<PAGE> 1
As Filed with the Securities and Exchange Commission on April 7, 1998.
Registration No. 33-57020
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
Post-Effective Amendment No. 8
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 J. Sumner Jones
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 LOGO]
LIFESTYLE FROM MANULIFE FINANCIAL
PROSPECTUS FOR
MULTI-ACCOUNT FLEXIBLE
PAYMENT VARIABLE ANNUITY
ISSUED BY
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
PRINTED MAY, 1998
[MANULIFE FINANCIAL LOGO]
<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" or the "Company"). 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 Manufacturers Investment Trust. The accompanying
prospectus for Manufacturers Investment 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
sub-accounts 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 Manufacturers Investment Trust and information about the
investment holdings of the various Portfolios will be sent to the Policyowner
semi-annually.
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 Manufacturers Investment 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.
<PAGE> 6
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, 1998.
<PAGE> 7
PROSPECTUS CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DEFINITIONS................................... 1
SUMMARY OF POLICIES........................... 3
POLICYOWNER INQUIRIES......................... 4
EXPENSE TABLE................................. 5
CONDENSED FINANCIAL INFORMATION............... 8
GENERAL INFORMATION ABOUT MANUFACTURERS LIFE
OF AMERICA.................................. 10
Manufacturers Life of America and
Manufacturers Life...................... 10
General Information about Manufacturers
Life of America's Separate Accounts..... 10
Manufacturers Life of America's Separate
Account Two: The Variable Accounts...... 10
General Information About Manufacturers
Investment Trust........................ 10
INVESTMENT OBJECTIVES AND CERTAIN POLICIES
OF THE PORTFOLIOS........................... 11
DESCRIPTION OF THE POLICIES................... 13
Purchasing A Policy....................... 13
"Free Look" Right......................... 13
Restrictions Applicable To Purchase
Payments................................ 13
Policy Value.............................. 14
The Fixed Accounts................... 14
The Guaranteed Interest Account...... 15
The Variable Accounts................ 15
Annuity Value Guarantee................... 16
Transfers of Policy Value................. 16
Dollar Cost Averaging................ 17
Asset Allocation Balancer............ 17
Surrender Or Withdrawal Rights............ 18
Special Policy Access..................... 18
Provisions on Death....................... 19
Survivor Benefit Amount.............. 19
Joint Ownership...................... 19
Death of the Policyowner............. 19
Death of the Annuitant............... 20
Commencement of Annuity Payments.......... 21
Substitution of Portfolio Shares.......... 21
Policy Charges............................ 21
Withdrawal Charge.................... 21
Record-Keeping Charge................ 23
Dollar Cost Averaging Charge......... 23
Special Policy Access Charge......... 23
Premium Tax Deduction................ 23
Mortality And Expense Risks
Charges............................ 23
Administration Charge................ 24
Market Value Adjustment................... 24
OTHER GENERAL POLICY PROVISIONS............... 25
Deferral of Payments................. 25
Annual Statements.................... 25
Rights of Ownership.................. 25
<CAPTION>
PAGE
-------
<S> <C>
Beneficiary.......................... 26
Modification......................... 26
FEDERAL TAX MATTERS........................... 27
Taxation of Manufacturers Life of
America................................. 27
Tax Treatment Of The Policies............. 27
Purchase of Policies by Qualified Plans... 29
ADDITIONAL INFORMATION ABOUT MANUFACTURERS
LIFE OF AMERICA............................. 29
Description of Business................... 29
Responsibilities Assumed By Manufacturers
Life.................................... 30
Selected Financial Data................... 31
Management Discussion and Analysis of
Financial Condition and Results
of Operations........................... 32
Executive Officers and Directors.......... 42
Executive Compensation.................... 43
Legal Proceedings......................... 48
State Regulations......................... 48
OTHER MATTERS................................. 48
Special Provisions For Group Or Sponsored
Arrangements............................ 48
Sale of the Policies...................... 49
Voting Rights............................. 49
Further Information....................... 49
Experts................................... 50
Performance and Other Comparative
Information............................. 50
Advertising Performance of Variable
Accounts................................ 50
FINANCIAL STATEMENTS.......................... 54
APPENDIX B.................................... 87
Sample Calculations Of Market Value
Adjustments And Withdrawal Charges...... 87
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.
</TABLE>
<PAGE> 8
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.
"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.
1
<PAGE> 9
"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).
2
<PAGE> 10
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 Manufacturers Investment
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 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 3.5%).
3
<PAGE> 11
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".)
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
Manufacturers Investment 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.
4
<PAGE> 12
EXPENSE TABLE
<TABLE>
<CAPTION>
NUMBER OF
COMPLETE POLICY
YEARS SINCE
PURCHASE
PAYMENT WITHDRAWAL
WAS MADE CHARGE
--------------- -----------
<S> <C> <C>
1. POLICY AND TRANSACTION CHARGES:
(a) Withdrawal Charge (contingent deferred sales charge) 0-2.99 8.00%
(as a percentage of the lesser of amount surrendered or 3 6.00%
purchase payments)1: 4 4.00%
5 2.00%
6 or more None
(b) Record-Keeping Charge $302
(c) Dollar Cost Averaging Charge (if selected and applicable)3 $ 5
</TABLE>
<TABLE>
<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
Values4 0.80%
- Charged monthly as a percentage of the policy month-start
Variable Account Value and Fixed Account Value 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.
5
<PAGE> 13
4. MANUFACTURERS INVESTMENT TRUST ANNUAL EXPENSES (AFTER APPLICABLE FEE
WAIVERS AND EXPENSE REIMBURSEMENTS):
As a percentage of underlying Trust's average net assets
<TABLE>
<CAPTION>
INVESTMENT TOTAL
MANAGEMENT OTHER TRUST
PORTFOLIO FEES EXPENSES* EXPENSES
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets Trust 0.85% 0.57% 1.42%
Emerging Growth Trust 1.05% 0.06% 1.11%
International Stock Trust 1.05% 0.33% 1.38%
Quantitative Equity Trust (formerly Common Stock Fund) 0.70% 0.07% 0.77%
Real Estate Securities Trust 0.70% 0.07% 0.77%
Balanced Trust 0.80% 0.08% 0.88%
Capital Growth Bond Trust 0.65% 0.08% 0.73%
Money Market Trust 0.50% 0.04% 0.54%
</TABLE>
* Other Expenses include custody fees, registration fees, legal fees, audit
fees, trustees' fees, insurance fees and other miscellaneous expenses.
Manufacturers Securities Services, LLC ("MSS") has agreed pursuant to its
advisory agreement with Manufacturers Investment Trust to reduce its
advisory fee or reimburse Manufacturers Investment 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 Manufacturers Investment Trusts listed
above, .50% of the average annual net assets of such Manufacturers
Investment Trust Portfolio. Such expense limitations with respect to the
Manufacturers Investment Trust will continue in effect from year to year
unless otherwise terminated at any year end by MSS on 30 days' notice to
Manufacturers Investment Trust.
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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------
<S> <C> <C> <C> <C>
MANUFACTURERS INVESTMENT TRUST
PACIFIC RIM EMERGING MARKETS TRUST $103 $ 168 $ 195 $327
EMERGING GROWTH TRUST $100 $ 159 $ 180 $297
INTERNATIONAL STOCK TRUST $103 $ 167 $ 193 $323
QUANTITATIVE EQUITY TRUST (FORMERLY COMMON STOCK FUND) $ 97 $ 150 $ 164 $263
REAL ESTATE SECURITIES TRUST $ 97 $ 150 $ 164 $263
BALANCED TRUST $ 98 $ 153 $ 169 $274
CAPITAL GROWTH BOND TRUST $ 97 $ 149 $ 162 $259
MONEY MARKET TRUST $ 95 $ 143 $ 153 $239
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:
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------
<S> <C> <C> <C> <C>
MANUFACTURERS INVESTMENT TRUST
PACIFIC RIM EMERGING MARKETS TRUST $ 30 $ 91 $ 155 $327
EMERGING GROWTH TRUST $ 27 $ 82 $ 140 $297
INTERNATIONAL STOCK TRUST $ 29 $ 90 $ 153 $323
QUANTITATIVE EQUITY TRUST (FORMERLY COMMON STOCK FUND) $ 23 $ 72 $ 123 $263
REAL ESTATE SECURITIES TRUST $ 23 $ 72 $ 123 $263
BALANCED TRUST $ 24 $ 75 $ 128 $274
CAPITAL GROWTH BOND TRUST $ 23 $ 70 $ 121 $259
MONEY MARKET TRUST $ 21 $ 65 $ 111 $239
</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
Manufacturers Investment Trust, but it does not reflect any deduction made to
cover any premium taxes
6
<PAGE> 14
attributable to a Policy. Such taxes may be as much as 3.50% 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 Manufacturers Investment Trust is
provided under the caption "Management of the Trust" in the accompanying
Manufacturers Investment Trust prospectus.
7
<PAGE> 15
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, 1997
SUB-ACCOUNTS
<TABLE>
<CAPTION>
EMERGING GROWTH TRUST
(FORMERLY EMERGING GROWTH EQUITY FUND)
------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 3 (Commencement) $10.00
January 1 value $10.87 $12.58 $17.72 $14.93 $25.33 $30.55 $37.47 $35.58
December 31 value $10.87 $12.58 $17.72 $14.93 $25.33 $30.55 $37.47 $35.58 $45.01
December 31 units 329 11,285 22,539 41,687 76,705 288,277 874,970 1,454,901 1,670,956
<CAPTION>
1996 1997
<S> <C> <C>
November 3 (Commencement)
January 1 value $45.01 46.79
December 31 value $46.79 54.27
December 31 units 1,681,075 1,423,816
</TABLE>
<TABLE>
<CAPTION>
BALANCED TRUST
(FORMERLY BALANCED ASSETS FUND)
------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 3 (Commencement) $10.00
January 1 value $10.20 $10.87 $13.06 $13.13 $16.04 $16.87 $18.70 $17.75
December 31 value $10.20 $10.87 $13.06 $13.13 $16.04 $16.87 $18.70 $17.75 $21.91
December 31 units 1,645 21,509 47,074 118,664 201,901 515,812 1,293,922 2,001,928 2,189,632
<CAPTION>
1996 1997
<S> <C> <C>
November 3 (Commencement)
January 1 value $21.91 23.98
December 31 value $23.98 27.96
December 31 units 2,312,513 2,198,485
</TABLE>
<TABLE>
<CAPTION>
CAPITAL GROWTH BOND TRUST
(FORMERLY CAPITAL GROWTH BOND FUND)
------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 3 (Commencement) $10.00
January 1 value $10.15 $10.77 $12.14 $12.81 $14.76 $15.47 $16.94 $16.02
December 31 value $10.15 $10.77 $12.14 $12.81 $14.76 $15.47 $16.94 $16.02 $19.07
December 31 units 1,039 17,737 36,191 51,268 69,024 168,747 499,877 672,365 789,655
<CAPTION>
1996 1997
<S> <C> <C>
November 3 (Commencement)
January 1 value $19.07 19.35
December 31 value $19.35 20.82
December 31 units 851,595 841,834
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET TRUST
(FORMERLY MONEY-MARKET FUND)
------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 3 (Commencement) $10.00
January 1 value $10.07 $10.68 $11.51 $12.28 $12.84 $13.15 $13.37 $13.75
December 31 value $10.07 $10.68 $11.51 $12.28 $12.84 $13.15 $13.37 $13.75 $14.38
December 31 units 7,161 23,091 32,907 160,484 122,681 176,160 328,922 918,869 1,290,129
<CAPTION>
1996 1997
<S> <C> <C>
November 3 (Commencement)
January 1 value $14.38 14.95
December 31 value $14.95 15.57
December 31 units 1,375,204 1,225,881
</TABLE>
<TABLE>
<CAPTION>
QUANTITATIVE EQUITY TRUST
(FORMERLY COMMON STOCK FUND)
------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 3 (Commencement) $10.00
January 1 value $10.43 $11.35 $14.68 $13.94 $17.97 $18.88 $21.19 $20.10
December 31 value $10.43 $11.35 $14.68 $13.94 $17.97 $18.88 $21.19 $20.10 $25.72
December 31 units 709 7,257 20,202 43,044 78,327 194,079 485,195 803,568 977,871
<CAPTION>
1996 1997
<S> <C> <C>
November 3 (Commencement)
January 1 value $25.72 30.03
December 31 value $30.03 38.60
December 31 units 1,274,256 1,317,902
</TABLE>
8
<PAGE> 16
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES TRUST
(FORMERLY REAL ESTATE SECURITIES FUND)
----------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994
----------------------------------------------------------------------------------------
<S> <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
December 31 value $ 9.99 $11.05 $11.95 $11.30 $15.78 $18.96 $23.01 $22.16
December 31 units 1,642 12,733 17,676 17,834 24,956 134,707 711,630 1,205,880
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
November 3 (Commencement)
January 1 value $22.16 $25.26 33.68
December 31 value $25.26 $33.68 39.48
December 31 units 1,149,409 1,190,829 1,251,505
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL STOCK TRUST
(FORMERLY INTERNATIONAL FUND)
------------------------------------------------------------
1994 1995 1996 1997
------------------------------------------------------------
<S> <C> <C> <C> <C>
October 4 (Commencement) $10.00
January 1 value $ 9.72 $10.71 11.71
December 31 value $ 9.72 $10.71 11.71 11.76
December 31 units 89,180 354,776 652,940 749,834
</TABLE>
<TABLE>
<CAPTION>
PACIFIC RIM EMERGING MARKETS TRUST
(FORMERLY PACIFIC RIM
EMERGING MARKETS FUND)
------------------------------------------------------------
1994 1995 1996 1997
------------------------------------------------------------
<S> <C> <C> <C> <C>
October 4 (Commencement) $10.00
January 1 value $ 9.41 $10.38 11.29
December 31 value $ 9.41 $10.38 11.29 7.36
December 31 units 67,272 261,208 502,325 497,230
</TABLE>
9
<PAGE> 17
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. On January 19, 1998, the
Board of Directors of Manufacturers Life asked the management of Manufacturers
Life to prepare a plan for conversion of Manufacturers Life from a mutual life
insurance company to an investor-owned, publicly-traded stock company. Any
demutualization plan for Manufacturers Life is subject to the approval of the
Manufacturers Life Board of Directors and policyholders as well as regulatory
approval
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.
