account Liabilities $ 277,879 $ 263,889 $ 250,394
Separate Account Liabilities 668,094 480,405 302,736
- ------------------------------- ---------- --------- ---------
Capital and Surplus 116,630 110,520 101,839
- ------------------------------- ---------- --------- ---------
</TABLE>
NET LOSS
The Company reported a consolidated net loss in 1996 of $8.4 million,
compared to the 1995 net loss of $6.8 million ($6.7 million net loss in 1994).
The main contributors to these losses were as follows:
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
- ----------------- ------- ------ ------
<S> <C> <C> <C>
US Operations $ 9.1 $ 2.5 $(3.0)
Taiwan Operations (17.5) (9.3) (3.7)
- ----------------- ------- ------ ------
Net Loss $ 8.4 $ 6.8 $ 6.7
- ----------------- ------- ------ ------
</TABLE>
Net income from US operations improved to $9.1 million in 1996 from $2.5
million in 1995 (a $3.0 million net loss in 1994). This improvement in both 1996
and 1995 is a result of increased policy fees which more than offset costs
associated with increased sales. The net loss from Taiwan operations increased
to $17.5 million in 1996 from $9.3 million in 1995 (a $3.7 million net loss in
1994). The increased net loss in 1996 and 1995 was a result of significant
start-up costs incurred in Taiwan, particularly associated with producer
recruitment.
PREMIUMS
Premium revenue for 1996 was $12.9 million compared to $15.3 million in
1995 ($27.6 million in 1994). Of the total, premiums related to sales of
traditional life insurance contracts in Taiwan in 1996, 1995 and 1994 were $12.2
million, $9.3 million and $2.2 million respectively. The increase in premiums in
Taiwan are a result of the growing operation discussed previously. Premiums
related to US operations decreased to $0.7 million in 1996 from $6.0 million in
1995 and $25.4 million in 1994. The US premiums relate solely to a block of
Corporate-owned life insurance business assumed from ManUSA for which the
initial premium assumed of $25.4 million was received in 1994, with very little
renewal premium received thereafter.
48
<PAGE> 53
Total general account and separate account deposits not included in
premiums above were as follows:
<TABLE>
<CAPTION>
(In 000's) 1996 1995 1994
- ----------------------- ------- -------- --------
<S> <C> <C> <C>
Variable Life Insurance $144,438 $108,323 $ 93,492
Variable Annuities 36,130 37,834 73,586
- ----------------------- -------- -------- --------
TOTAL $180,568 $146,157 $167,078
- ----------------------- -------- -------- --------
</TABLE>
The growth in variable life insurance deposits continued while single
premium variable annuity premiums continued to decrease in 1996 and 1995. The
deposit growth for variable life is consistent with the Company's commitment to
develop variable core "estate/business planning products". A survivorship
variable universal life product launched in late 1995 showed significant growth
in 1996. With the merger of Manufacturers Life and North American Life
Assurance Company in 1996, the sale of variable annuities in the Company will
be de-emphasized and the majority of variable annuity sales will be made
through an affiliated company, North American Security Life Insurance Company.
FEE INCOME
Fee income for 1996 was $40.4 million, compared to $25 million in 1995
($18.3 million in 1994). Strong investment performance in 1996 and a growing
maturing block of in-force business resulted in higher separate account values
and, therefore, higher fee income, which is earned on a percentage of the net
value of invested assets in the separate account portfolios. The variable
universal life and annuity business accounted for 85% of the fee income earned
by the Company in 1996 compared to 94% in 1995 and 89.6% in 1994. Fee income
from investment advisory subsidiaries increased at a somewhat greater rate than
that from the variable universal life and annuity business.
NET INVESTMENT INCOME
Net investment income was $19.7 million in 1996 compared to $18.7 million
in 1995 ($17.7 million in 1994). The Company's performance in 1996 reflects
similar investment income results compared to 1995. The increase in 1995
compared to 1994 is due to the strengthening of the stock market in 1995.
REALIZED CAPITAL GAINS
In 1996, the Company had realized capital losses of $0.1 million, compared
to gains of $3.1 million in 1995 ($3.6 million realized losses in 1994). The
Company occasionally sells bonds to provide cash flow and the realized gains or
losses are a result of this activity and will vary as interest rates fluctuate
from year to year.
POLICYHOLDER BENEFITS
Policyholder benefits decreased to $14.5 million in 1996, compared to
$16.9 million in 1995 ($28.8 million in 1994). Death claims experience in 1996
was favorable compared to expected levels and to prior years.
REVIEW OF CONSOLIDATED
FINANCIAL CONDITION
The Company had total consolidated assets of $1,063 million at December
31, 1996, an increase of $208 million or 24.3% from 1995. This change is
principally a result of separate account asset growth of $187.7 million due to
strong investment performance of the underlying investment funds and consumer
preference for participation in the stock market through separate accounts.
INVESTMENTS
The following table outlines by type of investment the carrying value of
the general account investment portfolio of the Company:
<TABLE>
<CAPTION>
INVESTMENT TYPE (In '000's) 1996 1995
- ------------------------------- -------- --------
<S> <C> <C>
Fixed maturities $ 51,708 $ 66,968
Equities 21,572 23,345
Mortgage loans 645 7,314
Policy Loans 9,822 6,955
Cash and Short-Term Investments 17,493 17,881
- ------------------------------- -------- --------
TOTAL INVESTMENTS $101,240 $122,463
- ------------------------------- -------- --------
</TABLE>
General account investments decreased by $21.3 million or 17% from 1995.
This change is due to a decrease in fixed maturities of $15.3 million in order
to pay operating costs relating to the Taiwan operation and to meet costs of
new business strain, as well as a decrease in mortgage loans of $6.7 million
due to principal repayments.
49
<PAGE> 54
FIXED MATURITES
The Company's fixed maturity bond portfolio of $51.7 million represents
51% of investments at the end of 1996, compared to 55% at the end of 1995.
At December 31, 1996, 85.9% of the bond portfolio was rated "A" or higher,
and 97.5% was rated investment grade, "BBB" or higher. The corresponding
percentages at the end of 1995 were 80.1% and 92.8%.
<TABLE>
<CAPTION>
FIXED MATURITIES BY INVESTMENT GRADE
(IN '000'S) 1996 1995
- ------------------------------------ -------------- --------------
<S> <C> <C> <C> <C>
AAA $16,953 32.7% $31,268 46.7%
AA 5,483 10.6% 4,017 6.0%
A 21,973 42.5% 18,362 27.4%
BBB 6,032 11.7% 8,528 12.7%
BB & lower, and unrated 1,267 2.5% 4,793 7.2%
- ------------------------------------ ------- -------
TOTAL FIXED MATURITIES $51,708 $66,968
- ------------------------------------ ------- -------
</TABLE>
EQUITY SECURITIES
The Company's equity portfolio of $21.6 million represents 21% of
investments at the end of 1996, compared to 19% at the end of 1995. The
equities consist entirely of investments in mutual funds sponsored by an
affiliate.
MORTGAGE LOANS
The Company's mortgage loans have decreased from $7.3 million in 1995 to
$0.6 million in 1996. This reflects the maturities of the MLMSC mortgages and
the reinvestment in the Guaranteed Annuity Contract asset described below.
POLICY LOANS
Policy loans represented 10% of investments at December 31, 1996, compared
to 6% in 1995. Most individual life insurance policies provide the individual
policyholder with the right to obtain a policy loan from the Company. Such
loans are made in accordance with the terms of the respective policies, are
carried at the unpaid balance, and are fully secured by the cash surrender
value of the policies on which the respective loans are made.
IMPAIRED ASSETS
Allowances for losses on investments are established when an asset or
portfolio of assets becomes impaired as a result of deterioration in credit
quality to the extent that there is no longer assurance of timely realization
of the carrying value of assets and related investment income. The carrying
value of an impaired asset is reduced to the net realizable value of the asset
at the time of recognition of impairment.
The Company had no provisions for impairments as at December 31, 1996 and 1995.
GUARANTEED ANNUITY CONTRACTS
As the mortgages in MLMSC have matured, the funds have been invested in a
Guaranteed Annuity Contract with the Company's parent, ManUSA. An interest
rate of 8% is credited to the GAC asset. This GAC asset will mature on March
1, 1997, the same date that the mortgage backed security issued by MLMSC
matures.
DERIVATIVES
The Company did not enter into any derivative transactions during 1996 or
1995.
50
<PAGE> 55
POLICYHOLDER LIABILITIES
The following table shows the distribution of Policyholder Liabilities and
Separate Account Liabilities by line of business at December 31:
<TABLE>
<CAPTION>
POLICYHOLDER LIABILITIES (In '000's) 1996 1995
---------------------------------------- -------- --------
<S> <C> <C>
Life Insurance:
Taiwan $ 15,305 $ 8,549
Reinsurance 44,497 47,386
Variable Life 32,113 30,194
---------------------------------------- -------- --------
TOTAL $ 91,915 $ 86,129
---------------------------------------- -------- --------
SEPARATE ACCOUNT LIABILITIES (In '000's) 1996 1995
---------------------------------------- -------- --------
Variable Life Insurance $399,403 $257,412
Variable Annuities 268,691 222,993
---------------------------------------- -------- --------
TOTAL $668,094 $480,405
---------------------------------------- -------- --------
</TABLE>
Separate account liabilities are $668 million, an increase of 39% over
1995. This reflects the growing popularity of variable products in the
marketplace and the increase in existing fund values due to the increase in the
stock market in 1996.
Taiwan reserves, although still small, have shown a rapid increase in
1996. This reflects the start-up operation in Taiwan. Taiwan reserves are
expected to continue to rise rapidly in the near future.
ASSET/LIABILITY MANAGEMENT
The Company has established a target portfolio mix which takes into
account the risk attributes of the liabilities supported by the assets,
expectations of market performance, and a generally conservative investment
philosophy. Preservation of capital and maintenance of income flows are key
objectives.
LIQUIDITY AND CAPITAL REQUIREMENTS
The General account liabilities consist of traditional insurance whose
liquidity requirements do not fluctuate significantly from one year to the
next. The majority of the Company'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.
The Company maintains a prudent amount invested in cash and short term
investments. At the end of 1996, this amounted to $17.5 million or 17.3% of
total investments compared to $17.9 million in 1995 or 14.6%. In addition, the
Company's liquidity is managed by maintaining an easily marketable portfolio of
fixed maturities. Because of the excess of expense over income, which arises
from the costs of new policy issues, the continued success in generating sales
will not only result in losses in the results from operations, but will create a
cash flow strain as well. The Company's consolidated statements of cash flows
indicate this in that operating activities used cash of $20.5 million and $29.6
million in 1996 and 1995 respectively compared to providing cash of $10 million
in 1994. As a result, the Company looks to its parent, ManUSA, for the necessary
capital to support its operations. In 1995 a surplus note for $8.5 million was
issued to the Company from ManUSA. In 1996, a $15 million contribution of
capital was made to the Company by its Parent to provide further liquidity.
Manufacturers Life has entered into a claims paying guarantee with the Company.
On March 1, 1997, the bonds payable of $159 million issued by MLMSC
matured. The Company's Parent, ManUSA, transferred an amount equal to the
Guaranteed Annuity Contract value to the Company to repay the bonds.
The Company has no material commitments for capital expenditures.
CAPITAL REQUIREMENTS AND SOLVENCY PROTECTION
In order to enhance the regulation of insurer solvency, the NAIC enforces
minimum Risk Based Capital (RBC) requirements. The requirements are designed
to monitor capital adequacy and to raise the level of protection that statutory
surplus provides for policyholders. The RBC model law required that life
insurance companies report on a formula-based RBC standard which is calculated
by applying factors to various assets, premium and reserve items. The formula
takes into account risk characteristics of the life insurer, including asset
risk, insurance risk, interest risk and business risk. If an insurer's ratio
falls below certain thresholds, regulators will be authorized, and in some
circumstance required, to take regulatory action.
The Company's policy is to maintain capital and surplus balances well in
excess of the minimums required under government regulations in all
jurisdictions in which the Company does business.
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<PAGE> 56
RISK MANAGEMENT PRACTICES AND PROCEDURES
Risk management is a fundamental element of the Company's financial
strength and profitability, and is essential to its continuing success. The
Company is committed to comprehensive risk management policies and procedures
which measure and control risk in all of its business activities and allow for
periodic by internal and external auditors and regulators.
The key risk faced by the Company are credit, claims, pricing and
business risk. The nature of these risks and how they are managed is explained
in the following sections.
