-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FWcw1fudUrlpG1kjwR8wONkWnN5z+C3mTszcwDseG5IoGnFL/NcyF8qNBbV3/JZ2 3lVw64QbZ0/SOuOmX//vEA== 0000950135-99-001093.txt : 19990302 0000950135-99-001093.hdr.sgml : 19990302 ACCESSION NUMBER: 0000950135-99-001093 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19990301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEPARATE ACCOUNT TWO OF MANUFACTURERS LIFE INS CO OF AMERI CENTRAL INDEX KEY: 0000814501 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 033-57018 FILM NUMBER: 99553273 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-05179 FILM NUMBER: 99553274 BUSINESS ADDRESS: STREET 1: 200 BLOOR STREET EAST ST 10 STREET 2: TORONTO M4W 1E5 CITY: ONTARIO CANADA STATE: A6 ZIP: 48304 BUSINESS PHONE: 416-926-63 MAIL ADDRESS: STREET 1: P O BOX 600 CITY: BUFFALO STATE: NY ZIP: 14201-0600 485APOS 1 SEPARATE ACCOUNT TWO OF THE MANUFACTURERS LIFE 1 As filed with the Securities and Exchange Commission on March 1, 1999 Registration No. 33-57018 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 POST-EFFECTIVE AMENDMENT NO. 11 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND AMENDMENT NO. 20 TO REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 SEPARATE ACCOUNT TWO OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA (Exact name of Registrant) THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA (Name of Depositor) 500 N. Woodward Avenue Bloomfield Hills, Michigan 48304 (Address of Depositor's Principal Executive Offices) (416) 926-6700 James D. Gallagher Secretary and General Counsel The Manufacturers Life Insurance Company of America 73 Tremont Street Boston, MA 02108 (Name and Address of Agent for Service) Copy to: J. Sumner Jones, Esq. Jones & Blouch L.L.P. 1025 Thomas Jefferson Street, NW Washington, DC 20007 It is proposed that this filing will become effective: ___ immediately upon filing pursuant to paragraph (b) of Rule 485 ___ on [date] pursuant to paragraph (b) of Rule 485 ___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485 _X_ on May 1, 1999 pursuant to paragraph (a)(1) of Rule 485 If appropriate, check the following box: ___ this post-effective amendment designated a new effective date for a previously filed post-effective amendment. 2 Separate Account Two of The Manufacturers Life Insurance Company of America Registration Statement on Form N-4 CROSS REFERENCE SHEET REQUIRED BY RULE 495(a)
N-4 Item Caption in Prospectus Part A 1...................................Cover Page 2...................................Definitions 3...................................Summary of Policies 4...................................Condensed Financial Information 5...................................General Information about Manufacturers Life of America, General Information about Manufacturers Life Insurance of America's Separate Accounts, General Information about Manufacturers Investment Trust 6...................................Description of the Policies ("Policy Charges") 7...................................Description of the Policies 8...................................Description of the Policies ("Commencement of Annuity Payments"); Appendix A ("Annuity Options") 9...................................Description of the Policies ("Provisions on Death") 10..................................Description of the Policies ("Purchasing A Policy", "Variable Policy Value and Determination of Variable Policy Value") 11..................................Description of the Policies ("Surrender or Withdrawal Rights") 12..................................Federal Tax Matters 13..................................Manufacturers Life of America (Legal Proceedings) 14..................................Not applicable
N-4 Item Part B Caption in Prospectus 15..................................Not applicable 16..................................Not applicable 17..................................General Information. About Manufacturers Life of America; The Separate Accounts, Manufacturers Investment Trust, and The General Account 18..................................General Information. About Manufacturers Life of America ("Responsibilities Assumed By Manufacturers Life") 19..................................Description of the Policies ("Policy Charges"; "Purchasing A Policy") 20..................................Other Matters ("Sale of the Policies") 21..................................Other Matters ("Performance and Other Comparative Information") 22..................................Not Applicable 23..................................Financial Statements
3 PART A INFORMATION REQUIRED IN A PROSPECTUS 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 1, 1999 5 PROSPECTUS [LOGO] LIFESTYLE FROM MANULIFE FINANCIAL THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA MULTI-ACCOUNT FLEXIBLE PAYMENT VARIABLE ANNUITY POLICIES This prospectus describes Multi-Account Flexible Payment Variable Annuity Policies (the "Policies" or "Policy"). The Manufacturers Life Insurance Company of America ("Manufacturers Life of America" or the "Company") issues the policies in connection with retirement plans that may or may not be entitled to special income tax treatment. Although the Company is not currently issuing new Policies, existing Policyowners may continue to make purchase payments. - Policyowners may allocate purchase payments 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 the Company's Separate Account Two. The Company invests the assets of each sub-account in shares of a corresponding investment portfolio ("Portfolio") of Manufacturers Investment Trust (sometimes referred to as the "Trust"). The accompanying Trust prospectus describes the Portfolios currently available to Policyholders. These are: - Emerging Small Company Trust Quantitative Equity Trust - Balanced Trust Real Estate Securities Trust - Investment Quality Bond Trust International Stock Trust - Money Market Trust Pacific Rim Emerging Markets Trust
- Purchase payments allocated to the Guaranteed Interest Account earn interest at an annual rate which the Company can reset daily but which it guarantees will not to be less than 3%. - Purchase payments allocated to the Fixed Accounts earn a fixed rate of interest only if held to maturity. The Company holds Fixed Account Value in either its Separate Account A or its General Account. - The Company makes annuity payments on a fixed basis only. Prior to the Annuity Commencement Date, the Company will furnish each Policyowner at least annually a report showing certain account information including unit values, current rates, current purchase payments allocations and cash surrender value. In addition, reports that include financial statements of the Trust and 2 6 information about the investment holdings of its various Portfolios will be sent semi-annually. PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT CONTAINS INFORMATION ABOUT THE POLICIES AND THE COMPANY THAT A PROSPECTIVE PURCHASER SHOULD KNOW BEFORE INVESTING. THE POLICIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION. NEITHER THE SEC NOR ANY STATE HAS DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The SEC maintains a Web site that contains material incorporated by reference and other information regarding registrants that file electronically. HOME OFFICE: SERVICE OFFICE: The Manufacturers Life Insurance The Manufacturers Life Insurance Company of America Company of America 500 N. Woodward Avenue 200 Bloor Street East Bloomfield Hills, Michigan 48304 Toronto, Ontario, Canada M4W 1E5 Telephone: 1-800-827-4546 (1-800-VARILIN[E]) The date of this prospectus is May 1, 1999. 3 7 PROSPECTUS CONTENTS 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 Provision 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 or Portfolio Shares 21 Policy Charges 21 Withdrawl Charge 21 Record-Keeping Charge 21 Dollar Cost Averaging Charge 23 Special Policy Access Charge 23 Premium Tax Deduction 23 Mortality And Expense Risks 23 Charges 23 Administration Charge 24 Market Value Adjustment 24 OTHER GENERAL POLICY PROVISIONS 25 Deferral of Payments 25 Annual Statements 25 4 8 Rights of Ownership 25 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 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 Exchange Offer APPENDIX A Annuity Options APPENDIX B 87 Simple Calculations Of Market Value Adjustments And Withdrawal Charges 87 FINANCIAL STATEMENTS THIS PROSPECTUS IS NOT AN OFFER TO SELL THE POLICIES AND IS NOT SOLICITING AN OFFER TO BUY THE POLICIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 5 9 DEFINITIONS "ACCUMULATION PERIOD" is the period from the date the Company 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 Purchase Payments 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 the Company except those allocated to Separate Account Two, Separate Account A, or other separate accounts of the Company. "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 the Company 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. 6 10 "NET PURCHASE PAYMENTS" are gross purchase payments 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 the Company to service the Policy. "SURVIVOR BENEFIT AMOUNT" is the amount to which the Policy Value may be set on the death of the original Policyowner. "UNIT" is an index used to measure the value of a Policy's interest in a Variable Account. "VARIABLE ACCOUNT" or "VARIABLE ACCOUNTS" are any one or more of the various sub-accounts of Separate Account Two. "VARIABLE POLICY VALUE" is the sum of the value of a Policy's interest in each of the Variable Accounts calculated as set forth in Description of the Policies - -- "Policy Value" (The Variable Accounts). 7 11 SUMMARY OF POLICIES OVERVIEW OF THE POLICIES. The Policies provide a flexible investment program for accumulating amounts under retirement plans which receive favorable federal income tax treatment pursuant to sections 401 or 408 of the Internal Revenue Code of 1986, as amended (the "Code") ("Qualified Policies"), or under plans and trusts not entitled to any special tax treatment ("Nonqualified Policies"). Under the Policies, the Policyowner makes purchase payments to the Company over a period of time (the "Accumulation Period") and then, beginning on a date selected by the Policyowner (the "Elected Annuity Date"), the Company makes periodic annuity payments to the person designated by the Policyowner to receive such payments. The Company generally issues the Policies to persons up to age 75 and offers the Policies both on an individual basis and in connection with group or sponsored arrangements. See Description of the Policies -- "Purchasing A Policy". PURCHASE PAYMENTS. The minimum initial purchase payment is $5,000 ($2,000 for Qualified Plans). Subsequent purchase payments must be at least $500. The Company may alter these minimum payment amounts on 90 days written notice to the Policyowner. It may also institute a pre-authorized payment plan which provides for automatic monthly deductions and which may permit smaller payments. FUNDING ARRANGEMENTS. The Policyowner may allocate purchase payments 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 the Company's Separate Account Two. The Company invests the assets of each sub-account in shares of a corresponding Portfolio of the Manufacturers Investment Trust (sometimes referred to as the "Trust"). The Company may in the future add sub-accounts and Portfolios to those currently available to Policyowners. - Purchase payments allocated to the Guaranteed Interest Account earn interest at a rate which the Company can reset daily but which the Company guarantees will not to be less than 3% per annum. - Purchase payments allocated to the Fixed Accounts earn a fixed rate of interest only if held to maturity. ALLOCATION OF PURCHASE PAYMENTS. The Policyowner may specify how purchase payments are to be allocated among the Variable Accounts, Fixed Accounts and Guaranteed Interest Account. Allocations are made as a percentage of Net Purchase Payments. The percentage allocation to any account may be any whole number between 0 and 100, provided the total percentage allocations equal 100. The Policyowner may change the specified allocation of Net Purchase Payments at any time without charge. If no allocation is specified, the Company will allocate purchase payments as set forth in the Policyowner's previous allocation request. See Description of the Policies -- "Restrictions Applicable To Purchase Payments". ANNUITY PAYMENTS. The Company makes annuity payments on a fixed basis only beginning on the Elected Annuity Date. The Policyowner may change the Elected Annuity Date to any date so long as annuity payments will begin by the end of the year in which the Annuitant reaches age 85 or, under some Qualified Policies, no later than April 1 following the year in which the Annuitant reaches age 70. The Annuitant is the person upon whose life annuity payments are based. 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 Company will pay the Policy Value 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 8 12 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 a Policyowner may request at any one time is $500. Some Qualified Policies contain restrictions on withdrawal rights. See Description of the Policies -- "Surrender Or Withdrawal Rights". TRANSFERS. Subject to certain restrictions, a Policyholder may transfer amounts at any time among the Guaranteed Interest Account, the Variable Accounts and the Fixed Accounts (see Description of the Policies -- "Transfers of Policy Value"). - Transfers into the accounts may be made in any amount. - Transfers from Fixed Accounts may be subject to a Market Value Adjustment. - Transfers from any account of less than the entire account value must be at least $500, including transfers under the Dollar Cost Averaging program; this restriction does not apply to transfers which are made pursuant to the Asset Allocation Balancer program or which are 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. CHARGES AND DEDUCTIONS. DEDUCTIONS FROM PURCHASE PAYMENTS. There is no deduction from purchase payments for sales expenses. The Company may deduct any applicable premium taxes attributable to the Policies (currently such taxes range from 0% to 3.5%). WITHDRAWAL CHARGES. The Company may impose a withdrawal charge (contingent deferred sales charge)if the Policyowner fully surrenders or makes a partial withdrawal under a Policy. The withdrawal charge is a percentage of the total surrender or withdrawal amount (the "Gross Withdrawal Amount"). The applicable percentage will depend upon the date of the purchase payment to which the Gross Withdrawal Amount is attributed. 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%. The withdrawal charge may in no event 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. MARKET VALUE ADJUSTMENT. When the Policyowner does not maintain amounts allocated to a Fixed Account until the last day of a Guarantee Period (the "Maturity Date") for that account, whether as a result of a surrender, partial withdrawal, transfer or the Annuity Commencement Date, the Company will apply a Market Value Adjustment. 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 upon surrender, withdrawal, transfer or on the Annuity Commencement Date to be substantially less than the amount allocated to that Fixed Account. RECORD-KEEPING CHARGE. The Company will deduct a record-keeping charge equal to 2% of the Policy Value, up to a maximum of $30, on the last day of each Policy Year or on the date of a full surrender made before the end of a Policy Year. MORTALITY AND EXPENSE RISKS AND ADMINISTRATION CHARGES. The Company will deduct(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 9 13 the beginning of each Policy Month, at an annual rate of .45% of the sum of the values of a Policy's interest in the sub-accounts of Separate Account Two ("Variable Policy Value") and the Fixed Accounts (prior to any application of any Market Value Adjustment). The administration charge is deducted daily at an annual rate of .20% of the assets of Separate Account Two. TRANSFER CHARGES. There is no charge for Dollar Cost Averaging transfers if Policy Value exceeds $15,000. The Company otherwise charges $5 per transfer. FREE LOOK RIGHT. Within ten days after receiving a Policy, the Policyowner may return it for cancellation by mailing it to the Company's Service Office. Within seven days after receipt, except where state insurance law requires return of any purchase payments, the Company will refund the Policy Value plus or minus any applicable Market Value Adjustment. POLICYOWNER INQUIRIES Policyowners should address all communications or inquiries relating to a Policy to the Company's Service Office at 200 Bloor Street East, Toronto, Ontario, Canada, M4W 1E5 (telephone: 1-800-827-4546 (1-800-VARILINE)). All notices and elections under a Policy must be received at that Service Office to be effective. 10 14 EXPENSE TABLE The following table and example illustrate the various costs and expenses that a Policyowner will bear directly or indirectly. The table reflects expenses of Separate Account Two, the Fixed Accounts and the Trust. It does not reflect any deduction made to cover any premium taxes 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, the Company 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 TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. EXPENSE TABLE
NUMBER OF COMPLETE POLICY YEARS SINCE PURCHASE PAYMENT WITHDRAWAL WAS MADE CHARGE 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
ANNUAL RATE 2. MORTALITY AND EXPENSE RISKS CHARGE (a) Variable (Separate) Accounts - Charged daily as a percentage of average Variable Account Values 4 0.80% - Charged monthly as a percentage of the policy month-start 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%
4.MANUFACTURERS INVESTMENT TRUST ANNUAL EXPENSES 11 15 (AFTER APPLICABLE FEE WAIVERS AND EXPENSE REIMBURSEMENTS): As a percentage of underlying Trust's average net assets
INVESTMENT TOTAL MANAGEMENT OTHER TRUST PORTFOLIO FEES EXPENSES* EXPENSES - --------- ---- --------- -------- Pacific Rim Emerging Markets Trust 0.850% 0.360% 1.210% Emerging Small Company Trust 1.050% 0.050% 1.100% International Stock Trust 1.050% 0.200% 1.250% Quantitative Equity Trust (formerly Common Stock Fund) 0.700% 0.060% 0.760% Real Estate Securities Trust 0.700% 0.060% 0.760% Balanced Trust 0.800% 0.070% 0.870% Investment Quality Bond Trust 0.650% 0.070% 0.720% Money Market Trust 0.500% 0.120% 0.620%
* Other Expenses include custody fees, registration fees, legal fees, audit fees, trustees' fees, insurance fees and other miscellaneous expenses. The Trust's investment adviser, Manufacturers Securities Services, LLC ("MSS") has agreed pursuant to its advisory agreement with the Trust to reduce its advisory fee or reimburse the 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 Portfolios listed above, .50% of the average annual net assets of such Portfolio. These expense limitations will continue in effect from year to year unless otherwise terminated by MSS on notice to the Trust. 1 The withdrawal charge decreases over time depending on the number of complete Policy Years elapsed since the date of the purchase payment to which the Company attributes the withdrawal. Under the free withdrawal provision, the Policyowner may 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 The Company will deduct a record-keeping charge of 2% of the Policy Value up to a maximum of $30 during the Accumulation Period on the last day of a Policy Year. The Company will also deduct such charge 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 The Company will deduct daily a mortality and expense risks charge at an annual rate of .80% of the assets of Separate Account Two, and will deduct monthly a mortality and expense risks charge at an annual rate of .45% of the sum of Variable Policy Value and Fixed Account Value. 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: 12 16
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- MANUFACTURERS INVESTMENT TRUST PACIFIC RIM EMERGING MARKETS TRUST $101 $162 $185 $307 EMERGING SMALL COMPANY TRUST $100 $159 $180 $296 INTERNATIONAL STOCK TRUST $102 $163 $ 87 $310 QUANTITATIVE EQUITY TRUST $ 97 $149 $ 63 $262 REAL ESTATE SECURITIES TRUST $ 97 $149 $ 63 $262 BALANCED TRUST $ 98 $152 $169 $273 INVESTMENT QUALITY BOND TRUST $ 97 $148 $161 $258 MONEY MARKET TRUST $ 95 $ 43 $ 53 $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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ -------- ------- -------- MANUFACTURERS INVESTMENT TRUST PACIFIC RIM EMERGING MARKETS TRUST $28 $85 $ 14 $307 EMERGING SMALL COMPANY TRUST $27 $82 $139 $296 INTERNATIONAL STOCK TRUST $28 $86 $147 $310 QUANTITATIVE EQUITY TRUST $23 $71 $122 $262 REAL ESTATE SECURITIES TRUST $ 3 $71 $122 $262 BALANCED TRUST $24 $75 $128 $273 INVESTMENT QUALITY BOND TRUST $23 $70 $120 $258 MONEY MARKET TRUST $22 $67 $115 $248
5 In this example, 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. 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 the Trust is provided under the caption "Management of the Trust" in the accompanying Trust prospectus. CONDENSED FINANCIAL INFORMATION SCHEDULE OF ACCUMULATION UNIT VALUES AND ACCUMULATION UNITS OUTSTANDING The following table sets forth accumulation unit values. These are accounting data which 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. 13 17 [TO BE UPDATED] FOR THE PERIOD NOVEMBER 3, 1987 THROUGH DECEMBER 31, 1998 SUB-ACCOUNTS EMERGING SMALL COMPANY TRUST (FORMERLY EMERGING GROWTH EQUITY FUND)
1987 1988 1989 1990 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- ---- ---- ---- ---- 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
1996 1997 1998 ---- ---- ---- January 1 value $45.01 46.79 54.27 December 31 value $46.79 54.27 December 31 units 1,681,075 1,423,816
BALANCED TRUST (FORMERLY BALANCED ASSETS FUND)
1987 1988 1989 1990 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- ---- ---- ---- ---- 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
1996 1997 1998 ---- ---- ---- January 1 value $21.91 23.98 27.96 December 31 value $23.98 27.96 December 31 unit 2,312,513 2,198,485
14 18 (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
1996 1997 1998 ---- ---- ---- January 1 value $19.07 19.35 20.82 December 31 value $19.35 20.82 December 31 units 851,595 841,834
MONEY MARKET TRUST (FORMERLY MONEY-MARKET FUND)
1987 1988 1989 1990 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- ---- ---- ---- ---- 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
1996 1997 1998 ---- ---- ---- January 1 value $14.38 14.95 15.57 December 31 value $14.95 15.57 December 31 units 1,375,204 1,225,881
QUANTITATIVE EQUITY TRUST (FORMERLY COMMON STOCK FUND)
1987 1988 1989 1990 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- ---- ---- ---- ---- 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
1996 1997 1998 ---- ---- ---- January 1 value $25.72 30.03 38.60 December 31 value $30.03 38.60 December 31 units 1,274,256 1,317,902
REAL ESTATE SECURITIES TRUST 15 19 (FORMERLY REAL ESTATE SECURITIES FUND)
1987 1988 1989 1990 1991 1992 1993 1994 ---- ---- ----- ---- ---- ---- ---- ---- 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
1995 1996 1997 1998 ---- ---- ---- ---- January 1 value $22.16 $25.26 33.68 39.48 December 31 value $25.26 $33.68 39.48 December 31 units 1,149,409 1,190,829 1,251,505
INTERNATIONAL STOCK TRUST (FORMERLY INTERNATIONAL FUND)
1994 1995 1996 1997 ---- ---- ---- ---- 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
1998 ---- January 1 value 11.76 December 31 value December 31 units
PACIFIC RIM EMERGING MARKETS TRUST (FORMERLY PACIFIC RIM EMERGING MARKETS FUND)
1994 1995 1996 1997 ---- ---- ---- ---- 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
1998 ---- January 1 value 7.36 December 31 value December 31 units