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 MANUFACTURERS INVESTMENT TRUST
Each sub-account of Separate Account Two will purchase shares only of a
particular portfolio of Manufacturers Investment Trust. Manufacturers Investment
Trust is registered under the 1940 Act as an open-end management
10
<PAGE> 18
investment company. Separate Account Two will purchase and redeem shares of
Manufacturers Investment 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. Manufacturers Investment 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 Manufacturers Investment 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 Manufacturers Investment Trust
prospectus.
Manufacturers Investment Trust receives investment advisory services from MSS.
MSS is a registered investment adviser under the Investment Advisers Act of
1940. Manufacturers Investment Trust also employs subadvisers. The following
subadvisers provide investment subadvisory services to the indicated portfolios:
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISER
- ----------------------------------------------- -----------------------------------------------
<S> <C>
Aggressive Growth Portfolios
Pacific Rim Emerging Markets Trust Manufacturers Adviser Corporation*
Emerging Growth Trust Warburg Pincus Asset Management, 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 LLC
Bond Portfolio
Capital Growth Bond Trust Manufacturers Adviser Corporation*
Money Market Portfolio
Money Market Trust Manufacturers Adviser Corporation*
</TABLE>
- ---------------
* Manufacturers Adviser Corporation is an indirect wholly-owned subsidiary of
Manufacturers Life.
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 Asset Management, 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.
11
<PAGE> 19
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.
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 Manufacturers Investment Trust, its investment
objectives, policies and restrictions, the risks associated therewith, its
expenses, and other aspects of its operation is contained in the accompanying
Manufacturers Investment Trust prospectus, which should be read together with
this prospectus.
12
<PAGE> 20
DESCRIPTION OF THE POLICIES
PURCHASING A POLICY
The Policies are designed for use in connection with retirement plans entitled
to special tax treatment under Sections 401 or 408 of the Code and retirement
plans and trusts not entitled to any special tax treatment. The Policies are
appropriate for group or sponsored plans with individual accounts or for
purchase directly by individuals. (See Other Matters -- "Special Provisions for
Group or Sponsored Arrangements".) A Policy will generally be issued to persons
up to age 75. In certain circumstances Manufacturers Life of America may, in its
sole discretion, issue a Policy to persons above age 75.
Except where application information and the initial purchase payment are
supplied by electronic transmission, persons seeking to purchase Policies must
submit an application and a check for the initial purchase payment. The
application, whether written, or via electronic transmission, is subject to
underwriting standards adopted by Manufacturers Life of America and
Manufacturers Life of America reserves the right to reject any application. A
properly completed application that is accompanied by the initial purchase
payment and all information necessary for the processing of the application will
normally be accepted within two business days. An incomplete application which
is subsequently made complete will normally be accepted within two business days
of completion; however, if an application is not completed properly or necessary
information is not obtained within 5 working days, Manufacturers Life of America
will offer to return the purchase payment.
Special provisions for electronic transmission of application information and
purchase payments. In jurisdictions where it is not prohibited, Manufacturers
Life of America will accept transmittal of initial and subsequent purchase
payments by electronic transfer to the Service Office provided the transmission
is (i) initiated by a broker-dealer from whom Manufacturers Life of America has
agreed to accept such transfers and (ii) accompanied by the information
necessary to issue a Policy and/or allocate the premium payments.
Initial purchase payments made via electronic transfer and accompanied by the
information necessary to issue a Policy will normally be accepted within two
business days. If the accompanying information is incomplete but is subsequently
made complete, it will normally be accepted within two business days; however,
if the requested information cannot be obtained within five business days,
Manufacturers Life of America will inform the broker-dealer, on the applicant's
behalf, of the reasons for the delay and offer to return the purchase payment.
Based on the information provided by the electronic transmission, Manufacturers
Life of America will generate an application and Policy to be forwarded to the
applicant for signature.
"FREE LOOK" RIGHT
Within ten days after receiving a Policy, the Policyowner may return it for
cancellation by mailing it to the Service Office. Within seven days after
receipt, except where state insurance law requires return of any purchase
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.
13
<PAGE> 21
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.
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
14
<PAGE> 22
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.
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.
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 Trust 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
15
<PAGE> 23
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.
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 change percentage allocations of assets, 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.
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
16
<PAGE> 24
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 the Equity Index Trust
Sub-account in a particular Business Day would not reduce the number of shares
of the underlying Equity Index Trust outstanding at the close of the prior
Business Day by more than 5%, all such requests will be effected. However, net
transfers out of that sub-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 Equity Index Trust or to
the interests of Policyowners or others with assets allocated to that Portfolio.
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
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.
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<PAGE> 25
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 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.
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.
18
<PAGE> 26
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
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".)
19
<PAGE> 27
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 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.
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.
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<PAGE> 28
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.
Manufacturers Life of America also reserves the right to combine other
registered separate accounts with Separate Account Two investing in additional
Portfolios of the Manufacturers Investment Trust 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
21
<PAGE> 29
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:
<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 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.
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<PAGE> 30
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
Manufacturers Investment Trust and annually updated prospectuses for
Manufacturers Investment 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 Manufacturers Investment 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
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 3.5%
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> 31
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
Life 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.
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.
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<PAGE> 32
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
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.
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
25
<PAGE> 33
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.
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.
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<PAGE> 34
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.
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
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.
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<PAGE> 35
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.
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 sub-accounts without being treated as owners of the
underlying assets."
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets. For example, the
Policy has many more Portfolios to which Policyowners may allocate premium
payments and Policy Values than were available in the policies described in the
rulings. These differences could result in a policyowner being treated as the
owner of a pro rata portion of the assets of the Separate Account. In addition,
the Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. Manufacturers Life of America therefore reserves the right to modify the
Policy as necessary to attempt to prevent a Policyowner from being considered
the policyowner of a pro rata share of the assets of the Separate Account.
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
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<PAGE> 36
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.
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.
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<PAGE> 37
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 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 1995,
1996 and 1997, Manufacturers Life of America paid $23,211,484, $26,982,466 and
$30,873,151, respectively, to Manufacturers Life and Manufacturers USA 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 $79.7 Billion (Canadian Dollars) and surplus of $5.1 Billion (Canadian
Dollars) as of December 31, 1997. As in the past, Manufacturers Life of America
may look to its ultimate parent company to provide the necessary capital to
finance its operations.
The vast majority of Manufacturers Life's business in the United States is being
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.
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<PAGE> 38
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------------------------------------
1997 1996 1995 1994 1993*
-------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
UNDER GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES:
Total Revenues $ 56,226 $ 73,532 $ 62,174 $ 60,322
Net loss (3,636) (8,407) (6,846) (6,726)
Total Assets 1,166,611 1,062,603 854,814 654,968
Long Term Obligations 41,500 8,500 167,390 159,019
Capital and Surplus 106,769 116,630 110,520 101,839
</TABLE>
* selected financial data under generally accepted accounting principles is not
available for the 1993 fiscal year. See Management's Discussion and Analysis
and Notes to the Consolidated Financial Statements for additional information.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-----------------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ON STATUTORY BASIS**:
Total Revenues $ 229,080 $ 202,666 $165,756 $197,426 $129,272
Net loss (2,550) (15,961) (13,705) (19,661) (13,277)
Total Assets 1,028,360 795,083 588,742 403,086 253,392
Long Term Obligations 33,000 0 0 -- --
Capital and Surplus 56,598 76,202 56,298 49,396 50,656
</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.
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<PAGE> 39
OVERVIEW
Management Discussion and Analysis of Financial Condition and Results of
Operation
The following analysis of the consolidated results of operations and financial
condition of Management Discussion and Analysis of Financial Condition and
Results of Operations Manufacturers Life of America should be read in
conjunction with the Consolidated Financial Statements and the related Notes to
Consolidated Financial Statements which are located at the back of this
prospectus.
CORPORATE STRUCTURE AND OVERVIEW
The Company is a direct wholly-owned U.S. subsidiary of Manufacturers Life USA,
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
Manufacturers Life, a Canadian mutual insurance company. Manufacturers Life with
consolidated assets under management of $79.7 billion ($Can), actively operates
in thirteen 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.
The Company is active in two distinct businesses:
a) Domestically, the sale of Variable Insurance Products
b) Internationally, the sale of participating insurance products
through Branch Operations in Taiwan
Variable Products
During the last four years the company has grown significantly through the
successful growth in variable insurance sales. This growth reflects:
a) continuing shift in consumer preference as they seek greater
control over their investment decision making,
b) more active marketing and sales practices by the company,
c) increased consumer acceptance of this product due to
increasing estate planning needs.
This growth continued in 1997 with variable universal life deposits being 128%
of the 1996 deposits. The Company's introduction in 1997 of a corporate-owned
(COLI) Variable Universal Life contract together with the addition of nineteen
new investment accounts have been positively received. During the same period
the separate account assets grew from $668 million to $897 million.
In particular, the new investment accounts increased available investment
options while providing policyholders with the ability to increase
diversification not only by investment type but also by portfolio management
style. Prior to December 31, 1996 the assets in the Company's Separate Accounts
invested in shares of the Manulife Series Fund, Inc. On December 31, 1996 the
Manulife Series Fund, Inc. was merged with the Manufacturers Investment Trust
(formerly named NASL Series Trust). The reorganization will enable policyholders
to have access to a broader group of high profile external fund managers and to
take advantage of an investment management approach known as managing to the
"Efficient Frontier" in which investors' assets are allocated amongst a broad
mix of investment choices consistent with their risk tolerance levels. This
change makes most of the Manufacturers Investment Trust fund options available
as investment options in most of the variable policies issued by the Company. We
remain positive about the future growth and profitability from this product
line.
Variable annuity deposits during 1997 were 32% of 1996 deposit levels. The
Company de-emphasized the sale of variable annuities and concentrated on the
sale of estate planning variable life products which is more consistent with its
client and producer base.
Variable annuities for Manufacturers Life are currently being marketed through
an affiliated company, The Manufacturers Life Insurance Company of North
America, formerly North American Security Life Insurance Company, "Manulife
North America") a variable annuity wholesaler.
Taiwan
32
<PAGE> 40
The Company entered Taiwan in 1992 as a start-up venture to sell traditional
insurance products through its Taiwan branch. During 1995 the Company commenced
full operations that resulted in significant expenditures on agent recruitment
and training. In 1996 Taiwan's operating losses increased as a result of costs
associated with recruitment and training. Although management expects losses,
the magnitude was not acceptable. In late 1996, a new General Manager was
appointed and transferred to Taiwan with the mandate to slow growth and focus
more selectively on real strategic opportunities. Significant improvements were
seen in 1997 with a decrease in the net loss reported. The currency crisis
experienced in Asia in the fourth quarter of 1997 impacted the Taiwan branch
operations through higher lapses as policyholders had difficulty paying premiums
largely denominated in U.S. dollars. Nonetheless, the Company continues to
anticipate a large potential for this market.
In addition to the above businesses, the Company assumes reinsurance from its
parent company, ManUSA. The Company reinsures an inforce individual
participating life insurance block of business which does not include any new
business.
RECENT DEVELOPMENTS
Manufacturers Life Mortgage Securities Corporation
In October 1997, the Company's indirect wholly-owned subsidiary, Manufacturers
Life Mortgage Securities Corporation, ("MLMSC"), which was an issuer of
mortgage-backed U.S. dollar bonds, was absorbed into Manulife Holding
Corporation, a wholly-owned holding company for a number of U.S. non-insurance
subsidiaries primarily supporting variable products. See notes 2 and 5 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 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.
Demutualization
On January 20, 1998, the Board of Directors of Manufacturers Life asked the
management of Manulife to prepare a plan for conversion of Manufacturers Life
from a mutual life insurance company to an investor-owned, publicly-traded stock
company. Any demutualization plan for Manufacturers Life is subject to the
approval of the Manufacturers Life Board of Directors and policyholders as well
as regulatory approval.
FORWARD-LOOKING INFORMATION
Certain information included herein is forward-looking within the meaning of the
Private Securities Litigation Reform Act of 1995, including, but not limited to,
statements concerning anticipated operating results, financial resources, growth
in existing markets and the impact of the year 2000. Such forward-looking
information involves important risks and uncertainties that could significantly
affect actual results and cause them to differ materially from expectations
expressed herein. These risks and uncertainties include changes in general
economic conditions, the effect of regulatory, tax and competitive changes in
the environment in which the Company operates, fluctuations in interest rates,
performance of financial markets and the Company's ability to achieve
anticipated levels of earnings.