CREDIT RISK
Credit risk is the risk that a party to a financial instrument will fail
to fully honor its financial obligations to the Company. Senior management
within the Investments operations establishes policies and procedures for the
management of credit risk which limits concentration by issuer, connections,
rating sector and geographic region. Limits are placed on all personnel in
terms of ability to commit the Company to credit instruments. Credit and
commitment exposures are monitored using a rigorous reporting process and are
subject to a formal quarterly review.
CLAIMS RISK
The Company is always subject to the risk of change in the life expectancy
of the population. Claims trends are therefore monitored on an ongoing basis.
The Company uses both its own and industry experience to develop estimates of
future claims.
The management of ongoing claims risk for an insurer includes establishing
appropriate criteria to determine the insurability of applicants as well as
managing the exposure to large dollar claims. Underwriting standards have been
established to manage the insurability of applicants. Renewal underwriting
standards are also in place for business that renews on a periodic basis
(primarily group life and health insurance). Management performs periodic
reviews to ensure compliance with standards.
Exposure to large claims is managed by establishing policy retention
limits. Policies in excess of the limits are reinsured with MRC. Underwriting
standards and policy retention limits are reviewed on a periodic basis.
PRICING RISK
The process of pricing products includes the estimation of many factors
including future investment yields, mortality and morbidity experience,
expenses, rates of policy surrender, and taxes. Pricing risk is the risk that
actual experience in the future will not develop as estimated in pricing. Some
products are designed such that adjustments to premiums or benefits can be made
for experience variations, while for other products no such changes are
possible.
The Company manages pricing risks by setting standards and guidelines for
pricing. These standards and guidelines cover pricing methods and assumption
setting, profit margin objectives, required scenario analysis, and
documentation. They also address the areas of pricing software, approved
pricing personnel, and pricing approvals. These standards and guidelines
ensure that an appropriate level of risk is borne by the Company and that an
appropriate return is provided to the policyholders.
BUSINESS RISK
Business risk comprises operating risk as well as other risks. Operating
risk is the exposure to inadequate internal controls, including inadequate
control of risk management. Other risks include legal, political, competitive
and environmental risks. Business risks expose the Company to potential loss
of earnings.
The Company manages operating risks by establishing appropriate internal
control policies and procedures. The Company centrally manages business risk
using risk identification and compliance monitoring processes. Diversification
of businesses is an integral part of the Company's business risk management
strategy.
A controllership function has been established in each operation and is
responsible for day-to-day management of operating risk including compliance
with Company control policies.
Internal and external auditors review the adequacy of internal controls
and report to senior management and the Board of Directors on a quarterly and
an annual basis, respectively.
The Company has coordinated its operational compliance departments under
the supervision of its corporate legal function. This structure ensures
compliance with all legal and regulatory requirements in all jurisdictions in
which the Company does business. All customer-related communications, product
brochures and selling tools, and procedures for compliance therewith, are
subject to review by the compliance function. Compliance is monitored on an
ongoing basis.
52
<PAGE> 57
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>
Sandra M. Cotter Director Attorney -- 1989-present,
(34) (since December Dykema, Gossett
1992)
James D. Gallagher Director, Vice President, Secretary and
(42) Secretary and General Counsel -- January 1997-
General Counsel present, ManUSA; Vice President,
Legal Services U.S. Operations --
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) (Since May 1996) -- Pensions -- 1990-present,
The Manufacturers Life
Insurance Company
Donald A. Guloien President and Senior Vice President, Business
(39) Director Development -- 1994-present,
(since September The Manufacturers Life
1990) Insurance Company, Vice
President, U.S. Individual Business --
1990-1994, The Manufacturers Life
Insurance Company Mr. Guloien is also a
director of Manulife Series Fund, Inc.
</TABLE>
53
<PAGE> 58
<TABLE>
<CAPTION>
Position With
Manufacturers Life
Name of America Principal Occupation
---- ------------------ --------------------
<S> <C> <C>
Theodore Kilkuskie Director Vice President, U.S. Individual
(41) Insurance -- January 1997-present,
Man USA; Vice President, U.S. Individual
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,
(58) (since July 1982) General Counsel and Corporate
Secretary -- 1988-present, The
Manufacturers Life Insurance Company
John D. Richardson Chairman and Senior Vice President and
(58) Director General Manager, U.S.
(since January Operations -- 1995-present,
1995) 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, Financial Vice President --
(43) Chief Actuary 1992 - present, The Manufacturers
and Treasurer 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 Controller, U.S. Operations --
Compliance 1988-present, The Manufacturers
Controller Life Insurance Company
Joseph Mounsey Senior Vice Senior Vice President, Investment --
(48) President 1994 - present, The Manufacturers Life
Insurance Company; Senior Vice
President, International Investments
1991 - 1994, The Manufacturers Life
Insurance Company
Victor Apps Senior Vice Senior Vice President and General
(48) President and Manager, Greater China Division
General Manager -- 1995 - present, The Manufacturers
Life Insurance Company; Vice President and
General Manager, Greater China Division
-- 1993 - 1995, The Manufacturers Life Insurance
Company; International Vice President, Asia
Pacific Division -- 1988 - 1993, The
Manufacturers Life Insurance Company
Robert A. Cook Vice President Vice President, Product Management --
(42) 1996 - present, The Manufacturers Life
Insurance Company; Sales and Marketing
Director, U.S. Division -- 1994 - 1995
The Manufacturers Life Insurance
Company; Vice President, Corporation
Strategic Review -- 1992 - 1993, The
Manufacturers Life Insurance Company
</TABLE>
* Bruce Gordon is also a director of ManEquity, Inc.
** Douglas Myers is also a director and president of ManEquity, Inc.
54
<PAGE> 59
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 the Company also serve as officers of
Manufacturers Life and receive no compensation directly from the Company.
Allocations have been made as to such officers' time devoted to duties as
executive officers of the Company and its subsidiaries. The aggregate allocated
cash compensation of the president of the Company for services rendered in all
capacities to the Company and its subsidiaries during 1996 was $19,666. This
consisted of salary ($12,684), profit-sharing ($5,460), flexible spending
benefits ($1,522) 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 the Company 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 the Company 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 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.
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 $72,419. The yearly allowable
benefit will be indexed commencing 1999 based on increases in average industrial
wages.
All executive officers of the Company currently accrue maximum yearly
55
<PAGE> 60
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 24,879 33,172 41,465 49,758 58,052
150,000 30,394 40,525 50,657 60,788 70,919
200,000 41,423 55,231 69,039 82,847 96,655
250,000 52,453 69,937 87,422 104,906 122,390
300,000 63,482 84,643 105,804 126,965 148,126
400,000 85,541 114,055 142,569 171,083 199,597
500,000 107,600 143,467 179,334 215,201 251,068
600,000 129,659 172,879 216,099 259,319 302,539
700,000 151,718 202,291 252,864 303,437 354,010
800,000 173,777 231,703 289,629 347,555 405,481
900,000 195,836 261,115 326,394 391,673 456,952
1,000,000 217,895 290,527 363,159 435,791 508,423
</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 15 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
56
<PAGE> 61
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.
57
<PAGE> 62
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, 1994, December 31, 1995 and December 31, 1996,
ManEquity, Inc. received $2,389,494, $3,355,185, and $3,045,326, respectively,
as compensation for sales of other variable annuity policies issued by Separate
Account Two by its registered representatives. Of these amounts $2,283,353,
$3,262,711, and $2,957,985, 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, 1996 was $21,492,659.
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 Portfolio of NASL Series Trust.
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.
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<PAGE> 63
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 James D. Gallagher,
Esq., Vice President, 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 and financial statement schedules of The Manufacturers
Life Insurance Company of America and the financial statements of Separate
Account Two of The Manufacturers Life Insurance Company of America appearing in
this prospectus for the year ended December 31, 1996 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 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.
59
<PAGE> 64
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 Portfolio underlying a sub-account will replace such
periods for a Portfolio that has not been in existence for a full five year or
ten year period. In the case of a new Portfolio 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 Portfolio 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.
60
<PAGE> 65
Total returns if surrendered for the period ending December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
AVG. AVG. AVG. AVG. AVG. ANNUAL
ANNUAL ANNUAL ANNUAL ANNUAL TOTAL
TOTAL TOTAL TOTAL TOTAL RETURN
NASL Series RETURN RETURN RETURN RETURN SINCE
Trust Portfolios ONE YEAR THREE YEARS FIVE YEARS** TEN YEARS** INCEPTION*
- ---------------- -------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Emerging Growth n/a n/a n/a n/a n/a
Balanced n/a n/a n/a n/a n/a
Capital Growth Bond -7.14% 1.44% 4.26% 5.83% 9.13%
Quantitative Equity 6.86% 9.00% 9.44% n/a 9.03%
(formerly Common Stock)
Real Estate Securities 22.08% 10.17% 14.94% n/a 11.69%
Money Market -4.81% 0.72% 1.79% 3.97% 4.04%
International Stock n/a n/a n/a n/a n/a
Pacific Rim Emerging Markets -0.50% n/a n/a n/a 1.54%
</TABLE>
* June 26, 1984 for the Capital Growth Bond Trust; June 18, 1985 for the
Money Market Trust; May 1, 1987 for the Quantitative Equity and Real
Estate Securities Trusts; October 4, 1994 for the Pacific Rim Emerging
Markets Trust; and December 31, 1996 for the Emerging Growth, Balanced and
International Stock Trust.
** Policies have only been offered since May 4, 1994. Performance data for
earlier periods are hypothetical figures based on the performance of the
Portfolio in which policy assets may be invested.
Total returns if not surrendered are as follows:
<TABLE>
AVG. AVG. AVG. AVG. AVG. ANNUAL
ANNUAL ANNUAL ANNUAL ANNUAL TOTAL
TOTAL TOTAL TOTAL TOTAL RETURN
NASL Series RETURN RETURN RETURN RETURN SINCE
Trust Portfolios ONE YEAR THREE YEARS FIVE YEARS** TEN YEARS** INCEPTION*
- ---------------- -------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Emerging Growth n/a n/a n/a n/a n/a
Balanced n/a n/a n/a n/a n/a
Capital Growth Bond 0.94% 3.99% 5.02% 5.83% 9.13%
Quantitative Equity 16.15% 11.75% 10.25% n/a 9.03%
(formerly Common Stock)
Real Estate Securities 32.69% 12.95% 15.79% n/a 11.69%
Money Market 3.46% 3.26% 2.54% 3.97% 4.04%
International Stock n/a n/a n/a n/a n/a
Pacific Rim Emerging Markets 8.15% n/a n/a n/a 4.98%
</TABLE>
* June 26, 1984 for the Capital Growth Bond Trust; June 18, 1985 for the
Money Market Trust; May 1, 1987 for the Quantitative Equity and Real
Estate Securities Trusts; October 4, 1994 for the Pacific Rim Emerging
Markets Trust; and December 31, 1996 for the Emerging Growth, Balanced and
International Stock Trust.
** Policies have only been offered since May 4, 1994. Performance data for
earlier periods are hypothetical figures based on the performance of the
Portfolio in which policy assets may be invested.
61
<PAGE> 66
Aggregate total returns if surrendered as of the end of each year since
inception are as follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Emerging Growth N/A N/A N/A N/A N/A N/A N/A N/A N/A
Balanced N/A N/A N/A N/A N/A N/A N/A N/A N/A
Capital Growth Bond -7.14% 10.42% -13.46% 0.89% -3.72% 6.62% -3.04% 4.16% -2.49%
Quantitative Equity
(formerly Common Stock) 6.86% 19.27% -13.19% 3.67% -3.53% 20.20% -13.08% 20.68% 0.20%
Real Estate Securities 22.08% 5.39% -11.90% 12.75% 11.46% 30.95% -13.50% -0.42% 2.03%
Money Market -4.81% -3.88% -5.64% -6.78% -6.12% -3.79% -1.77% -0.96% -2.74%
International Stock N/A N/A N/A N/A N/A N/A N/A N/A N/A
Pacific Rim Emerging Markets -0.50% 1.78% -13.50 N/A N/A N/A N/A N/A N/A
<CAPTION>
1987 1986 1985 1984
---- ---- ---- ----
<S> <C> <C> <C> <C>
Emerging Growth N/A N/A N/A N/A
Balanced N/A N/A N/A N/A
Capital Growth Bond -10.92% 12.51% 16.22% 4.86%
Quantitative Equity
(formerly Common Stock) -22.58% N/A N/A N/A
Real Estate Securities -16.61% N/A N/A N/A
Money Market -3.38% -3.76% -5.17% N/A
International Stock 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>
1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Emerging Growth N/A N/A N/A N/A N/A N/A N/A N/A N/A
Balanced N/A N/A N/A N/A N/A N/A N/A N/A N/A
Capital Growth Bond 0.94% 18.42% -5.93% 8.89% 4.28% 14.62% 4.96% 12.16% 5.51%
Quantitative Equity
(formerly Common Stock) 16.15% 27.27% -5.64% 11.67% 4.47% 28.20% -5.52% 28.68% 8.20%
Real Estate Securities 32.69% 13.99% -4.24% 20.75% 19.46% 38.95% -5.98% 7.58% 10.03%
Money Market 3.46% 4.12% 2.36% 1.22% 1.88% 4.21% 6.23% 7.04% 5.26%
International Stock N/A N/A N/A N/A N/A N/A N/A N/A N/A
Pacific Rim Emerging Markets 8.15% 9.60% -1.90% N/A N/A N/A N/A N/A N/A
<CAPTION>
1987 1986 1985 1984
---- ---- ---- ----
<S> <C> <C> <C> <C>
Emerging Growt N/A N/A N/A N/A
Balanced N/A N/A N/A N/A
Capital Growth Bond -3.17% 20.51% 24.22% 12.86%
Quantitative Equity
(formerly Common Stock) -15.85% N/A N/A N/A
Real Estate Securities -9.35% N/A N/A N/A
Money Market 4.62% 4.24% 2.03% N/A
International Stock 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 Portfolios for specified periods, and the figures are not intended to
indicate future performance.