16 20 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 20, 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 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. 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 SEC under the Investment Company Act of 1940 ("1940 17 21 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 SEC 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. MANUFACTURERS INVESTMENT TRUST Each sub-account of Separate Account Two will purchase shares only of a particular portfolio of Manufacturers Investment Trust. The Trust is registered under the 1940 Act as an open-end management investment company. Separate Account Two will purchase and redeem shares of the 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. 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 the 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 Trust prospectus. Manufacturers Investment Trust receives investment advisory services from MSS. MSS is a registered investment adviser under the Investment Advisers Act of 1940. The Trust also employs subadvisers. The following subadvisers provide investment subadvisory services to the indicated portfolios: PORTFOLIO SUBADVISER Aggressive Growth Portfolios Pacific Rim Emerging Markets Trust Manufacturers Adviser Corporation* Emerging Small Company Trust Franklin Advisers, 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 Investment Quality Bond Trust Wellington Management Company LLP Money Market Portfolio Money Market Trust Manufacturers Adviser Corporation* - --------------- * 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 18 22 be met. EMERGING SMALL COMPANY TRUST. The investment objective of the Emerging Small Company Trust is to seek maximum capital appreciation. Franklin Advisers, Inc. manages the Emerging Small Company Trust and will pursue this objective by investing, under normal market conditions, at least 65% of the portfolio's total assets in common stock equity securities of small capitalization ("small cap") growth companies. In general, companies in which the portfolio invests will have market cap values of less than $1.5 billion at the time of purchase. 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. INVESTMENT QUALITY BOND TRUST. The investment objective of the Investment Quality Bond Trust is to seek a high level of current income consistent with the maintenance of principal and liquidity. Wellington Management Company manages the Investment Quality Bond Trust and seeks to achieve this objective by investing primarily in a diversified portfolio of investment grade corporate and U.S. Government bonds with intermediate to longer term maturities. 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 Trust prospectus, which should be read together with this prospectus. 19 23 DESCRIPTION OF THE POLICIES PURCHASING A POLICY The Policies are designed for use in connection with retirement plans entitled to special tax treatment under Sections 401 or 408 of the Code and retirement plans and trusts not entitled to any special tax treatment. The Policies are appropriate for group or sponsored plans with individual accounts or for purchase directly by individuals. (See Other Matters -- "Special Provisions for Group or Sponsored Arrangements".) A Policy will generally be issued to persons up to age 75. In certain circumstances Manufacturers Life of America may, in its sole discretion, issue a Policy to persons above age 75. Except where application information and the initial purchase payment are supplied by electronic transmission, persons seeking to purchase Policies must submit an application and a check for the initial purchase payment. The application, whether written, or via electronic transmission, is subject to underwriting standards adopted by Manufacturers Life of America and Manufacturers Life of America reserves the right to reject any application. A properly completed application that is accompanied by the initial purchase payment and all information necessary for the processing of the application will normally be accepted within two business days. An incomplete application which is subsequently made complete will normally be accepted within two business days of completion; however, if an application is not completed properly or necessary information is not obtained within 5 working days, Manufacturers Life of America will offer to return the purchase payment. Special provisions for electronic transmission of application information and purchase payments. In jurisdictions where it is not prohibited, Manufacturers Life of America will accept transmittal of initial and subsequent purchase payments by electronic transfer to the Service Office provided the transmission is (i) initiated by a broker-dealer from whom Manufacturers Life of America has agreed to accept such transfers and (ii) accompanied by the information necessary to issue a Policy and/or allocate the purchase 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 20 24 plan described in section 401(a) of the Code. See Description of the Policies -- "Provisions on Death" (Death of the Policyowner and Death of the Annuitant). Purchase payments must be made to the Manufacturers Life of America Service Office. The minimum initial purchase payment is $5,000 ($2,000 for Qualified Plans). This can be allocated to the Variable Accounts, the Guaranteed Interest Account or the Fixed Accounts. Subsequent purchase payments must be at least $500. If an additional purchase payment would cause the Policy Value to exceed $1,000,000, or if the Policy Value should already exceed $1,000,000, the prior approval of Manufacturers Life of America will be required for an additional purchase payment. If, for any reason, the Policy Value should fall to zero, the Policy and all rights of the Policyowner and any other person under the Policy, will terminate and no further purchase payments may be made. Manufacturers Life of America reserves the right to alter the minimum payment amounts on 90 days written notice to the Policyowner and it further reserves the right to institute a pre-authorized payment plan which will provide for automatic monthly deductions and which may permit smaller payments. A Policyowner should specify how each purchase payment is to be allocated. The percentage allocation to any account may be any whole number between 0 and 100, provided the total percentage allocations equal 100. A Policyowner may change the way in which Net Purchase Payments 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 21 25 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 Purchase Payments directly to the Fixed Accounts or transfer Policy Values to the Fixed Accounts provided such allocations are permitted by the Policyowner's jurisdiction. Each allocation to a Fixed Account is accounted for separately and earns a fixed rate of interest for a set period of time called a "Guarantee Period". Currently, Guarantee Periods ranging from 1 to 10 years are offered under the Policies. To the extent permitted by law, Manufacturers Life of America reserves the right at any time to offer Guarantee Periods with durations that differ from those available at the date of this prospectus. Manufacturers Life of America also reserves the right at any time to stop accepting new allocations, transfers or renewals for a particular Guarantee Period. These actions may be taken upon 60 days written notice to the Policyowner. 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. 22 26 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 canceling of units is received after the end of a Business Day or on a day which is not a Business Day, the order will be processed on the basis of unit values determined on the next Business Day. Similarly, any determination of Policy Value or Variable Account Value to be made on a day which is not a Business Day will be made on the next Business Day. The value of a unit of each Variable Account was initially fixed at $10.00. For each subsequent Business Day the unit value of a particular Variable Account is the value of the adjusted net assets of that account at the end of the Business Day divided by the total number of units. The value of a unit may increase, decrease or remain the same, depending on the investment performance of a Variable Account from one Business Day to the next. The unit value for any Variable Account for any Business Day is the result of (a) minus (b) divided by (c), where: (a) is the net assets of the Variable Account as of the end of such Business Day; (b) is a charge not exceeding .000027397 for each calendar day since the preceding Business Day, multiplied by the net assets of the Variable Account as of the end of such Business Day, corresponding to a charge of 0.80% per annum for mortality and expense risks, and 0.20% per annum for the administration charge; and (c) is the total number of units of the Variable Account. Manufacturers Life of America reserves the right to adjust the above formula to provide for any taxes determined by it to be attributable to the operations of Separate Account Two. 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 23 27 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 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 24 28 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. 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 25 29 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 Purchase Payments 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. 26 30 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 27 31 purchase payments received after the death of the Policyowner; or (c) elect to receive payment under a guaranteed annuity option. If the payment is made as an annuity, the Policy Value used to provide the annuity will be determined as of the date Manufacturers Life of America receives written notification of the election at its Service Office. However, if a partial withdrawal or a full surrender of the Policy Value occurs more than 60 days after the death of the Policyowner, the payment will be based on the Policy Value determined as of the date of payment, adjusted for any applicable Market Value Adjustment and withdrawal charge. (See Description of the Policies -- "Market Value Adjustment" and "Policy Charges".) The Policy will continue under option (a) in the absence of a written notification from the surviving spouse to do otherwise. If the new or surviving Policyowner is not the spouse, he or she can: (a) continue the Policy. If this option is selected, no further purchase payments can be made, and the Policy must be surrendered within 5 years of the death. Applicable Market Value Adjustments and withdrawal charges will be imposed. (See Description of the Policies -- "Market Value Adjustment" and "Policy Charges".); or (b) make a full surrender or partial withdrawal of the Policy Value within 60 days after the death without imposition of a Market Value Adjustment or withdrawal charge; or (c) elect to receive payment under a guaranteed annuity option. If the payment is made as an annuity, (i) the Policy Value used to provide the annuity will be determined as of the date Manufacturers Life of America receives written notification of the election at its Service Office, (ii) the only Annuity Options available are options 1, 2(b), or 2(c) of the 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 -- 28 32 "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. 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 29 33 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 SEC 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 Purchase Payments as reduced by prior withdrawals. The amount received on withdrawal will be adjusted for any applicable Market Value Adjustment. The withdrawal charge is deducted as a percentage of amounts withdrawn in a Policy Year in excess of the foregoing sums minus any applicable record-keeping charge (imposed on Policy Anniversaries and on full surrenders made on other than a Policy Anniversary) and plus or minus any applicable Market Value Adjustment. The withdrawal charge is designed to partially compensate Manufacturers Life of America for the cost of selling and distributing the Policies. The cost includes agents' commissions, advertising, agent training and the printing of prospectuses and sales literature. The withdrawal charge is determined by applying a percentage to the Gross Withdrawal Amount subject to the withdrawal charge. The applicable percentage depends upon when the purchase payments to which the withdrawal or surrender is deemed attributable were made, as indicated in the following schedule: NUMBER OF COMPLETE POLICY YEARS ELAPSED THE WITHDRAWAL SINCE PURCHASE PAYMENT WAS MADE: CHARGE IS 0-2.99 8% 3 6% 4 4% 5 2% 6 or more None 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. 30 34 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. 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 31 35 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. 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 record-keeping 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. 32 36 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. The actual MVA is a proportion of the Gross Withdrawal Amount, determined by the following formula: 33 37 (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 SEC or the SEC requires that trading be restricted; or (3) the SEC, 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. 34 38 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 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. 35 39 BENEFICIARY Ownership of the Policy will pass to the designated beneficiary on the death of the Policyowner. The beneficiary is the person designated in the application or as subsequently designated. The beneficiary may be changed at any time by written notice to Manufacturers Life of America. Any change will be effective on the date written notice is received at the Manufacturers Life of America Service Office. If no beneficiary survives the Policyowner, ownership will pass to the Policyowner's estate. In the case of Qualified Policies, regulations promulgated by the Departments of Labor and Treasury prescribe certain limitations on the designation of a beneficiary. MODIFICATION A Policy may not be modified by Manufacturers Life of America without the consent of the Policyowner, except where required to conform to any applicable law or regulation or any ruling issued by a government agency. FEDERAL TAX MATTERS TAXATION OF MANUFACTURERS LIFE OF AMERICA Manufacturers Life of America is taxed as a life insurance company under Subchapter L of the Code. Since the operations of Separate Account Two are part of, and are taxed with, the operations of Manufacturers Life of America, Separate Account Two is not separately taxed as a "regulated investment company" under Subchapter M of the Code. Under existing federal income tax laws, investment income and capital gains of Separate Account Two are not taxed to the extent they are applied to increase reserves under the Policies. Since, under the Policies, investment income and realized capital gains of Separate Account Two are automatically applied to increase reserves, Manufacturers Life of America does not anticipate that it will incur any federal income tax liability attributable to Separate Account Two, other than a federal income tax based on premiums received which is currently absorbed by Manufacturers Life of America, and therefore Manufacturers Life of America does not intend to make provision for any such taxes. However, if changes in the federal tax laws or interpretations thereof result in Manufacturers Life of America being taxed on such income or gains, or taxes currently absorbed are increased, then Manufacturers Life of America may impose a charge against Separate Account Two in order to make provision for such taxes. 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 36 40 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. 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 37 41 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 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 38 42 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 [TO BE UPDATED WITH REFERENCE TO 1998 FINANCIAL INFORMATION] DESCRIPTION OF BUSINESS Manufacturers Life of America's primary purpose is to issue and sell variable universal life and variable annuity products in the United States. However, Manufacturers Life of America also commenced establishment of branch operations in Taiwan to develop and market traditional insurance for the Taiwanese market. Manufacturers Life of America began capitalizing this operation in 1993 and commenced full operations in 1995. RESPONSIBILITIES ASSUMED BY MANUFACTURERS LIFE Manufacturers Life and Manufacturers USA have entered into an agreement with ManEquity, Inc. pursuant to which Manufacturers Life or Manufacturers USA, on behalf of ManEquity, Inc., will pay the sales commissions in respect of the Policies and certain other policies issued by Manufacturers Life of America, prepare and maintain all books and records required to be prepared and maintained by ManEquity, Inc. with respect to the Policies and such other policies, and send all confirmations required to be sent by ManEquity, Inc. with respect to the Policies and such other policies. ManEquity, Inc. will promptly reimburse Manufacturers Life or Manufacturers USA for all sales 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. 39 43 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 1996, 1997 and 1998, Manufacturers Life of America paid $26,982,466, $30,873,151 and [$_____], 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 [$ ]Billion (Canadian Dollars) and surplus of [$ ]Billion (Canadian Dollars) as of December 31, 1998. 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. SELECTED FINANCIAL DATA [TO BE UPDATED]
FOR THE YEARS ENDED DECEMBER 31 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (IN THOUSANDS) 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
FOR THE YEARS ENDED DECEMBER 31 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- 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
40 44 * 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. OVERVIEW [TO BE UPDATED] Management Discussion and Analysis of Financial Condition and Results of Operation The following Management Discussion and Analysis of Financial Condition and Results of Operations of 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 [$ ] 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 1998 with variable universal life deposits being [ ]% of the 1997 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] [$897] million to [$ ] million. 41 45 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 enables 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 1998 were [ ]% of 1997 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 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 42 46 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 [TO BE UPDATED]
Financial Summary (In '000's) 1997 1996 1995 - ----------------------------- ---- ---- ---- 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 - ------------------------------------------------------------------------------
43 47 Capital and Surplus $ 106,769 $ 116,630 $ 110,520 ==============================================================================
NET LOSS The Company reported a consolidated net loss in 1998 of [$ ] million, compared to the 1997 net loss of $3.6 million ($8.4 million net loss in 1995). The main contributors to these losses were as follows:
(In millions) 1997 1996 1995 ------------- ---- ---- ---- US Operations $ (0.8) $ 9.1 $ 2.5 Taiwan Operations (2.8) (17.5) (9.3) - ---------------------------------------------------- NET LOSS $ 3.6 $ 8.4 $ 6.8 ====================================================
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 $9.3 million net loss in 1995). The increased net loss in 1996 was a result of significant start-up costs incurred in Taiwan, particularly associated with producer recruitment. In 1997, as discussed earlier, improvements were made in the Taiwan branch operations to rationalize the operations, slow the sales growth and related production costs, and to instead focus on strategic growth. Lower sales significantly reduced the level of commissions and expenses incurred. PREMIUMS Premium revenue for 1998 was [$ ] million compared to $5.3 million in 1997 ($12.9 million in 1996). Of the total, premiums related to sales of traditional life insurance contracts in Taiwan in 1998, 1997 and 1996 were [$ ]million, $4.8 million and 12.2 million, respectively. The decrease in premiums reported in Taiwan in 1997 are a result of the more focused strategic growth discussed previously whereas the increase in 1996 over 1995 reflected the initially growing operation. Premiums related to U.S. operations decreased to [$ ] million in 1998 from $0.5 million in 1997 and $0.7 million in 1996. 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:
(In '000's) 1997 1996 1995 - ----------- ---- ---- ---- Variable Life Insurance $185,355 $144,438 $108,323 Variable Annuities 11,598 36,130 37,834 - -------------------------------------------------------- TOTAL $196,953 $180,568 $146,157 ========================================================
44 48 The growth in variable life insurance deposits continued while single premium variable annuity premiums continued to decrease in 1997 and 1996. The deposit growth for variable life is consistent with the Company's commitment to develop variable core "estate/business planning products". A survivorship variable universal life product launched in late 1995 showed significant growth in 1996 which continued throughout 1997 along with the growth due to the new COLI variable universal life contract in 1997. With the merger of Manufacturers Life and North American Life Assurance Company in 1996, the sale of variable annuities in the Company was de-emphasized in October 1997 and all variable annuity sales will be made through an affiliated company, Manulife North America. FEE INCOME Fee income for 1998 was [$ ] million, compared to $42.4 million in 1997 ($40.4 million in 1996). Strong investment performance in 1997 and 1996 and a growing maturing block of in-force business resulted in higher separate account values and, therefore, higher fee income, which is earned on a percentage of the net value of invested assets in the separate account portfolios. The variable universal life and annuity business accounted for [ ]% of the fee income earned by the Company in 1997 compared to 84% in 1997 and 85% in 1996. The remainder of the fee income is derived through investment management fees. NET INVESTMENT INCOME Net investment income was [$ ] million in 1998 compared to $8.3 million in 1997 ($19.7 million in 1996). 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 $13.2 million was reported in 1996. The increase in 1996 compared to 1995 is due to the strengthening of the stock market in 1996. REALIZED CAPITAL GAINS In 1998, the Company had realized capital gains of [$ ] million, compared to realized capital gains of $0.1 million in 1997 (losses of $0.1 million in 1996). The Company occasionally sells bonds to provide cash flow and the realized gains or losses are a result of this activity and will vary as interest rates fluctuate from year to year. POLICYHOLDER BENEFITS Policyholder benefits decreased to [$ ] million in 1998, compared to $6.7 million in 1997 ($14.5 million in 1996). The decrease in 1997 is a direct result of the reduction in activity and death claims experience in Taiwan. Death claims experience in 1996 was favorable compared to expected levels and to prior years. OPERATING COSTS AND EXPENSES Operating costs and expenses increased to [$ ] million in 1998 compared to $41.7 million in 1997 ($34.6 million in 1996). The increase in 1997 and 1996 is due to expenses incurred in connection with the sales of two new products, a COLI variable universal life contract in 1997 and a survivorship variable life contract in 1996 as discussed previously. REVIEW OF CONSOLIDATED FINANCIAL CONDITION The Company had total consolidated assets of [$ ] million at December 31, 1998, an increase of [$ ] million or [ ]% from 1997. 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. 45 49 INVESTMENTS The following table outlines by type of investment the carrying value of the general account investment portfolio of the Company:
Investment Type (In '000's) 1997 1996 - --------------- ----------- ---- ---- 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 $101,240 =====================================================
General account investments increased by [$ ] million or [ ]% from 1997. This change is due to an increase in fixed maturities of [$ ] million and cash and short-term investments of [$ ] million. In the fourth quarter of 1997, ManAmerica borrowed $33 million from its parent, ManUSA, to provide additional liquidity and to meet the costs of new business strain resulting from significant COLI sales. FIXED MATURITIES The Company's fixed maturity bond portfolio of [$ ] million represents [ ]% of investments at the end of 1998, compared to 55% at the end of 1997. As at December 31, 1998, [ ]% of the bond portfolio was rated "A" or higher, and [ ]% was rated investment grade, "BBB" or higher. The corresponding percentages at the end of 1997 were 97.5% and 100%.