REVIEW OF CONSOLIDATED OPERATING RESULTS
33
<PAGE> 41
<TABLE>
<CAPTION>
--------------------------------------------------------- ------------------- ------------------ ---------------
Financial Summary (In '000's) 1997 1996 1995
--------------------------------------------------------- ------------------- ------------------ ---------------
<S> <C> <C> <C>
Premiums $ 5,334 $ 12,898 $ 15,293
Fee Income 41,955 40,434 24,986
Net Investment Income 8,275 19,651 18,729
Other Revenues 544 668 82
Realized Capital Gains (Losses) 118 (119) 3,084
--------------------------------------------------------- ------------------- ------------------ ---------------
Total Revenues $56,226 $ 73,532 $ 62,174
--------------------------------------------------------- ------------------- ------------------ ---------------
Policyholder Benefits $ 6,733 $ 14,473 $ 16,905
Operating Costs and Expenses 41,742 34,581 30,728
Policyholder Dividends 1,416 872 1,886
--------------------------------------------------------- ------------------- ------------------ ---------------
Loss Before Taxes (4,113) (12,316) (10,806)
Income Tax Benefit 477 3,909 3,960
Net Loss (3,636) (8,407) (6,846)
--------------------------------------------------------- ------------------- ------------------ ---------------
General Account Assets 269,567 394,509 374,409
Separate Account Assets 897,044 668,094 480,405
--------------------------------------------------------- ------------------- ------------------ ---------------
Total Assets 1,166,611 $1,062,603 $854,814
--------------------------------------------------------- ------------------- ------------------ ---------------
General Account Liabilities 162,798 $ 277,879 $263,889
Separate Account Liabilities 897,044 668,094 480,405
--------------------------------------------------------- ------------------- ------------------ ---------------
Capital and Surplus $106,769 $116,630 $110,520
========================================================= =================== ================== ===============
</TABLE>
NET LOSS
The Company reported a consolidated net loss in 1997 of $3.6 million, compared
to the 1996 net loss of $8.4 million ($6.8 million net loss in 1995). The main
contributors to these losses were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
--------------------------------------------------------- ------------------ ------------------ ---------------
<S> <C> <C> <C>
US Operations $(0.8) $ 9.1 $ 2.5
Taiwan Operations (2.8) (17.5) (9.3)
--------------------------------------------------------- ------------------ ------------------ ---------------
NET LOSS $ 3.6 $ 8.4 $ 6.8
========================================================= ================== ================== ===============
</TABLE>
The net loss from U.S. operations in 1997 of $0.8 million compared to a net
income in 1996 of $9.1 million was a result of a significant increase in
operating costs and expenses in 1997. This was directly attributable to new
business strain on dramatically increased variable universal life contract sales
for which deposits increased 28% over 1996 levels. The improvement in net income
in 1996 compared to 1995 was a result of increased policy fees which more than
offset costs associated with increased sales.
The net loss from Taiwan operations decreased to $2.8 million in 1997 from $17.5
million in 1996 (a $9.3 million net loss in 1995). The increased net loss in
1996 was a result of significant start-up costs incurred in Taiwan, particularly
associated with producer recruitment. In 1997, as discussed earlier,
improvements were made in the Taiwan branch operations to rationalize the
operations, slow the sales growth and related production costs, and to instead
focus on strategic growth. Lower sales significantly reduced the level of
commissions and expenses incurred.
PREMIUMS
Premium revenue for 1997 was $5.3 million compared to $12.9 million in 1996
($15.3 million in 1995). Of the total, premiums related to sales of traditional
life insurance contracts in Taiwan in 1997, 1996 and 1995 were $4.8 million,
$12.2 million and $9.3 million respectively. The decrease in premiums reported
in Taiwan in 1997 are a result of the
34
<PAGE> 42
more focused strategic growth discussed previously whereas the increase in 1996
over 1995 reflected the initially growing operation. Premiums related to U.S.
operations decreased to $0.5 million in 1997 from $0.7 million in 1996 and $6.0
million in 1995. The U.S. premiums relate solely to a block of Corporate-owned
life insurance business assumed from Manufacturers USA for which the initial
premium assumed of $25.4 million was received in 1994, with very little renewal
premium received thereafter.
Total general account and separate account deposits not included in premiums
above were as follows:
<TABLE>
<CAPTION>
(In '000's) 1997 1996 1995
--------------------------------------------------------- -------------------- --------------- -----------------
<S> <C> <C> <C>
Variable Life Insurance $185,355 $144,438 $108,323
Variable Annuities 11,598 36,130 37,834
--------------------------------------------------------- -------------------- --------------- -----------------
TOTAL $196,953 $180,568 $146,157
========================================================= ==================== =============== =================
</TABLE>
The growth in variable life insurance deposits continued while single premium
variable annuity premiums continued to decrease in 1997 and 1996. 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
which continued throughout 1997 along with the growth due to the new COLI
variable universal life contract in 1997. With the merger of Manufacturers Life
and North American Life Assurance Company in 1996, the sale of variable
annuities in the Company was de-emphasized in October 1997 and all variable
annuity sales will be made through an affiliated company, Manulife North
America.
FEE INCOME
Fee income for 1997 was $42 million, compared to $40.4 million in 1996 ($25
million in 1995). Strong investment performance in 1997 and 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 84% of the fee income earned
by the Company in 1997 compared to 85% in 1996 and 94% in 1995. The remainder of
the fee income is derived through investment management fees.
NET INVESTMENT INCOME
Net investment income was $8.3 million in 1997 compared to $19.7 million in 1996
($18.7 million in 1995). The decrease in 1997 is due to the maturity of a $171.7
million guaranteed annuity contract in March 1997 on which interest of
approximately $13.2 million was reported in 1996. The increase in 1996 compared
to 1995 is due to the strengthening of the stock market in 1996.
REALIZED CAPITAL GAINS
In 1997, the Company had realized capital gains of $0.1 million, compared to
losses of $0.1 million in 1996 ($3.1 million realized gains in 1995). 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 $6.7 million in 1997, compared to $14.5
million in 1996 ($16.9 million in 1995). The decrease in 1997 is a direct result
of the reduction in activity and death claims experience in Taiwan. Death claims
experience in 1996 was favorable compared to expected levels and to prior years.
35
<PAGE> 43
OPERATING COSTS AND EXPENSES
Operating costs and expenses increased to $41.7 million in 1997 compared to
$34.6 million in 1996 ($30.7 million in 1995). The increase in 1997 and 1996 is
due to expenses incurred in connection with the sales of two new products, a
COLI variable universal life contract in 1997 and a survivorship variable life
contract in 1996 as discussed previously.
REVIEW OF CONSOLIDATED FINANCIAL CONDITION
The Company had total consolidated assets of $1,167 million at December 31,
1997, an increase of $104 million or 9.8% from 1996. This change is principally
a result of separate account asset growth of $229 million due to strong
investment performance of the underlying investment funds, continued consumer
preference for participation in the stock market through separate accounts, and
the additional product offerings and investment options introduced in 1997,
offset by a reduction in general account assets due to the maturity and
repayment of MLMSC's mortgage-backed bonds.
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) 1997 1996
- ------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
Fixed maturities $ 67,893 $ 51,708
Equities 19,460 21,572
Mortgage loans 131 645
Policy Loans 14,673 9,822
Cash and Short-Term Investments 22,012 17,493
- ------------------------------------------------------------------ ----------- -----------
TOTAL INVESTMENTS $ 124,169 $ 101,240
================================================================== =========== ===========
</TABLE>
General account investments increased by $22.9 million or 22.6% from 1996. This
change is due to an increase in fixed maturities of $16.2 million and cash and
short-term investments of $4.5 million. In the fourth quarter of 1997,
ManAmerica borrowed $33 million from its parent, ManUSA, to provide additional
liquidity and to meet the costs of new business strain resulting from
significant COLI sales.
FIXED MATURITIES
The Company's fixed maturity bond portfolio of $67.9 million represents 55% of
investments at the end of 1997, compared to 51% at the end of 1996.
As at December 31, 1997, 97.5% of the bond portfolio was rated "A" or higher,
and 100% was rated investment grade, "BBB" or higher. The corresponding
percentages at the end of 1996 were 85.9% and 97.5%.
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------------------------------- ------------------------------
Fixed maturities by Investment Grade
(In '000's) 1997 1996
- ---------------------------------------------------- --------------------------------- ------------------------------
<S> <C> <C> <C> <C>
AAA $52,496 77.2% $16,953 32.7%
AA 516 1.0% 5,483 10.6%
</TABLE>
36
<PAGE> 44
<TABLE>
<S> <C> <C> <C> <C>
A 13,167 19.3% 21,973 42.5%
BBB 1,714 2.5% 6,032 11.7%
BB & lower, and unrated - - 1,267 2.5%
- ---------------------------------------------------- ----------------- --------------- -------------- ---------------
TOTAL FIXED MATURITIES $67,893 $51,708
==================================================== ================= =============== ============== ===============
</TABLE>
EQUITY SECURITIES
The Company's equity portfolio of $19.5 million represents 16% of investments at
the end of 1997, compared to 21% at the end of 1996. The equities consist
entirely of investments in mutual funds sponsored by an affiliate.
POLICY LOANS
Policy loans represented 12% of investments at December 31, 1997, compared to
10% in 1996. 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, 1997 and 1996.
GUARANTEED ANNUITY CONTRACTS
The Guaranteed Annuity Contract of $171.7 million held by MLMSC with the
Company's parent, Manufacturers USA matured on March 1, 1997, the same date that
the mortgage backed security issued by MLMSC matured and was repaid, resulting
in a decrease in general account assets in 1997.
DERIVATIVES
The Company did not enter into any derivative transactions during 1997 or 1996.
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) 1997 1996
- ------------------------------------------------------------------------ ----------- ------------
<S> <C> <C>
Life Insurance:
Taiwan $ 13,291 $ 15,305
Reinsurance 40,975 44,497
Variable Life 40,211 32,113
- ------------------------------------------------------------------------ ----------- ------------
TOTAL $ 94,477 $ 91,915
======================================================================== =========== ============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Separate Account Liabilities (In '000's) 1997 1996
</TABLE>
37
<PAGE> 45
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------ ----------- ------------
<S> <C> <C>
Variable Life Insurance $ 603,732 $ 399,403
Variable Annuities 293,312 268,691
- ------------------------------------------------------------------------ ----------- ------------
TOTAL $ 897,044 $ 668,094
======================================================================== =========== ============
</TABLE>
Separate account liabilities are $897 million, an increase of 34% over 1996.
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
1997 and sales of the new COLI product.
Taiwan reserves decreased in 1997 due to the higher lapses and slower growth.
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 1997, this amounted to $22 million or 17.7% of total
investments compared to $17.5 million in 1996 or 17.3%. 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 cost 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
indicates this in that operating activities used cash of $24.7 million and $20.5
million in 1997 and 1996 respectively compared to $29.6 million in 1995. As a
result, the Company looks to its parent, Manufacturers USA, for the necessary
capital to support its operations. In 1995 a surplus note for $8.5 million was
issued to the Company from Manufacturers USA. In 1996, a $15 million
contribution of capital was made to the Company by its Parent to provide further
liquidity. In December 1997, the Company borrowed $33 million from Manufacturers
USA pursuant to a promissory note maturing on February 1, 2007. Manufacturers
Life provides a claims paying guarantee to the Company's U.S. policyholders.
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.
38
<PAGE> 46
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.
RISK MANAGEMENT PRACTICES AND PROCEDURES
Risk management is a fundamental component in the Company's financial strength
and stability, 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
reviews by internal and external auditors and regulators.
The key risks faced by the Company are currency risk, credit, claims, pricing
and business risks. The nature of these risks and how they are managed is
explained in the following sections.
CURRENCY RISK
The Company's policy of matching assets with related liabilities by currency
limits it's exposure to foreign currency movements to a minimal level. The
currency exposure on surplus is proportional to the underlying liabilities, thus
insulating the Company's "surplus to liability" ratios from changes in foreign
currency exchange rates.
As a result of the Company's foreign currency policy, the impact of the current
foreign exchange crisis in Asia on the Company's earnings was minimal although
the Company recognizes that the economic value of the Taiwan branch was affected
by the economic and currency developments in these markets.
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. 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
39
<PAGE> 47
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.
During 1997, enhancements were introduced to the pricing risk management
process, including completion of an annual compliance self-assessment by all
business units and the conducting of full audits of business unit pricing
operations on a rotating basis, with all units expected to be audited over a
three to five year cycle.
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.
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.
IMPACT OF YEAR 2000
Preparing computer systems to deal with the Year 2000 risk has become a major
issue for businesses throughout the world. Within the Manufacturers Life group,
a group-wide program has been underway since 1996 to make all critical systems
compliant by the end of 1998 and other systems compliant by the end of 1999.
Included in this program are all systems applicable to and shared by the Company
with Manufacturers Life. Based on a detailed assessment, Manufacturers Life
determined that a portion of its software needs to be modified or replaced so
that its computer systems will function properly into the Year 2000 and beyond.
Like most companies, the Year 2000 issue represents a significant challenge for
Manufacturers Life and extensive resources have been dedicated to modifying
existing software and to converting to new software. However, there can be no
assurances that Manufacturers Life's systems, nor those of other companies on
which Manufacturers Life relies, will be fully converted on a timely basis and
therefore that all adverse effect on the Company due to the Year 2000 risk will
be avoided. Manufacturers Life is presently consulting with vendors, customers,
subsidiaries, third-parties and other businesses with which it deals to ensure
that no material aspect of its, or the Company's, operations will be hindered by
the Year 2000 risk.
40
<PAGE> 48
The costs of the project and the date on which Manufacturers Life plans to
complete the modifications are based on management's best estimates and are
subject to some uncertainty. Manufacturers Life is using both internal and
external resources to reprogram, or replace, and test the software for Year 2000
modifications. The total cost of this program to Manufacturers Life is estimated
to be $64 million, comprised of $55 million for specifically budgeted programs
and $9 million for general contingencies. Manufacturers Life has incurred $15
million as at December 31, 1997 of which the Company will receive an allocation
due to its shared systems. The costs allocated are not expected to have a
material effect on the net operating income of the Company.