62
<PAGE> 67
FINANCIAL STATEMENTS
The financial statements of Manufacturers Life of America included herein should
be distinguished from the financial statements of Separate Account Two and
should be considered only as bearing upon the ability of Manufacturers Life of
America to meet its obligations under the Policies.
63
<PAGE> 68
Separate Account Two of
The Manufacturers Life Insurance Company of America
Financial Statements
Years ended December 31, 1996 and 1995
CONTENTS
Report of Independent Auditors ..............................................
Audited Financial Statements
Statement of Assets and Liabilities .........................................
Statement of Operations .....................................................
Statements of Changes in Net Assets .........................................
Notes to Financial Statements ...............................................
<PAGE> 69
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 Sub-Account, Quantitative Equity Sub-Account, Real
Estate Securities Sub-Account, Balanced Sub-Account, Capital Growth Bond
Sub-Account, Money Market Sub-Account, International Stock Sub-Account and
Pacific Rim Emerging Markets Sub-Account) as of December 31, 1996, the related
statements of operations 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, 1996, the
results of its operations and the changes in its net assets for each of the
periods presented herein, in conformity with generally accepted accounting
principles.
Philadelphia, Pennsylvania
January 31, 1997 Ernst & Young LLP
1
<PAGE> 70
Separate Account Two of
The Manufacturers Life Insurance Company of America
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
EMERGING QUANTITATIVE REAL ESTATE CAPITAL
GROWTH EQUITY SECURITIES BALANCED GROWTH BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in NASL Series Trust
- --at market value:
Emerging Growth Trust,
3,818,720 shares (cost $78,530,226) $78,665,625
Quantitative Equity Trust,
2,207,827 shares (cost $36,005,560) $38,261,638
Real Estate Securities Trust,
2,365,997 shares (cost $35,503,640) $40,103,643
Balanced Trust,
3,378,894 shares (cost $52,814,145) $55,447,658
Capital Growth Bond Trust,
1,511,501 shares (cost $16,740,567) $16,475,360
Money Market Trust,
2,056,361 shares (cost $21,485,905)
International Stock Trust,
666,853 shares (cost $7,107,566)
Pacific Rim Emerging Markets Trust,
520,189 shares (cost $5,548,100)
----------- ------------ ----------- ----------- -----------
Net Assets $78,665,625 $38,261,638 $40,103,643 $55,447,658 $16,475,360
=========== ============ =========== =========== ===========
Units outstanding 1,681,075 1,274,256 1,190,829 2,312,513 851,595
=========== ============ =========== =========== ===========
Net asset value per unit $46.79 $30.03 $33.68 $23.98 $19.35
=========== ============ =========== =========== ===========
MONEY INTERNATIONAL EMERGING
MARKET STOCK MARKETS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in NASL Series Trust
- --at market value:
Emerging Growth Trust,
3,818,720 shares (cost $78,530,226) $78,665,625
Quantitative Equity Trust,
2,207,827 shares (cost $36,005,560) 38,261,638
Real Estate Securities Trust,
2,365,997 shares (cost $35,503,640) 40,103,643
Balanced Trust,
3,378,894 shares (cost $52,814,145) 55,447,658
Capital Growth Bond Trust,
1,511,501 shares (cost $16,740,567) 16,475,360
Money Market Trust,
2,056,361 shares (cost $21,485,905) $20,563,580 20,563,580
International Stock Trust,
666,853 shares (cost $7,107,566) $7,648,804 7,648,804
Pacific Rim Emerging Markets Trust,
520,189 shares (cost $5,548,100) $5,670,062 $5,670,062
----------- ------------ ----------- ------------
Net Assets $20,563,580 $7,648,804 $5,670,062 $262,836,370
=========== ============ =========== ============
Units outstanding 1,375,204 652,940 502,325
=========== ============ ===========
Net asset value per unit $14.95 $11.71 $11.29
=========== ============ ===========
</TABLE>
See accompanying notes.
<PAGE> 71
Separate Account Two of
The Manufacturers Life Insurance Company of America
Statement of Operations
Year ended December 31, 1996
<TABLE>
<CAPTION>
EMERGING QUANTITATIVE REAL ESTATE CAPITAL
GROWTH EQUITY SECURITIES BALANCED GROWTH BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ 12,289,740 $ 5,719,842 $6,506,602 $ 7,586,381 $ 947,959
Expenses:
Mortality and expense risks charge 797,219 301,648 310,604 513,035 153,637
------------ ----------- ----------- ----------- ---------
Net investment income 11,492,521 5,418,194 6,195,998 7,073,346 794,322
------------ ----------- ---------- ----------- ---------
Realized and unrealized gain (loss) on
investments:
Realized gain (loss) from security
transactions:
Proceeds from sales 15,539,340 3,532,903 4,955,444 5,270,972 2,577,602
Cost of securities sold 13,278,588 2,675,844 4,539,516 4,431,525 2,754,011
------------ ----------- --------- ---------- ----------
Net realized gain (loss) 2,260,752 857,059 415,928 839,447 (176,409)
------------ ----------- --------- ---------- ----------
Unrealized appreciation
(depreciation) of investments
Beginning of year 11,362,638 3,843,935 1,406,388 5,762,687 113,528
End of year 135,399 2,256,078 4,600,003 2,633,513 (265,207)
----------- ---------- --------- ---------- -----------
Net unrealized (depreciation)
appreciation during the year (11,227,239) (1,587,857) 3,193,615 (3,129,174) (378,735)
----------- ---------- --------- ---------- ----------
Net realized and unrealized (loss)
gain on investments (8,966,487) (730,798) 3,609,543 (2,289,727) (555,144)
------------ ---------- --------- ---------- ----------
Net increase in net assets derived
from operations $ 2,526,034 $ 4,687,396 $9,805,541 $ 4,783,619 $ 239,178
============= =========== ========== ============ ==========
PACIFIC RIM
INTERNATIONAL EMERGING
MONEY MARKET STOCK MARKETS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Investment income:
Dividend income $ 1,696,385 $ 201,618 $ 232,102 $ 35,180,629
Expenses:
Mortality and expense risks charge 200,655 56,247 43,640 2,376,685
------------ ----------- ----------- -----------
Net investment income 1,495,730 145,371 188,462 32,803,944
------------ ----------- ---------- -----------
Realized and unrealized gain (loss) on
investments:
Realized gain (loss) from security
transactions:
Proceeds from sales 18,226,080 528,260 859,389 51,489,990
Cost of securities sold 17,579,208 467,824 720,409 46,446,925
------------ ----------- --------- ----------
Net realized gain (loss) 646,872 60,436 138,980 5,043,065
------------ ----------- --------- ----------
Unrealized appreciation
(depreciation) of investments
Beginning of year 434,988 218,320 152,770 23,295,254
End of year (922,325) 541,238 121,962 9,100,661
----------- ---------- --------- ----------
Net unrealized (depreciation)
appreciation during the year (1,357,313) 322,918 (30,808) (14,194,593)
----------- ---------- --------- ----------
Net realized and unrealized (loss)
gain on investments (710,441) 383,354 108,172 (9,151,528)
------------ ---------- --------- ----------
Net increase in net assets derived
from operations $ 785,289 $ 528,725 $ 296,634 $ 23,652,416
============= ============ ========== =============
</TABLE>
See accompanying notes.
<PAGE> 72
Separate Account Two of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
EMERGING GROWTH QUANTITATIVE EQUITY REAL ESTATE SECURITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------------------- ---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/96 DEC. 31/95 DEC. 31/96 DEC. 31/95 DEC. 31/96 DEC. 31/95
------------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 11,492,521 $ 1,178,986 $ 5,418,194 $ (199,735) $ 6,195,998 $ 213,629
Net realized gain (loss) 2,260,752 1,683,869 857,059 251,649 415,928 223,127
Net unrealized (depreciation)
appreciation of
investments
during the year (11,227,239) 11,908,991 (1,587,857) 4,970,753 3,193,615 3,143,212
------------- ---------- ----------- ------------ ----------- -----------
Net increase in net assets
derived from operations 2,526,034 14,771,846 4,687,396 5,022,667 9,805,541 3,579,968
------------- ---------- ----------- ------------ ----------- -----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 8,295,774 9,075,130 5,288,553 3,138,683 1,841,736 2,395,793
Transfer on death (118,285) (40,037) (109,077) (7,409) (85,142) (17,513)
Transfer on terminations (4,028,509) (3,053,099) (940,409) (681,944) (1,184,528) (1,232,704)
Transfer of maturity (69,790) 83,583 2,897 67,266 (114,691) 4,515
Net interfund transfers (3,149,315) 2,606,912 4,181,441 1,459,853 806,658 (2,418,292)
------------- ---------- ----------- ------------ ----------- -----------
929,875 8,672,489 8,423,405 3,976,449 1,264,033 (1,268,201)
------------- ---------- ----------- ------------ ----------- -----------
Net increase in net assets 3,455,909 23,444,335 13,110,801 8,999,116 11,069,574 2,311,767
NET ASSETS
Beginning of year 75,209,716 51,765,381 25,150,837 16,151,721 29,034,069 26,722,302
------------- ---------- ----------- ------------ ----------- -----------
End of year $78,665,625 $75,209,716 $38,261,638 $25,150,837 $40,103,643 $29,034,069
============= =========== =========== ============ =========== ===========
BALANCED CAPITAL GROWTH BOND MONEY MARKET
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------------------- ---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/96 DEC. 31/95 DEC. 31/96 DEC. 31/95 DEC. 31/96 DEC. 31/95
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 7,073,346 $ (353,870) $ 794,322 $ 919,430 $ 1,495,730 $ (155,245)
Net realized gain (loss) 839,447 233,943 (176,409) (76,983) 646,872 322,742
Net unrealized (depreciation)
appreciation of
investments
during the year (3,129,174) 8,830,332 (378,735) 1,343,599 (1,357,313) 531,125
---------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets
derived from operations 4,783,619 8,710,405 239,178 2,186,046 785,289 698,622
---------- ----------- ----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 6,209,407 5,071,298 3,085,222 2,368,800 6,867,931 10,039,733
Transfer on death (67,227) (84,545) (5,719) (12,196) (81,747) (27,370)
Transfer on terminations (2,862,825) (1,647,362) (1,276,684) (719,239) (2,221,277) (2,420,434)
Transfer of maturity 5,141 12,834 7,396 25,737 6,170 (38,588)
Net interfund transfers (595,285) 377,983 (632,752) 438,281 (3,344,848) (2,334,352)
----------- ----------- ----------- ----------- ----------- -----------
2,689,211 3,730,208 1,177,463 2,101,383 1,226,229 5,218,989
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets 7,472,830 12,440,613 1,416,641 4,287,429 2,011,518 5,917,611
NET ASSETS
Beginning of year 47,974,828 35,534,215 15,058,719 10,771,290 18,552,062 12,634,451
----------- ----------- ----------- ----------- ----------- -----------
End of year $55,447,658 $47,974,828 $16,475,360 $15,058,719 $20,563,580 $18,552,062
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE> 73
Separate Account Two of
The Manufacturers Life Insurance Company of America
Statement of Changes in Net Assets (continued)
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
PACIFIC RIM
INTERNATIONAL STOCK EMERGING MARKETS
SUB-ACCOUNT SUB-ACCOUNT TOTAL
-------------------------- -------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/96 DEC. 31/95 DEC. 31/96 DEC. 31/96 DEC. 31/96 DEC. 31/96
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 145,371 $ 64,804 $ 188,462 $ 15,504 $ 32,803,944 $ 1,683,503
Net realized gain (loss) 60,436 5,799 138,980 23,810 5,043,065 2,667,956
Net unrealized (depreciation)
appreciation of
investments
during the year 322,918 223,966 (30,808) 166,870 (14,194,593) 31,118,848
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets
derived from operations 528,725 294,569 296,634 206,184 23,652,416 35,470,307
------------ ------------ ------------ ------------ ------------ ------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 1,819,629 1,231,995 1,339,071 988,086 34,747,323 34,309,518
Transfer on death (5,577) - (11,069) - (483,843) (189,070)
Transfer on terminations (222,632) (61,097) (215,118) (45,863) (12,951,982) (9,861,742)
Transfer of maturity - - - - (162,877) 155,347
Net interfund transfers 1,729,012 1,467,355 1,549,203 929,903 544,114 2,527,643
------------ ------------ ------------ ------------ ------------ ------------
3,320,432 2,638,253 2,662,087 1,872,126 21,692,735 26,941,696
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets 3,849,157 2,932,822 2,958,721 2,078,310 45,345,151 62,412,003
NET ASSETS
Beginning of year 3,799,647 866,825 2,711,341 633,031 217,491,219 155,079,216
------------ ------------ ------------ ------------ ------------ ------------
End of year $7,648,804 $3,799,647 $5,670,062 $2,711,341 $262,836,370 $217,491,219
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
8
<PAGE> 74
Separate Account Two of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
December 31, 1996
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 comprised of investment
sub-accounts 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 life insurance company organized
in 1983 under Michigan law. Manufacturers Life of America is an indirect,
wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manulife
Financial"), a Canadian mutual life insurance company. On January 1, 1996,
Manulife Financial merged with North American Life Assurance Company and as a
result, acquired control of the NASL Series Trust.