Fixed maturities by Investment Grade (In '000's) 1997 1996 ----------- ---- ---- AAA $52,496 77.2% $16,953 32.7% AA 516 1.0% 5,483 10.6% 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 $51,708 ======================================================================================
EQUITY SECURITIES The Company's equity portfolio of [$ ] million represents [ ]% of investments at the end of 1997, compared to 16% at the end of 1997. The equities consist entirely of investments in mutual funds sponsored by an affiliate. 46 50 POLICY LOANS Policy loans represented [ ]% of investments at December 31, 1998, compared to 12% in 1997. 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, 1998 and 1997. 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 1998[?] or 1997. POLICYHOLDER LIABILITIES The following table shows the distribution of Policyholder Liabilities and Separate Account Liabilities by line of business at December 31:
Policyholder Liabilities (In '000's) 1997 1996 - ------------------------ ----------- ---- ---- Life Insurance: Taiwan $ 13,291 $ 15,305 Reinsurance 40,975 44,497 Variable Life 40,211 32,113 - ------------------------------------------------------------------------------------- TOTAL $ 94,477 $ 91,915 =====================================================================================
Separate Account Liabilities (In '000's) 1997 1996 - ---------------------------------------- ---- ---- Variable Life Insurance $603,732 $399,403 Variable Annuities 293,312 268,691 - --------------------------------------------------------------
47 51 TOTAL $897,044 $668,094 ==============================================================
Separate account liabilities are [$ ] million, an increase of [ ]% over 1997. 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 1998 and sales of the new COLI product. Taiwan reserves decreased in 199[8] 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 1998, this amounted to [$ ] million or [ ]% of total investments compared to $22 million in 1997 or 17.7%. In addition, the Company's liquidity is managed by maintaining an easily marketable portfolio of fixed maturities. Because of the excess of expense over income, which arises from the cost of new policy issues, the continued success in generating sales will not only result in losses in the results from operations, but will create a cash flow strain as well. The Company's consolidated statements of cash flows indicates this in that operating activities used cash of [$ ] million and $24.7 million in 1998 and 1997 respectively compared to $20.5 million in 1996. 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. 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. 48 52 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 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. 49 53 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 [TO BE UPDATED] 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. 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, 50 54 comprised of $55 million for specifically budgeted programs and $9 million for general contingencies. Manufacturers Life has incurred [$ ] million as at December 31, 1998 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. 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:
POSITION WITH MANUFACTURERS LIFE OF NAME AMERICA PRINCIPAL OCCUPATION - ---- ------- --------------------- Sandra M. Cotter (36) Director Attorney -- 1989-present, Dykema, (since December 1992) Gossett James D. Gallagher (43) 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* (55) Director Senior Vice President, Group Benefits, (since May 1996) Canadian Division, The Manufacturers Life Insurance Company, 1994 - present; Vice President, U.S. Operations --Pensions -- 1990-1994, The Manufacturers Life Insurance Company Donald A. Guloien (42) 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 F. Kilkuskie (43) Director President, The Manufacturers Life Insurance Company of North America; Vice President, U.S. Individual Insurance -- January 1997-January, 1999, 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 (60) Director (since July Senior Vice President, General Counsel 1982) and Corporate Secretary -- 1988-present,
51 55 The Manufacturers Life Insurance Company John D. Richardson (61) Chairman and Director Senior Executive Vice President, The (since January 1995) Manufacturers Life Insurance Company, 1999 to present; 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 (46) Vice President, Chief Financial Vice President -- 1992-present Actuary and Treasurer Douglas H. Myers** (44) Vice President, Finance Assistant Vice President and Controller, and Compliance U.S. Operations -- 1988-present, The Controller Manufacturers Life Insurance Company Victor Apps (50) 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 (44) Vice President, Senior Vice President, Individual U.S. Insurance, 1998- to present; Vice President, Product Management - Marketing, 1996-1998, The Manufacturers Life Insurance Company; Sales Marketing Director, U.S. Division -- 1994- 1995 The Manufacturers Life Insurance Company; Vice President, Corporation Strategic Review -- 1992-1993, The Manufacturers Life Insurance Company
- ------------------ * Bruce Gordon is also a director of ManEquity, Inc. ** Douglas Myers is also a director and president of ManEquity, Inc. EXECUTIVE COMPENSATION [TO BE UPDATED] 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 52 56
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) - ----------------------------------------------------------------------------------------------------------------- Donald A. 1997 $8,732 $5,515 n/a n/a n/a n/a $12 Guloien, President
(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. 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 53 57 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. 54 58 LONG TERM INCENTIVE PLAN
Estimated Future Payouts Under Performance or Non-Securities-Price-Based Plans Other Period (US $)(3) Securities Units Until -------------------------------------- or Other Rights Maturation or Threshold Target Maximum Name (#)(1) Payout(2) ($ or #) ($ or #)(4) ($ or #) - --------------- ---------------- --------- ---------- ----------- --------- Don Guloien 837 Jan. 1, 2001 N/A $4,819 N/A
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 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, 55 59 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.
Years of Service Remuneration ($) 15 20 25 30 35 ---------------------------------------------------------------------------------------------- $ $ $ $ $ ---------------------------------------------------------------------------------------------- 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 ---------------------------------------------------------------------------------------------- 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 ----------------------------------------------------------------------------------------------
56 60 900,000 195,765 261,021 326,276 391,531 456,786 ---------------------------------------------------------------------------------------------- 1,000,000 217,824 290,432 363,040 435,649 508,257 ----------------------------------------------------------------------------------------------
Don Guloien, President and Chief Operating Officer, has 16.8 years. 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 for a Policy is approved. To qualify for such a reduction, a group or sponsored arrangement must satisfy certain criteria as to, for example, size of the group, expected number of participants and anticipated premium payments from the group. Generally, the sales contacts and effort, administrative costs and mortality risks and expense risks costs per Policy vary based on such factors as the size of the group or sponsored arrangements, the purposes for which Policies are purchased and certain characteristics of its members. The amount of reduction and the criteria for qualification will reflect the reduced sales effort and administrative, mortality and expense risks costs resulting from sales to qualifying groups and sponsored arrangements. Manufacturers Life of America may modify from time to time on a uniform basis, both the amounts of reductions and the criteria for qualification. Reductions in these charges will not be unfairly discriminatory against any person, including the affected Policyowners and all other owners of the Policies. 57 61 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, 1996, December 31, 1997 and December 31, 1998, ManEquity, Inc. received $3,045,326, $570,520 and [$ ], respectively, as compensation for sales of other variable annuity policies issued by Separate Account Two by its registered representatives. Of these amounts, $2,957,985, $537,752 and [$ ], 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, 1998 was [$ ]. 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 SEC 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 SEC's principal office in Washington, D.C. upon payment of the prescribed fee. For further information you may also contact Manufacturers Life of America's Service Office, the address 58 62 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, 1998 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 59 63 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-standardized total return figures reflecting redemption at the end of the time period are calculated on the same basis as the standardized returns. Non-standardized total return figures not reflecting redemption at the end of the time period are calculated on the same basis as the standardized returns except that the calculations assume no redemption at the end of the period. 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 to the 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, 1998 were as follows:
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 YEAR FIVE YEARS# IS SHORTER# - ------------------------------------------------------------------------------------------------------------- Emerging Small Company -9.33% n/a 2.77% Balanced 3.53% n/a 9.97%* Investment Quality Bond -1.48% 4.89% 4.32%+ Quantitative Equity** 14.51% 16.46% 15.02%+ Real Estate Securities** -24.31% 5.93% 10.90%+ Money Market -4.76% n/a -0.26%* International Stock 4.14% n/a 2.61%* Pacific Rim Emerging Markets** -13.58% n/a -9.91%*
* Average Annual Return since Inception of Sub-Account (October 4, 1994 for the Pacific Rim Emerging Markets Trust; and January 1, 1997 for the Emerging Small Company, Balanced, Money Market Trust and International Stock Trust). 60 64 ** 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. NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES (ASSUMING REDEMPTION AT THE END OF THE TIME PERIOD) Total returns if surrendered are as follows:
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 - ----------------------------------------------------------------------------------------------------- Emerging Small Company -9.33% n/a 2.77%* Balanced 3.53% n/a 9.97%** Investment Quality Bond -1.48% 4.89% 4.32%+ Quantitative Equity** 14.51% 16.46% 15.02%+ Real Estate Securities** -24.31% 5.93% 10.90%+ Money Market -4.76% 2.62% 3.70%* International Stock 4.14% n/a 2.61%* Pacific Rim Emerging Markets** -13.58% n/a -9.91%*
* 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 Small Company, 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: 61 65
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 - ---------------------------------------------------------------------------------------------------- Emerging Small Company -1.45% n/a -8.73% Balanced 12.53% n/a 14.67%+ Investment Quality Bond 7.09% 5.27% 4.32%+ Quantitative Equity** 24.47% 17.32% 15.02%+ Real Estate Securities** -17.73% 6.71% 10.90%+ Money Market 3.52% 3.37% 3.70%* International Stock 13.20% n/a 6.99%* Pacific Rim Emerging Markets** -6.07% n/a -8.73%*
* 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 Small Company, 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. 62 66 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:
Emerging Balanced Investment Quantitative Real Money International Pacific Small Co. Quality Equity Estate Market Stock Rim Bond *** Securities Emerging (formerly *** Markets Common *** Stock) 1998 -9.33% 3.53% -1.48% 14.51% -24.31% -4.76% 4.14% -13.58% 1997 N/A N/A -0.55% 17.67% 7.30% -4.73% N/A -40.34% 1996 N/A N/A -7.06% 6.86% 22.08% -4.81% N/A -0.50% 1995 N/A N/A 8.28% 19.27% 5.39% -3.88% N/A 1.78% 1994 N/A N/A -13.60% -13.19% -11.90% -5.64% N/A -13.50% 1993 N/A N/A -0.31% 3.67% 12.75% -6.78% N/A N/A 1992 N/A N/A -2.86% 3.53% 11.46% -6.12% N/A N/A 1991 N/A N/A 5.18% 20.20% 30.95% -3.79% N/A N/A 1990 N/A N/A -21.35% -13.08% -13.50% -1.77% N/A N/A 1989 N/A N/A -2.95% 20.68% -0.42% -0.96% N/A N/A 1988 N/A N/A -2.96% 0.20% 2.03% -2.74% N/A N/A 1987 N/A N/A -15.63% -22.58% -16.61% -3.38% N/A N/A 1986 N/A N/A 2.63% N/A N/A -3.76% N/A N/A 1985 N/A N/A N/A N/A N/A N/A N/A N/A 1984 N/A N/A N/A N/A N/A N/A N/A N/A
*** 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. 63 67 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:
Emerging Balanced Investment Quantitative Real Money International Pacific Growth Quality Equity *** Estate Market Stock Rim Bond (formerly Securities Emerging Common Stock) *** Markets *** 1998 -1.45% 12.53% 7.09% 24.47% -17.73% 3.52% 13.20% -6.07% 1997 N/A N/A 8.10% 27.90% 16.64% 3.56% N/A -35.16% 1996 N/A N/A 1.02% 16.15% 32.69% 3.46% N/A 8.15% 1995 N/A N/A 17.70% 27.27% 13.99% 4.12% N/A 9.60% 1994 N/A N/A -6.09% -5.64% -4.24% 2.36% N/A -1.90% 1993 N/A N/A 8.36% 11.67% 20.75% 1.22% N/A N/A 1992 N/A N/A 5.58% 4.47% 19.46% 1.88% N/A N/A 1991 N/A N/A 14.33% 28.20% 38.95% 4.21% N/A N/A 1990 N/A N/A -14.51% -5.52% -5.98% 6.23% N/A N/A 1989 N/A N/A 5.49% 28.68% 7.58% 7.04% N/A N/A 1988 N/A N/A 5.48% 8.20% 10.03% 5.26% N/A N/A 1987 N/A N/A -8.29% -15.85% -9.35% 4.62% N/A N/A 1986 N/A N/A 11.55% N/A N/A 4.24% N/A N/A 1985 N/A N/A N/A N/A N/A 2.03% N/A N/A 1984 N/A N/A N/A N/A N/A N/A N/A N/A
*** 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. EXCHANGE OFFER Currently, there is an exchange offer in effect whereby contracts described in this prospectus ("Old Contracts") may be exchanged for Venture Combination Fixed and Variable Annuity contracts ("New Contracts"). The exchange offer is available in all states except New Hampshire, New York, and the territory of Guam. The Company will permit an owner of an outstanding Old Contract to exchange the Old Contract for a New Contract without the imposition of a withdrawal charge at the time of exchange, except a possible market value adjustment as described below. For purposes of computing the applicable withdrawal charge upon any withdrawals made subsequent to the exchange, the New Contract will be deemed to have been issued on the date the Old Contract was issued, and any purchase payment credited to the Old Contract will be deemed to have been credited to the New Contract on the date it was credited under the Old Contract. The death benefit under the New Contract on the date of its issue will be the contract value under the Old Contract on the date of exchange, and will "step up" annually thereafter as described in paragraph "5." below. 64 68 Old Contract owners interested in a possible exchange should carefully review both the New Contract prospectus and the remainder of this Prospectus before deciding to make an exchange. AN EXCHANGE MAY NOT BE IN THE BEST INTERESTS OF AN OWNER OF AN OLD CONTRACT. Further, under the Old Contracts, a market value adjustment may apply to any amounts transferred from a fixed investment account in connection with an exchange. (Reference should be made to the discussion of the market value adjustment under "Market Value Adjustment" in this prospectus.) The Company believes that an exchange as described above will not be a taxable event for Federal tax purposes; however, any owner considering an exchange should consult a tax adviser. The Company reserves the right to terminate this exchange offer or to vary its terms at any time. * * * * THE PRINCIPAL DIFFERENCES BETWEEN THE OLD CONTRACT AND THE NEW CONTRACT ARE AS FOLLOWS: 1. Number of Variable Investment Options The Old Contract has eight variable investment options whereas the New Contract has thirty five variable investment options. 2. Fixed Account Investment Options The Old Contract has a Guaranteed Interest Account as well as Fixed Accounts with guarantee periods ranging from 1 to 10 years whereas the New Contract offers five fixed account investment options: one, three, five and seven year guaranteed investment accounts and a dollar cost averaging fixed investment account. The market value adjustment for the Old Contract Fixed Accounts is different from the market value charge for the New Contract fixed account investment options. The Old Contract adjustment and the New Contract charge both reduce the withdrawal amount when current interest rates are higher than the credited rate on the fixed investment although the magnitude of the adjustments may differ due to differences in adjustment formulas. The Old Contract adjustment also provides upside potential, increasing the withdrawal value when current interest rates are lower than the fixed account credited rate. The New Contract charge does not provide this upside potential. See "Market Value Adjustment" in the Old Contract prospectus and "Fixed Account Investment Options" in the New Contract prospectus. 3. Surrender Charges The surrender charges under the New Contract are different from the Old Contract. The surrender charges under the Old Contract and the New Contract are as follows:
Old Contract New Contract - ------------ ------------ Number of Complete Years Withdrawal Charge Number of Complete Years Withdrawal Charge Purchase Payments In Percentage Purchase Payments in Contract Contract 0 8% 0 6% 1 8% 1 6% 2 8% 2 5% 3 6% 3 5% 4 4% 4 4% 5 2% 5 3% 6+ 0% 6 2% 7+ 0%