41
<PAGE> 49
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 OF
NAME AMERICA PRINCIPAL OCCUPATION
- ---------------------------- ----------------------- ----------------------------------------
<S> <C> <C>
Sandra M. Cotter (35) Director Attorney -- 1989-present, Dykema,
(since December 1992) Gossett
James D. Gallagher (42) Director, Secretary and Vice President, Secretary and General
General Counsel Counsel -- January 1997-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, The
Manufacturers Life Insurance Company of
North America; Vice President and
Associate General Counsel -- 1991-1994,
The Prudential Insurance Company of
America
Bruce Gordon* (54) Director Vice President, U.S. Operations --
(Since May 1996) Pensions -- 1990-present, The
Manufacturers Life Insurance Company
Donald A. Guloien (41) President and Director Senior Vice President, Business
(since September 1990) Development -- 1994-present, The
Manufacturers Life Insurance Company,
Vice President, U.S. Individual Business
-- 1990-1994, The Manufacturers Life
Insurance Company
Theodore Kilkuskie (42) Director Vice President, U.S. Individual
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 (59) Director (since July Senior Vice President, General Counsel
1982) and Corporate Secretary -- 1988-present,
The Manufacturers Life Insurance Company
John D. Richardson (60) Chairman and Director Senior Vice President and General
(since January 1995) Manager, U.S. Operations --
1995-present, The Manufacturers Life
Insurance Company; Senior Vice President
and General Manager, Canadian Operations
1992-1994
John R. Ostler (45) Vice President, Chief Financial Vice President -- 1992-present
Actuary and Treasurer
Douglas H. Myers** (43) Vice President, Finance Assistant Vice President and Controller,
and Compliance U.S. Operations -- 1988-present, The
Controller Manufacturers Life Insurance Company
</TABLE>
42
<PAGE> 50
<TABLE>
<CAPTION>
POSITION WITH
MANUFACTURERS LIFE OF
NAME AMERICA PRINCIPAL OCCUPATION
- ---------------------------- ----------------------- ----------------------------------------
<S> <C> <C>
Victor Apps (49) Senior Vice President Senior Vice President and General
and General Manager Manager, Greater China Division --
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 (43) Vice President, Vice President, Product Management --
Marketing 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.
EXECUTIVE COMPENSATION
43
<PAGE> 51
The company's executive officers may also serve as officers of one or more of
Manufacturers Life's affiliates. Allocations have been made as to such officers'
time devoted to duties as executive officers of the Company. The following table
shows the allocated compensation paid or awarded to or earned by the Company's
Chief Executive Officer for services provided to the Company. No other executive
officer had allocated cash compensation in excess of $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Name and Year Salary Bonus(1) Other Annual Restricted Securities LTIP All Other
Principal Compensation Stock Underlying Payouts Compensation
Position (2) Award(s) Options/SARs (3)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald A. 1997 $8,732 $5,515 n/a n/a n/a n/a $12
Guloien,
President
</TABLE>
(1) Bonus for 1996 performance paid in 1997.
(2) Does not include group health insurance since the plans are the same for all
salaried employees. Other Annual Compensation disclosed only if the aggregate
value of the perquisite exceeded the lesser of $50,000 or 10% of salary and
bonus.
(3) Other Compensation includes the value of term life insurance premiums paid
by Manufacturers Life for the benefit of the executive officer and Company paid
401(k) plan contributions. In prior years, this column included company paid
pension plan contributions but this year there were no company paid
contributions since the plan is overfunded.
The Management Resources and Compensation Committee (the "Committee") of the
Board of Directors for Manufacturers Life approves the compensation programs for
all officers as well as the annual review of Manufacturers Life's Annual
Incentive Plan awards and Long-Term Incentive Plan grants. Executive officers
participate in certain plans sponsored by Manufacturers Life.
Manufacturers Life's executive compensation policies are designed to recognize
and reward individual performance as well as provide a total compensation
package which is competitive with the median of Manufacturers Life's comparator
group.
Manufacturers Life's officer compensation program is comprised of three key
components; base salary, annual incentive and long-term incentive.
SALARY
The Committee approves the salary ranges and salary increase levels for all Vice
Presidents and above based on competitive industry data for all markets in which
Manufacturers Life operates. Salary increases to Manufacturers Life's officers
and executives have been consistent with the salary increase programs approved
for all employees.
In establishing Manufacturers Life's competitive position and developing annual
salary increase programs, Manufacturers Life uses several annual surveys as
prepared by independent compensation consulting firms with reference to publicly
disclosed information.
The compensation of executive officers is determined by the individual to whom
the officer reports and is approved by Manufacturers Life.
44
<PAGE> 52
ANNUAL INCENTIVE PLAN
Manufacturers Life's Annual Incentive Plan ("AIP") provides the opportunity to
earn incentive bonuses based on the achievement of pre-established corporate and
divisional earnings objectives and divisional and individual performance
objectives. The AIP uses earnings and performance measures to determine awards
with predetermined thresholds for each component as approved by the Committee
annually. Incentive award levels are established for each participant based on
organizational level. When corporate and divisional performance objectives are
significantly exceeded, a participant can receive up to a maximum of 150% to
200% of the established incentive award which would result in incentive award
levels ranging from 22.5% to 100% of base salary. For named Executive Officers,
incentive award levels range from 20-35% of base salary assuming achievement of
targeted performance objectives. If corporate and divisional performance
objectives are above or below targeted performance the incentive award is
adjusted according to plan guidelines.
LONG TERM INCENTIVE PLAN
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Estimated Future Payouts Under
Non-Securities-Price-Based Plans
(US $)(3)
- --------------------------------------------------------------------------------------------------
Name Securities Units Performance or Threshold Target ($ or #)(4) Maximum
or Other Rights Other Period ($ or #) ($ or #)
(#)(1) Until
Maturation or
Payout(2)
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Don Guloien 837 Jan. 1, 2001 N/A $4,819 N/A
- --------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Each grant has two components: Cash Appreciation Rights and Retirement
Appreciation Rights.
(2) The appreciation in the value of Cash Appreciation Rights are redeemed four
years following the grant date. Retirement Appreciation Rights are only redeemed
upon retirement or cessation of employment with the Company.
(3) Canadian dollars converted to US dollars using a book rate of 1.36.
(4) The target is calculated assuming Cash Appreciation Rights are exercised in
the fourth year. At that time 50% of the target is redeemed in cash and the
balance continues to appreciate until redeemed upon retirement or cessation of
employment.
All employees at the Vice President level and above are eligible to participate
in the Manufacturers Life Long-Term Incentive Plan ("LTIP").
The purpose of the LTIP is to encourage senior officers to act in the long term
interests of Manufacturers Life and to provide an opportunity to share in value
creation as measured by the changes in the Manufacturers Life's statutory
surplus. The LTIP is an appreciation rights plan which requires that substantial
portion of any accumulated gain remain invested with Manufacturers Life during
the participant's career with Manufacturers Life.
The Committee reviews the LTIP on an annual basis with respect to the
Manufacturers Life's performance, targeted growth and competitive position.
Based on management's recommendations, the
45
<PAGE> 53
Committee approves certain officers for participation in plan, when grants will
be awarded, and the size and terms of grant.
Grants are determined as a percentage of the participant's base salary or
Canadian job grade midpoint depending on organization level of the participant.
Each grant has two components: cash appreciation rights and retirement
appreciation rights which are granted in tandem on a one-for-one basis. Grants
appreciate proportionally to the statutory surplus of Manufacturers Life. Cash
appreciation rights are exercised on the fourth anniversary of the grant whereas
retirement appreciation rights may only be exercised upon retirement. The net
present value of the payout opportunity after four years varies between 20% to
100% of base salary depending on the organization level of the participant.
PERQUISITES
In addition to cash compensation, all officers are entitled to a standard
benefit package including medical, dental, pension, basic and dependent life
insurance, defined benefit plan and long and short-term disability coverage.
Canadian domiciled officers at the Vice President levels and above are eligible
to receive the Executive Flexible Spending Account. The objective of the program
is to assist and encourage the executive officer to represent the interests and
high standards of Manufacturers Life, both from a business and a personal
perspective. The program's flexibility allows use of the allowance for benefit
choices from a comprehensive list of options, including: car, mortgage subsidy
and club memberships.
CANADIAN STAFF PENSION PLAN
Canadian domiciled executive officers are eligible to participate in
Manufacturers Life Canadian Staff Pension Plan and to receive supplemental
pension benefits. Under this plan and the supplemental pension benefit program,
income is payable for the life of the executive officer, with a guarantee of a
minimum of 120 monthly payments. Pensionable earnings for this purpose are
calculated as the highest average of the base earnings and bonuses earned over
any 36 consecutive months. The pension benefit is determined by years of service
multiplied by the sum of 1.3% of pensionable earnings up to the average of the
last three years maximum pensionable earnings ("YMPE") and 2% of the excess of
pensionable earnings over the average YMPE, without regard to the maximum
pension limit for registered pension plans imposed by Revenue Canada.
Employees hired after the age of 40 who become executive officers within one
year of hire may also receive a service credit equal to their actual period of
service, to a maximum of 10 years. Employees hired between the ages of 30 and 40
who similarly attain executive officer status are entitled to receive a
proportionately reduced benefit under this program.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Years of Service
- ----------------------------------------------------------------------------------------------
Remuneration ($) 15 20 25 30 35
- ----------------------------------------------------------------------------------------------
$ $ $ $ $
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
125,000 24,810 33,079 41,349 49,619 57,889
- ----------------------------------------------------------------------------------------------
150,000 30,324 40,432 50,540 60,649 70,757
- ----------------------------------------------------------------------------------------------
175,000 35,839 47,785 59,732 71,678 83,624
- ----------------------------------------------------------------------------------------------
200,000 41,354 55,138 68,923 82,707 96,492
- ----------------------------------------------------------------------------------------------
225,000 46,868 62,491 78,114 93,737 109,360
- ----------------------------------------------------------------------------------------------
250,000 52,383 69,844 87,305 104,766 122,227
- ----------------------------------------------------------------------------------------------
300,000 63,413 84,550 105,688 126,825 147,963
- ----------------------------------------------------------------------------------------------
400,000 85,471 113,962 142,452 170,943 199,433
- ----------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 54
<TABLE>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
500,000 107,530 143,374 179,217 215,060 250,904
- ----------------------------------------------------------------------------------------------
600,000 129,589 172,785 215,982 259,178 302,374
- ----------------------------------------------------------------------------------------------
700,000 151,648 202,197 252,746 303,296 353,845
- ----------------------------------------------------------------------------------------------
800,000 173,707 231,609 289,511 347,413 405,315
- ----------------------------------------------------------------------------------------------
900,000 195,765 261,021 326,276 391,531 456,786
- ----------------------------------------------------------------------------------------------
1,000,000 217,824 290,432 363,040 435,649 508,257
- ----------------------------------------------------------------------------------------------
</TABLE>
Don Guloien, President and Chief Operating Officer, has 16.8 years.
47
<PAGE> 55
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
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.
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 purchase Policies covering a group on 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,
agent, 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 fora 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
48
<PAGE> 56
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.
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, 1995, December 31, 1996 and December 31, 1997,
ManEquity, Inc. received, $3,355,185, $3,045,326 and $570,520, respectively, as
compensation for sales of other variable annuity policies issued by Separate
Account Two by its registered representatives. Of these amounts, $3,262,711,
$2,957,985 and $537,752, 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, 1997 was $26,084,776.
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 Manufacturers Investment 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 Trust. 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.
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.
49
<PAGE> 57
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.
EXPERTS
The financial statements 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, 1997 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 Manufacturers
Investment 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.
ADVERTISING PERFORMANCE OF VARIABLE ACCOUNTS
Manufactures Life of America may publish advertisements or distribute sales
literature that contain performance data relating to the sub-accounts of
Separate Account Two. Each of the sub-accounts may in its advertising and sales
materials quote total return figures. The sub-accounts may advertise both
"standardized" and "non-standardized" total return figures, although
standardized figures will always accompany non-standardized figures.
Non-standardized total return figures may be quoted assuming both (i) redemption
at the end of the time period and (ii) not assuming redemption at the end of the
time period. Standardized figures include total return figures from: (i) the
inception date of the sub-account of the Separate Account Two which invests in
the portfolio or (ii) ten years, whichever period is shorter. Non-standardized
figures include total return numbers from: (i) inception date of the portfolio
or (i) ten years, whichever period is shorter. Such figures will always include
the average annual total return for recent one year and, when applicable, five
and ten year periods and, where less than ten years, the inception date of the
subaccount, in the case of standardized returns, and the inception date of the
portfolio, in the case of non-standardized returns. Where the period since
inception is less than one year the total return quoted will be the aggregate
return for the period. Non-standardized figures may also include total return
numbers for one and three year periods where applicable. The average annual
total return is the average annual compounded rate of return that equates a
purchase payment to the market value of such purchase payment on the last day of
the period for which such return is calculated. The aggregate total return is
the percentage change (not annualized) that equates a purchase payment to the
market value of such purchase payment on the last day of the period for which
such return is calculated. For purposes of the calculations it is assumed that
an initial payment of $1,000 is made on the first day of the period for which
the return is calculated.
In calculating standardized return figures, mortality and expense risk fees
are reflected in changes in unit values. 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. Standardized total return figures will be
quoted assuming redemption at the end of the period. Non-
50
<PAGE> 58
standardized total return figures reflecting redemption at the end of the time
period are calculated on the same basis as the standardized returns.
Non-standardized total return figures not reflecting redemption at the end of
the time period are calculated on the same basis as the standardized return.
Non-standardized total return figures not reflecting redemption at the end of
the time period are calculated on the same basis as the standardized returns
except that the calculations assume no redemption at the end of the period and
does not reflect deduction of the annual contract fee. The Company believes such
non-standardized figures not reflecting redemptions at the end of the time
period are useful to contract owners who wish to assess the performance of an
ongoing contract of the size that is meaningful tot he individual contract
owner.