Effective December 31, 1996, Manulife Series Fund, Inc. was merged into the NASL
Series Trust. As a result, the following sub-accounts of the Separate Account
were renamed to correspond with the fund names of the NASL Series Trust.
MANULIFE SERIES FUND, INC. NASL SERIES TRUST
SUB-ACCOUNTS SUB-ACCOUNTS
Emerging Growth Equity Fund Emerging Growth Trust
Common Stock Fund Quantitative Equity Trust
Real Estate Securities Fund Real Estate Securities Trust
Balanced Assets Fund Balanced Trust
Capital Growth Bond Fund Capital Growth Bond Trust
Money Market Fund International Stock Trust
International Fund Money Market Trust
Pacific Rim Emerging Markets Funds Pacific Rim Emerging Markets Trust
All references hereinafter to NASL Series Trust would have been to Manulife
Series Fund, Inc. prior to December 31, 1996.
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.
<PAGE> 75
Separate Account Two of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
1. ORGANIZATIONS (CONTINUED)
The net assets may not be less than the amount required under state insurance
law to provide for death (without regard to the minimum death benefit
guarantee) and other Policy benefits.
Additional assets are held in Manufacturers Life of America's general account to
cover the contingency that the guaranteed minimum death benefit might exceed the
death benefit which would have been payable in the absence of such guarantee.
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 Trusts of
NASL Series Trust and are valued at the reported net asset values of these
Trusts. Transactions are recorded on the trade date. Net investment income
and net realized gains on investments in NASL Series Trust 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.
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 the Separate Account's operations, it intends to make a charge or
establish a provision within the Separate Account for such taxes.
<PAGE> 76
Separate Account Two of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 NASL SERIES TRUST SHARES
Purchases and sales of the shares of common stock of NASL Series Trust for the
year ended December 31, 1996 were $106,195,420 and $51,489,990, respectively and
for the year ended December 31, 1995 were $66,126,070 and $37,679,041,
respectively.
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.
<PAGE> 77
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE> 78
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors .......................................
Audited Consolidated Financial Statements
Consolidated Balance Sheets ..........................................
Consolidated Statements of Income ....................................
Consolidated Statements of Changes in Capital and Surplus ............
Consolidated Statements of Cash Flow .................................
Notes to Consolidated Financial Statements ...........................
</TABLE>
<PAGE> 79
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
We have audited the accompanying consolidated balance sheets of The
Manufacturers Life Insurance Company of America as of December 31, 1996 and
1995, and the related consolidated statements of income, changes in capital and
surplus and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion 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 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 consolidated financial position of The Manufacturers
Life Insurance Company of America at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the financial statements, in 1996 the Company adopted
certain accounting changes to conform with generally accepted accounting
principles for mutual life insurance enterprises, and retroactively restated
the 1995 and 1994 financial statements for the change.
PHILADELPHIA, PENNSYLVANIA Ernst & Young LLP
MARCH 21, 1997
3
<PAGE> 80
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at December 31
ASSETS ($thousands) 1996 1995
--------------------------------------------------------- --------- -------
<S> <C> <C>
INVESTMENTS:
Securities available-for-sale, at fair value: (note 4)
Fixed maturity (amortized cost: 1996 $50,456; 1995 $62,757) $ 51,708 $ 66,968
Equity (cost:1996 $19,450; 1995 $22,441) 21,572 23,345
Mortgage loans 645 7,314
Policy loans 9,822 6,955
Cash and short-term investments 17,493 17,881
--------------------------------------------------------- ---------- -------
Total Investments $ 101,240 $122,463
--------------------------------------------------------- ---------- -------
Guaranteed annuity contracts (note 5) 171,691 155,335
Deferred acquisition costs (note 6) 102,610 78,829
Income taxes recoverable 10,549 5,156
Deferred income taxes (note 7) 1,041 1,616
Other assets 7,378 11,010
Separate account assets 668,094 480,405
--------------------------------------------------------- --------- -------
TOTAL ASSETS $1,062,603 $854,814
--------------------------------------------------------- ---------- -------
LIABILITIES, CAPITAL AND SURPLUS ($thousands) 1996 1995
--------------------------------------------------------- ---------- -------
LIABILITIES:
Policyholder Liabilities and accruals $ 91,915 $ 86,129
Bonds payable (note 8) 158,760 158,890
Surplus note (note 9) 8,500 8,500
Due to affiliates 11,122 463
Other liabilities 7,582 9,907
Separate account liabilities 668,094 480,405
--------------------------------------------------------- ---------- -------
TOTAL LIABILITIES $ 945,973 $744,294
--------------------------------------------------------- ---------- -------
CAPITAL AND SURPLUS:
Common shares (note 10) 4,502 4,502
Preferred shares (note 10) 10,500 10,500
Contributed surplus 98,569 83,569
Retained earnings 1,726 10,133
Net unrealized gain on securities
available-for-sale (note 4) 1,333 1,816
--------------------------------------------------------- ---------- -------
TOTAL CAPITAL AND SURPLUS 116,630 110,520
--------------------------------------------------------- ---------- -------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $1,062,603 $854,814
--------------------------------------------------------- ---------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 81
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1996 1995 1994
- --------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
REVENUE:
Premiums $12,898 $15,293 $ 27,578
Fee income 40,434 24,986 18,259
Net investment income (note 4) 19,651 18,729 17,691
Realized investment gains (losses) (119) 3,084 (3,567)
Other 668 82 361
- --------------------------------------------------- -------- -------- --------
TOTAL REVENUE 73,532 62,174 60,322
- --------------------------------------------------- -------- -------- --------
BENEFITS AND EXPENSES:
Policyholder benefits and claims 14,473 16,905 28,768
Operating costs and expenses 34,581 30,728 16,395
Commissions 10,431 5,859 8,923
Amortization of deferred acquisition costs (note 6) 13,240 5,351 3,289
Interest expense 12,251 12,251 12,251
Policyholder dividends 872 1,886 965
- --------------------------------------------------- -------- -------- --------
TOTAL BENEFITS AND EXPENSES 85,848 72,980 70,591
- --------------------------------------------------- -------- -------- --------
LOSS BEFORE INCOME TAXES (12,316) (10,806) (10,269)
- --------------------------------------------------- -------- -------- --------
INCOME TAX BENEFIT (NOTE 7) 3,909 3,960 3,543
- --------------------------------------------------- -------- -------- --------
NET LOSS $(8,407) $(6,846) $(6,726)
- --------------------------------------------------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 82
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
NET UNREALIZED
GAINS (LOSSES) ON TOTAL
FOR THE YEARS ENDED DECEMBER 31 CAPITAL CONTRIBUTED RETAINED SECURITIES CAPITAL
($thousands) STOCK SURPLUS EARNINGS AVAILABLE-FOR-SALE AND SURPLUS
- ------------------------------------------------------ ------- ----------- -------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
1996
Balance, January 1 $15,002 $83,569 $ 10,133 $ 1,816 $110,520
Net loss during the year (8,407) (8,407)
Change in unrealized gain(loss), net of taxes (note 4) (483) (483)
Issuance of shares (note 10) 15,000 15,000
- ------------------------------------------------------ ------- ----------- -------- ------------------ -----------
BALANCE, DECEMBER 31 (NOTE 10) $15,002 $98,569 $ 1,726 $ 1,333 $116,630
- ------------------------------------------------------ ------- ----------- -------- ------------------ -----------
1995
Balance, January 1 $15,002 $70,999 $ 16,979 $(1,141) $101,839
Net loss during the year (6,846) (6,846)
Change in unrealized gain(loss), net of taxes (note 4) 2,957 2,957
Issuance of shares (note 10) 12,570 12,570
- ------------------------------------------------------ ------- ----------- -------- ------------------ -----------
BALANCE, DECEMBER 31 $15,002 $83,569 $ 10,133 $ 1,816 $110,520
- ------------------------------------------------------ ------- ----------- -------- ------------------ -----------
1994
Balance, January 1 $35,002 $30,999 $ 7,396 $(1,592) $ 71,805
Cumulative effect of accounting change (note 2) 16,309 1,353 17,662
Net loss during the year (6,726) (6,726)
Change in unrealized gain(loss) , net of taxes (902) (902)
Capital restructuring of preferred shares (20,000) 20,000 0
Issuance of shares (note 10) 20,000 20,000
- ------------------------------------------------------ ------- ----------- -------- ------------------ -----------
BALANCE, DECEMBER 31 $15,002 $70,999 $ 16,979 $ (1,141) $101,839
- ------------------------------------------------------ ------- ----------- -------- ------------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 83
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($thousands) 1996 1995 1994
- --------------------------------------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss $ (8,407) $ (6,846) $ (6,726)
Adjustments to reconcile net loss to net cash used in operating activities:
Additions to Policy liabilities 3,287 7,329 27,338
Deferred acquisition costs (36,024) (28,147) (31,125)
Amortization of deferred acquisition costs 13,240 5,351 3,289
Realized gain (losses) on investments 119 (3,084) 3,567
Decreases (additions) to deferred income taxes 473 1,168 (4,001)
Other 6,844 (5,336) 17,673
- --------------------------------------------------------------------------- -------- -------- --------
Net cash provided by (used in) operating activities (20,468) (29,565) 10,015
- --------------------------------------------------------------------------- -------- -------- --------
INVESTING ACTIVITIES:
Fixed maturity securities sold 120,234 67,507 43,176
Fixed maturity securities purchased (108,401) (76,402) (72,819)
Equities sold 25,505 6,500 30,011
Equities purchased (22,203) (1,726) (18,245)
Mortgages purchased - - -
Mortgages sold/principal repayments 6,669 77,086 22,656
Policy loans advanced, net (2,867) (2,461) (1,471)
Guaranteed annuity contracts (16,356) (79,710) (36,236)
- --------------------------------------------------------------------------- -------- ------- --------
Cash provided by (used in) investing activities 2,581 (9,206) (32,928)
- --------------------------------------------------------------------------- -------- ------- --------
FINANCING ACTIVITIES:
Receipts from variable life and annuity policies
credited to policyholder account balances 5,493 9,017 10,533
Withdrawals of policyholder account balances on
variable life and annuity policies (2,994) (3,173) (1,284)
Issuance of shares 15,000 12,570 20,000
Issuance of surplus notes - 8,500 -
- --------------------------------------------------------------------------- -------- -------- ---------
Cash provided by financing activities 17,499 26,914 29,249
- --------------------------------------------------------------------------- -------- -------- ---------
CASH AND SHORT-TERM INVESTMENTS:
Increase (decrease) during the year (388) (11,857) 6,336
Balance, beginning of year 17,881 29,738 23,402
- --------------------------------------------------------------------------- -------- -------- ---------
BALANCE, END OF YEAR $ 17,493 $ 17,881 $ 29,738
- --------------------------------------------------------------------------- -------- -------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE> 84
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(In Thousands of Dollars)
1. ORGANIZATION
The Manufacturers Life Insurance Company of America ("ManAmerica" or the
"Company") is a wholly-owned subsidiary of The Manufacturers Life Insurance
Company (U.S.A.) ("ManUSA" or the "Parent"), which is in turn a
wholly-owned subsidiary of The Manufacturers Life Insurance Company
("Manulife Financial"), a Canadian-based mutual life insurance company. The
Company markets variable annuity and variable life products in the United
States and traditional insurance products in Taiwan.