65 69 4. Separate Account and Fixed Account Expenses; Contract Owner Transaction Expenses The New Contract and the Old Contract have different separate account and fixed account annual expenses as well as different contract owner transaction expenses as noted in the chart below: New Contract Separate Account Annual Expenses (as a percentage of average account value) Separate Account Annual Expenses Mortality and expense risk fees 1.25% Administration fee - asset based 0.15% ---- Total Separate Account Annual Expenses 1.40% New Contract Contract Owner Transaction Expenses Annual Administration Fee $30* Dollar Cost Averaging Charge none *The $30 annual administration fee will not be assessed prior to the maturity date if at the time of its assessment the sum of all investment accounts is greater than or equal to $100,000. 66 70 Old Contract Separate Account Annual Expenses Separate Account Annual Expenses Mortality and Expense Risk Charge Annual Rate Charged daily as a percentage of average Variable Account Values* 0.80% Charged monthly as a percentage of the policy month-start Variable and Fixed Account Assets* 0.45% ---- 1.25% Other Separate Account Expenses Charge for administration charged daily as a percentage of average Variable Account Values 0.20% ---- Total Separate Account Annual Expenses 1.45% Old Contract Contract Owner Transaction Expenses Record Keeping Charge $30** Dollar Cost Averaging Charge (if selected and applicable) $5*** *A mortality and expense risk charge of 0.80% per annum is deducted daily from separate account assets, and a mortality and expense risk charge of 0.45% per annum is deducted monthly from variable policy values and fixed account values. **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. ***Transfers pursuant to the optional Dollar Cost Averaging program are free if policy value exceeds $15,000 at the time of the transfer, but otherwise incur a $5 charge. 5. Minimum Death Benefit Differences Between the Minimum Death Benefit of Old Contract and the New Contract are as follows: Minimum Death Benefit for Old Contract Upon the occurrence of the death of the original policyowner, ManAmerica will compare the policy value to the Survivor Benefit Amount (described below) and, if the policy value is lower, ManAmerica will deposit sufficient funds into the Money-Market Variable Account to make the policy value equal the Survivor Benefit Amount. Any funds which ManAmerica 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 (withdrawal amounts prior to deduction of charges and any adjustment for applicable market value adjustments) bears to the policy value; (4) in jurisdictions where it is allowed, on every sixth policy anniversary ManAmerica will set the Survivor Benefit Amount to the greater of its current value or the policy value on that policy anniversary, provided the original contract owner is still alive and is not older than age 85. Minimum Death Benefit for New Contracts 67 71 Minimum Death Benefit for New Contracts Issued on or After May 1, 1998 (See below for state applicability) If any contract owner dies and the oldest owner had an attained age of less than 81 years on the contract date, the death benefit will be determined as follows: During the first contract year, the death benefit will be the greater of: (a) the contract value or (b) the sum of all purchase payments made, less any amounts deducted in connection with partial withdrawals. During any subsequent contract year, the death benefit will be the greater of: (a) the contract value or (b) the death benefit on the last day of the previous contract year, plus any purchase payments made and less any amounts deducted in connection with partial withdrawals since then. If any contract owner dies on or after his or her 81st birthday, the death benefit will be the greater of (a) contract value or (b) the death benefit on the last day of the contract year ending just prior to the owner's 81st birthday, plus any payments made, less amounts deducted in connection with partial withdrawals. If any contract owner dies and the oldest owner had an attained age of 81 years or greater on the contract date, the death benefit will be the greater of: (a) the contract value or (b) the excess of (i) the sum of all purchase payments over (ii) the sum of any amounts deducted in connection with partial withdrawals. The death benefit described below under "Death Benefit for New Contracts Issued Prior to May 1, 1998" will continue to apply to contracts issued on or after May 1, 1998 in the states of: - - Florida, - - Maryland, - - Puerto Rico - - Washington - - Connecticut (for contracts issued prior to April 1, 1998) - - Minnesota, Montana and Washington D.C. (for contracts issued prior to July 1, 1998) - - Texas (for contracts issued prior to October 1, 1998) - - Massachusetts (for contracts issued prior to February 1, 1999) - - Florida, Maryland, Oregon (for contracts issued prior to March __, 1999) (collectively, the "Old Death Benefit States") Death Benefit for New Contracts Issued Prior to May 1, 1998 The death benefit described below applies to New Contracts issued prior to May 1, 1998 as well as New Contracts issued on or after May 1, 1998 in the Old Death Benefit States. Contracts Issued Prior to May 1, 1998. If any contract owner dies on or prior to his or her 85th birthday and the oldest owner had an attained age of less than 81 years on the contract date, the death benefit will be determined as follows: During the first contract year, the death benefit will be the greater of: (a) the contract value or (b) the sum of all purchase payments made, less any amounts deducted in connection with partial withdrawals. During any subsequent contract year, the death benefit will be the greater of: (a) the contract value or (b) the death benefit on the last day of the previous contract year, plus any purchase payments made and less any amounts deducted in connection with partial withdrawals since then. If any contract owner dies after his or her 85th birthday and the oldest owner had an attained age of less than 81 years on the contract date, the death benefit will be the greater of: (a) the contract value or (b) the excess of (i) the sum of all purchase payments over (ii) the sum of any amounts deducted in connection with partial withdrawals. If any contract owner dies and the oldest owner had an attained age greater than 80 on the contract date, the death benefit will be the contract value less any applicable withdrawal 68 72 charges at the time of payment of benefits. For contracts issued on or after October 1, 1997, any withdrawal charges applied against the death benefit shall be waived by the Company. 6. Annuity Payments Annuity payments under the Old Contract will be made on a fixed basis only whereas annuity payments under the New Contract may be made on a fixed or variable basis or a combination of fixed and variable bases. 7. Annuity Value Guarantee The Old Contract 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 payment and withdrawals made by the contract owner (the "Annuity Value Guarantee"). The New Contract does not have an Annuity Value Guarantee. 8. Annuity Purchase Rates The annuity purchase rates guaranteed in the New Contract are based on the 1983 Table A projected at Scale G, assume births in year 1942 and reflect an assumed interest rate of 3% per year. The annuity purchase rates guaranteed in the Old Contract are based on the 1983 Individual Annuity Mortality Tables and an assumed interest rate of 3% per year. * * * * The above comparison does not take into account differences between the Old Contracts, as amended by qualified plan endorsements, and the New Contracts, as amended by similar qualified plan endorsements. Owners using their Old Contract in connection with a qualified plan should consult a tax advisor. See also the Federal Tax Matters section of this prospectus and the New Contract prospectuses. 69 73 APPENDIX A ANNUITY OPTIONS The Policyowner may elect one of the following annuity options described below. If no option is specified, annuity payments will be made as a life annuity with a ten year certain period. Treasury or Labor Department regulations may require a different annuity option if no option is specified and may preclude the availability of certain options in connection with Qualified Policies. There may also be state insurance law requirements that limit the availability of certain options. The amounts payable under each option will be no less than amounts determined on the basis of tables contained in each Policy. Such tables are based on the 1983 Individual Annuity Mortality Tables and an assumed interest rate of 3% per year. OPTION 1: ANNUITY CERTAIN - payments in equal installments for a period of not less than five years and not more than twenty years. OPTION 2(a): LIFE ANNUITY WITHOUT REFUND - payments in equal installments during the Lifetime of an Annuitant, payments will cease. Since there is no guarantee that any minimum number of payments will be made, the payee may receive only one payment if he or she dies before the date the second payment is due. OPTION 2(b): LIFE ANNUITY WITH CERTAIN PERIOD - payments in equal installments during the lifetime of an Annuitant and if the Annuitant dies before installments have been paid for a designated period, either five, ten or twenty years, payments will continue for the remainder of the period selected. OPTION 2(c): LIFE ANNUITY WITH INSTALLMENT REFUND - payments in equal installments during the lifetime of an Annuitant and if the Annuitant dies before the total installments paid equal the Policy Value applied to provide the annuity, payments will continue until the Policy Value has been paid. OPTION 3(a): JOINT AND SURVIVOR ANNUITY WITHOUT REFUND - payments in equal installments during the lifetime of two Annuitants with payments continuing in full amount to the survivor upon death of either. Since there is no guarantee that any minimum number of payments will be made, the payees may receive only one payment if they both die before the date of the second payment is due. OPTION 3(b): JOINT AND SURVIVOR ANNUITY WITH CERTAIN PERIOD - payments in equal installments during the lifetime of two Annuitants and if both die before installments have been paid for a ten year period, payments will continue for the remainder of the period. Under Options 2(b), 2 (c) and 3 (b), upon the death of the Annuitant or second to die of joint Annuitants, the beneficiary may elect to receive the commuted value of any remaining payments. Any such commutation will be at the interest rate used to determine the amount of the annuity payments plus 1/2%. 70 74 APPENDIX B SAMPLE CALCULATIONS OF MARKET VALUE ADJUSTMENTS AND WITHDRAWAL CHARGES* MVA FORMULA The MVA factor is equal to: (1 + G) exp N - 1 ------- (1 + C) EXAMPLE ONE: NEGATIVE MVA AND NO WITHDRAWAL CHARGE Assume the following: Type of Account: Fixed Type of Transaction: Transfer Time remaining in the Guarantee Period: 30 months, 5 days Guaranteed Rate: 6% Current Rate for new 3-year deposits: 8% Transfer Requested: $10,000 Withdrawal Charge: 0% Other Charges: $35 transfer charge In this example, N = 30/12 = 2.5 G = .06 C = .08 The MVA factor equals: 1.06 exp 2.5-1 = -0.0457 ---- 1.08 Manufacturers Life of America will deduct a Gross Withdrawal Amount of $10,000.00. From this, Manufacturers Life of America will deduct the transfer charge of $35. This will leave $9,965.00. The amount of the MVA adjustment would be $9,965.00 X -0.0457, or -- $ 455.40. The cash transferred to another account(s) would be $9,965.00 -- $455.40, or $9,509.60. *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. 71 75 EXAMPLE TWO: POSITIVE MVA AND NO WITHDRAWAL CHARGE Assume the following: Type of Account: Fixed Type of Transaction: Partial Withdrawal Time remaining in the Guarantee Period: 47 months Guaranteed Rate: 6% Current Rate for new 3-year deposits: 4% Current Rate for new 4-year deposits: Not Offered Current Rate for new 5-year deposits: 6% Cash Withdrawal Requested: $10,000 Withdrawal Charge: 0% Other Charges: None In this example, N = 47/12 = 3.91677 G = .06 C = .05 The time remaining in the Guarantee Period, rounded to the next full year, is 4 years. Since the 4-year deposit is not available, interpolate between the 3-year rate and the 5-year rate, to get a rate of 5%. The MVA factor equals: 1.06 exp - 1 = 0.0378 ---- 1.05 We will take out a Gross Withdrawal Amount of $9,635.77. The amount of the MVA adjustment would be $9,635.77 X 0.0378, or $364.23. The cash received by the Policyowner would be $9,635.77 + $364.23, or $10,000. EXAMPLE THREE: WITHDRAWAL CHARGE AND NO MVA Assume the following: Type of Account: Variable Type of Transaction: Partial Withdrawal Cash Withdrawal Requested: $10,000 Withdrawal Charge: 6% Other Charges: None The Gross Withdrawal Amount will be $10,638.30. The withdrawal charge will be $10,638.30 X 6%, or $638.30. The cash received by the Policyowner would be $10,638.30 - $638.30, or $10,000. 72 76 *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. 73 77 EXAMPLE FOUR: NEGATIVE MVA AND WITHDRAWAL CHARGE Assume the following: Type of Account: Fixed Type of Transaction: Surrender Time remaining in the Guarantee Period: 30 months, 5 days Guaranteed Rate: 6% Current Rate for new 3-year deposits: 8% Transfer Requested: $10,000 Withdrawal Charge: 6% Other Charges: $30 record-keeping charge In this example, N = 30/12 = 2.5 G = .06 C = .08 The MVA factor equals: 1.06 exp 2.5-1 = -0.0457 ---- 1.08 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 -0.457, or $455.63. This leaves and 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. 74 78 PART B STATEMENT OF ADDITIONAL INFORMATION 79 Information permitted to be in the Statement of Additional Information is contained in the Prospectus. 80 PART C OTHER INFORMATION 81 Item 24. Financial Statements and Exhibits (a) Financial Statements Included in the Prospectus: Reports of Independent Auditors for Registrant and Depositor for financial statements of Separate Account Two of The Manufacturers Life Insurance Company of America for the two year ended December 31, 1998 and financial statements of The Manufacturers Life Insurance Company of America for the year ended December 31, 1998. (Part A of Registration Statement) - TO BE FILED BY AMENDMENT (b) Exhibits, including those previously filed and incorporated herein by reference. (1) Copy of resolution establishing Separate Account Two. Filed herein. (3)(a)(i) Distribution Agreement between The Manufacturers Life Insurance Company of America and ManEquity, Inc. dated August 31, 1987. Filed herein. (3)(a)(ii) Supplemental Agreement to Distribution Agreement between The Manufacturers Life Insurance Company of America and ManEquity, Inc. dated October 1, 1992. Filed herein. (3)(b)(i) Specimen Agreement between ManEquity, Inc. and registered representatives. Incorporated by reference to Exhibit A(3)(b)(i) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. (3)(b)(ii) Specimen agreement between The Manufacturers Life Insurance Company of America and registered representatives. Incorporated by reference to Exhibit A(3)(b)(ii) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. (3)(b)(iii) Specimen Agreement between ManEquity, Inc. and dealers. Incorporated by reference to Exhibit A(3)(b)(iii) to pre- effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. (3)(b)(iv) Specimen agreement between The Manufacturers Life Insurance Company of America and dealers. Incorporated by reference to Exhibit A(3)(b)(iv) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. (4)(a) Form of Multi-Account Flexible Variable Annuity Policy. Filed herein. (4)(b)(i) Endorsement 0646. Incorporated by reference to Exhibit (4)(b)(iii) to Form 10-Q filed by The Manufacturers Life Insurance Company of America, file number 33-57020 filed August 14, 1997. (4)(b)(ii) Trustee-Owned Policies Endorsement. Filed herein. (4)(b)(iii) Individual Retirement Annuity Endorsement. Filed herein. (4)(b)(iv) Change of Investment Management Company Name Endorsement. Filed herein. (5)(a) Form of Application for the Policy. Filed herein. (5)(b) Form of Application Supplement for the Policy. Previously filed as Exhibit (5)(a) to post-effective amendment no. 7 to the registration statement on Form N-4, filed December 18, 1996. 82 (6)(a) Restated Articles of Redomestication of The Manufacturers Life Insurance Company of America. Incorporated by reference to Exhibit (3)(a)(i) to post-effective amendment no. 6 to the registration statement on Form S-1, file number 33-57020, filed December 9, 1996. (6)(b) By-Laws of The Manufacturers Life Insurance Company of America. Incorporated by reference to Exhibit (3)(b)(i) to post-effective amendment no. 6 to the registration statement on Form S-1, file number 33-57020, filed December 9, 1996. (7) Reinsurance Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America. Filed herein. (8)(a)(i) Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated June 1, 1988. Incorporated by reference to Exhibit A(8)(a)(i) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. (8)(a)(ii) Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated December 31, 1992. Incorporated by reference to Exhibit A(8)(a)(ii) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. (8)(a)(iii) Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated May 31, 1993. Incorporated by reference to Exhibit A(8)(a)(iii) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. (8)(a)(iv) Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated June 30, 1993. Incorporated by reference to Exhibit A(8)(a)(iv) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. (8)(a)(v) Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated December 31, 1996. Incorporated by reference to Exhibit A(8)(a)(v) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. (8)(a)(vi) Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated May 31, 1998. Incorporated by reference to Exhibit A(8)(a)(vi) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. (8)(a)(vii) Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated December 31, 1998. Filed herein. (8)(b)(i) Service Agreement between The Manufacturers Life Insurance Company and ManEquity, Inc. dated January 2, 1991. Incorporated by reference to Exhibit A(8)(c)(i) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. (8)(b)(ii) Amendment to Service Agreement between The Manufacturers Life Insurance Company and ManEquity, Inc. dated March 1, 1994. Incorporated by reference to Exhibit A(8)(c)(ii) to pre- 83 effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. (9)(a) Opinion and consent of James D. Gallagher, Esq., General Counsel of The Manufacturers Life Insurance Company of America -- Previously filed as Exhibit (9)(a) to post-effective amendment no. 7 to the registration statement Form N-4 filed December 18, 1996. (9)(b) Consent of Ernst & Young LLP - TO BE FILED BY AMENDMENT (16) Performance Computation Schedule -- Previously filed as Exhibit(16) to post-effective amendment no. 3 to the registration statement on Form N-4 filed April 26, 1996. (24) Power of Attorney. Incorporated by reference to Exhibit (12) to post-effective amendment no. 10 to the registration statement on Form S-6, file number 33-52310, filed February 28, 1997. (27) Financial Data Schedule -- Not Applicable. Item 25. Directors and Officers of the Depositor. The names and positions of each of the officers and directors of The Manufacturers Life Insurance Company of America are set forth in Part A of this registration statement under the caption Additional Information about Manufacturers Life of America - "Executive Officers and Directors". The business address of John Richardson, Donald Guloien, Joseph Pietroski, Bruce Gordon, John Ostler, Victor Apps, Robert Cook and Douglas Myers is 200 Bloor Street East, Toronto, Ontario, Canada M4W1E5. The business address of Sandra M. Cotter is 800 Michigan National Tower, Lansing, Michigan 48933. The business address of James Gallagher and Theodore Kilkuskie is 73 Tremont Street, Boston, MA 02108-3915. Item 26. Persons Controlled by or Under Common Control with Depositor or Registrant. THE MANUFACTURERS LIFE INSURANCE COMPANY Manulife Corporate Organization The Manufacturers Life Insurance Company (Canada) 1. Cantay Holdings Inc. - Ontario (100%) 2. 484551 Ontario Limited - Ontario (100%) a. 911164 Ontario Inc. - Ontario (100%) 3. Churchill Lifestyles Corp. (100%) 4. 495603 Ontario Limited - Ontario (100%) 5. 1198183 Ontario Limited - Ontario (100%) 6. 1198184 Ontario Limited - Ontario (100%) 7. 1235434 Ontario Limited - Ontario (100%) 8. 576986 Ontario Inc. - Ontario (100%) 9. Balmoral Developments Inc. - Ontario (100%) 10. Manulife Bank of Canada - Canada (100%) 11. Manulife Securities International Ltd. - Canada (100%) 12. Family Realty First Corp. - Ontario (100%) 13. NAL Resources Limited - Alberta (100%) 14. Manulife International Capital Corporation Limited - Ontario (100%) a. Regional Power Inc. - Ontario (100%) i. La Regionale Power (Port Cartier) Inc. - Ontario (100%) ii. La Regionale Power Angliers Inc. - Ontario (100%) iii. Addalam Power Corporation - Philippines (100%) 15. Peel-de Maisonneuve Investments Ltd. - Canada (100%) a. 2932121 Canada Inc. - Canada (100%) 84 16. FNA Financial Inc. - Canada (100%) a. NAL Trustco Inc. - Ontario (100%) b. First North American Insurance Company - Canada (100%) c. Elliott & Page Limited - Ontario (100%) d. Seamark Asset Management Ltd. - Canada (67.86%) e. NAL Resources Management Limited - Canada (100%) i. NAL Energy Inc. - Alberta (100%) 17. ManuCab Ltd. - Canada (100%) a. Plazcab Service Limited - Newfoundland (100%) 18. Manufacturers Life Capital Corporation Inc. - Canada (100%) 19. The North American Group Inc. - Ontario (100%) 20. 994744 Ontario Inc. - Ontario (100%) 21. 1268337 Ontario Inc. - Ontario (100%) 22. 