For total return figures quoted for periods prior to the commencement of
the offering of this contract, May 4, 1994, standardized performance data will
be the historical performance of the Manufacturers Investment Trust portfolio
from the date the applicable sub-account of the Separate Account Two first
became available for investment under other contracts offered by Manufacturers
Life of America; adjusted to reflect current contract charges. In the case of
non-standardized performance, performance figures will be the historical
performance of the Manufacturers Investment Trust portfolio from the inception
date of the portfolio, adjusted to reflect current contract charges.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
Total returns if surrendered for the period ending December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
AVG. ANNUAL
TOTAL RETURN
SINCE INCEPTION
OF SUB-ACCOUNT
AVG. ANNUAL AVG. ANNUAL OR TEN YEARS,
MANUFACTURERS INVESTMENT TOTAL RETURN TOTAL RETURN WHICH EVER
TRUST PORTFOLIOS ONE YEARS FIVE YEARS# IS SHORTER#
- ----------------------------------------------------------
-----------------------------------------------
<S> <C> <C> <C>
Emerging Growth n/a n/a 7.15%*
Balanced n/a n/a 7.40*
Capital Growth Bond** -1.49% 4.81% 6.92+
Quantitative Equity** 17.67 13.96% 13.42+
(formerly Common Stock)
Real Estate Securities** 7.30 14.39% 14.17+
Money Market -4.73 n/a -4.73*
International Stock n/a n/a -7.00*
Pacific Rim Emerging Markets** -40.34 n/a -11.59*
</TABLE>
* Average Annual Return since Inception of Sub-Account (October 4, 1994 for
the Pacific Rim Emerging Markets Trust; and December 31, 1996 for the
Emerging Growth, Balanced, Money Market Trust and International Stock
Trust).
** On December 31, 1996 Manulife Series Fund, Inc. merged with Manufacturers
Investment Trust. Performance presented for these sub-accounts is based upon
the performance of the respective predecessor Manulife Series Fund
portfolios for periods to December 31, 1996.
# Policies have only been offered since May 4, 1994. Performance data for
earlier periods are hypothetical figures based on the performance of the
Sub-Account in which policy assets may be invested.
+ 10 year average annual total return.
51
<PAGE> 59
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
(ASSUMING REDEMPTION AT THE END OF THE TIME PERIOD)
Total returns if surrendered are as follows:
<TABLE>
<CAPTION>
AVG. ANNUAL
TOTAL RETURN
AVG. ANNUAL AVG. ANNUAL TEN YEARS#
MANUFACTURERS INVESTMENT TOTAL RETURN TOTAL RETURN OR
TRUST PORTFOLIOS ONE YEAR FIVE YEARS# SINCE INCEPTION
- -------------------------------------------------------------
----------------------------------------------
<S> <C> <C> <C>
Emerging Growth n/a n/a 7.15%*
Balanced n/a n/a 7.40**
Capital Growth Bond** -1.49% 4.81% 6.92+
Quantitative Equity**
(formerly Common Stock) 17.67 13.96 13.42+
Real Estate Securities** 7.30 14.39 14.17+
Money Market -4.73 2.14 3.87*
International Stock n/a n/a -7.00*
Pacific Rim Emerging Markets** -40.34 n/a -11.59*
</TABLE>
* Average Annual Return since Inception (June 18, 1985 for the Money Market
Trust; October 4, 1994 for the Pacific Rim Emerging Markets Trust; and
December 31, 1996 for the Emerging Growth, Balanced and International Stock
Trust).
** On December 31, 1996 Manulife Series Fund, Inc. merged with Manufacturers
Investment Trust (formerly, NASL Series Trust). Performance presented for
these sub-accounts is based upon the performance of the respective
predecessor Manulife Series Fund portfolios for periods to December 31,
1996.
# 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.
+ 10 year average annual total return.
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
(ASSUMING NO REDEMPTION AT THE END OF THE TIME PERIOD)
Total returns if not surrendered are as follows:
<TABLE>
<CAPTION>
AVG. ANNUAL
TOTAL RETURN
AVG. ANNUAL AVG. ANNUAL TEN YEARS#
MANUFACTURERS INVESTMENT TOTAL RETURN TOTAL RETURN OR
TRUST PORTFOLIOS ONE YEAR FIVE YEARS# SINCE INCEPTION
- -------------------------------------------------------------
----------------------------------------------
<S> <C> <C> <C>
Emerging Growth n/a n/a 16.46%
Balanced n/a n/a 16.74+
Capital Growth Bond** 7.08% 5.58 6.92+
Quantitative Equity**
(formerly Common Stock) 27.90 14.80 13.42+
Real Estate Securities** 16.64 15.23 14.17+
Money Market 3.56 2.89 3.87*
International Stock n/a n/a 1.09*
Pacific Rim Emerging Markets** -35.16 n/a -9.52*
</TABLE>
* Average Annual Return since Inception (June 18, 1985 for the Money Market
Trust; 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.
** On December 31, 1996 Manulife Series Fund, Inc. merged with Manufacturers
Investment Trust. Performance presented for these sub-accounts is based upon
the performance of the respective predecessor Manulife Series Fund
portfolios for periods to December 31, 1996.
+ 10 year average annual total return.
52
<PAGE> 60
NON-STANDARDIZED AGGREGATE TOTAL RETURN
(ASSUMING REDEMPTION AT THE END OF THE TIME PERIOD
Aggregate total returns if surrendered as of the end of each year since
inception are as follows:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <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 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 N/A N/A N/A N/A N/A
Capital Growth
Bond*** -1.49% -7.14% 10.42% -13.46% 0.89% -3.72% 6.62% -3.04% 4.16% -2.49% -10.92% 12.51% 16.22% 4.86%
Quantitative
Equity***
(formerly
Common Stock) 17.67% 6.86% 19.27% -13.19% 3.67% -3.53% 20.20% -13.08% 20.68% 0.20% -22.58% N/A N/A N/A
Real Estate
Securities*** 7.30% 22.08% 5.39% -11.90% 12.75% 11.46% 30.95% -13.50% -0.42% 2.03% -16.61% N/A N/A N/A
Money Market -4.73% -4.81% -3.88% -5.64% -6.78% -6.12% -3.79% -1.77% -0.96% -2.74% -3.38% -3.76% -5.17% N/A
International
Stock N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Pacific Rim
Emerging
Markets*** -40.34% -0.50% 1.78% -13.50 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
*** On December 31, 1996 Manulife Series Fund, Inc. merged with Manufacturers
Investment Trust. Performance presented for these sub-accounts is based upon
the performance of the respective predecessor Manulife Series Fund
portfolios for periods to December 31, 1996.
NON-STANDARDIZED AGGREGATE TOTAL RETURN
(ASSUMING NO REDEMPTION AT THE END OF THE TIME PERIOD
Aggregate total returns as of the end of each year since inception, if not
surrendered are as follows:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <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 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 N/A N/A N/A N/A N/A
Capital Growth
Bond*** 7.08% 0.94% 18.42% -5.93% 8.89% 4.28% 14.62% 4.96% 12.16% 5.51% -3.17% 20.51% 24.22% 12.86%
Quantitative
Equity***
(formerly
Common Stock) 27.90% 16.15% 27.27% -5.64% 11.67% 4.47% 28.20% -5.52% 28.68% 8.20% -15.85% N/A N/A N/A
Real Estate
Securities*** 16.64% 32.69% 13.99% -4.24% 20.75% 19.46% 38.95% -5.98% 7.58% 10.03% -9.35% N/A N/A N/A
Money Market 3.56% 3.46% 4.12% 2.36% 1.22% 1.88% 4.21% 6.23% 7.04% 5.26% 4.62% 4.24% 2.03% N/A
International
Stock N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Pacific Rim
Emerging
Markets*** -35.16% 8.15% 9.60% -1.90% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
*** On December 31, 1996 Manulife Series Fund, Inc. merged with Manufacturers
Investment Trust. Performance presented for these sub-accounts is based upon
the performance of the respective predecessor Manulife Series Fund
portfolios for periods to December 31, 1996.
All of the above performance data are based on the actual historical performance
of the Portfolios or sub-accounts for specified periods, and the figures are not
intended to indicate future performance.
53
<PAGE> 61
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.
54
<PAGE> 62
Financial Statements
Separate Account Two of
The Manufacturers Life Insurance
Company of America
Three years ended December 31, 1997
with Report of Independent Auditors
55
<PAGE> 63
Separate Account Two of
The Manufacturers Life Insurance Company of America
Financial Statements
Three years ended December 31, 1997
CONTENTS
Report of Independent Auditors............................................. 57
Audited Financial Statements
Statement of Assets and Liabilities........................................ 58
Statements of Operations................................................... 59
Statements of Changes in Net Assets........................................ 63
Notes to Financial Statements.............................................. 67
56
<PAGE> 64
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 as of
December 31, 1997 and the related statements of operations and changes in net
assets for each of the three years in the period then ended. 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. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence with
the custodian. 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, 1997 and the
results of its operations and the changes in its net assets for each of the
three years in the period then ended, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
January 30, 1998
57
<PAGE> 65
Separate Account Two of
The Manufacturers Life Insurance Company of America
Statement of Assets and Liabilities
December 31, 1997
<TABLE>
<CAPTION>
SUB-ACCOUNT NET ASSET
NET ASSET UNITS VALUE PER
VALUE OUTSTANDING UNIT
-----------------------------------------
<S> <C> <C> <C>
ASSETS
Investment in NASL Series Trust--at market value:
Emerging Growth Trust, 3,202,159 shares (cost $66,775,680) $ 77,268,107 1,423,816 $ 54.27
Quantitative Equity Trust, 2,260,728 shares (cost $38,519,685) 50,866,389 1,317,902 38.60
Real Estate Securities Trust, 2,461,811 shares (cost $39,027,256) 49,408,556 1,251,505 39.48
Balanced Trust, 3,180,323 shares (cost $50,156,197) 61,475,650 2,198,485 27.96
Capital Growth Bond Trust, 1,479,309 shares (cost $16,336,423) 17,529,810 841,834 20.82
Money Market Trust, 1,908,309 shares (cost $19,202,026) 19,083,089 1,225,881 15.57
International Stock Trust, 768,691 shares (cost $8,656,719) 8,816,882 749,834 11.76
Pacific Rim Emerging Markets Trust, 511,276 shares (cost $5,433,524) 3,660,739 497,230 7.36
------------
Net assets $288,109,222
============
</TABLE>
See accompanying notes.
58
<PAGE> 66
Separate Account Two of
The Manufacturers Life Insurance Company of America
Statements of Operations
<TABLE>
<CAPTION>
EMERGING GROWTH QUANTITATIVE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ -- $ 12,289,740 $ 1,809,461 $ -- $ 5,719,842
Expenses:
Mortality and expense risks charge 756,473 797,219 630,475 464,557 301,648
------------------------------------------------------------------------------
Net investment (loss) income (756,473) 11,492,521 1,178,986 (464,557) 5,418,194
------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) from security transactions:
Proceeds from sales 18,952,217 15,539,340 8,790,460 5,968,271 3,532,903
Cost of securities sold 17,431,745 13,278,588 7,106,591 4,310,035 2,675,844
------------------------------------------------------------------------------
Net realized gain (loss) 1,520,472 2,260,752 1,683,869 1,658,236 857,059
------------------------------------------------------------------------------
Unrealized appreciation (depreciation)
of investments
Beginning of year 135,399 11,362,638 (546,353) 2,256,078 3,843,935
End of year 10,492,428 135,399 11,362,638 12,346,704 2,256,078
------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
during the year 10,357,029 (11,227,239) 11,908,991 10,090,626 (1,587,857)
------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 11,877,501 (8,966,487) 13,592,860 11,748,862 (730,798)
------------------------------------------------------------------------------
Net increase (decrease) in net assets derived
from operations $ 11,121,028 $ 2,526,034 $ 14,771,846 $ 11,284,305 $ 4,687,396
==============================================================================
<CAPTION>
QUANTITATIVE EQUITY
SUB-ACCOUNT
------------
YEAR ENDED
DEC. 31/95
------------
<S> <C>
Investment income:
Dividend income $ --
Expenses:
Mortality and expense risks charge 199,735
------------
Net investment (loss) income (199,735)
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) from security transactions:
Proceeds from sales 1,833,948
Cost of securities sold 1,582,299
------------
Net realized gain (loss) 251,649
------------
Unrealized appreciation (depreciation)
of investments
Beginning of year (1,126,818)
End of year 3,843,935
------------
Net unrealized appreciation (depreciation)
during the year 4,970,753
------------
Net realized and unrealized gain (loss) on
investments 5,222,402
------------
Net increase (decrease) in net assets derived
from operations $ 5,022,667
============
</TABLE>
See accompanying notes.