2. BASIS OF PRESENTATION
A) ADOPTION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The accompanying consolidated financial statements of The Manufacturers
Life Insurance Company of America and its wholly-owned subsidiaries have
been prepared in accordance with generally accepted accounting principles
("GAAP").
Prior to 1996, the Company prepared its financial statements in conformity
with statutory accounting practices prescribed or permitted by the
Insurance Department of the State of Michigan which practices were
considered GAAP for mutual life insurance companies and their wholly-owned
direct and indirect subsidiaries. Financial Accounting Standard Board
Interpretation 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises" ("FIN 40") as
amended, which is effective for 1996 annual financial statements and
thereafter, no longer permits statutory based financial statements to be
described as being prepared in conformity with GAAP. Accordingly, the
Company has adopted GAAP including Statement of Financial Accounting
Standards 120 ("FAS 120"), "Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain Long
Duration Participating Contracts", which addresses the accounting for
long-duration insurance and reinsurance contracts, including all
participating business.
Pursuant to the requirements of FIN 40 and FAS 120, the effect of the
changes in accounting have been applied retroactively and the previously
issued 1995 and 1994 financial statements have been restated for the
change. The effect of the changes applicable to years prior to January 1,
1994 has been presented as a restatement of surplus as of that date. As a
result, surplus at January 1, 1994 increased by $17,662 net of applicable
deferred taxes.
The adoption had the effect of increasing net income for 1996, 1995 and
1994 by approximately $7,554, $6,859 and $12,934, respectively.
8
<PAGE> 85
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
B) REORGANIZATION
On December 20, 1995, Manulife Reinsurance Corporation (U.S.A) ("MRC")
transferred to the Company all of the common and preferred shares of
Manufacturers Advisor Corporation ("MAC"), an investment fund management
company.
On December 31, 1996, ManUSA transferred to the Company all of the common
and preferred shares of Manulife Holding Corporation ("Holdco"), an
investment holding company. Holdco has primarily two wholly-owned
subsidiaries, ManEquity Inc., a registered broker/dealer, and the
Manufacturers Life Mortgage Securities Corporation ("MLMSC"), an issuer of
mortgage-backed US Dollar bonds. The Company then transferred all the
common and preferred shares of MAC to Holdco for two shares of $1 common
stock of Holdco.
These transfers have been accounted for using the pooling-of-interests
method of accounting. Under this method, the assets, liabilities, capital
and surplus, revenues and expenses of each separate entity are combined
retroactively at their historical carrying values to form the financial
statements of the Company for all periods presented to give effect to the
reorganization as if the structure in place at December 31, 1996 had been
in place as of the earliest period presented in these consolidated
financial statements. The accounts of all subsidiary companies are
therefore combined and all significant inter-company balances and
transactions are eliminated on combination. In addition, the capital and
surplus of the Company has been restated retroactively to January 1, 1994
to reflect the capital structure in place at December 31, 1996.
The revenues and net income reported by the separate entities and the
combined amounts presented in the accompanying consolidated financial
statements are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1996 1995 1994
- ------------------------------ -------- -------- --------
<S> <C> <C> <C>
Revenue:
ManAmerica $ 54,404 $ 45,655 $ 44,432
Holdco 15,543 13,828 14,087
MAC 3,585 2,691 1,803
- ------------------------------ -------- -------- --------
TOTAL REVENUE $ 73,532 $ 62,174 $ 60,322
- ------------------------------ -------- -------- --------
Net Income (loss):
ManAmerica $ (8,676) $ (7,402) $ (7,221)
Holdco (670) (10) 257
MAC 939 566 238
- ------------------------------ -------- -------- --------
TOTAL NET LOSS $ (8,407) $ (6,846) $ (6,726)
- ------------------------------ -------- -------- --------
</TABLE>
9
<PAGE> 86
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
3. SIGNIFICANT ACCOUNTING POLICIES
A) 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 amounts reported in the financial statements
and accompanying notes. Actual results could differ from reported results
using those estimates.
B) INVESTMENTS
The Company classifies all of its fixed maturity and equity securities as
available-for-sale and records these securities at fair value. Realized
gains and losses on sales of securities classified as available-for-sale
are recognized in net income using the specific identification method.
Changes in the fair value of securities available-for-sale are reflected
directly in surplus after adjustments for deferred taxes and DAC.
Discounts and premiums on investments are amortized using the effective
interest method.
Mortgage loans are reported at amortized cost, net of a provision for
losses. The provision for losses is established for mortgage loans which
are considered to be impaired when the Company has determined that it is
probable that all amounts due under contractual terms will not be
collected. Impaired loans are reported at the lower of unpaid principal
or fair value of the underlying collateral.
Policy loans are reported at aggregate unpaid balances which approximate
fair value.
Short-term investments include investments with maturities of less than
one year at the date of acquisition.
C) DEFERRED ACQUISITION COSTS (DAC)
Commissions and other expenses which vary with and are primarily related
to the production of new business are deferred to the extent recoverable
and included as an asset. DAC associated with variable annuity and
variable life insurance contracts is charged to expense in relation to
the estimated gross profits of those contracts. The amortization is
adjusted retrospectively when estimates of current or future gross
profits are revised. DAC associated with traditional life insurance
policies is charged to expense over the premium paying period of the
related policies. DAC is adjusted for the impact on estimated future
gross profits assuming the unrealized gains or losses on securities had
been realized at year-end. The impact of any such adjustments is
included in net unrealized gains (losses) in Capital and Surplus. DAC is
reviewed annually to determine recoverability from future income and, if
not recoverable, it is immediately expensed.
10
<PAGE> 87
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
D) POLICYHOLDER LIABILITIES
For variable annuity and variable life contracts reserves equal the
policyholder account value. Account values are increased for deposits
received and interest credited and are reduced by withdrawals, mortality
charges and administrative expenses charged to the policyholders. Policy
charges which compensate the Company for future services are deferred and
recognized in income over the period earned, using the same assumptions
used to amortize DAC.
Policyholder liabilities for traditional life insurance policies sold in
Taiwan are computed using the net level premium method and are based upon
estimates as to future mortality, persistency, maintenance expense and
interest rate yields that were established in the year of issue.
E) SEPARATE ACCOUNTS
Separate account assets and liabilities represent funds that are
separately administered, principally for variable annuity and variable
life contracts, and for which the contract holder, rather than the
Company, bears the investment risk. Separate account contract holders
have no claim against the assets of the general account of the Company.
Separate account assets are recorded at market value. Operations of the
separate accounts are not included in the accompanying financial
statements.
F) REVENUE RECOGNITION
Fee income from variable annuity and variable life insurance policies
consists of policy charges for the cost of insurance, expenses and
surrender charges that have been assessed against the policy account
balances. Policy charges that are designed to compensate the company for
future services are deferred and recognized in income over the period
benefited, using the same assumptions used to amortize DAC. Premiums on
long-duration life insurance contracts are recognized as revenue when
due. Investment income is recorded when due.
G) EXPENSES
Expenses for variable annuity and variable life insurance policies
include interest credited to policy account balances and benefit claims
incurred during the period in excess of policy account balances.
H) REINSURANCE
The Company is routinely involved in reinsurance transactions in order to
minimize exposure to large risks. Life reinsurance is accomplished
through various plans including yearly renewable term, co-insurance and
modified co-insurance. 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. Amounts paid with respect
to ceded reinsurance contracts are reported as reinsurance receivables
in other assets.
11
<PAGE> 88
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
I) FOREIGN EXCHANGE
The Company's Taiwanese branch balance sheet and statement of income are
translated at the current exchange and average exchange rates for the
year respectively. Translation adjustments for foreign currency
transactions that affect cash flows are reported in earnings.
J) INCOME TAX
Income taxes have been provided for in accordance with Statement of
Financial Accounting Standards 109 ("FAS 109") "Accounting for Income
Taxes." The Company joins ManUSA, MRC and Manulife Reinsurance Limited
("MRL") 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, the Company's income tax
provision (or benefit) is computed as if the Company filed a separate
income tax return. 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. Deferred
income taxes result from temporary differences between the tax basis of
assets and liabilities and their recorded amounts for financial reporting
purposes. Income taxes recoverable represents amounts due from ManUSA in
connection with the consolidated return.
12
<PAGE> 89
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
4. INVESTMENTS AND INVESTMENT INCOME
A) FIXED MATURITY AND EQUITY SECURITIES
At December 31, 1996, all fixed maturity and equity securities have been
classified as available-for-sale and reported at fair value. The
amortized cost and fair value is summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AS AT DECEMBER 31, AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE
($ thousands) 1996 1995 1996 1995 1996 1995 1996 1995
- ------------------------------- ------- ------- ------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED MATURITY SECURITIES:
U.S. government $ 9,219 $15,145 $ 386 $ 690 $ (98) $ (98) $ 9,507 $15,737
Foreign governments 9,227 6,071 221 219 (8) - 9,440 6,290
Corporate 32,010 32,018 981 3,147 (230) (13) 32,761 35,152
Mortgage backed - 9,523 - 272 - (6) - 9,789
- ------------------------------- ------- ------- ------- ------ ------- ------- ------- -------
Total fixed maturity securities $50,456 $62,757 $1,588 $4,328 $(336) $(117) $51,708 $66,968
Equity securities $19,450 $22,441 $2,134 $ 923 $ (12) $ (19) $21,572 $23,345
- ------------------------------- ------- ------- ------- ------ ------- ------- ------- -------
</TABLE>
Proceeds from sales of fixed maturity securities during 1996 were
$120,234 (1995 $67,507; 1994 $43,176). Gross gains of $1,858 and gross
losses of $1,837 were realized on those sales (1995 $2,630 and $218; 1994
$168 and $1,007 respectively).
Proceeds from sale of equity securities during 1996 were $26,584 (1995
$6,500; 1994 $30,011). Gross gains of $NIL and gross losses of $140 were
realized on those sales (1995 $785 and $113; 1994 $48 and $2,776
respectively).
13
<PAGE> 90
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
The contractual maturities of fixed maturity securities at December 31,
1996 are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. Corporate requirements
and investment strategies may result in the sale of investments before
maturity.
<TABLE>
<CAPTION>
($ thousands) AMORTIZED COST FAIR VALUE
- ----------------------------------- -------------- ----------
<S> <C> <C>
Fixed maturity securities,
including mortgage-backed
securities
One year or less $ 3,315 $ 3,367
Greater than 1; up to 5 years 2,568 2,658
Greater than 5; up to 10 years 19,539 19,959
Due after 10 years 24,993 25,724
- ----------------------------------- -------------- ----------
TOTAL FIXED MATURITY SECURITIES $50,415 $51,708
- ----------------------------------- -------------- ----------
</TABLE>
UNREALIZED GAINS (LOSSES) ON SECURITIES AVAILABLE-FOR-SALE
Net unrealized gains (losses) on fixed maturity and equity securities
included in capital and surplus were as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($ thousands) 1996 1995
- ------------------------------------------- ------- -------
<S> <C> <C>
Gross unrealized gains $ 3,722 $ 5,251
Gross unrealized losses (348) (136)
DAC and other fair value adjustments (1,321) (2,317)
Deferred income taxes (720) (982)
- ------------------------------------------- ------- -------
NET UNREALIZED GAINS (LOSSES) ON SECURITIES
AVAILABLE-FOR-SALE $ 1,333 $ 1,816
- ------------------------------------------- ------- -------
</TABLE>
B) INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1996 1995 1994
- ------------------------------- ------ ------ ------
<S> <C> <C> <C>
Fixed maturity securities $ 4,447 $ 4,430 $ 1,712
Mortgage loans 278 3,076 8,844
Equity securities 671 646 1,245
Guaranteed annuity contracts 13,196 9,691 5,040
Other investments 1,419 1,235 957
- ------------------------------- ------- ------- -------
Gross investment income 20,011 19,078 17,798
- ------------------------------- ------ ------- -------
Investment expenses 360 349 107
- ------------------------------- ------ ------- -------
NET INVESTMENT INCOME $19,651 $18,729 $17,691
- ------------------------------- ------ ------- -------
</TABLE>
14
<PAGE> 91
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
5. GUARANTEED ANNUITY CONTRACTS
The Company's wholly-owned subsidiary, MLMSC, invests amounts received as
repayments of mortgage loans in annuities issued by ManUSA. These
annuities are collateral for the 8 1/4 % mortgage-backed bonds payable
disclosed in note 8 below.
6. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1996 1995 1994
- --------------------------------------- --------- --------- --------
<S> <C> <C> <C>
Balance at January 1, $ 78,829 $ 60,124 $ 30,887
Capitalization 36,024 28,147 31,125
Accretion of interest 6,344 4,992 3,351
Amortization (19,159) (10,852) (6,295)
Effect of net unrealized gains (losses)
on securities available for sale 996 (4,091) 1,401
Other (424) 509 (345)
- --------------------------------------- --------- --------- --------
BALANCE AT DECEMBER 31 $ 102,610 $ 78,829 $ 60,124
- --------------------------------------- --------- --------- --------
</TABLE>
7. INCOME TAXES
Components of income tax benefit were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1996 1995 1994
- ------------------------------- -------- -------- --------
<S> <C> <C> <C>
Current expense (benefit) $(4,686) $(5,128) $ 458
Deferred expense (benefit) 777 1,168 (4,001)
- ------------------------------- -------- -------- --------
TOTAL BENEFIT $(3,909) $(3,960) $(3,543)
- ------------------------------- -------- -------- --------
</TABLE>
15
<PAGE> 92
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
The Company's deferred income tax asset, which results from tax effecting
the differences between financial statement values and tax values of
assets and liabilities at each balance sheet date, relates to the
following:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($thousands) 1996 1995
----------------------------------------------------- ------- -------
<S> <C> <C>
Deferred tax assets:
Differences in computing policy reserves $28,508 $22,503
Policyholder dividends payable 283 411
Other deferred tax assets - 402
Net operating loss carryforwards - 1,061
----------------------------------------------------- ------- -------
DEFERRED TAX ASSETS 28,791 24,377
Deferred tax liabilities:
Deferred acquisition costs 25,522 19,398
Investments 928 1,737
Other deferred tax liabilities 1,300 1,626
----------------------------------------------------- ------- -------
Gross deferred tax liabilities 27,750 22,761
----------------------------------------------------- ------- -------
NET DEFERRED TAX ASSETS $ 1,041 $ 1,616
----------------------------------------------------- ------- -------
</TABLE>
The Company and its US insurance affiliates have available capital loss
carryforwards of $83,500 which will expire in 1999.
8. BONDS PAYABLE
Bonds payable represent 8 1/4% Mortgage-backed US Dollar Bonds due March
1, 1997 which are collateralized by annuities disclosed in note 5 above.
The bonds were repaid on March 1, 1997.
9. SURPLUS NOTE
The Company has an outstanding surplus debenture in the amount of $8,500
plus interest at 6.7% issued on December 31, 1995 to ManUSA which matures
on December 31, 2005. Payments of principal and interest cannot be made
without prior approval of the Insurance Commissioner of the State of
Michigan and the Company's Board of Directors, and to the extent the
Company has sufficient unassigned surplus on a statutory basis available
for such payment.
16
<PAGE> 93
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
10. CAPITAL AND SURPLUS
The Company has two classes of capital stock, as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31:
($ thousands) 1996 1995
- ----------------------------------------- ----------- -----------
<S> <C> <C>
AUTHORIZED:
5,000,000 Common shares, Par value $1.00
5,000,000 Preferred shares, Par value $100.00
ISSUED AND OUTSTANDING:
4,501,860 Common shares $ 4,501,860 $ 4,501,859
105,000 Preferred shares 10,500,000 10,500,000
- ----------------------------------------- ----------- -----------
TOTAL $15,001,860 $15,001,859
- ----------------------------------------- ----------- -----------
</TABLE>
During the year, the Company issued one common share to its Parent Company
in return for a capital contribution of $15,000.
During 1995, the Company issued two common shares to its Parent Company in
return for a capital contribution of $12,570.
During 1994, the Company issued one common share to its Parent Company in
return for a capital contribution of $20,000.
The Company is subject to statutory limitations on the payment of
dividends to its Parent. Under Michigan Insurance Law, the payment of
dividends to shareholders is restricted to the surplus earnings of the
Company, unless prior approval is obtained from the Michigan Insurance
Bureau.
The aggregate statutory capital and surplus of the Company at December
31, 1996 was $76,202 (1995 $56,298). The aggregate statutory net loss of
the Company for the year ended 1996 was $15,961 (1995 $13,705; 1994
$19,660). State regulatory authorities prescribe statutory accounting
practices that differ in certain respects from generally accepted
accounting principles followed by stock life insurance companies. The
significant differences relate to investments, deferred acquisition
costs, deferred income taxes, non-admitted asset balances and reserve
calculation assumptions.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of certain of the
Company's financial instruments at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
($ thousands) CARRYING VALUE FAIR VALUE
- ------------------------------------ -------------- ----------
<S> <C> <C>
ASSETS:
Fixed maturity and equity securities $ 73,280 $ 73,280
Mortgage loans 645 645
Policy loans 9,822 9,822
Guaranteed annuity contract 171,691 171,691
LIABILITIES:
Bond payable 158,760 158,760
Surplus note 8,500 8,266
</TABLE>
17
<PAGE> 94
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
The following methods and assumptions were used to estimate the fair
values of the above financial instruments:
FIXED MATURITY AND EQUITY SECURITIES: Fair values of fixed maturity and
equity securities were based on quoted market prices, where available.
Fair values were estimated using values obtained from independent pricing
services.
MORTGAGE LOANS: Fair value of mortgage loans was estimated using
discounted cash flows using contractual maturities and discount rates
that were based on U.S. Treasury rates for similar maturity ranges,
adjusted for risk, based on property type.
POLICY LOANS: Carrying values approximate fair values.
GUARANTEED ANNUITY CONTRACT. Carrying values approximate fair values.
BOND PAYABLE: Carrying values approximate fair values.
SURPLUS NOTE: Fair value was estimated using current interest rates that
were based on U.S. Treasuries for similar maturity ranges.
18
<PAGE> 95
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
12. RELATED PARTY TRANSACTIONS
The Company has a formal service agreement with Manulife Financial which
can be terminated by either party upon two months' notice. Under the
Agreement, the Company will pay direct operating expenses incurred each
year by Manulife Financial on its behalf. Services provided under the
agreement include legal, actuarial, investment, data processing and
certain other administrative services. Costs incurred under this
agreement were $26,982, $23,210 and $21,326 in 1996, 1995 and 1994
respectively. In addition, there were $6,934, $5,052 and $7,795 of agents
bonuses allocated to the Company during 1996, 1995 and 1994, respectively,
which are included in commissions.
The Company has several reinsurance agreements with affiliated companies
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 ManUSA 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 $25,000 per life to MRC
under the terms of an automatic reinsurance agreement
(c) The Company cedes a substantial portion of its risk on its Flexible
Premium Variable Life policies to MRC under the terms of a stop loss
reinsurance agreement.
Selected amounts relating to the above treaties reflected in the
financial statements are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($thousands) 1996 1995 1994
--------------------------------- ------- ------- -------
<S> <C> <C> <C>
Life and annuity premiums assumed $ 676 $ 5,959 $25,386
Policy reserves assumed 44,497 47,386 47,673
Policy reserves ceded 304 3,838 3,806
--------------------------------- ------- ------- -------
</TABLE>
The Company markets variable life insurance and variable annuity products
through Separate Accounts which use NASL Series Trust as its investment
vehicle. The NASL Series Trust is an entity sponsored by an
affiliated company, North American Security Life Insurance Company.
19
<PAGE> 96
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
13. REINSURANCE
In the normal course of business, the Company assumes and cedes
reinsurance as a party to several reinsurance treaties with major
unrelated insurance companies. The Company remains liable for amounts
ceded in the event that reinsurers do not meet their obligations.
The effects of reinsurance on premiums were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($thousands) 1996 1995 1994
------------------------------- ------- ------ -----
<S> <C> <C> <C>
Direct premiums $12,998 $9,809 $2,380
Reinsurance assumed - - -
Reinsurance ceded 776 475 188
------------------------------- ------- ------ ------
TOTAL PREMIUMS $12,222 $9,334 $2,192
------------------------------- ------- ------ ------
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $357, $170 and
$57 during 1996, 1995 and 1994 respectively.
14. FOREIGN OPERATIONS
The Company markets traditional life insurance products in Taiwan through
its Taiwanese Branch. The carrying amount of net assets located in Taiwan
as at December 31, 1996 and 1995 was $15,080 and $1,125 respectively.
The income (loss) before taxes related to the Taiwan and U.S. business
was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($thousands) 1996 1995 1994
------------------------------- --------- ------- -------
<S> <C> <C> <C>
Taiwan $(17,530) $(9,332) $(3,763)
U.S. 9,123 2,486 (2,963)
------------------------------- --------- -------- --------
TOTAL $ (8,407) $(6,846) $(6,726)
------------------------------- --------- -------- --------
</TABLE>
15. CONTINGENCIES
The Company is subject to various lawsuits that have arisen in the course
of its business. Contingent liabilities arising from litigation, income
taxes and other matters are not considered material in relation to the
financial position of the Company.
20
<PAGE> 97
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> 98
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.
68
<PAGE> 99
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.
69
<PAGE> 100
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.
70
<PAGE> 101
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
<PAGE> 102
Item 13. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fees $15,625
Printing and engraving (through 12/31/96) $88,300
Legal fees and expenses (through 12/31/96) $70,700
Miscellaneous (Edgar) $ 6,000
</TABLE>
Item 14. Indemnification of Directors and Officers
Article XV of the By-Laws of The Manufacturers Life Insurance Company of
America provides for indemnification of directors and officers as follows:
"Article XV."
1. The Company may indemnify any person who is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal or administrative
(other than by or in the right of the Company), by reason of the fact
that he;
(a) is or was a director, officer or employee of the Company, or
(b) is or was serving at the request of the Company as a director,
officer, employee, or trustee of another corporation,
partnership, joint venture, trust or other enterprise,
against all expenses (including solicitors' and attorneys' fees),
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he
acted honestly and in good faith and with a view to the best interests of
the Company, and, in the case of any criminal or administrative action or
proceeding, he had reasonable grounds for believing that his conduct was
lawful. The
<PAGE> 103
termination of any action, suit or proceeding by judgment, order,
settlement or conviction shall not of itself create a presumption that the
person did not act honestly and in good faith with a view to the best
interest of the Company and, with respect to any criminal action or
proceeding, that he did not have reasonable grounds for believing that his
conduct was lawful.
2. The Company shall in any event indemnify a person referred to in
paragraph 1 hereof who has been substantially successful in the defence of
any such action, suit or proceeding against all expenses (including
solicitors' and attorneys' fees) reasonably incurred by him in connection
with the action, suit or proceeding.
3. The indemnification provided by this By-Law shall be continuing
and enure to the benefit of the heirs, executors, and administrators of any
person referred to in paragraph 1 hereof.
4. Expenses (including solicitors' and attorneys' fees) incurred in
defending a civil or criminal action, suit or proceeding may be paid by the
Company in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of any person
referred to in paragraph 1 hereof to repay the amount if it shall be
ultimately determined that he is not entitled to indemnified by the Company
as authorized by this By-Law.
5. The indemnification provided by this By-Law shall not be deemed
exclusive of any other rights to which those entitled to be indemnified
hereunder may be entitled as a matter of law or under any by-law,
agreement, vote of members, or otherwise.
Administrative Resolution Number 600.01 of The Manufacturers Life Insurance
Company provides for indemnification of certain directors and officers of
subsidiary companies as follows:
<PAGE> 104
"Resolution 600.01"
1.1 [The Manufacturers Life Insurance Company (the "Company")]
shall indemnify any person who is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal or administrative (other than by or in the right of
the Company except as provided in 1.2 of this Article) by reason of the
fact that the person
(a) is or was a Director, officer or employee of the Company, or
(b) is or was serving at the specific request of the Company, as a
Director, officer, employee or trustee of another corporation,
partnership, joint venture, trust or other enterprise, or
(c) is or was engaged at the same time as an agent in the sale of the
Company's products while at the same time employed by the Company
in the United States in a branch management capacity,
against all expenses (including but not limited to solicitors' and
attorneys' fees) judgments, fines and amounts in settlement, actually and
reasonably incurred by the person in connection with such action, suit or
proceeding, (other than those specifically excluded below) if the person
acted honestly, in good faith, with a view to the best interests of the
Company or the enterprise the person is serving at the request of the
Company, and within the scope of his or her authority and normal
activities, and, in the case of any criminal or administrative action or
proceeding, the person had reasonable grounds for believing that his or her
conduct was lawful.
The termination of any action, suit or proceeding by judgment, order,
settlement or conviction shall not of itself create a presumption that the
person did not act honestly and in good faith
<PAGE> 105
with a view to the best interests of the Company and, with respect to any
criminal action or proceeding, that the person did not have reasonable
grounds for believing that his or her conduct was lawful.