3426505 Canada Inc. - Canada (100%) 23. The Manufacturers Investment Corporation - Michigan (100%) a. Manulife Reinsurance Corporation (U.S.A.) - Michigan (100%) i. The Manufacturers Life Insurance Company (U.S.A.) - Michigan (100%) (1) Dover Leasing Investments, LLC - Delaware (99%) (2) The Manufacturers Life Insurance Company of America - Michigan (100%) (a) Manulife Holding Corporation - Delaware (100%) (i) Manufacturers Adviser Corpora- tion - Colorado (100%) (ii) Succession Plainning Interna- tional, Inc. - Wisconsin (100%) (iii) ManEquity, Inc. - Colorado (100%) (iv) Manulife Property Management of Washington, D.C. Inc. - Washington, D.C. (100%) (v) ManuLife Service Corporation - Colorado (100%) (vi) Manulife Leasing Company, LLC - Delaware (80%) (3) Capitol Bankers Life Insurance Company - Michigan (100%) (4) Ennal, Inc. - Ohio (100%) (5) Manulife-Wood Logan Holding Co. Inc. - Delaware (62.5%) (a) Wood Logan Associates, Inc. - Connecticut (100%) (i) Wood Logan Distributors, Inc. - Connecticut (100%) (b) The Manufacturers Life Insurance Company of North America - Delaware (100%) (i) Manufacturers Securities Services, LLC - Massachusetts (100%) (ii) The Manufacturers Life Insurance Company of New York - New York (100%) ii. Manulife Reinsurance Limited - Bermuda (100%) (1) MRL Holding, LLC - Delaware (99%) (a) Manulife-Wood Logan Holding Co. Inc. - Delaware (22.5%) iii. MRL Holding, LLC - Delaware (1%) 24. Manulife International Investment Management Limited - U.K. (100%) a. Manulife International Fund Management Limited - U.K. (100%) 25. WT(SW) Properties Ltd. - U.K. (100%) 26. Manulife Europe Ruckversicherungs-Aktiengesellschaft - Germany (100%) 27. Manulife International Holdings Limited - Bermuda (100%) a. Manulife (International) Limited - Bermuda (100%) i. Zhong Hong Life Insurance Co., Ltd. - China (51%) ii. The Manufacturers (Pacific Asia) Insurance Company Limited - H.K. (100%) iii. Newtime Consultants Limited - H.K. (100%) 28. Manulife (International) Reinsurance Limited - Bermuda (100%) a. Manulife (International) P & C Limited - Bermuda (100%) 85 b. Manufacturers P & C Limited - Barbados (100%) c. Manufacturers Life Reinsurance Limited - Barbados (100%) 29. Chinfon-Manulife Insurance Company Limited - Bermuda (100%) 30. Manulife (Malaysia) SDN. BHD. - Malaysia (100%) 31. Manulife (Thailand) Ltd. - Thailand (100%) 32. Young Poong Manulife Insurance Company - Korea (100%) 33. Manulife Data Services Inc. - Barbados (100%) a. Manulife Funds Direct (Barbados) Limited - Barbados (100%) i. Manulife Funds Direct (Hong Kong) Limited - H.K. (100%) 34. OUB Manulife Pte. Ltd. - Singapore (100%) 35. Manulife Holdings (Hong Kong) Limited - H.K. (100%) 36. ManuLife Financial Systems (Hong Kong) Limited - H.K. (100%) 37. P.T. Asuransi Jiwa Dhamala ManuLife - Indonesia (51%) a. P.T. AMP Panin Life - Indonesia (100%) Item 27. Number of Policyowners. There were 1175 Policies participating in the contract offered by this prospectus at December 31, 1998. Item 28. 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 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 I hereof who has been substantially successful in the defense 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 I 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. 86 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: "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 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 favor 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 indemnify hereunder may have, or 87 (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. 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 and Officers as required or permitted under applicable statutory or by-law provisions. In general, the D&O coverage encompasses: - past, present and future Directors and Officers of The Manufacturers Life Insurance Company and subsidiaries 88 - 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). Item 29. Principal Underwriters. (a) In addition to the Policies, ManEquity, Inc. acts as principal underwriter of policies participating in Separate Accounts One, Three and Four as well as other Policies issued by Separate Account Two of The Manufacturers Life Insurance Company of America. (b) Name and Principal Position and Offices Business Address with Underwriter Thomas G. Rieve Treasurer 200 Bloor Street East Toronto, Ontario Gary Buchanan Director and V.P., Compliance 200 Bloor Street East Toronto, Ontario Brian Buckley Secretary and General Counsel 73 Tremont Street Boston, MA 02108 Douglas Myers Director and President 200 Bloor Street East Toronto, Ontario Bruce Gordon Director 200 Bloor Street East Toronto, Ontario John Richardson Director 200 Bloor Street East Toronto, Ontario Roy Bubbs Director 200 Bloor Street East Toronto, Ontario c.
Net Underwriting Name of Principal Discounts and Compensation on Brokerage Other Compensation Underwriter Commissions Redemption Commissions ManEquity, Inc. To be filed by 0 0 0 amendment
89 Item 30. Location of Accounts and Records. Pursuant to a Service Agreement, The Manufacturers Life Insurance Company maintains physical possession of the books and records of Separate Account Two required by Section 31(a) of the 1940 Act and the rules thereunder. Item 31. Management Services. Not applicable. Item 32. Undertakings. Representation of Insurer Pursuant to Section 26 of the Investment Company Act of 1940 The Manufacturers Life Insurance Company of America (the "Company") hereby represents that the fees and charges deducted under the contracts issued pursuant to this registration statement, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Company. 90 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant and the Depositor have caused this amendment to the Registration Statement to be signed on their behalf in the City of Toronto, Province of Ontario, Canada, on this 26th day of February, 1999. SEPARATE ACCOUNT TWO OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA (Registrant) By: THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA (Depositor) By: /s/ Donald A. Guloien --------------------------------- DONALD A. GULOIEN President THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA By: /s/ Donald A. Guloien --------------------------------- DONALD A. GULOIEN President 91 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, this amended Registration Statement has been signed by the following persons in the capacities indicated on this 26th day of February, 1999. Signature Title - --------- ----- *------------------------------- 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 92 EXHIBIT INDEX Exhibit No. Description (1) Copy of resolution establishing Separate Account Two (3)(a)(i) Distribution Agreement between The Manufacturers Life Insurance Company of America and ManEquity, Inc. dated August 31, 1987 (3)(a)(ii) Supplemental Agreement to Distribution Agreement between The Manufacturers Life Insurance Company of America and ManEquity, Inc. dated October 1, 1992 (4)(a) Form of Multi-Account Flexible Variable Annuity Policy (4)(b)(ii) Trustee-Owned Policies Endorsement (4)(b)(iii) Individual Retirement Annuity Endorsement (4)(b)(iv) Change of Investment Management Company Name Endorsement (5)(a) Form of Application for the Policy (7) Reinsurance Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated (8)(a)(vii) Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated December 31, 1998 EX-99.B1 2 COPY OF RESOLUTION 1 CERTIFICATE OF SECRETARY I, Stephen C. Nesbitt, Secretary of The Manufacturers Life Insurance Company of America (the "Corporation"), do hereby certify that on May 25, 1983 the following resolutions were adopted by the unanimous consent of the Board of Directors of the Corporation and that such resolutions remain in full force and effect as of the date hereof. RESOLVED: That the Officers are authorized to take all actions which they deem necessary and appropriate to issue and sell variable life insurance and annuity policies in a form substantially similar to that presented to the Board, subject to such changes as the Officers deem necessary and appropriate. Such authority shall include, without limitation, entering into any necessary service agreements as well as marketing and distribution, registering the policies (which may be in an indefinite amount from time to time) under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and taking all other actions necessary in order that such proposed issue and Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended and all other applicable Federal and State Laws and Regulations. * * * RESOLVED: That a Separate Account designated "Separate Account Two" be, and it is hereby established, in accordance with the provisions of Section 406.2, Chapter 2, Title 31 of the Pennsylvania Code, for the purpose of providing a funding medium to support reserves under variable annuity policies as may be issued by the Company and as the Officers may designate for such purpose. The Officers may, from time to time, change the designation of "Separate Account Two" to such other designation as they may deem necessary and appropriate. RESOLVED: That the income, gains and losses (whether or not realized) from assets allocated to Separate Account Two shall, in accordance with any variable annuity policies issued by the Company, be credited to or charged against such Separate Account with [sic] regard to the other income gains or losses of the Company. RESOLVED: That the fundamental investment policy and [sic] Separate Account Two shall be to invest or reinvest the assets of Separate Account Two in 2 securities issued by the Investment Companies registered under the Investment Company Act of 1940, as amended, as the Officers may designate pursuant to the provisions of the variable annuity policies issued by the Company. RESOLVED: That the Officers are hereby authorized and directed to take all actions necessary to register both Separate Account One and Separate Account Two as unit investment trusts under the Investment Company Act of 1940, as amended, and to take such related actions as they deem necessary and appropriate to carry out the foregoing. IN WITNESS WHEREOF, I have executed this Certificate the 12th day of January, 1993. By: /s/ Stephen C. Nesbitt ---------------------- Stephen C. Nesbitt Secretary The Manufacturers Life Insurance Company of America EX-99.B3(A)(I) 3 DISTRIBUTION AGREEMENT 1 DISTRIBUTION AGREEMENT AGREEMENT made this 31st day of August, 1987 between The Manufacturers Life Insurance Company of America ("ManuLife America") a stock life insurance company domiciled in the Commonwealth of Pennsylvania, on its own behalf and on behalf of Separate Account Two ("Account") of ManuLife America and ManEquity, Inc., ("ManEquity"), a Colorado corporation; WITNESSETH WHEREAS, the Account is an account established and maintained by ManuLife America pursuant to the laws of the Commonwealth of Pennsylvania for flexible premium variable life insurance policies issued by ManuLife America (the "Policies"), under which income, gains and losses, whether or not realized, from assets allocated to such account, are, in accordance with the Policies, credited to or charged against such account without regard to other income, gains, or losses of ManuLife America; WHEREAS, ManuLife America has filed a registration statement for the Account as a unit investment trust under the Investment Company Act of 1940 (the "Investment Company Act"); WHEREAS, ManEquity is registered as a broker-dealer under the Securities Exchange Act of 1934 ("Securities Exchange Act") and is a member of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, ManuLife America has filed a registration statement for the policies under the Securities Act of 1933 (the "Securities Act") and proposes to issue and sell the Policies through the Account to the public through ManEquity acting as principal underwriter for the Account; 2 NOW, THEREFORE in consideration of the premises and the mutual covenants herein contained and other good and valuable consideration, the parties do hereby agree as follows: Section 1. Principal Underwriter (a) Appointment. ManuLife America grants to ManEquity the exclusive right during the term of this Agreement, subject to the registration requirements of the Securities Act and the Investment Company Act and the provisions of the Securities Exchange Act, to be the distributor and principal underwriter of the Policies issued through the Account in each state or other jurisdiction where the Policies may legally be sold, including any supplementary benefits which ManuLife America may make available in connection therewith. ManEquity shall offer the Policies for sale and distribution at premium rates to be set by ManuLife America. (b) Responsibilities. ManEquity will assume full responsibility for the securities activities of, and for securities law compliance by, its associated persons, (as that term is defined in Section 3(a)(18) of the Securities Exchange Act) including, as applicable, compliance with the NASD Rules of Fair Practice and Federal and State Laws and Regulations. ManEquity, directly or through ManuLife America as its agent, will: (i) make timely filings with the SEC, NASD, and other regulatory authorities, of any sales literature or materials relating to the Account, as required by law to be filed; and 3 (ii) make available to ManuLife America copies of any agreements or plans intended for use in connection with the sale of the Policies in sufficient number and in adequate time for clearance by the appropriate regulatory authorities before they are used, and it is agreed that the parties will use their best efforts to obtain such clearance by the appropriate regulatory authorities before they are used and that the parties will use their best efforts to obtain such clearance as expeditiously as reasonably possible. ManEquity will train the associated persons, use its best efforts to prepare them to complete satisfactorily any and all applicable NASD and state qualification examinations, register the associated persons as its registered representatives before they engage in securities activities, and supervise and control them in the performance of such activities. ManEquity shall be under no obligation to effectuate any particular amount of sales of Policies or to promote or make sales, except to the extent ManEquity deems advisable or to the extent otherwise mutually agreed to by ManEquity and ManuLife America. Section 2. Dealer Agreements. (a) Authority ManEquity is hereby authorized to enter into separate written dealer agreements, on such terms and conditions as ManEquity may determine not inconsistent with the Agreement, with organizations which agree to participate in the distribution of the Policies and to use their best efforts to solicit applications for the Policies. Such organizations and their agents or representatives soliciting applications for Policies shall be duly and appropriately licensed, registered or otherwise qualified for the sale of such Policies (and the riders and other policies offered in connection therewith) under the Insurance Laws and any applicable Blue Sky Laws of each state or other jurisdiction in which such Policies may be lawfully sold and in which ManuLife America is licensed to 4 sell the Policies. Each such organization shall be both registered as a broker/dealer under the Securities Exchange Act and a member of the NASD, or if not so registered or not such a member, then the agents and representatives of such organization soliciting applications for the Policies shall be agents and registered representatives of a broker/dealer and NASD member which is the parent of such organization and which maintains full responsibility for the training, supervision, and control of the agents or representatives selling the Policies. (b) Responsibilities. ManEquity shall have the responsibility for the supervision of all such organizations to the extent required by law and shall assume any legal responsibilities of ManuLife America for the acts, commissions, or defalcations of any such organizations. Applications for the Policies solicited by such organizations through their agents or representatives shall be forwarded to ManEquity. All payments for the Policies shall be made by check to ManuLife America and remitted promptly by such organizations to ManEquity. Section 3. Payments and Costs. In connection with the sale of the Policies, ManEquity is responsible for all amounts (including the sales commissions described in the prospectus for the Policies) due to the sales representatives or to broker/dealers who have entered into dealer agreements with ManEquity. (b) As between ManuLife America and ManEquity, ManuLife America will bear the cost of all services and expenses, including legal services and expenses and registration, filing and other fees, in connection with: 5 (i) registering and qualifying the Account, the Policies and (to the extent requested by ManEquity) the associated persons with Federal and state regulatory authorities and the NASD, and (ii) printing and distributing all registration statements and prospectuses (including amendments), Policies, notices, periodic reports, proxy solicitation material, sales literature and advertising filed or distributed in connection with the sale of the Policies. Section 4. Life Insurance Agents. (a) ManEquity is authorized to appoint the organizations described in Section 2(a) above as independent general agents of ManuLife America for the sale of the Policies and any supplementary benefits or policies in connection therewith. ManuLife America will undertake to apply for life insurance agent licenses in the appropriate states or jurisdictions of the designated agents or representatives of those organizations so appointed by ManEquity; provided that ManuLife America reserves the right to refuse to appoint any proposed agent, or once appointed to terminate the same. (b) ManuLife America retains the right to appoint and discharge any life insurance and annuity agents, general agents or organizations appointed by ManuLife America. (c) Anyone or any party selling the Policies must be duly licensed life insurance and annuity producers. ManuLife America shall have the responsibility for arranging for such licenses. (d) All premium funds collected by ManEquity or any organization appointed by ManEquity pursuant to Section 2(a) above, or their representatives, shall be held at all times in a fiduciary capacity and promptly be forwarded to ManuLife America. ManEquity will advise ManuLife America of the amount of gross premiums received. 6 Section 5. Suitability. (a) ManuLife America wishes to ensure that the Policies distributed by ManEquity will be issued to purchasers for whom the Policy will be suitable. ManEquity shall take reasonable steps to ensure that the various agents appointed by it or by organizations appointed by ManEquity pursuant to 2(a) above shall not make recommendations to an applicant to purchase a Policy and shall not issue a Policy in the absence of reasonable grounds to believe that the purchase of the Policy is suitable for such applicant. ManEquity shall adhere to the Standards of Suitability for the Policy adopted by ManuLife America. The Standards of Suitability are set forth in Schedule A, which schedule is incorporated herein. While not limited to the following, a determination of suitability shall be based on information furnished to an agent after reasonable inquiry of such applicant concerning the applicant's insurance and investment objectives, financial situation and needs, and the likelihood that the applicant will persist with the Policy. (b) ManuLife America, however, retains the ultimate right of control over and responsibility for, marketing the Policies. (c) ManuLife America also retains the right to reject applications for the Policies and maintains responsibility for all insurance underwriting aspects in connection with such applications. Section 6. Promotion Materials. ManEquity shall have the responsibility for consulting with respect to the design and the drafting and legal review and filing of sales promotion materials, and for the preparation of individual sales proposals related to the sale of the Policies. All sales and promotional materials for the Policies must first be reviewed and approved by ManuLife America. ManEquity and any organization appointed by ManEquity pursuant to Section 7 2(a) above shall not give any information or make any representations concerning any aspect of the Policies or ManuLife America's operations to any person or entity unless such information or representations are contained in the prospectuses for the Policies, or are contained in sales or promotional materials approved by ManuLife America. Section 7. Reports. ManEquity shall have the responsibility for: maintaining the records of agents licensed, registered and otherwise qualified to sell the Policies; calculating and furnishing periodic reports to ManuLife America of the commissions and service fees payable to agents, brokers, general agents and sales managers of ManuLife America and its affiliates; and for furnishing periodic reports to ManuLife America as to the sale of Policies made pursuant to this Agreement. Section 8. Records. ManEquity shall maintain and preserve such accounts, books, and other documents as are required of it by applicable laws and regulations. The books, accounts and records of ManuLife America, the Account and ManEquity as to all transactions hereunder shall be maintained so as to clearly and accurately disclose the nature and details of the transactions, including such accounting information as necessary to support the reasonableness of the amounts to be paid by ManuLife America hereunder. Without limiting the foregoing, ManEquity will: (a) maintain and preserve in accordance with Rules 17a-3 and 17a-4 under the Securities Exchange Act all books and records required to be maintained in connection with the offer and sale of the Policies, which books and records shall remain the property of ManEquity and shall be subject to inspection by the Securities and Exchange Commission ("SEC") in accordance with Section 17(a) of the Securities Exchange Act; and 8 (b) before or upon completion of each transaction for which a confirmation is legally required, send a written confirmation for each such transaction reflecting the facts of the transaction. Section 9. Compensation. For the services rendered, expenses assumed and the continuing obligations set forth herein, ManEquity shall receive from ManuLife America such amounts and at such times as may from time to time be agreed upon by ManEquity and ManuLife America. Section 10. Liability for Other Party. Neither party to this Agreement shall be liable to the other for any action taken or omitted by it, or any of its officers, agents or employees, in performing their responsibilities under this Agreement in good faith and without gross negligence, willful misfeasance or reckless disregard of such responsibilities, unless otherwise mutually agreed in writing. Section 11. Notification of Parties. Both parties to this Agreement shall advise the other promptly of: (a) Any action of the SEC or any authorities of any state or other jurisdiction, of which it has knowledge, affecting registration or qualification of the Account or the Policies, or the right to offer the Policies for sale; and (b) the happening of any event which makes untrue any statement, or which requires the making of any change, in the registration statements or prospectuses in order to make the statements therein not misleading. 