59
<PAGE> 67
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES BALANCED CAPITAL GROWTH BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $6,506,602 $ 483,929 $ -- $ 7,586,381 $ 57,666 $ -- $ 947,959 $ 1,046,495
449,440 310,604 270,300 594,116 513,035 411,536 163,736 153,637 127,065
- -----------------------------------------------------------------------------------------------------------------------------------
(449,440) 6,195,998 213,629 (594,116) 7,073,346 (353,870) (163,736) 794,322 919,430
- -----------------------------------------------------------------------------------------------------------------------------------
9,251,676 4,955,444 5,825,223 6,705,066 5,270,972 4,206,198 2,440,069 2,577,602 2,183,478
7,289,109 4,539,516 5,602,096 5,715,891 4,431,525 3,972,255 2,518,992 2,754,011 2,260,461
- -----------------------------------------------------------------------------------------------------------------------------------
1,962,567 415,928 223,127 989,175 839,447 233,943 (78,923) (176,409) (76,983)
- -----------------------------------------------------------------------------------------------------------------------------------
4,600,003 1,406,388 (1,736,824) 2,633,513 5,762,687 (3,067,645) (265,207) 113,528 (1,230,071)
10,381,299 4,600,003 1,406,388 11,319,454 2,633,513 5,762,687 1,193,386 (265,207) 113,528
- -----------------------------------------------------------------------------------------------------------------------------------
5,781,296 3,193,615 3,143,212 8,685,941 (3,129,174) 8,830,332 1,458,593 (378,735) 1,343,599
- -----------------------------------------------------------------------------------------------------------------------------------
7,743,863 3,609,543 3,366,339 9,675,116 (2,289,727) 9,064,275 1,379,670 (555,144) 1,266,616
- -----------------------------------------------------------------------------------------------------------------------------------
$ 7,294,423 $9,805,541 $ 3,579,968 $ 9,081,000 $ 4,783,619 $ 8,710,405 $ 1,215,934 $ 239,178 $ 2,186,046
===================================================================================================================================
</TABLE>
60
<PAGE> 68
Separate Account Two of
The Manufacturers Life Insurance Company of America
Statements of Operations (continued)
<TABLE>
<CAPTION>
MONEY MARKET INTERNATIONAL STOCK
SUB-ACCOUNT SUB-ACCOUNT
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ 987,602 $ 1,696,385 $ 668 $ 120,373 $201,618
Expenses:
Mortality and expense risks charge 196,751 200,655 155,913 89,606 56,247
---------------------------------------------------------------------------
Net investment (loss) income 790,851 1,495,730 (155,245) 30,767 145,371
---------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) from security transactions:
Proceeds from sales 16,711,484 18,226,080 13,837,707 1,892,883 528,260
Cost of securities sold 17,514,842 17,579,208 13,514,965 1,554,180 467,824
---------------------------------------------------------------------------
Net realized gain (loss) (803,358) 646,872 322,742 338,703 60,436
---------------------------------------------------------------------------
Unrealized appreciation (depreciation)
of investments
Beginning of year (922,325) 434,988 (96,137) 541,238 218,320
End of year (118,937) (922,325) 434,988 160,163 541,238
---------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
during the year 803,388 (1,357,313) 531,125 (381,075) 322,918
---------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 30 (710,441) 853,867 (42,372) 383,354
---------------------------------------------------------------------------
Net increase (decrease) in net assets derived
from operations $ 790,881 $ 785,289 $ 698,622 $ (11,605) $528,725
===========================================================================
<CAPTION>
INTERNATIONAL STOCK
SUB-ACCOUNT
---------
YEAR ENDED
DEC. 31/95
---------
<S> <C>
Investment income:
Dividend income $ 89,871
Expenses:
Mortality and expense risks charge 25,067
---------
Net investment (loss) income 64,804
---------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) from security transactions:
Proceeds from sales 270,103
Cost of securities sold 264,304
---------
Net realized gain (loss) 5,799
---------
Unrealized appreciation (depreciation)
of investments
Beginning of year (5,646)
End of year 218,320
---------
Net unrealized appreciation (depreciation)
during the year 223,966
---------
Net realized and unrealized gain (loss) on
investments 229,765
---------
Net increase (decrease) in net assets derived
from operations $ 294,569
=========
</TABLE>
See accompanying notes.
61
<PAGE> 69
<TABLE>
<CAPTION>
PACIFIC RIM
EMERGING MARKETS
SUB-ACCOUNT TOTAL
- ------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 10,637 $ 232,102 $ 32,371 $ 1,118,612 $ 35,180,629 $ 3,520,461
53,069 43,640 16,867 2,767,748 2,376,685 1,836,958
- ------------------------------------------------------------------------------------------
(42,432) 188,462 15,504 (1,649,136) 32,803,944 1,683,503
- ------------------------------------------------------------------------------------------
1,932,239 859,389 731,924 63,853,905 51,489,990 37,679,041
1,942,460 720,409 708,114 58,277,254 46,446,925 35,011,085
- ------------------------------------------------------------------------------------------
(10,221) 138,980 23,810 5,576,651 5,043,065 2,667,956
- ------------------------------------------------------------------------------------------
121,962 152,770 (14,100) 9,100,661 23,295,254 (7,823,594)
(1,772,785) 121,962 152,770 44,001,712 9,100,661 23,295,254
- ------------------------------------------------------------------------------------------
(1,894,747) (30,808) 166,870 34,901,051 (14,194,593) 31,118,848
- ------------------------------------------------------------------------------------------
(1,904,968) 108,172 190,680 40,477,702 (9,151,528) 33,786,804
- ------------------------------------------------------------------------------------------
$(1,947,400) $ 296,634 $ 206,184 $ 38,828,566 $ 23,652,416 $ 35,470,307
==========================================================================================
</TABLE>
62
<PAGE> 70
Separate Account Two of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
EMERGING GROWTH QUANTITATIVE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment (loss) income $ (756,473) $ 11,492,521 $ 1,178,986 $ (464,557) $ 5,418,194 $ (199,735)
Net realized gain (loss) 1,520,472 2,260,752 1,683,869 1,658,236 857,059 251,649
Net unrealized appreciation
(depreciation) of investments
during the year 10,357,029 (11,227,239) 11,908,991 10,090,626 (1,587,857) 4,970,753
-------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets derived from operations 11,121,028 2,526,034 14,771,846 11,284,305 4,687,396 5,022,667
-------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 1,588,050 8,295,774 9,075,130 1,885,075 5,288,553 3,138,683
Transfer on death (268,182) (118,285) (40,037) (79,713) (109,077) (7,409)
Transfer on terminations (7,797,098) (4,028,509) (3,053,099) (3,635,891) (940,409) (681,944)
Transfer of maturity (1,451,039) (69,790) 83,583 (28,124) 2,897 67,266
Net interfund transfers (4,590,277) (3,149,315) 2,606,912 3,179,099 4,181,441 1,459,853
-------------------------------------------------------------------------------------------
(12,518,546) 929,875 8,672,489 1,320,446 8,423,405 3,976,449
-------------------------------------------------------------------------------------------
Net (decrease) increase in net assets (1,397,518) 3,455,909 23,444,335 12,604,751 13,110,801 8,999,116
NET ASSETS
Beginning of year 78,665,625 75,209,716 51,765,381 38,261,638 25,150,837 16,151,721
-------------------------------------------------------------------------------------------
End of year $ 77,268,107 $ 78,665,625 $ 75,209,716 $ 50,866,389 $ 38,261,638 $ 25,150,837
===========================================================================================
</TABLE>
See accompanying notes.
63
<PAGE> 71
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES BALANCED CAPITAL GROWTH BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (449,440) $ 6,195,998 $ 213,629 $ (594,116) $ 7,073,346 $ (353,870) $ (163,736) $ 794,322 $ 919,430
1,962,567 415,928 223,127 989,175 839,447 233,943 (78,923) (176,409) (76,983)
5,781,296 3,193,615 3,143,212 8,685,941 (3,129,174) 8,830,332 1,458,593 (378,735) 1,343,599
- -----------------------------------------------------------------------------------------------------------------------------------
7,294,423 9,805,541 3,579,968 9,081,000 4,783,619 8,710,405 1,215,934 239,178 2,186,046
- -----------------------------------------------------------------------------------------------------------------------------------
3,646,014 1,841,736 2,395,793 1,339,852 6,209,407 5,071,298 603,263 3,085,222 2,368,800
(73,648) (85,142) (17,513) (92,139) (67,227) (84,545) (82,500) (5,719) (12,196)
(2,850,164) (1,184,528) (1,232,704) (4,256,577) (2,862,825) (1,647,362) (1,298,255) (1,276,684) (719,239)
(42,400) (114,691) 4,515 (197,817) 5,141 12,834 (8,382) 7,396 25,737
1,330,688 806,658 (2,418,292) 153,673 (595,285) 377,983 624,390 (632,752) 438,281
- -----------------------------------------------------------------------------------------------------------------------------------
2,010,490 1,264,033 (1,268,201) (3,053,008) 2,689,211 3,730,208 (161,484) 1,177,463 2,101,383
- -----------------------------------------------------------------------------------------------------------------------------------
9,304,913 11,069,574 2,311,767 6,027,992 7,472,830 12,440,613 1,054,450 1,416,641 4,287,429
40,103,643 29,034,069 26,722,302 55,447,658 47,974,828 35,534,215 16,475,360 15,058,719 10,771,290
- -----------------------------------------------------------------------------------------------------------------------------------
$ 49,408,556 $ 40,103,643 $ 29,034,069 $ 61,475,650 $ 55,447,658 $ 47,974,828 $ 17,529,810 $16,475,360 $ 15,058,719
===================================================================================================================================
</TABLE>
64
<PAGE> 72
Separate Account Two of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
MONEY MARKET INTERNATIONAL STOCK
SUB-ACCOUNT SUB-ACCOUNT
-----------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment (loss) income $ 790,851 $ 1,495,730 $ (155,245) $ 30,767 $ 145,371 $ 64,804
Net realized gain (loss) (803,358) 646,872 322,742 338,703 60,436 5,799
Net unrealized appreciation
(depreciation) of investments
during the year 803,388 (1,357,313) 531,125 (381,075) 322,918 223,966
-----------------------------------------------------------------------------------------
Net increase (decrease) in net
assets derived from operations 790,881 785,289 698,622 (11,605) 528,725 294,569
-----------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 1,297,347 6,867,931 10,039,733 580,135 1,819,629 1,231,995
Transfer on death (4,265) (81,747) (27,370) (18,253) (5,577) --
Transfer on terminations (1,933,294) (2,221,277) (2,420,434) (617,577) (222,632) (61,097)
Transfer of maturity -- 6,170 (38,588) (15,916) -- --
Net interfund transfers (1,631,160) (3,344,848) (2,334,352) 1,251,294 1,729,012 1,467,355
-----------------------------------------------------------------------------------------
(2,271,372) 1,226,229 5,218,989 1,179,683 3,320,432 2,638,253
-----------------------------------------------------------------------------------------
Net (decrease) increase in net assets (1,480,491) 2,011,518 5,917,611 1,168,078 3,849,157 2,932,822
NET ASSETS
Beginning of year 20,563,580 18,552,062 12,634,451 7,648,804 3,799,647 866,825
-----------------------------------------------------------------------------------------
End of year $ 19,083,089 $ 20,563,580 $ 18,552,062 $ 8,816,882 $ 7,648,804 $ 3,799,647
=========================================================================================
</TABLE>
See accompanying notes.
65
<PAGE> 73
<TABLE>
<CAPTION>
PACIFIC RIM
EMERGING MARKETS
SUB-ACCOUNT TOTAL
- -------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ (42,432) $ 188,462 $ 15,504 $ (1,649,136) $ 32,803,944 $ 1,683,503
(10,221) 138,980 23,810 5,576,651 5,043,065 2,667,956
(1,894,747) (30,808) 166,870 34,901,051 (14,194,593) 31,118,848
- -------------------------------------------------------------------------------------------------
(1,947,400) 296,634 206,184 38,828,566 23,652,416 35,470,307
- -------------------------------------------------------------------------------------------------
355,890 1,339,071 988,086 11,295,626 34,747,323 34,309,518
(18,663) (11,069) -- (637,363) (483,843) (189,070)
(267,859) (215,118) (45,863) (22,656,715) (12,951,982) (9,861,742)
(19,245) -- -- (1,762,923) (162,877) 155,347
(112,046) 1,549,203 929,903 205,661 544,114 2,527,643
- -------------------------------------------------------------------------------------------------
(61,923) 2,662,087 1,872,126 (13,555,714) 21,692,735 26,941,696
- -------------------------------------------------------------------------------------------------
(2,009,323) 2,958,721 2,078,310 25,272,852 45,345,151 62,412,003
5,670,062 2,711,341 633,031 262,836,370 217,491,219 155,079,216
- -------------------------------------------------------------------------------------------------
$ 3,660,739 $ 5,670,062 $ 2,711,341 $ 288,109,222 $ 262,836,370 $ 217,491,219
=================================================================================================
</TABLE>
66
<PAGE> 74
Separate Account Two of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
December 31, 1997
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 which, effective October 31, 1997, was renamed
Manufacturers Investment Trust. Each investment sub-account invests solely in
shares of a particular Manufacturers Investment Trust or, prior to the merger, a
Manulife Series Fund. Manufacturers Investment Trust and, prior to the merger,
Manulife Series Fund are registered under the Investment Company Act of 1940 as
open-end management investment companies.
Effective December 31, 1996, Manulife Series Fund, Inc. was merged into the
Manufacturers Investment Trust (formerly 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 Manufacturers Investment Trust.
MANULIFE SERIES FUND, INC. MANUFACTURERS INVESTMENT 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 Money Market Trust
International Fund International Stock Trust
Pacific Rim Emerging Markets Fund Pacific Rim Emerging Markets Trust
All references hereinafter to Manufacturers Investment Trust would have been to
Manulife Series Fund, Inc. prior to December 31, 1996.
67
<PAGE> 75
Separate Account Two of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
Manufacturers Life of America is the legal owner of the Separate Account.
Manufacturers Life of America is required to maintain assets in the Separate
Account with a total market value at least equal to the reserves and other
liabilities relating to the variable benefits under all policies participating
in the Separate Account. These assets may not be charged with liabilities which
arise from any other business Manufacturers Life of America conducts. However,
all obligations under the variable policies are general corporate obligations of
Manufacturers Life of America.
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
Manufacturers Investment 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 Manufacturers
Investment 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.
68
<PAGE> 76
Separate Account Two of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 MANUFACTURERS INVESTMENT TRUST SHARES
Purchases and sales of the shares of common stock of Manufacturers Investment
Trust for the year ended December 31, 1997 were $48,649,055 and $63,853,905,
respectively and for the year ended December 31, 1996 were $106,195,420 and
$51,489,990, 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.