1.2 The Company shall also, with the approval of the Board,
indemnify a person referred to in Section 1.1 of this Article in respect of
any action by any person by or on behalf of the Company to procure a
judgment in its favour to which the person is made a party by reason of
being or having been a Director, officer or employee of the Company,
against all costs, charges and expenses reasonably incurred by him or her
in connection with such action if he or she fulfills the conditions set out
in Section 1.1 of this Article.
1.3 The Company shall have no obligation to indemnify any
person for:
(a) any act, error, or omission committed with actual dishonest,
fraudulent, criminal or malicious purpose or intent, or
(b) any act of gross negligence or willful neglect, or
(c) any liability of others assumed by any person otherwise entitled
to indemnification hereunder, or
(d) any claims by or against any enterprise which is owned, operated,
managed, or controlled by any person otherwise entitled to
indemnification hereunder or any claims by such person against an
enterprise, or
(e) any claim arising out of, or based on, any pension plan sponsored
by any person otherwise entitled to indemnification hereunder as
employer, or
(f) bodily injury, sickness, disease or death of any person, or
injury to or destruction of any tangible property including loss
of use thereof, or
(g) any amount covered by any other indemnification provision or by
any valid and collectible insurance which the person entitled to
indemnity hereunder may have, or
<PAGE> 106
(h) any liability in respect of which the person would otherwise be
entitled to indemnification if in the course of that person's
actions, he or she is found by the Board of Directors to have
been in breach of compliance with the Company's Code of Business
Conduct or Conflict of Interest guidelines, or
(i) any liability incurred by that person for any sales activities
unless the person qualifies under Section 1.1(c) of this Article.
1.4 In the event of any indemnity payment by the Company and as a
condition of it, the Company shall be subrogated to all the rights of
recovery of the person indemnified, and such person shall execute and
deliver instruments and papers and do whatever else is necessary to secure
such rights.
1.5 As a condition of indemnification, the person to be indemnified
shall not demand or agree to arbitration of any claim, make any payment,
admit any liability, settle any claims, assume any obligation or incur any
expense without the written consent of the Company.
1.6 Any claim to indemnification shall not be assignable. In the
event of death or incompetency, the legal representative of a person
eligible for indemnification shall be entitled to indemnification for those
acts and omissions of the indemnified person incurred prior to his death or
incompetency.
1.7 The Company shall have the right as a condition of pending
indemnification to appoint counsel satisfactory to the person to be
indemnified to defend the person for any claim against him or her which may
be covered by this indemnity.
1.8 The indemnification shall be continuing and enure to the
benefit of the heirs, executors and administrators of any person referred
to in Section 1.1. of this Article.
<PAGE> 107
1.9 Expenses (including but not limited to solicitors' and
attorneys' fees), incurred in defending a civil, criminal, or
administrative action, suit or proceeding shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of any person referred to in
Section 1.1 of this Article to repay the amount if it shall be ultimately
determined that the person is not eligible to be indemnified by the
Company.
1.10 The Indemnification provided hereunder shall not be deemed
exclusive of any other rights to which those eligible to be indemnified
hereunder may be entitled as a matter of law under any By-Law, Resolution,
agreement, vote of members or otherwise.
Liability Insurance
At a meeting of the Executive Committee of the Board of Directors
of The Manufacturers Life Insurance Company held October 21, 1993, the
purchase of Directors and Officers (D&O) liability insurance was
approved. It became effective December 1, 1993. It provides global
coverage for all Directors and Officers of The Manufacturers Life
Insurance Company and its subsidiaries.
The coverage provided:
1. Insures Directors and Officers against loss arising
from claims against them for certain acts in cases where they are
not indemnified by The Manufacturers Life Insurance Company or a
subsidiary.
2. Insures The Manufacturers Life Insurance Company
against loss arising from claims against Directors and Officers
for certain wrongful acts, but only where the corporation
indemnifies the Directors or Officers as required or permitted
under applicable statutory or by-law provisions.
<PAGE> 108
In general, the D&O coverage encompasses:
- past, present and future Directors and Officers of The
Manufacturers Life Insurance Company and subsidiaries
- defense costs and settlements (if legally obligated to be paid)
resulting from third party claims in connection with 'wrongful
acts' committed by a Director or Officer within the scope of
their duties
- claims made basis (i.e. policy responds to claims
filed/reported during the policy term, including claims arising
from events transpiring before the policy was in force as long as
no Director/Officer was aware of the events prior to coverage
placement).
* * *
Insofar as Indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 15. Recent Sales of Unregistered Securities
The Manufacturers Life Insurance Company of America has not offered or sold
any unregistered securities.
Item 16. Exhibits and Financial Statement Schedules. Those exhibits identified
as having been filed previously are hereby incorporated by reference
into this registration statement.
A. Exhibits
<TABLE>
<CAPTION>
Page in Sequential
Numbering System
Where Exhibit
Exhibit No. Description Located
- ----------- ----------- ------------------
<S> <C> <C>
(1)(a) Distribution Agreement Filed as Exhibit (3)(a)(i)
between Manufacturers to the registration state-
Life of America and ment on Form N-4 filed by
ManEquity ManEquity The Manufacturers
Life Insurance Company of
America on January 13,
1993 (File No. 33-57018).
</TABLE>
<PAGE> 109
<TABLE>
<CAPTION>
Page in Sequential
Numbering System
Where Exhibit
Exhibit No. Description Located
- ----------- ----------- -----------------
<S> <C> <C>
(1)(b) Supplemental Agreement to Filed as Exhibit (3)(a)(ii) to
Distribution Agreement the registration statement on
Form N-4 filed by The Manufacturers
Life Insurance Company of America on
January 13, 1993 (File No. 33-57018).
(2) None
(3)(a)(i) Restated Articles of Filed as Exhibit (3)(a)(i) to
Redomestication of Post-Effective Amendment No. 6 on
Manufacturers Life of America** Form S-1 Filed by The Manufacturers
Life Insurance Company of America
on December 9, 1996 (File No. 33-57020)
(3)(b)(i) By-Laws of Manufacturers Filed as Exhibit (3)(b)(i) to Post-
Life of America** Effective Amendment No. 6 on Form S-1 Filed
by The Manufacturers Life Insurance Company
of America on December 9, 1996
(File No. 33-57020)
(4)(a) Form of Multi-Account Filed as Exhibit (4)(a) to Pre-Effective
Flexible Variable Annnuity Amendment No. 1 on Form S-1 filed by
Policy The Manufacturers Life Insurance Company
of America on February 10, 1994
(File No. 33-57020).
(4)(b)(i) Individual Retirement Filed as Exhibit (4)(b)(i) to
Annuity Rider Pre-Effective Amendment No. 1 on Form S-1
filed by The Manufacturers Life Insurance
Company of America on February 10, 1994
(File No. 33-57020).
(4)(b)(i)(a) Trustee-Owned Policies Filed as Exhibit (4)(b)(i)(a) to
Rider Pre-Effective Amendment No.1 on Form S-1
filed by The Manufacturers Life Insurance
Company of America on February 10, 1994
(File No. 33-57020).
</TABLE>
<PAGE> 110
<TABLE>
<CAPTION>
Page in Sequential
Numbering System
Exhibit No. Description Where Exhibit Located
- ----------- ----------- ---------------------
<S> <C> <C>
(4)(b)(ii) Unisex Endorsement Filed as Exhibit (4)(b)(ii)
to the registration statement
on Form N-4 filed by the
Manufacturers Life Insurance
Company of America on January
13, 1993 (File No. 33-57018).
(5) Opinion and consent of Filed as Exhibit (5) to Post-
James D. Gallagher, Effective Amendment No. 6 on
General Counsel of Manufacturers Form S-1 filed by The Manufacturers
Life of America** Life Insurance Company of America
on December 9, 1996
(File No. 33-57020).
(6) None
(7) None
(8) None
(9) None
(10)(a) Reinsurance Agreement Filed as Exhibit (10)(a) to
Pre-Effective Amendment No. 1 on
Form S-1 filed by The Manufacturers
Life Insurance Company of America on
February 10, 1994 (File No. 33-57020).
(10)(b)(i) Service Agreement between Filed as Exhibit (8)(a) to the
Manufacturers Life of registration statement on Form N-4
America and The filed by The Manufacturers Life
Manufacturers Life Insurance Company of America on
Insurance Company January 13, 1993 (File No. 33-57018).
(10)(b)(ii) Amendment to Service Filed as Exhibit (8)(b) to the
Agreement registration statement on Form N-4
filed by The Manufacturers Life Insurance
Company of America on January 13, 1993
(File No. 33-57018).
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
Numbering System
Where Exhibit
Exhibit No. Description Located
- ----------- ----------- ----------------
<S> <C> <C>
(10)(b)(iii) Second Amendment to Filed as Exhibit (8)(c) to
Service Agreement Pre-Effective Amendment
No. 1 on Form N-4 filed by The
Manufacturers Life Insurance
Company of America on
February 10, 1994 (File No.
33-57018)
(10)(b)(iv) Service Agreement Filed as Exhibit (8)(d) to
between The Manufacturers Post-Effective Amendment
Life Insurance Company and No. 1 on Form N-4 filed by
ManEquity, Inc. dated The Manufacturers Life
January 2, 1991 as amended Insurance Company of
March 1, 1994 America on May 2, 1994
(File No. 33-57018)
(10)(c) Specimen Agreement between Filed as Exhibit (3)(b)
ManEquity, Inc. and (i) to the registration
registered representatives statement on Form N-4
filed by The Manufacturers
Life Insurance Company of
America on January 13,
1993 (File No. 33-57018).
(10)(d) Specimen Agreement between Filed as Exhibit (3)(b)
ManEquity, Inc. and Dealers (ii) to the registration
statement on Form N-4
filed by The Manufacturers Life
Insurance Company of
America on January 13,
1993 (File No. 33-57018).
(11) None
(12) None
(13) None
(14) None
</TABLE>
<PAGE> 112
<TABLE>
<CAPTION>
Page in Sequential
Numbering System
Where Exhibit
Exhibit No. Description Located
- ----------- ----------- -----------------
<S> <C> <C>
(15) None
(16) None
(17) None
(18) None
(19) None
(20) None
(21) None
(22) None
(23)(a) Consent of Jones & Blouch L.L.P.
(23)(b) Consent of Ernst & Young LLP
(23)(c) Consent of James D. Gallagher, Filed as Exhibit (5) of this
General Counsel** Registration Statement
(24) Power of Attorney** Filed as Exhibit (12) to
Post-Effective Amendment
No. 10 on Form S-6 filed by The
Manufacturers Life Insurance
Company of America on February 28,
1997 (File No. 33-52310)
(25) None
(26) None
(27) Financial Data Schedule
(28) None
(29) None
99.B. Financial Statement Schedules
</TABLE>
**filed electronically
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of l933, the registrant
has duly caused this amended registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Toronto, Province
of Ontario, on this 10th day of April, 1997.
Registrant: The Manufacturers Life Insurance
Company of America
By: /s/ Donald A. Guloien
--------------------------------
Name: DONALD A. GULOIEN
Title: PRESIDENT
<PAGE> 114
SIGNATURES
Pursuant to the requirements of the Securities Act of l933, this amended
registration statement has been signed by the following persons in the
capacities indicated on this 10th day of April, 1997.
<TABLE>
<CAPTION>
Signature Title
- ---------- ------
<S> <C>
*
________________________________ Chairman and Director
JOHN D. RICHARDSON
*
________________________________ President and Director
DONALD A. GULOIEN (Principal Executive Officer)
*
________________________________ Director
SANDRA M. COTTER
/s/ James D. Gallagher
________________________________ Director
JAMES D. GALLAGHER
*
________________________________ Director
BRUCE GORDON
*
________________________________ Director
JOSEPH J. PIETROSKI
*
________________________________ Director
THEODORE KILKUSKIE, JR.
*
________________________________ Vice President, Finance
DOUGLAS H. MYERS (Principal Financial and
Accounting Officer)
*/s/ James D. Gallagher
________________________________
JAMES D. GALLAGHER
Pursuant to Power of Attorney
</TABLE>
<PAGE> 115
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page in Sequential
Numbering System
Where Exhibit
Exhibit No. Description Located
- ----------- ----------- ------------------
<S> <C> <C>
99.1(a) Distribution Agreement Filed as Exhibit (3)(a)(i) to the
between Manufacturers registration statement on Form N-4
Life of America and filed by The Manufacturers Life
ManEquity Insurance Company of America on
January 13, 1993 (File No. 33-57018).