9 Section 12. Investigation and Proceedings. (a) ManEquity and ManuLife America agree to cooperate fully in any insurance regulatory investigation or proceeding or judicial proceeding arising in connection with the Policies distributed under this Agreement. ManEquity and ManuLife America further agree to cooperate fully in any securities regulatory investigation or proceeding or judicial proceeding with respect to ManuLife America, ManEquity, their affiliates and their agents or representatives to the extent that such investigation or proceeding is in connection with Policies distributed under this Agreement. Without limiting the foregoing: (i) ManEquity will be notified promptly of any customer complaint or notice of any regulatory investigation or proceeding or judicial proceeding received by ManuLife America with respect to ManEquity or any agent or representative or which may affect ManuLife America's issuance of any Policy marketed under this Agreement; (ii) ManEquity will promptly notify ManuLife America of any customer complaint or notice of any regulatory investigation or proceeding received by ManEquity or its affiliates with respect to ManEquity or any agent or representative in connection with any Policy distributed under this Agreement or any activity in connection with any such Policy. (b) In the case of a customer complaint, ManEquity and ManuLife America will cooperate in investigating such complaint and any response to such complaint will be sent to the other party to this Agreement for approval not less than five business days prior to its being sent to the customer or regulatory authority, except 10 that if a more prompt response is required, the proposed response shall be communicated by telephone or fax. Section 13. Termination. This Agreement shall terminate automatically if it shall be assigned. This Agreement may be terminated at any time by either party hereto on 60 days' written notice to the other party hereto, without the payment of any penalty. Upon termination of this Agreement all authorizations, rights and obligations shall cease except: (a) the obligation to settle accounts hereunder, including commissions on premiums subsequently received for Policies in effect at the time of termination; and (b) the agreements contained in paragraphs 11 and 12 hereof. Section 14. Regulation. This Agreement shall be subject to the provisions of the Investment Company Act and the Securities Exchange Act and the rules, regulations, and rulings thereunder and to the NASD, from time to time in effect, including such exemptions from the Investment Company Act as the SEC may grant, and the terms hereof shall be interpreted and construed in accordance therewith. ManEquity shall submit to all regulatory and administrative bodies having jurisdiction over the operations of the Account, present or future, any information, reports or other material which any such body by reason of this Agreement may request or require pursuant to applicable laws and regulations. Section 15. Severability. 11 Should any portion of this Agreement for any reason be held to be void in law or in equity, the Agreement shall be construed, insofar as is possible, as if such portion had never been contained therein. Section 16. Governing Law. This Agreement shall be construed in accordance with, and governed by, the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under seal by their duly authorized officers as of the date first mentioned above. Attest: THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA ________________________ By:_____________________________ Its:____________________________ Attest: MANEQUITY, INC. By:_____________________________ ________________________ Its:____________________________ EX-99.B3(A)(II) 4 SUPPLEMENTAL AGREEMENT 1 SUPPLEMENTAL AGREEMENT TO DISTRIBUTION AGREEMENT This Supplemental Agreement is made this 1st day of October, 1992 to the Distribution Agreement between The Manufacturers Life Insurance Company of America ("Manulife America") on its own behalf of Separate Account Two (the "Account") of Manulife America and ManEquity, Inc. ("ManEquity") dated August 31, 1987 (the "Agreement"). WHEREAS, Manulife America will file a registration statement on Form S-1 under the Securities Act of 1933 to permit it to offer flexible payment variable annuity contracts with certain fixed account options and guarantees ("Combination Policies"); and WHEREAS, assets attributable to the fixed accounts will be maintained in a non-unitized, non-registered Separate Account established under the laws of Michigan; and WHEREAS, other non-unitized separate accounts may be established in the future to account for fixed assets supporting the Policies; WHEREAS, Manulife America desires to make subject to the Agreement the underwriting and distribution of the Combination Policies issued by it; and WHEREAS, Manulife America has filed an application to redomesticate under the laws of the State of Michigan; NOW THEREFORE Manulife America and ManEquity agree as follows: 2 1. That the terms and provision of the Agreement shall be applicable to both the Combination Policies and the Policies that each time the term "Policies" appears in the Agreement it shall be deemed to be replaced by the words "Policies and Combination Policies". 2. There shall be added to Section 8 of the Agreement, after the conclusion of clause (b) thereof, the following paragraph: "Manulife America shall have access to the books and records maintained by ManEquity pursuant to this Agreement and shall have the right to inspect, audit, and copy same." 3. Section 16 of the Agreement shall be deemed to be amended effective upon the approval of the redomestication of Manulife America from Pennsylvania to Michigan to read as follows: "Section 16. Governing Law. This Agreement shall be construed in accordance with, and governed by, the laws of the State of Michigan". 4. All other terms and conditions of the Agreement shall remain unchanged and in full force and effect. 3 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under seal by their duly authorized officers as of the date first above-mentioned. THE MANUFACTURERS LIFE INSURANCE Attest: COMPANY OF AMERICA By:______________________________ _______________________ Its:_____________________________ Attest: MANEQUITY, INC. By:______________________________ _______________________ Its:_____________________________ EX-99.B4(A) 5 FORM OF MULTI-ACCOUNT 1 Owner(s) Policy Number MULTI-ACCOUNT FLEXIBLE PAYMENT VARIABLE ANNUITY POLICY. FLEXIBLE PAYMENTS PAYABLE DURING ACCUMULATION PERIOD. INVESTMENT OPTIONS DESCRIBED IN THE PURCHASE PAYMENTS AND POLICY VALUE COMPOSITION PROVISIONS. ANNUITY PAYMENTS START ON ANNUITY COMMENCEMENT DATE. ELECTED ANNUITY DATE CAN BE DEFERRED. OPTIONAL FORMS OF ANNUITY AVAILABLE. NON-PARTICIPATING (NOT ELIGIBLE FOR DIVIDENDS). In this policy "you" and "your" refer to the Owner of the policy. "We", "us" and "our" refer to The Manufacturers Life Insurance Company of America. If an Annuitant is living on the Annuity Commencement Date, an annuity will be paid. If the Annuitant dies before the Annuity Commencement Date, your options are described under the Death of Annuitant provision. If you die before the Annuity Commencement Date, this policy will be treated in the manner prescribed by Section 72(s) of the Internal Revenue Code. See the Death of Owner provision. All payments are subject to the provisions of this policy. YOUR POLICY VALUE MAY VARY FROM DAY TO DAY IF YOU HAVE ALLOCATED AMOUNTS TO ANY OF THE VARIABLE ACCOUNTS. THE PORTION OF YOUR POLICY VALUE THAT IS INVESTED IN THE VARIABLE ACCOUNTS MAY INCREASE OR DECREASE, DEPENDING ON THE INVESTMENT EXPERIENCE OF THE CHOSEN ACCOUNTS. IT IS NOT GUARANTEED AS TO THE DOLLAR AMOUNT. IF YOU SURRENDER, WITHDRAW OR TRANSFER MONEY FROM A FIXED ACCOUNT PRIOR TO THE MATURITY DATE OF THE ACCOUNT, OR IF YOUR ANNUITY COMMENCEMENT DATE IS PRIOR TO THE MATURITY DATE OF ANY FIXED ACCOUNT TO WHICH YOU HAVE ALLOCATED PURCHASE PAYMENTS OR VALUES, THE MARKET VALUE ADJUSTMENT WILL INCREASE OR DECREASE THE AMOUNT BEING REMOVED. READ YOUR POLICY CAREFULLY. IT IS A CONTRACT BETWEEN YOU AND US. RIGHT TO RETURN POLICY. WITHIN TEN DAYS AFTER YOU RECEIVE YOUR POLICY YOU CAN RETURN THE POLICY FOR CANCELLATION BY DELIVERING OR MAILING IT TO OUR SERVICE OFFICE. IMMEDIATELY UPON RECEIPT AT OUR SERVICE OFFICE, THE POLICY WILL BE VOID FROM THE BEGINNING. WITHIN SEVEN DAYS AFTER RECEIPT, WE WILL REFUND THE POLICY VALUE, PLUS OR MINUS ANY APPLICABLE MARKET VALUE ADJUSTMENT. WHERE REQUIRED BY STATE INSURANCE LAW, WE WILL RETURN THE PURCHASE PAYMENTS INSTEAD. THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA President Secretary 2 POLICY INFORMATION PAGE 3 OWNER(S) JOHN M. DOE JAMES A. DOE POLICY NUMBER 12 345 678 POLICY DATE: MARCH 1, 1993 ISSUE DATE: MARCH 3, 1993 ANNUITANT(S) JOHN M. DOE MALE, AGE 35 AT POLICY DATE MARY M. DOE FEMALE, AGE 35 AT POLICY DATE BENEFICIARY AS DESIGNATED IN THE APPLICATION OR SUBSEQUENTLY CHANGED PLAN MULTI-ACCOUNT FLEXIBLE PAYMENT VARIABLE ANNUITY POLICY NON-PARTICIPATING INVESTMENT OF QUALIFIED PLAN ELECTED ANNUITY DATE MARCH 1, 2023 AVAILABLE ACCOUNTS GUARANTEED INTEREST ACCOUNT VARIABLE ACCOUNTS INVESTMENT Funds: EMERGING GROWTH EQUITY MONEY-MARKET BALANCED ASSETS COMMON STOCK CAPITAL GROWTH BOND REAL ESTATE SECURITIES INTERNATIONAL PACIFIC RIM EMERGING MARKETS FIXED ACCOUNTS AVAILABLE GUARANTEE PERIODS: 1-Year 5-YEAR 7-YEAR 3-Year 6-YEAR 10-YEAR REFER TO THE CHARGES PROVISION AND THE MARKET VALUE ADJUSTMENT PROVISION FOR DETAILS ON THE CHARGES AND ADJUSTMENTS UNDER THIS POLICY. Page 3 3 THIS PAGE WAS INTENTIONALLY LEFT BLANK. Page 4 4 DEFINITIONS ACCUMULATION PERIOD is the period from the date we receive the first Purchase Payment to the Annuity Commencement Date. AGE at a specific date means age on the nearest birthday. ANNUITANT(S) mean the person(s) upon whose life we base annuity payments made after the Annuity Commencement Date. The Annuitant has no rights under the policy. ELECTED ANNUITY DATE means the date you elect for us to pay the first annuity installment. You may change this date subject to the provisions of the policy. ANNUITY COMMENCEMENT DATE means the date we pay the first annuity installment. BENEFICIARY(IES) mean the person(s) you name to succeed to ownership after your death. You may name Beneficiaries only if you own the policy as an individual. BUSINESS DAY is any day that the New York Stock Exchange is open for trading, and trading is not restricted. We will determine the net asset value of the underlying shares of a Variable Account on each Business Day. FIXED ACCOUNT OR FIXED ACCOUNTS are the various accounts in which allocated amounts earn interest at a Guaranteed Rate for a set period of time if the amount is maintained until the Maturity Date. FIXED ACCOUNT VALUE is the sum of the values of this policy's interests in the Fixed Accounts. The method of determining the Fixed Account Value is set out under the Policy Value Composition provision. GENERAL ACCOUNT is all assets of Manufacturers Life Insurance Company of America except those allocated to Separate Account Two, Separate Account A, or other separate accounts of Manufacturers Life Insurance Company of America. GROSS PURCHASE PAYMENT is the amount you pay us under this policy, prior to deductions for any applicable premium taxes. GROSS WITHDRAWAL AMOUNT is the amount of any full surrender or partial withdrawal prior to the deduction of any applicable charges or withholding taxes, and adjustment for applicable Market Value Adjustments. GUARANTEED INTEREST ACCOUNT is an account in which allocated amounts 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 this policy's interest in the Guaranteed Interest Account. The method of determining the Guaranteed Interest Account Value is set out under the Policy Value Composition provision. GUARANTEE PERIOD is the period during which we will pay a Guaranteed Rate on amounts allocated to a Fixed Account. GUARANTEED RATE is the rate of interest credited by us on a Fixed Account for a given Guarantee Period. MARKET VALUE ADJUSTMENT is an adjustment to any portion of the Fixed Account Value that you withdraw, surrender, transfer, or use to provide an annuity prior to the Maturity Date. MATURITY DATE is the last day of the Guarantee Period of a Fixed Account. Page 5 5 DEFINITIONS (continued) OWNER(S) mean the person(s) or entity who owns the policy and who exercises all rights and privileges under the policy. If there are two or more Owners, the policy will be held in joint tenancy with right of survivorship unless specified otherwise. PAYEE(S) mean the person(s) you designate to receive the annuity payments that are payable on and after the Annuity Commencement Date. You may change the Payee at any time while payments are due. You may name Payees whether or not you own the policy as an individual. POLICY VALUE means the value of amounts accumulated under this policy during the Accumulation Period. It 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 of the month that we allocate your initial Purchase Payment to your designated accounts. The first policy anniversary will be one year later on the same date of the same month. PURCHASE PAYMENT is an amount you pay us under this policy. It is the amount remaining after the deduction of any applicable premium taxes. 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. SERVICE OFFICE is the office that we designate to service this policy. SURVIVOR BENEFIT AMOUNT is the amount to which the Policy Value may be set on the death of the original Owner. UNIT is an index used to measure the value of a policy's interest in a Variable Account. VARIABLE ACCOUNT is a sub-account of Separate Account Two. Investment Account has the same meaning when used in any document related to the policy. VARIABLE POLICY VALUE is the sum of the values of this policy's interest in each of the Variable Accounts. The method of determining the Variable Account Value is set out under the Policy Value Composition provision. WRITTEN REQUEST is a request in written form satisfactory to us, signed and dated by you, and filed in our Service Office. PURCHASE PAYMENTS AMOUNT. The minimum initial Gross Purchase Payment is $5,000. If this is a Qualified Policy, the minimum is $2,000. The minimum subsequent Gross Purchase Payment is $500. We reserve the right to change the minimum amount of subsequent Gross Purchase Payments after we send you 90 days written notice of the change. Purchase Payments are payable at our Service Office. Except as otherwise provided, they can be made at any time until the Annuity Commencement Date, or until you fully surrender the policy. Page 6 6 PURCHASE PAYMENTS (continued) You will require our prior approval before you make further Gross Purchase Payments if: (a) application of the Purchase Payment would cause the Policy Value to exceed $1,000,000; or (b) the Policy Value already exceeds $1,000,000. If for any reason the Policy Value should fall to zero, we will not accept any further Gross Purchase Payments. The policy, all your rights, and those of any other person under the policy will terminate. ALLOCATIONS. You may allocate your Purchase Payments to the Guaranteed Interest Account, the Variable Accounts or the Fixed Accounts. You should submit a written allocation request with each Purchase Payment, instructing us how to allocate your Purchase Payments. If you do not specify how we should allocate a Purchase Payment, we will allocate it based on the last allocation request we received from you. The percentage allocation to any account can be any whole number between 0 and 100. The total percentage allocation must equal 100. By Written Request, or by a telephone request satisfactory to us, you can change your Purchase Payment allocation percentages. You can change these percentages at any time without charge. The change will take effect on the date we receive your request at our Service Office. At the end of the Business Day that we accept your application, we will allocate your initial Purchase Payments to the account(s) specified in your application. This is normally within two Business Days after the date we receive a properly completed application and all information necessary to process the application. We will allocate subsequent Purchase Payments to the applicable account(s) at the end of the Business Day on which we receive each payment at our Service Office. We will also mail you confirmation of the receipt of each Purchase Payment, including details of the allocation. POLICY VALUE COMPOSITION The Policy Value will vary depending on the accounts to which you allocate Purchase Payments or other values, and on the number and amount of the Purchase Payments you make. If you allocate Purchase Payments or other values to one or more of the Variable Accounts, the Policy Value at any time will fluctuate depending on the value of the underlying accounts. Your Policy Value at any time is equal to the sum of the values you have in the Guaranteed Interest Account, the Fixed Accounts and the Variable Accounts. GUARANTEED INTEREST ACCOUNT. Purchase Payments and other values allocated to the Guaranteed Interest Account, and accrued interest on these amounts are guaranteed. We set the interest rate applicable to the Guaranteed Interest Account Value each day at a rate of at least 3% per annum. Purchase payments allocated to the Guaranteed Interest Account are held in our General Account. The Guaranteed Interest Account Value at any time equals: (a) Purchase Payments allocated to it, plus (b) amounts transferred to it, plus (c) interest credited to it, less (d) amounts transferred from it, less (e) amounts withdrawn from it, less Page 7 7 POLICY VALUE COMPOSITION (continued) (f) any applicable withdrawal and other charges previously deducted from it. FIXED ACCOUNTS. Purchase Payments and other values allocated to the Fixed Accounts are held in our Separate Account A. However, if state law permits, we may choose to hold such payments and values in our General Account. Amounts allocated to the Fixed Accounts earn a fixed rate of interest per annum for the Guarantee Period you select. Allocated amounts and the interest on such amounts must be held to the Maturity Date of the Fixed Account in order to be guaranteed. If