69
<PAGE> 77
Separate Account Two of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
Manufacturers Life of America has a formal service agreement with its
affiliates, Manulife Financial and The Manufacturers Life Insurance Company
(U.S.A.), 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.
70
<PAGE> 78
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors...................................................................72
Audited Consolidated Financial Statements........................................................73
Consolidated Balance Sheets.................................................................73
Consolidated Statements of Income...........................................................74
Consolidated Statements of Changes in Capital And Surplus...................................75
Consolidated Statements of Cash Flows.......................................................76
Notes to Consolidated Financial Statements.......................................................77
</TABLE>
71
<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, 1997 and
1996, 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, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in 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, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Philadelphia, Pennsylvania
March 20, 1998 Ernst & Young LLP
72
<PAGE> 80
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at December 31
ASSETS ($ thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value: (note 4)
Fixed maturity (amortized cost: 1997 $66,565; 1996 $50,456) $ 67,893 $ 51,708
Equity (cost: 1997 $20,153; 1996 $19,450) 19,460 21,572
Mortgage loans 131 645
Policy loans 14,673 9,822
Cash and short-term investments 22,012 17,493
- --------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 124,169 $ 101,240
- --------------------------------------------------------------------------------------------------------------
Guaranteed annuity contracts (note 5) $ -- $ 171,691
Deferred acquisition costs (note 6) 130,355 102,610
Income taxes recoverable 5,679 10,549
Deferred income taxes (note 7) -- 1,041
Other assets 9,364 7,378
Separate account assets 897,044 668,094
- --------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,166,611 $ 1,062,603
- --------------------------------------------------------------------------------------------------------------
LIABILITIES, CAPITAL AND SURPLUS ($ thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------------
Liabilities:
Policyholder liabilities and accruals $ 94,477 $ 91,915
Bonds payable (note 5) -- 158,760
Notes payable (note 8) 41,500 8,500
Due to affiliates 13,943 11,122
Deferred income taxes (note 7) 1,174 --
Other liabilities 11,704 7,582
Separate account liabilities 897,044 668,094
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 1,052,842 $ 945,973
- --------------------------------------------------------------------------------------------------------------
Capital and Surplus:
Common shares (note 9) $ 4,502 $ 4,502
Preferred shares (note 9) 10,500 10,500
Contributed surplus 98,569 98,569
Retained earnings (deficit) (1,910) 1,726
Foreign currency translation adjustment (5,272) --
Net unrealized gains on securities
available-for-sale (note 4) 380 1,333
- --------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS $ 106,769 $ 116,630
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 1,166,611 $ 1,062,603
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
73
<PAGE> 81
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31
($ thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Premiums $ 5,334 $12,898 $15,293
Fee income 41,955 40,434 24,986
Net investment income (note 4) 8,275 19,651 18,729
Realized investment gains (losses) 118 (119) 3,084
Other 544 668 82
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $56,226 $73,532 $62,174
- ------------------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 6,733 $14,473 $16,905
Operating costs and expenses 41,742 34,581 30,728
Commissions 2,838 10,431 5,859
Amortization of deferred acquisition costs (note 6) 4,860 13,240 5,351
Interest expense 2,750 12,251 12,251
Policyholder dividends 1,416 872 1,886
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES 60,339 85,848 72,980
- ------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (4,113) (12,316) (10,806)
- ------------------------------------------------------------------------------------------------------------------------------
INCOME TAX BENEFIT (note 7) 477 3,909 3,960
- ------------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (3,636) $(8,407) $(6,846)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
74
<PAGE> 82
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
Net
Unrealized Foreign Total
Retained Gains (losses) Currency Capital
For the years ended December 31 Capital Contributed Earnings on Securities Translation And
($ thousands) Stock Surplus (Deficit) Available-for-Sale Adjustment Surplus
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997
Balance, January 1 $15,002 $98,569 $ 1,726 $ 1,333 - $116,630
Net loss during the year (3,636) (3,636)
Change in unrealized gain(loss),
net of taxes (note 4) (953) (953)
Other (5,272) (5,272)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31 (Note 9) $15,002 $98,569 $ (1,910) $ 380 $(5,272) $106,769
- ----------------------------------------------------------------------------------------------------------------------------
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 9) 15,000 15,000
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31 $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 0 2,957 2,957
Issuance of shares (note 9) 12,570 12,570
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31 $15,002 $83,569 $ 10,133 $ 1,816 - $110,520
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
75
<PAGE> 83
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31
($ thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net Loss $ (3,636) $ (8,407) $ (6,846)
Adjustments to reconcile net loss to net cash used in operating
activities:
Additions (decreases) to policy liabilities (2,147) 3,287 7,329
Deferred acquisition costs (33,544) (36,024) (28,147)
Amortization of deferred acquisition costs 4,860 13,240 5,351
Realized (gains) losses on investments (118) 119 (3,084)
Decreases to deferred income taxes 2,730 777 1,168
Other 7,144 6,540 (5,336)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities $ (24,711) $ (20,468) $(29,565)
- -----------------------------------------------------------------------------------------------------------------------
Investing Activities:
Fixed maturity securities sold $ 73,772 $ 120,234 $ 67,507
Fixed maturity securities purchased (89,763) (108,401) (76,402)
Equity securities sold 10,586 25,505 6,500
Equity securities purchased (11,289) (22,203) (1,726)
Mortgage loans repaid 514 6,669 77,086
Policy loans advanced (4,851) (2,867) (2,461)
Guaranteed annuity contracts 171,691 (16,356) (79,710)
- -----------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities $ 150,660 $ 2,581 $ (9,206)
- -----------------------------------------------------------------------------------------------------------------------
Financing Activities:
Receipts from variable life and annuity policies
credited to policyholder account balances $ 7,582 $ 5,493 $ 9,017
Withdrawals of policyholder account balances on
variable life and annuity policies (3,252) (2,994) (3,173)
Bonds payable repaid (158,760) - -
Issuance of shares - 15,000 12,570
Issuance of promissory note 33,000 - -
Issuance of surplus notes - - 8,500
- -----------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities $(121,430) $ 17,499 $ 26,914
- -----------------------------------------------------------------------------------------------------------------------
Cash and Short-Term Investments:
Increase (decrease) during the year 4,519 (388) (11,857)
Balance, beginning of year 17,493 17,881 29,738
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, END OF YEAR $ 22,012 $ 17,493 $ 17,881
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
76
<PAGE> 84
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(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
an indirectly 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 financial statements have been restated for the
change.
The adoption had the effect of increasing net income for 1995 by
approximately $6,859.
b) Recent Accounting Standards
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 129 "Disclosure
of Information about Capital Structure," FAS No. 130 "Reporting
Comprehensive Income," and FAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information." These new accounting standards,
which will be effective for the 1998 financial statements, will result
primarily in additional disclosures in the Company's financial
statements and are not expected to have a material effect on the
Company's financial position and results of operations.
c) 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 Adviser Corporation ("MAC"), an investment adviser
registered under the Investment Advisers Act of 1940.
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
77
<PAGE> 85
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 $1
common stock of Holdco.
These transfers have been accounted for using the pooling-of-interests
method of accounting. Under this method, the assets, liabilities,
capital and surplus, revenues and expenses of each separate entity are
combined retroactively at their historical carrying values to form the
financial statements of the Company for all periods presented to give
effect to the reorganization as if the structure in place at December
31, 1996 had been in place as of the earliest period presented in these
consolidated financial statements. The accounts of all subsidiary
companies are therefore combined and all significant inter-company
balances and transactions are eliminated on combination. In addition,
the capital and surplus of the Company has been restated retroactively
to reflect the capital structure in place at December 31, 1996.
The revenues and net income reported by the separate entities and the
combined amounts presented in the accompanying consolidated financial
statements are as follows:
For the years ended December 31
<TABLE>
<CAPTION>
($ thousands) 1996 1995
---------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
ManAmerica $54,404 $45,655
Holdco 15,543 13,828
MAC 3,585 2,691
---------------------------------------------------------------------------------
TOTAL REVENUE $73,532 $62,174
---------------------------------------------------------------------------------
Net Income (loss):
ManAmerica $(8,676) $(7,402)
Holdco (670) (10)
MAC 939 566
---------------------------------------------------------------------------------
TOTAL NET LOSS $(8,407) $(6,846)
---------------------------------------------------------------------------------
</TABLE>
In October 1997, MLMSC was absorbed into Holdco subsequent to the
maturity and repayment of the mortgage-backed US dollar bonds. All
assets and liabilities of MLMSC were transferred to Holdco at their
respective book values.
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 deferred acquisition costs. 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.
78
<PAGE> 86
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.
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.
79
<PAGE> 87
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. The resultant translation adjustments are
included as a separate component in capital and surplus. In prior
years, there were no reported translation adjustments as there were no
significant movements in foreign currency exchange rates.
j) Income Tax
Income taxes have been provided for in accordance with Statement of
Financial Accounting Standards 109 ("FAS109") "Accounting for Income
Taxes." The Company joins ManUSA, MRC, Capitol Bankers Life Insurance
Company 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.
4. INVESTMENTS AND INVESTMENT INCOME
a) Fixed Maturity and Equity Securities
At December 31, 1997, 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
Amortized Cost Unrealized Gains Unrealized Fair Value
As at December 31, Losses
($ thousands) 1997 1996 1997 1996 1997 1996 1997 1996
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturity securities:
U.S. government $51,694 $ 9,219 $ 937 $ 386 $ (135) $ (98) $52,496 $ 9,507
Foreign governments 6,922 9,227 203 221 (14) (8) 7,111 9,440
Corporate 7,949 32,010 415 981 (78) (230) 8,286 32,761
----------------------------------------------------------------------------------------------------------------
Total fixed maturity $66,565 $50,456 $1,555 $1,588 $ (227) $(336) $67,893 $51,708
securities
Equity securities $20,153 $19,450 $1,496 $2,134 $(2,189) $ (12) $19,460 $21,572
----------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of fixed maturity securities during 1997 were
$73,772 (1996 $120,234; 1995 $67,507). Gross gains of $955 and gross
losses of $837 were realized on those sales (1996 $1,858 and $1,837;
1995 $2,630 and $218 respectively).
Proceeds from sale of equity securities during 1997 were $10,586 (1996
$25,505; 1995 $6,500). Gross gains of $NIL and gross losses of $NIL
were realized on those sales (1996 $NIL and $140; 1995 $785 and $113
respectively).
The contractual maturities of fixed maturity securities at December 31,
1997 are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. Corporate
requirements and investment strategies may result in the sale of
investments before maturity.
80
<PAGE> 88
<TABLE>
<CAPTION>
($ thousands) Amortized cost Fair Value
-----------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturity securities
One year or less $ 1,654 $ 1,651
Greater than 1; up to 5 years 3,876 3,953
Greater than 5; up to 10 years 50,353 50,655
Due after 10 years 10,682 11,634
-----------------------------------------------------------------------------------
TOTAL FIXED MATURITY SECURITIES $66,565 $67,893
-----------------------------------------------------------------------------------
</TABLE>
UNREALIZED GAINS (LOSSES) ON SECURITIES AVAILABLE-FOR-SALE
Net unrealized gains (losses) on fixed maturity and equity securities
included in capital and surplus were as follows:
<TABLE>
<CAPTION>
As at December 31
($ thousands) 1997 1996
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross unrealized gains $ 3,051 $ 3,722
Gross unrealized losses (2,416) (348)
DAC and other fair value adjustments (50) (1,321)
Deferred income taxes (205) (720)
----------------------------------------------------------------------------------------------------
NET UNREALIZED GAINS (LOSSES) ON SECURITIES AVAILABLE-FOR-SALE
$ 380 $ 1,333
----------------------------------------------------------------------------------------------------
</TABLE>
b) Investment Income
Income by type of investment was as follows:
<TABLE>
<CAPTION>
For the years ended December 31
($ thousands) 1997 1996 1995
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities $4,545 $ 4,447 $ 4,430
Mortgage loans 67 278 3,076
Equity securities 331 671 646
Guaranteed annuity contracts 2,796 13,196 9,691
Other investments 705 1,419 1,235
----------------------------------------------------------------------------------------------
Gross investment income 8,444 20,011 19,078
----------------------------------------------------------------------------------------------
Investment expenses 169 360 349
----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $8,275 $19,651 $18,729
----------------------------------------------------------------------------------------------
</TABLE>
5. GUARANTEED ANNUITY CONTRACTS AND BONDS PAYABLE
The Company's wholly-owned subsidiary, Manufacturers Life Mortgage
Securities Corporation, has historically invested amounts received as
repayments of mortgage loans in annuities issued by ManUSA. These
annuities were collateral for the 8 1/4 % mortgage-backed bonds
payable. On March 1, 1997 the annuities matured and the proceeds were
used to repay the bonds payable.
In October 1997, MLMSC was absorbed into Manulife Holding Corporation.