99.1(b) Supplemental Agreement to Filed as Exhibit (3)(a)(ii) to the
Distribution Agreement registration statement on Form N-4
filed by The Manufacturers Life Insurance
Company of America on January 13, 1993
(File No. 33-57018).
99.2 None
99.3(a)(i) Restated Articles of Redomesti- Filed as Exhibit 3(a)(i) to Post-Effective
cation of Manufacturers Life Amendment No. 6 on Form S-1 filed by The
of America** Manufacturers Life Insurance Company of America
on December 9, 1996 (File No. 33-57020)
99.3(b)(i) By-Laws of Manufacturers Filed as Exhibit (3)(b)(i) to Post-Effective
Life of America** Amendment No. 6 on Form S-1 filed by The
Manufacturers Life Insurance Company of America
on December 9, 1996 (File No. 33-57020)
99.4(a) Form of Multi-Account Filed as Exhibit (4)(a) to Pre-Effective
Flexible Variable Annuity Amendment No. 1 on Form S-1 filed by The
Policy Manufacturers Life Insurance Company of
America on February 10, 1994 (File No. 33-57020).
99.4(b)(i) Individual Retirement Filed as Exhibit (4)(b)(i) to Pre-Effective
Annuity Rider Amendment No. 1 on Form S-1 filed by The
Manufacturers Life Insurance Company of
America on February 10, 1994 (File No. 33-57020).
</TABLE>
** filed electronically
<PAGE> 116
<TABLE>
<CAPTION>
Page in Sequential
Numbering System
Where Exhibit
Exhibit No. Description Located
- ----------- ----------- ------------------
<S> <C> <C>
99.4(b)(i)(a) Trustee-Owned Policies Filed as Exhibit (4)(b)(i)
Annuity Rider (a) to Pre-Effective Amendment
No.1 on Form S-1 filed by The
Manufacturers Life Insurance
Company of America on February
10, 1994 (File No. 33-57020).
99.4(b)(ii) Unisex Endorsement Filed as Exhibit (4)(b)
(ii) to the registration statement
on Form N-4 filed by The
Manufacturers Life Insurance
Company of America on January
13, 1993 (File No. 33-57018).
99.5 Opinion and consent of Filed as Exhibit (5) to Post-
James D. Gallagher, Effective Amendment No. 6 on
General Counsel of Manu- Form S-1 filed by The Manufacturers
facturers Life of America** Life Insurance Company of America
on December 9, 1996
(File No. 33-57020).
99.6 None
99.7 None
99.8 None
99.9 None
99.10(a) Reinsurance Agreement Filed as Exhibit (10)(a)
to Pre-Effective Amendment No. 1
on Form S-1 filed by The
Manufacturers Life Insurance
Company of America on February
10, 1994 (File No. 33-57020).
99.10(b)(i) Service Agreement between Filed as Exhibit (8)(a)
Manufacturers Life of to the registration state-
America and The Manu- ment on Form N-4 filed by
facturers Life The Manufacturers Life
Insurance Company Insurance Company of
America on January 13, 1993
(File No. 33-57018).
</TABLE>
<PAGE> 117
<TABLE>
<CAPTION>
Page in Sequential
Numbering System
Where Exhibit
Exhibit No. Description Located
- ----------- ----------- ------------------
<S> <C> <C>
99.10(b)(ii) Amendment to Service Filed as Exhibit (8)(b)
Agreement to the registration state-
ment on Form N-4 filed by
The Manufacturers Life
Insurance Company of
America on January 13,
1993 (File No. 33-57018).
99.10(b)(iii) Second Amendment to Filed as Exhibit (8)(c)
Service Agreement to Pre-Effective Amendment
No. 1 on Form N-4 filed by The
Manufacturers Life Insurance
Company of America on February
10, 1994 (File No. 33-57018)
99.10(b)(iv) Service Agreement between Filed as Exhibit (8)(d)
The Manufacturers Life to Post-Effective Amend-
Insurance Company and ment No.1 on Form N-4
ManEquity, Inc. dated filed by The Manufacturers
January 2, 1991 as amended Life Insurance Company of
March 1, 1994 America on May 2, 1994
(File No. 33-57018)
99.10(c) Specimen Agreement between Filed as Exhibit (3)(b)
ManEquity, Inc. and (i) to the registration
registered representatives statement on Form N-4
filed by The Manufacturers Life
Insurance Company of America
on January 13, 1993 (File No.
33-57018).
99.10(d) Specimen Agreement between Filed as Exhibit (3)(b)
ManEquity, Inc. and Dealers (ii) to the registration
statement on Form N-4
filed by The Manufacturers
Life Insurance Company of
America on January 13,
1993 (File No. 33-57018).
99.11 None
99.12 None
99.13 None
</TABLE>
<PAGE> 118
<TABLE>
<CAPTION>
Page in Sequential
Numbering System
Where Exhibit
Exhibit No. Description Located
- ----------- ----------- ------------------
<S> <C> <C>
(14) 99.14 None
(15) 99.15 None
(16) 99.16 None
(17) 99.17 None
(18) 99.18 None
(19) 99.19 None
(20) 99.20 None
(21) 99.21 None
(22) 99.22 None
(23)(a) 99.23(a) Consent of Jones & Blouch L.L.P.
(23)(b) 99.23(b) Consent of Ernst & Young LLP
(23)(c) 99.23(c) Consent of James D. Gallagher, Filed as part of Exhibit (5) of this
General Counsel** Registration Statement
(24) 99.24 Power of Attorney** Incorporated by reference to Exhibit 12 to Post-Effective
Amendment No. 10 to the registration statement on Form S-6 filed
by The Manufacturers Life Insurance Company of America on
February 28, 1997 (File No. 33-52310)
(25) 99.25 None
(26) 99.26 None
(27) 27 Financial Data Schedules
(28) 99.28 None
(29) 99.29 None
(30) 99.B Financial Statement Schedules
</TABLE>
** filed electronically
<PAGE> 1
Exhibit 23(a)
Jones & Blouch L.L.P.
Suite 405 West
1025 THOMAS JEFFERSON STREET, N.W.
WASHINGTON, D.C. 20007-0805
(202) 223-3500
April 10, 1997
The Board of Directors
The Manufacturers Life Insurance
Company of America
500 N. Woodward Avenue
Bloomfield Hills, MI 48304
Dear Sirs:
We hereby consent to the reference to this firm under the caption, "Legal
Matters" in the prospectus contained in post-effective amendment No. 7 to the
registration statement on Form S-1 of The Manufacturers Life Insurance Company
of America, File No. 33-57020, to be filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933.
Very truly yours,
Jones & Blouch L.L.P.
Jones & Blouch L.L.P.
<PAGE> 1
EXHIBIT 23(b)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 21, 1997 accompanying the financial statements
and the financial statement schedules of The Manufacturers Life Insurance
Company of America and to the use of our report dated January 31, 1997
accompanying the financial statements of Separate Account Two of The
Manufacturers Life Insurance Company of America, in Post-Effective Amendment
No. 7 to the Registration Statement No. 33-57020 on Form S-1 and related
prospectus of The Manufacturers Life Insurance Company of America.
Ernst & Young LLP
Philadelphia, Pennsylvania
April 9, 1997
<PAGE> 1
EXHIBIT 99.B
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULES
THE BOARD OF DIRECTORS
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
We have audited the financial statements of The Manufacturers Life Insurance
Company of America as of December 31, 1996, 1995 and 1994 and for each of the
three years in the period ended December 31, 1996 and have issued our report
thereon dated March 21, 1997 (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedules included
in this Registration Statement. These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
PHILADELPHIA, PENNSYLVANIA Ernst & Young LLP
MARCH 21, 1997
22
<PAGE> 2
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
SCHEDULE I -- SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31,1996
($ THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT
FAIR SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- ----------------------------------- --------- --------- -------------
<S> <C> <C> <C>
Fixed maturities:
United States Government $ 9,217 $ 9,507 $ 9,507
Foreign Governments 9,227 9,440 9,440
Corporate 32,971 32,761 32,761
- ----------------------------------- --------- --------- -------------
Total fixed maturities 50,415 51,708 51,708
Equity Securities:
Common stocks - other 19,450 21,572 21,572
Mortgage loans 645 645
Policy loans 9,822 9,822
Cash and short term investments 17,493 17,493
- ----------------------------------- --------- --------- -------------
Total Investments $97,825 $73,280 $101,240
=================================== ========= ========= =============
</TABLE>
23
<PAGE> 3
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
($ THOUSANDS)
<TABLE>
<CAPTION>
FUTURE
POLICY
BENEFITS BENEFITS, CLAIMS
DEFERRED LOSSES, CLAIMS OTHER POLICY NET LOSSES, AND OTHER
ACQUISITION AND UNEARNED CLAIMS AND PREMIUM INVESTMENT SETTLEMENT OPERATING
SEGMENT COSTS LOSS EXPENSES PREMIUMS BENEFITS PAYABLE REVENUE INCOME EXPENSES EXPENSES
- ---------------------------- -------- -------- ----- ----- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996:
Life Insurance and annuities $102,610 $91,915 $635 $379 $12,898 $6,141 $14,473 $52,067
Other (incl. non-life
subsidiaries) - - - - - 13,510 - 6,185
- ---------------------------- -------- -------- ----- ----- -------- -------- -------- --------
TOTAL $102,610 $91,915 $635 $379 $12,898 $19,651 $14,473 $58,252
============================ ======== ======== ===== ===== ======== ======== ======== ========
1995:
Life Insurance and annuities $78,829 $86,129 $642 $582 $15,293 $5,841 $16,905 $37,151
Other (incl. non-life
subsidiaries) - - - - - 12,888 - 4,787
- ---------------------------- -------- -------- ----- ----- -------- -------- -------- --------
TOTAL $78,829 $86,129 $642 $582 $15,293 $18,729 $16,905 $41,938
============================ ======== ======== ===== ===== ======== ======== ======== ========
1994:
Life Insurance and annuities $60,124 $72,623 $427 $95 $27,578 $3,588 $28,768 $25,108
Other (incl. non-life
subsidiaries) - - - - - 14,103 - 3,499
- ---------------------------- -------- -------- ----- ----- -------- -------- -------- --------
TOTAL $60,124 $72,623 $427 $95 $27,578 $17,691 $28,768 $28,607
============================ ======== ======== ===== ===== ======== ======== ======== ========
</TABLE>
24
<PAGE> 4
<TABLE>
<CAPTION>
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA SCHEDULE IV -- REINSURANCE ($ THOUSANDS)
COL.A COL. B COL. C COL. D COL. E COL. F
CEDED TO ASSUMED PERCENTAGE OF
GROSS OTHER FROM OTHER NET AMOUNT
AMOUNT COMPANIES COMPANIES AMOUNT ASSUMED TO NET
- ------------------------------------------ ----------- ------------ ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Life insurance in force $7,700,816 $552,986 $98,741 $7,246,571 1.36%
========================================== =========== ============ =========== =========== ===============
Insurance premiums:
Life $12,998 $776 $676 $12,898 5.24%
========================================== =========== ============ =========== =========== ===============
Year ended December 31, 1995:
Life insurance in force $5,140,950 $147,818 $97,908 $5,091,040 1.92%
========================================== =========== ============ =========== =========== ===============
.
Insurance premiums:
Life $9,809 $475 $5,959 $15,293 38.97%
========================================== =========== ============ =========== =========== ===============
Year ended December 31, 1994:
Life insurance in force $4,628,330 $287,659 $102,918 $4,443,589 2.32%
========================================== =========== ============ =========== =========== ===============
Insurance premiums:
Life $2,380 $188 $25,386 $27,578 92.05%
========================================== =========== ============ =========== =========== ===============
</TABLE>
25
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE REGISTRANT'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995
AND 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 51,708
<DEBT-CARRYING-VALUE> 51,708
<DEBT-MARKET-VALUE> 51,708
<EQUITIES> 21,572
<MORTGAGE> 645
<REAL-ESTATE> 0
<TOTAL-INVEST> 101,240
<CASH> 17,493
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 102,610
<TOTAL-ASSETS> 1,062,603
<POLICY-LOSSES> 91,915
<UNEARNED-PREMIUMS> 635
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 668,094
<NOTES-PAYABLE> 158,760
<COMMON> 4,502
0
10,500
<OTHER-SE> 101,628
<TOTAL-LIABILITY-AND-EQUITY> 1,062,603
12,898
<INVESTMENT-INCOME> 19,651
<INVESTMENT-GAINS> (119)
<OTHER-INCOME> 40,434
<BENEFITS> 14,473
<UNDERWRITING-AMORTIZATION> 13,240
<UNDERWRITING-OTHER> 45,012
<INCOME-PRETAX> (12,316)
<INCOME-TAX> (3,909)
<INCOME-CONTINUING> (8,407)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,407)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