amounts are removed before the Maturity Date, the value of the allocated amounts may be increased or decreased by the Market Value Adjustment. We offer Guarantee Periods ranging from a 1-year up to a 10-year period under this policy. The Guarantee Periods that are available at the time the policy is issued are shown on page 3. We reserve the right at any time to offer other Guarantee Periods, and to stop accepting new allocations and transfers into, or renewal of any particular Guarantee Period. We may change the available Guarantee Periods 60 days after we send you written notice of the change. We will also send you a policy update showing the currently available Guarantee Periods. At least 7 days prior to the Maturity Date of a Fixed Account, you should send us a Written Request indicating what should be done with the money at maturity. If we do not receive your Written Request, we will allocate the money 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. We will ensure that the money is not allocated to a Guarantee Period that extends beyond the Elected Annuity Date. If the required Guarantee Period is not available, we will transfer the values to the Guaranteed Interest Account. FIXED ACCOUNT VALUE. The Fixed Account Value at any time equals: (a) Purchase Payments allocated to it, plus (b) amounts transferred to it, plus (c) interest credited to it, less (d) amounts transferred from it, less (e) amounts withdrawn from it, less (f) any applicable withdrawal and other charges previously deducted from it, plus or minus (g) any applicable Market Value Adjustments previously made. VARIABLE ACCOUNTS. Purchase Payments and values allocated to a Variable Account are invested in shares of the underlying mutual fund portfolio designated for that Variable Account. The eight Variable Accounts purchase shares of the following Funds of Manulife Series Fund, Inc.: (a) The Emerging Growth Equity Fund, which invests primarily in equity securities of companies believed to offer growth potential. (b) The Balanced Assets Fund, which invests in both debt and equity securities. (c) The Capital Growth Bond Fund, which invests in debt securities. (d) The Money-Market Fund, which invests in high quality money-market instruments. Page 8 8 POLICY VALUE COMPOSITION (continued) (e) The Common Stock Fund, which invests in common stocks and other equity securities of well-established companies believed to offer an above-average rate of return. (f) The Real Estate Securities Fund, which invests principally in equity and debt securities related to real estate. (g) The Pacific Rim Emerging Markets Fund which invests primarily in common stocks and equity related securities of corporations domiciled in countries of the Pacific Rim region. (h) The International Fund which invest primarily in common stocks and equity related securities of corporations domiciled in countries other than the United States and Canada. A Fund might, in our judgment, become unsuitable for investment by a Variable Account. This might happen, for example, because of a change of investment policy; or a change in the applicable laws or regulations; or because the shares are no longer available for investment. If that happens, we have the right to substitute another Fund or another management investment company. We would first seek, where required, approval from the Securities and Exchange Commission and the applicable state Insurance Commissioner. VARIABLE POLICY VALUE. The Variable Policy Value at any time is determined by multiplying the number of Units credited to the policy for each Variable Account by the current Unit value. The Variable Policy Value on any date that is not a Business Day will be determined as of the next Business Day. CREDITING VARIABLE UNITS. Upon receipt of a Gross Purchase Payment at our Service Office, we will credit this policy with a number of Units for each Variable Account. The number of Units will be based on the portion of the Purchase Payment allocated to that Variable Account. With respect to the initial Purchase Payment, the number of Units to be credited for any particular Variable Account is (a) divided by (b), where: (a) is the portion of the Purchase Payment allocated to that Variable Account, and (b) is the Unit value determined at the close of the Business Day on which we accepted your application. This will normally be within two Business Days of the date we receive a properly completed application and all information necessary for the processing of the application. With respect to subsequent Purchase Payments, Units will be credited based on the Unit value determined at the close of the Business Day on which we receive the Purchase Payment. Units for a Variable Account will also be credited to this policy in a manner similar to that described above to reflect any transfers to that Variable Account. See the Transfers provision. UNIT VALUE CALCULATION. The value of a Unit of each Variable Account was initially fixed at $10. 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 on 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; Page 9 9 POLICY VALUE COMPOSITION (continued) (b) is a charge not exceeding .0027397% 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. This percentage corresponds 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. We reserve the right to adjust the above formula to provide for any taxes determined by us to be attributable to the operations of Separate Account Two. CANCELING UNITS. We will cancel Units for a Variable Account when any of the following occurs: (a) any charge or deduction is assessed against that account; (b) amounts are deducted, transferred or withdrawn from a Variable Account; (c) the policy is surrendered; (d) on the Annuity Commencement Date; or (e) payment of the proceeds payable on death. The number of Units canceled will be based upon the applicable Unit value for the Business Day on which we receive your Written Request at our Service Office or, in respect of deductions, on the date we make the deduction. SEPARATE ACCOUNTS SEPARATE ACCOUNT A. Separate Account A is a segregated asset account we maintain 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. The assets of Separate Account A are our property. Any gain or loss in Separate Account A accrues solely to us. We assume any risk associated with the possibility that the value of assets in Separate Account A might fall below the reserves and other liabilities that we must maintain. Should the value of the assets in Separate Account A fall below the required reserve and other liabilities, we will transfer assets from our General Account to Separate Account A to make up the shortfall. We can transfer any assets of Separate Account A in excess of the required reserves and liabilities to our General Account. To the extent permitted by state law, we may choose to place Purchase Payments and other values allocated to the Fixed Accounts into our General Account instead of Separate Account A. The assets of Separate Account A are not insulated from the claims of our general creditors and may be charged with liabilities arising from any other business we conduct. We will invest the assets of Separate Account A as we choose, provided such investments are permitted by the applicable state insurance laws for separate account investments. Page 10 10 SEPARATE ACCOUNTS (continued) To the extent permitted by law, we have the right to: (a) create new separate accounts; (b) combine any two or more separate accounts including Separate Account A; (c) transfer assets from Separate Account A to another separate account, and from another separate account to Separate Account A; and (d) register Separate Account A under the Investment Company Act of 1940. SEPARATE ACCOUNT TWO. Separate Account Two is a segregated asset account that we maintain to support the Variable Account obligations under variable annuity contracts. Currently, Separate Account Two is authorized to invest only in the shares of Manulife Series Fund, Inc., an open-end diversified management investment company. Income, gains and losses of Separate Account Two are credited to, or charged against, the applicable Variable Accounts without regard to our other income, gains and losses. The assets of Separate Account Two are our property. That portion of the assets which equals the reserves and other contract liabilities with respect to Separate Account Two will not be charged with liabilities from any other business we conduct. We can transfer any assets of Separate Account Two in excess of such reserves and liabilities to our General Account. To the extent permitted by law, we have the right to: (a) create new separate accounts; (b) combine any two or more registered separate accounts including Separate Account Two; (c) make available additional Variable Accounts of Separate Account Two investing in additional Funds of Manulife Series Fund, Inc., or another investment company; (d) operate Separate Account Two as a management investment company under the Investment Company Act of 1940, or in any other form permitted by law; (e) transfer assets from Separate Account Two to another registered separate account, and from another registered separate account to Separate Account Two; and (f) de-register Separate Account Two under the Investment Company Act of 1940. CHARGES RECORD-KEEPING CHARGE. On the last day of each Policy Year, we will deduct a record-keeping charge of 2% of the Policy Value as at the end of the Policy Year. The maximum charge is $30. We will also deduct the full amount if you surrender the policy on a date other than the last day of a Policy Year. We will deduct the record-keeping charge before we apply any Market Value Adjustment or withdrawal charge. We will make the deduction from the Guaranteed Interest Account, the Variable Accounts, and the Fixed Accounts, in the proportion that the value of each bears to the Policy Value. ADMINISTRATION CHARGE. Each day during the Accumulation Period, we will deduct an administration charge at an annual rate of 0.20% of the Variable Policy Value. MORTALITY AND EXPENSE RISKS CHARGES. There is a daily and a monthly mortality and expense risks charge as follows: Page 11 11 CHARGES (continued) (a) a daily charge deducted at an annual rate of 0.80%; and (b) a monthly charge deducted at an annual rate of 0.45%. This charge is deducted at the beginning of each Policy Month at 0.0375% of assets. Both the daily and monthly charges are deducted from the Variable Policy Value. Only the monthly charge is deducted from the Fixed Account Value. The charges are not applicable to the Guaranteed Interest Account. APPLICABLE TAXES. We will deduct any premium or similar state or local tax we determine to be attributable to this policy. We will take the deduction either from Gross Purchase Payments or the Policy Value. Where permitted by state law, we will take the deduction from the Policy Value at the time we apply it to purchase an annuity. When we take the premium tax deduction at the Annuity Commencement Date, we will take it from the Guaranteed Interest Account Value, the Variable Policy Value, and the Fixed Account Value in the same proportion that the value in each account bears to the Policy Value. Other than the above premium taxes, we do not make any charges for federal, state or local taxes that may be attributable to the Variable Account. However, as described under the Unit Value Calculation section of the Policy Value Composition provision, we reserve the right to make a charge if we incur any such taxes. TRANSFER CHARGE. If you request two transfers in a Policy Month, we will deduct a $35 charge for the second transfer. See the Transfers provision for details. WITHDRAWAL CHARGE. We will deduct a withdrawal charge from amounts you surrender or withdraw prior to the Annuity Commencement Date. In any Policy Year after the first, the withdrawal charge will apply only to amounts that you withdraw or surrender during that year in excess of 10% of the Policy Value on the last Policy Anniversary. This is also referred to as the 10% free withdrawal amount. We calculate the charge by applying a percentage to the portion of the Gross Withdrawal Amount, minus any applicable record-keeping charge and plus or minus any applicable Market Value Adjustment, that is in excess of the 10% free withdrawal amount. As shown below, the percentage used in the calculation depends on the number of Policy Years that have elapsed since the time you made the Purchase Payment that is affected by the withdrawal. If the Gross Withdrawal Amount is based on Purchase Payments made in different Policy Years, different percentages will be applied to the portion of the withdrawal applicable to each payment.
NUMBER OF COMPLETE POLICY YEARS ELAPSED SINCE PURCHASE PAYMENT WITHDRAWAL CHARGE WAS MADE 0-2.99 8% 3 6% 4 4% 5 2% 6 or more none
Page 12 12 CHARGES (continued) In determining the withdrawal charge, we will treat any Gross Withdrawal Amount in excess of the 10% free withdrawal amount as a liquidation of Purchase Payments. We will treat the Purchase Payments as being withdrawn in the order they were made, with the oldest being withdrawn first, until all Purchase Payments are withdrawn. For purposes of determining withdrawal charges, we will treat all Purchase Payments made during a Policy Year as though they were made on the first day of that Policy Year. Once all Purchase Payments have been liquidated, additional amounts surrendered or withdrawn will not be subject to a withdrawal charge. In no event will the aggregate withdrawal charge exceed 8% of the total Purchase Payments you have made. We will not apply the withdrawal charge: (a) when, under the Special Policy Access provision, you make either a full surrender or a partial withdrawal; (b) at the Annuity Commencement Date; (c) when the Owner is not an individual and the policy is surrendered or a partial withdrawal is made within 60 days after the death of the Annuitant; or (d) when the policy is surrendered or a partial withdrawal is made within 60 days after the death of the original Owner. However, we will apply the withdrawal charge to the portion of the Gross Withdrawal Amount that is attributable to Purchase Payments made after the death of the original Owner. MARKET VALUE ADJUSTMENT We will apply a Market Value Adjustment when money is removed from a Fixed Account at any time prior to the month before the Maturity Date. We will apply the adjustment when money is removed for any of the following reasons: (a) transfers, including transfers to another Fixed Account; (b) partial withdrawals; (c) surrender of the policy; or (d) purchase of an annuity. The Market Value Adjustment reflects the difference between the Guaranteed Rate for the Fixed Account from which the money is removed, and the current rate. The current rate is the guaranteed rate being offered by us on new deposits for the same period as that remaining in the Guarantee Period for the affected Fixed Account, rounded up to the next full year. If the Guaranteed Rate is higher than the current rate, the Market Value Adjustment will be positive. Conversely, if the Guaranteed Rate is lower than the current rate, the Market Value Adjustment will be negative. CALCULATING THE MARKET VALUE ADJUSTMENT. We will apply the Market Value Adjustment factor to the amount transferred from a Fixed Account, and to the portion of the Gross Withdrawal Amount that is withdrawn from a Fixed Account. We will apply the factor after we deduct any record-keeping charge and any transfer charge, but before we apply any withdrawal charge. Page 13 13 MARKET VALUE ADJUSTMENT (continued) The Market Value Adjustment factor is the following compound ratio factor minus 1. The compound ratio factor is the result of 1 plus G, divided by 1 plus C, compounded for N years, where: G is the Guaranteed Rate for the money that is subject to the Market Value Adjustment. C is the current rate as described above. If at the time of the Market Value Adjustment calculation we do not offer a Guarantee Period for the required number of years, we will determine the value for C by interpolating the current rates for available Guarantee Periods. N is the number of full months remaining in the Guarantee Period, divided by 12. TRANSFERS By Written Request, you can transfer portions of your Policy Value among any of the accounts. We will also permit telephone transfers if a currently valid authorization is on file with us. Your written or telephone transfers are subject to the following restrictions: (a) You can make two transfers each Policy Month. There is no charge for the first transfer, but a $35 charge will apply if you make the second transfer. We will consider all transfer requests received on the same Business Day as one transfer; (b) The minimum transfer amount from any account is $500, or the account balance, whichever is less. There is no minimum for transfers to any account; (c) The maximum amount that can be transferred out of 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; (d) Any transfer out of the Guaranteed Interest Account may not involve a transfer to the Variable Account's Money-Market Fund; and (e) We may decline a transfer request if, alone or in combination with all other transfer requests we receive from policyholders on that day, it would result in more than a 5% reduction in the number of shares outstanding at the close of the previous Business Day in the underlying Fund of a Variable Account. If at a later date you wish to make a previously declined transfer, we will require a new transfer request. AMOUNT TRANSFERRED. When you request a transfer, we will remove the requested amount from the designated account. The amount transferred to the new account will be equal to the requested amount, minus any applicable transfer charge, and plus or minus any applicable Market Value Adjustment. EFFECTS OF THE MARKET VALUE ADJUSTMENT ON TRANSFERS. If you request transfer of funds from a Fixed Account, a positive Market Value Adjustment will increase the amount transferred into the new account, while a negative Market Value Adjustment will result in a decrease. Page 14 14 SURRENDER AND WITHDRAWAL RIGHTS Prior to the Annuity Commencement Date, you can fully surrender this policy or make a partial cash withdrawal, subject to the following: (a) after the first Policy Anniversary, and before the Annuity Commencement Date, up to 10% of the Policy Value as of the last Policy Anniversary can be surrendered or withdrawn free of the withdrawal charge; (b) a full surrender will result in termination of the policy; (c) in the case of a partial withdrawal from the Variable Account, we will cancel the number of Units equivalent to the amount withdrawn, including any applicable withdrawal charges; and (d) the minimum withdrawal that you can make at any one time is $500, or the account balance, whichever is less. There is no restriction on how frequently you may make a partial withdrawal. When you request a partial withdrawal, you should specify in writing the account from which we should withdraw the money. We will notify you and wait for further instructions if the funds in the specified accounts are not sufficient to cover the Gross Withdrawal Amount. If you do not specify the accounts from which the withdrawal should be made, the withdrawal will not be made and we will notify you. AMOUNT RECEIVED ON SURRENDER OR WITHDRAWAL. On a full surrender, the Gross Withdrawal Amount is equal to the Policy Value. You will receive the Gross Withdrawal Amount minus any applicable record-keeping charge, plus or minus any applicable Market Value Adjustment, and minus any applicable withdrawal charge and withholding taxes. On a partial withdrawal, you will receive the amount requested. We will calculate the Gross Withdrawal Amount so that after we apply any applicable record-keeping charge, Market Value Adjustment, withdrawal charge and withholding taxes, the balance is equal to the amount you requested. EFFECTS OF THE MARKET VALUE ADJUSTMENT. On a full surrender, a positive Market Value Adjustment will increase the amount you receive, while a negative Market Value Adjustment will decrease the amount. On a partial withdrawal, a positive Market Value Adjustment will decrease the Gross Withdrawal Amount that is required to provide the requested amount. A negative Market Value Adjustment will increase the required Gross Withdrawal Amount. SPECIAL POLICY