81
<PAGE> 89
6. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
For the years ended December 31
($ thousands) 1997 1996 1995
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, $102,610 $ 78,829 $ 60,124
Capitalization 33,544 36,024 28,147
Accretion of interest 9,357 6,344 4,992
Amortization (16,864) (19,159) (10,852)
Effect of net unrealized gains (losses)
on securities available for sale 1,268 996 (4,091)
Other 440 (424) 509
-------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31 $130,355 $ 102,610 $ 78,829
-------------------------------------------------------------------------------------------------------
</TABLE>
7. INCOME TAXES
Components of income tax benefit were as follows:
<TABLE>
<CAPTION>
For the years ended December 31
($ thousands) 1997 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current expense (benefit) $(3,207) $(4,686) $(5,128)
Deferred expense (benefit) 2,730 777 1,168
------------------------------------------------------------------------------------------
TOTAL BENEFIT $ (477) $(3,909) $(3,960)
------------------------------------------------------------------------------------------
</TABLE>
The Company's deferred income tax liability, which results from tax
effecting the differences between financial statement values and tax
values of assets and liabilities at each balance sheet date, relates to
the following:
<TABLE>
<CAPTION>
As at December 31
($ thousands) 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Differences in computing policy reserves $34,291 $28,508
Policyholder dividends payable 240 283
Investments 793 -
-------------------------------------------------------------------------------------
Deferred tax assets $35,324 $28,791
-------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs $30,682 $25,522
Investments 166 928
Other deferred tax liabilities 5,650 1,300
-------------------------------------------------------------------------------------
Deferred tax liabilities 36,498 27,750
-------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS (LIABILITIES) $(1,174) $ 1,041
-------------------------------------------------------------------------------------
</TABLE>
The Company and its US insurance affiliates have available capital loss
carryforwards of $4,800 which will begin to expire in 1999 and can only
be used by Capitol Bankers Life Insurance Company.
8. NOTES PAYABLE
a) 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.
82
<PAGE> 90
b) The Company has an outstanding promissory note in the amount
of $33,000 plus interest at 6.95% issued on December 5, 1997
payable to ManUSA which matures on February 1, 2007.
9. CAPITAL AND SURPLUS
The Company has two classes of capital stock, as follows:
<TABLE>
<CAPTION>
As at December 31:
($ thousands) 1997 1996
-----------------------------------------------------------------------------------
<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 $ 4,501,860
105,000 Preferred shares 10,500,000 10,500,000
-----------------------------------------------------------------------------------
TOTAL $15,001,860 $15,001,860
-----------------------------------------------------------------------------------
</TABLE>
During 1996, the Company issued two common shares to its Parent Company
in return for a capital contribution of $15,000.
During 1995, the Company issued one common share to its Parent Company
in return for a capital contribution of $12,570.
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, 1997 was $56,598 (1996 $76,202). The aggregate statutory net loss
of the Company for the year ended 1997 was $2,550 (1996 $15,961; 1995
$13,705). State regulatory authorities prescribe statutory accounting
practices that differ in certain respects from generally accepted
accounting principles followed by stock life insurance companies. The
significant differences relate to investments, deferred acquisition
costs, deferred income taxes, non-admitted asset balances and reserve
calculation assumptions.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of certain of the
Company's financial instruments at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
($ thousands) Carrying Value Fair Value
------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Fixed maturity and equity securities $87,353 $87,353
Mortgage loans 131 131
Policy loans 14,673 14,673
Liabilities:
Promissory note 33,000 33,000
Surplus note 8,500 8,220
------------------------------------------------------------------------------------------
</TABLE>
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.
83
<PAGE> 91
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.
PROMISSORY NOTE: Carrying value approximates fair value.
SURPLUS NOTE: Fair value was estimated using current interest rates
that were based on U.S. Treasuries for similar maturity ranges.
11. 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 $30,873, $26,982 and $23,210 in 1997, 1996 and 1995
respectively. In addition, there were $11,249, $6,934 and $5,052 of
agents bonuses allocated to the Company during 1997, 1996 and 1995,
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) 1997 1996 1995
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Life and annuity premiums assumed $ 509 $ 676 $ 5,959
Life and annuity premiums ceded 1,157 - -
Policy reserves assumed 40,975 44,497 47,386
Policy reserves ceded 130 304 3,838
----------------------------------------------------------------------------------------
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts to affiliates
were $3,972, $NIL and $NIL during 1997, 1996 and 1995 respectively.
The Company markets variable life insurance and variable annuity
products through Separate Accounts which use Manufacturers Investment
Trust (formerly NASL Series Trust) as its investment vehicle. The
Manufacturers Investment Trust is an entity sponsored by an affiliated
company, The Manufacturers Life Insurance of North America (formerly
North American Security Life Insurance Company).
Manulife Financial provides a claims paying guarantee to the Company's
U.S. policyholders.
84
<PAGE> 92
12. REINSURANCE
In the normal course of business, the Company assumes and cedes
reinsurance as a party to several reinsurance treaties with major
unrelated insurance companies. The Company remains liable for amounts
ceded in the event that reinsurers do not meet their obligations.
The effects of reinsurance on premiums were as follows:
<TABLE>
<CAPTION>
For the years ended December 31
($ thousands) 1997 1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums $8,572 $12,998 $ 9,809
Reinsurance ceded 2,590 776 475
---------------------------------------------------------------------------------------
TOTAL PREMIUMS $5,982 $12,222 $ 9,334
---------------------------------------------------------------------------------------
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $909, $357
and $170 during 1997, 1996 and 1995 respectively.
13. 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, 1997 and 1996 was $6,006 and $15,080
respectively.
The net income (loss) related to the Taiwan and U.S. business was as
follows:
<TABLE>
<CAPTION>
For the years ended December 31
($ thousands) 1997 1996 1995
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taiwan $(2,835) $(17,530) $ (9,332)
U.S. (801) 9,123 2,486
-------------------------------------------------------------------------------------------
TOTAL $(3,636) $ (8,407) $ (6,846)
-------------------------------------------------------------------------------------------
</TABLE>
14. 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.
85
<PAGE> 93
APPENDIX A
ANNUITY OPTIONS
The Policyowner may elect one of the following annuity options described
below. If no option is specified, annuity payments will be made as a life
annuity with a ten year certain period. Treasury or Labor Department regulations
may require a different annuity option if no option is specified and may
preclude the availability of certain options in connection with Qualified
Policies. There may also be state insurance law requirements that limit the
availability of certain options. The amounts payable under each option will be
no less than amounts determined on the basis of tables contained in each Policy.
Such tables are based on the 1983 Individual Annuity Mortality Tables and an
assumed interest rate of 3% per year.
<TABLE>
<S> <C>
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 be
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 continued until the Policy Value had 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.
</TABLE>
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%.
86
<PAGE> 94
APPENDIX B
SAMPLE CALCULATIONS OF MARKET VALUE ADJUSTMENTS AND
WITHDRAWAL CHARGES 1
MVA FORMULA
The MVA factor is equal to:
<TABLE>
<S> <C> <C>
(1+G) exp N
------- -1
(1+C)
</TABLE>
EXAMPLE ONE: NEGATIVE MVA AND NO WITHDRAWAL CHARGE
Assume the following:
<TABLE>
<S> <C>
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
</TABLE>
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.
EXAMPLE TWO: POSITIVE MVA AND NO WITHDRAWAL CHARGE
Assume the following:
<TABLE>
<S> <C>
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
</TABLE>
87
<PAGE> 95
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:
<TABLE>
<S> <C>
Type of Account: Variable
Type of Transaction: Partial Withdrawal
Cash Withdrawal Requested: $10,000
Withdrawal Charge: 6%*
Other Charges: None
</TABLE>
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.
EXAMPLE FOUR: NEGATIVE MVA AND WITHDRAWAL CHARGE
Assume the following:
<TABLE>
<S> <C>
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
</TABLE>
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
88
<PAGE> 96
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.
89
<PAGE> 97
Manulife Financial and the block design are registered
service marks of The Manufacturers Life Insurance
Company and are used by it and its subsidiaries, including The
Manufacturers Life Insurance Company (U.S.A.), The
Manufacturers Life Insurance Company of America,
and ManEquity, Inc.
IM5036 05/97 Printed in Canada [Manulife Financial LOGO]
90
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
<PAGE> 99
Item 13. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fees $15,625
Printing and engraving (through 12/31/97) $25,000
Legal fees and expenses (through 12/31/97) $14,800
Miscellaneous (Edgar) $ 5,000
</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> 100
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> 101
"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> 102
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> 103
(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> 104
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> 105
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> 106
<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 Annuity 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> 107
<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).
(4)(b)(iii) Endorsement-0646 Incorporated by reference
to Exhibit (4)(b)(iii)
to Form 10-Q by The
Manufacturers Life
Insurance Company of
America on August 14,
1997 (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> 108
<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> 109
<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> 110
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 6th day of April, 1998.
Registrant: The Manufacturers Life Insurance
Company of America
By: /s/ Donald A. Guloien
--------------------------------
Name: DONALD A. GULOIEN
Title: PRESIDENT
<PAGE> 111
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 6th day of April, 1998.
<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> 112
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> 113
<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> 114
<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> 115
<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)(b) 99.23(b) Consent of Ernst & Young LLP Filed herewith
(23)(c) 99.23(c) Consent of James D. Gallagher, Filed as Exhibit (5) to
General Counsel** Post-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)
(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 Schedule Filed herewith
(28) 99.28 None
(29) 99.29 None
(30) 99.B Financial Statement Schedules Filed herewith
</TABLE>
** filed electronically
<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 20, 1998 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 30, 1998
accompanying the financial statements of Separate Account Two of The
Manufacturers Life Insurance Company of America, in Post-Effective Amendment No.
8 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 3, 1998
<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, 1997, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996 and have issued our report
thereon dated March 20, 1998 (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 20, 1998
22
<PAGE> 2
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
SCHEDULE I -- SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1997
($ THOUSANDS)
<TABLE>
<CAPTION>
Amount
Market Shown in the
Type of Investment Cost Value Balance Sheet
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
United States Government $ 51,694 $ 52,496 $ 52,496
Foreign Governments 6,922 7,111 7,111
Corporate 7,949 8,286 8,286
- --------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $ 66,565 $ 67,893 $ 67,893
- --------------------------------------------------------------------------------------------------------------
Equity Securities:
Common stocks - other 20,153 19,460 19,460
Mortgage loans 131 131
Policy loans 14,673 14,673
Cash and short term investments 22,012 22,012
- --------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $123,534 $ 87,353 $124,169
==============================================================================================================
</TABLE>
23
<PAGE> 3
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
($ THOUSANDS)
<TABLE>
<CAPTION>
Future
Policy Other
Benefits Policy
Deferred Losses, Claims Claims and Net
Acquisition and Unearned Benefits Premium Investment
Segment Costs Loss Expenses Premiums Payable Revenue Income
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997:
Life Insurance and $130,355 $91,994 $674 $1,809 $ 5,334 $ 5,103
annuities
Other (incl. non- - - - - - 3,172
life subsidiaries)
- ---------------------------------------------------------------------------------------------------------------------------
Total $130,355 $91,994 $674 $1,809 $ 5,334 $ 8,275
===========================================================================================================================
1996:
Life Insurance and $102,610 $91,915 $635 $ 379 $12,898 $ 6,141
annuities
Other (incl. non- - - - - - 13,510
life subsidiaries)
- ---------------------------------------------------------------------------------------------------------------------------
Total $102,610 $91,915 $635 $ 379 $12,898 $19,651
===========================================================================================================================
1995:
Life Insurance and $ 78,829 $86,129 $642 $ 582 $15,293 $ 5,841
annuities
Other (incl. non- - - - - - 12,888
life subsidiaries)
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 78,829 $86,129 $642 $ 582 $15,293 $18,729
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Benefits, Claims
Losses and Other
Settlement Operating
Segment Expenses Expenses
- --------------------------------------------------------------
<S> <C> <C>
1997:
Life Insurance and $ 6,733 $46,968
annuities
Other (incl. non- - 2,472
life subsidiaries)
- --------------------------------------------------------------
Total $ 6,733 $49,440
==============================================================
1996:
Life Insurance and $14,473 $52,067
annuities
Other (incl. non- - 6,185
life subsidiaries)
- --------------------------------------------------------------
Total $14,473 $58,252
==============================================================
1995:
Life Insurance and $16,905 $37,151
annuities
Other (incl. non- - 4,787
life subsidiaries)
- --------------------------------------------------------------
Total $16,905 $41,938
==============================================================
</TABLE>
24
<PAGE> 4
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
SCHEDULE IV -- REINSURANCE
($ THOUSANDS)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F
- --------------------------------------------------------------------------------------------------------------------------
Gross Ceded to Assumed Percentage of
Amount Other from Other Net Amount
Companies Companies Amount Assumed to Net
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1997: $9,834,590 $2,083,344 $84,172 $7,835,418 1.07%
Life insurance in force
=========================================================================================
Insurance Premiums:
Life $ 8,572 $ 3,747 $ 509 $ 5,334 9.54%
=========================================================================================
Year ended December 31,
1996: $7,700,816 $ 552,986 $98,741 $7,246,571 1.36%
Life insurance in force
=========================================================================================
Insurance Premiums:
Life $ 12,998 $ 776 $ 676 $ 12,898 5.24%
=========================================================================================
Year ended December 31,
1995: $5,140,950 $ 147,818 $97,908 $5,091,040 1.92%
Life insurance in force
=========================================================================================
Insurance Premiums:
Life $ 9,809 $ 475 $ 5,959 $ 15,293 38.97%
=========================================================================================
</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>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 67,893
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 19,460
<MORTGAGE> 131
<REAL-ESTATE> 0
<TOTAL-INVEST> 124,169
<CASH> 22,012
<RECOVER-REINSURE> 373
<DEFERRED-ACQUISITION> 130,355
<TOTAL-ASSETS> 1,166,611
<POLICY-LOSSES> 94,477
<UNEARNED-PREMIUMS> 674
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 897,044
<NOTES-PAYABLE> 41,500
0
10,500
<COMMON> 4,502
<OTHER-SE> 91,767
<TOTAL-LIABILITY-AND-EQUITY> 1,166,611
5,334
<INVESTMENT-INCOME> 8,275
<INVESTMENT-GAINS> 118
<OTHER-INCOME> 544
<BENEFITS> 6,733
<UNDERWRITING-AMORTIZATION> 4,860
<UNDERWRITING-OTHER> 44,521
<INCOME-PRETAX> (4,113)
<INCOME-TAX> (477)
<INCOME-CONTINUING> (3,636)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,636)
<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>