ACCESS If you meet the Qualifying Conditions set out below, you can either fully surrender the policy or make one partial withdrawal without imposition of the usual withdrawal charge. We reserve the right to charge an administrative fee of up to $150 for the full surrender or partial withdrawal. Page 15 15 SPECIAL POLICY ACCESS (continued) QUALIFYING CONDITIONS. You must provide us with the following: (a) evidence satisfactory to us that you are terminally ill and that your life expectancy has been reduced to one year or less. Part of the evidence must be a written statement from a licensed medical doctor stating the prognosis for the medical condition; and (b) the signed consent of any irrevocable Beneficiary and any assignee. Any amount you withdraw under this provision will result in a proportionate reduction of the Survivor Benefit Amount and the Annuity Value Guarantee Amount. If you make a full surrender, the policy and all your rights under the policy will terminate. DEFERRAL OF PAYMENTS We reserve the right to postpone the transfer or payment of any value or benefit available under this policy that is based on the assets allocated to Separate Account Two. We can do this for any period during which: (a) 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; (b) an emergency exists as defined by the Securities and Exchange Commission (SEC), or the SEC requires that trading be restricted; or (c) the SEC permits delay for the protection of policyholders. We also reserve the right to delay the transfer or payment of assets from the Guaranteed Interest Account, or the Fixed Accounts for up to six months. We will pay interest at a rate determined by us if there is a delay in payment for more than 30 days. In addition, we may decline transfers under the circumstances stated in the Transfers provision. GUARANTEE OF SIGNATURE All request for a full surrender or a partial withdrawal must be received in writing at our Service Office. If the amount to be withdrawn exceeds $10,000, your signature must be guaranteed by one of the following: (a) a commercial bank, (b) a trust company, (c) a member firm of the National Association of Securities Dealers, Inc. (d) a notary public, or (e) any other individual or association that we designate as acceptable. OWNER This policy belongs to you. Unless you have provided otherwise, you may exercise any and all policy rights or privileges without the consent of the Annuitant, Beneficiary, Payee or any other individual. Your rights include, but are not limited to, naming or changing a Payee or Beneficiary, the withdrawal of amounts, full surrender of the policy, and receipt of any payments due on or after the Annuity Commencement Date. Page 16 16 OWNER (continued) JOINT OWNERSHIP. If there are two or more Owners, the policy will be held in joint tenancy with right of survivorship. This will be the case unless you specified otherwise in the application or on the copy of any assignment filed with us. Any rights and privileges that may be exercised by the Owner, may be exercised only with the consent of all joint Owners. ENTITY OWNERSHIP. If you do not own this policy as an individual, the references in this policy to the death of the Owner, the age of the Owner, or other occurrences that relate only to natural persons will not apply to you. BENEFICIARY Subject to the conditions of this provision, if you own this policy as an individual, ownership of the policy will pass to the appointed Beneficiary(ies) on your death. If there are two or more Owners, unless the Owners specify otherwise, the Beneficiary will become the Owner of the policy on the death of the last surviving Owner. While any surviving Owner is alive, no interest in the policy will vest in the Beneficiary. The following sections will apply unless we accept a Beneficiary appointment from you that provides otherwise. BENEFICIARY CLASSIFICATION. You can appoint Beneficiaries in three classes: primary, secondary, and final. On your death, Beneficiaries in the same class will own the policy in equal shares. Ownership will pass: (a) to any primary Beneficiary who survives you; or (b) if no primary Beneficiary survives you, to any secondary Beneficiary who survives you; or (c) if no primary or secondary Beneficiary survives you, to any final Beneficiary who survives you. If you die and no Beneficiary survives you, ownership will pass to your estate. CHANGE OF BENEFICIARY. The Beneficiary designation will be as specified in the application for this policy. You may change the Beneficiary by Written Request. Any change will become effective on the day we receive your Written Request at our Service Office. We are not responsible if a change that we accept does not achieve your purpose. DEATH OF OWNER DEATH OF OWNER BEFORE THE ANNUITY COMMENCEMENT DATE. If the Owner dies before the Annuity Commencement Date, the new Owner, or the surviving Owner if the policy is owned jointly, can make withdrawals, transfer amounts, assign the policy and name a Payee prior to the payment of the Policy Value. After your death, all amounts will remain as allocated by you until we receive further instructions from the new or surviving Owner. Interest rates will continue to be credited as provided under the policy. The Variable Policy Value will also continue to reflect the investment performance of the Variable Accounts you selected. If you are the original Owner, the proceeds available upon your death will be determined based on the Survivor Benefit Amount provision. OPTIONS ON OWNER'S DEATH. The options available to the new or surviving Owner will depend on whether or not such Owner is your spouse. Page 17 17 DEATH OF OWNER (continued) SPOUSAL OWNERSHIP. If the new or surviving Owner is your spouse, the new or surviving Owner can continue the policy and make further Purchase Payments. Your spouse can surrender the policy or make partial withdrawals within 60 days after your death without imposition of any applicable charges or Market Value Adjustment. The usual charges and adjustment will apply, however, to Purchase Payments received after your death. Your spouse also has the option of electing to receive payment under a Guaranteed Annuity Option. We will continue the policy if we do not receive a Written Request from your spouse to do otherwise. NON-SPOUSAL OWNERSHIP. If the new or surviving Owner is not your spouse, no further purchase payments can be made as of the date of death, and the policy must be surrendered within 5 years after your death. Payment will be made in a lump sum 5 years from the date of death unless the new or surviving Owner elects an earlier date of payment. The new or surviving Owner can surrender the policy or make partial withdrawals within 60 days after your death without imposition of any applicable charges or Market Value Adjustment. Instead of fully surrendering the policy and receiving the payment in a lump sum, the new or surviving owner may elect to receive payment under a Guaranteed Annuity Option. Only Options 1, 2(b), or 2(c) of the Guaranteed Annuity Option provision will be available. Payments under the elected annuity option must begin no later than December 31 of the year following your death. The period elected for payments must not extend beyond the new or surviving Owner's life expectancy. DEATH OF OWNER AFTER THE ANNUITY COMMENCEMENT DATE. If you die after the Annuity Commencement Date, we will continue to make any required payments under the annuity option you selected. Ownership of the policy will pass to the new or surviving Owner. DEATH OF ANNUITANT DEATH OF ANNUITANT BEFORE THE ANNUITY COMMENCEMENT DATE. If you are both the Owner and the Annuitant, only the Death of Owner provision will apply upon your death. OPTIONS ON ANNUITANT'S DEATH. Your options on death of the Annuitant will depend on whether you own this policy as an individual or as an entity, and whether the policy is a Qualified or a Non-Qualified Policy. INDIVIDUAL OWNED, NON-QUALIFIED POLICY. If you own this policy as an individual, the policy will continue and you can make further Purchase Payments. You must notify us in writing of the new Annuitant within 60 days after the original Annuitant's death. If you do not notify us, you will become the new Annuitant. ENTITY OWNED, NON-QUALIFIED POLICY. If you do not own this policy as an individual, and the policy is not a Qualified Policy, no further purchase payments can be made as of the date of death, and the policy must be surrendered within 5 years after the Annuitant's death. Payment will be made in a lump sum 5 years from the date of death unless you elect an earlier date of payment. You can surrender the policy or make partial withdrawals within 60 days after the Annuitant's death without imposition of any applicable charges or Market Value Adjustment. Page 18 18 DEATH OF ANNUITANT (continued) ENTITY OWNED, QUALIFIED POLICY. If you do not own this policy as an individual, and the policy is a Qualified Policy, you can continue the policy and make further Purchase Payments. You must appoint a new Annuitant if you continue the policy. You can surrender the policy or make partial withdrawals within 60 days after the Annuitant's death without imposition of any applicable charges or Market Value Adjustment. The usual charges and adjustment will apply, however, to Purchase Payments received after the Annuitant's death. DEATH OF ANNUITANT AFTER THE ANNUITY COMMENCEMENT DATE. If the Annuitant dies after the Annuity Commencement Date, we will continue to make any required payments according to the annuity option you selected. SURVIVOR BENEFIT AMOUNT The Survivor Benefit Amount is payable on your death if: (a) you are the original Owner, or one of the original Owners if the policy is owned jointly; (b) you do not own this policy as an entity; and (c) death occurs prior to the Annuity Commencement Date. The proceeds payable will be determined as of the date of death. This amount will be equal to the greater of the Policy Value at the date of death, and the Survivor Benefit Amount described below. If on the date of death the Policy Value is lower than the Survivor Benefit Amount, we will make up the amount that is required for the Policy Value to be equal to the Survivor Benefit Amount. On receiving written notification of your death, we will deposit the amount that we make up into the Variable Account's Money-Market Fund. For the purposes of calculating withdrawal charges, we will not treat the funds we deposit into the Money-Market Fund as a Purchase Payment. CALCULATING THE SURVIVOR BENEFIT AMOUNT. The Survivor Benefit Amount is calculated as follows: (a) on the date of issue of your policy, the amount is equal to the initial Purchase Payment; (b) the amount is increased by the amount of each subsequent Purchase Payment; (c) each time you make a withdrawal, the amount is reduced by the same percentage as the Gross Withdrawal Amount bears to the Policy Value; and (d) on every sixth Policy Anniversary before you reach age 85, the amount is set to the greater of its current value or the Policy Value on that Policy Anniversary. JOINT OWNERSHIP. If the policy is owned jointly, the benefit proceeds will be payable on first death. However, if the surviving Owner is your spouse, and your spouse elects to continue the policy, payment of the Survivor Benefit Amount will be deferred. The benefit amount will continue to be calculated as described above if payment is deferred. If the surviving Owner is not your spouse, the benefit proceeds will be payable according to the Non-Spousal Ownership section of the Death of Owner provision. Page 19 19 ANNUITY VALUE GUARANTEE While the Annuity Value Guarantee is in effect, we guarantee that annuity payments will be based on the greater of the Policy Value, and an amount reflecting Purchase Payments and withdrawals you have made. AMOUNT. The amount reflecting Purchase Payments and values is calculated as follows: (a) on the date of issue of your policy, the amount is equal to the initial Purchase Payment; (b) the amount is increased by the amount of each subsequent Purchase Payment; and (c) each time you make a withdrawal, the amount is reduced by the same percentage as the Gross Withdrawal Amount bears to the Policy Value. ELIGIBILITY. You are eligible for the Annuity Value Guarantee if you do not own this policy as an entity, and if the Annuity Commencement Date falls within 30 days of the later of the following dates. This is your first eligibility date: (a) the tenth Policy Anniversary; or (b) the Policy Anniversary following the original Owner's attained age 65. This refers to the age of the older Owner if the policy is owned jointly. If the Annuity Commencement Date does not fall within this time frame, you will again become eligible for the Guarantee every fifth Policy Anniversary following your first eligibility date. The Annuity Commencement Date must be within 30 days of the Policy Anniversary. You will cease to be eligible for the Annuity Value Guarantee if at any time: (a) you withdraw or transfer money out of a Fixed Account prior to that account's Maturity Date; or (b) the Annuity Commencement Date is prior to the Maturity Date of any Fixed Account to which you have allocated Purchase Payments or values. GUARANTEED ANNUITY OPTIONS PURCHASING AN ANNUITY. You may use the Policy Value to purchase an annuity. Annuity payments will be made on a fixed basis only, and the Policy Value will no longer reflect the investment performance of the Guaranteed Interest Account, the Variable Accounts or the Fixed Accounts. Payments will start on the Annuity Commencement Date if an Annuitant is then living. SELECTION OF AN ANNUITY. Thirty days prior to your Elected Annuity Date, you may select one of the annuity options made available by us. This option, along with its rights and privileges as outlined, will take effect on the Annuity Commencement Date. The option and method of payment cannot be changed after the Annuity Commencement Date. You can choose the form of annuity from Options 1, 2 and 3 below. If you do not select an option, we will provide a Life Annuity with a 10-year certain period. Under Options 2 and 3, we can ask for evidence that the Annuitants are alive when any installment is due. Page 20 20 GUARANTEED ANNUITY OPTIONS (continued) OPTION 1: ANNUITY CERTAIN. We will pay equal installments for the period you specify. The period must be at least 5 years, and not more than 20 years. Installments cannot be commuted. OPTION 2: LIFE ANNUITY. In choosing this option, you specify type (a), (b), or (c) below. We will pay equal installments during the lifetime of an Annuitant. Installments cannot be commuted while the Annuitant is alive. (a) WITHOUT REFUND ON DEATH. When the Annuitant dies, payments will cease. There is no minimum number of payments guaranteed under this option. (b) CERTAIN PERIOD. If the Annuitant dies before we have paid installments for either 5, 10 or 20 years, called the certain period, we will pay installments for the remainder of that period as they fall due. You specify the certain period when you choose the option. (c) INSTALLMENT REFUND. If the Annuitant dies before the total amount paid is equal to the Policy Value on which the annuity was based, we will continue to pay installments as they fall due until the amounts are equal. OPTION 3: JOINT AND SURVIVOR ANNUITY. In choosing this option, you specify type (a) or (b) below. We will pay equal installments during the lifetime of two Annuitants. After one of them dies, we will continue to pay the equal installments during the remaining lifetime of the other Annuitant. Installments cannot be commuted while either of the Annuitants is alive. If you are one of the Annuitants and you die, the joint Annuitant, if living, will be deemed to be the Primary Beneficiary, unless otherwise provided by you at the time of, or following the election of this Option. (a) WITHOUT REFUND ON DEATH. When both Annuitants have died, payments will cease. (b) CERTAIN PERIOD. If both Annuitants die before we have paid installments for ten years (the certain period), we will pay installments for the remainder of that period as they fall due. ANNUITY PROVISIONS CHANGE OF ANNUITANT(S). You may change the Annuitant(s) before the Elected Annuity Date. The new Annuitant(s) must be chosen from the following: (a) you, (b) your spouse, (c) your parent(s), (d) your brother(s), (e) your sister(s), or (f) your child(ren). You cannot change the Annuitant(s) after annuity payments begin. If the Owner is not an individual, the Annuitant(s) cannot be changed, except with respect to certain Qualified Plans. Page 21 21 ANNUITY PROVISIONS (continued) CHANGE OF ELECTED ANNUITY DATE. You can ask us to change your Elected Annuity Date at any time before such date arrives. The new date cannot be later than the end of the Policy Year in which the Annuitant reaches Age 85. We must receive your Written Request at least 30 days before the new Elected Annuity Date. SELECTION OF PAYEE(S). You must select a Payee to receive any payments due under the policy. If the Payee is the Owner, any payments remaining on the Owner's death will be paid to the Beneficiary. If a Payee other than the Owner has been selected, any payments remaining on the Owner's death will continue to be made to the Payee until we receive a Written Request from the Beneficiary to change the Payee. The Payee(s) for annuity payments should be chosen from the following. Any other choice will require our consent: (a) The Annuitant. (b) The Annuitant's spouse, parent(s), brother(s), sister(s), child(ren). (c) You, if you own the policy as an individual. CHANGE OF PAYEE. You may change the Payee at any time by giving us 30 days written notice. 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. PAYMENTS AFTER PAYEE'S DEATH. If the Payee dies before all installments are paid, you can appoint a new Payee to receive any remaining payments. PROTECTION OF PAYMENTS. If you choose someone other than yourself to receive payments, the Payee cannot commute, assign, or encumber the payments unless you granted the right to do so when you chose the Payee. AMOUNT OF INSTALLMENTS. We will pay the installments based on the tables in the policy for the option chosen. The Policy Value will first be reduced by any state premium tax that may be payable. For Annuity Options 2 and 3, the amount will depend on the age and sex of the Annuitants. We need proof of age and sex before we make the first payment. PAYMENTS OTHER THAN MONTHLY. Payments can be monthly, quarterly, semi-annually, or annually. If they are based on the tables in the policy, we would convert the monthly amount by multiplying it by: (a) 2.99263 for quarterly payments; (b) 5.96322 for semi-annual payments; (c) 11.83895 for annual payments. MINIMUM PAYMENTS. If payments would be less than $20 monthly, $60 quarterly, $100 semi-annually, or $200 annually, we will pay the Policy Value in a single sum, instead of annuity payments. Page 22 22 ANNUITY PROVISIONS (continued) COMMUTED VALUE. Commuted Value is the lump sum value deemed equivalent to future annuity payments at any given point in time. Commuted Values are only available as shown below if there are remaining payments in a Life Annuity with Certain Period: (a) on death of the Annuitant for Single Life Annuities; and (b) on the second death under Joint and Survivor annuities. If a Commuted Value is to be paid, we will use the interest rate that had been used to determine the amount of the installments for that annuity, plus 0.50%. TABLES OF INSTALLMENTS. The tables in the policy are based on the 1983 Individual Annuity Mortality Table. The interest rate assumed is 3% per year. CONTRACT The policy, application and any riders or endorsements form your whole contract. A copy of the application is attached to the policy and deemed a part of it. We will not be bound by any statement that is not in the contract. All statements made in the application will, in the absence of fraud, be deemed representations and not warranties. Only our President or one of our Vice-Presidents can agree to amend or modify this contract, and then only in writing. We will not amend this contract without the consent of the Owner, except where we are required to conform to any applicable law or regulation or any ruling issued by a government agency. ANNUAL STATEMENT Within 30 days after each Policy Anniversary prior to the Annuity Commencement Date, we will send you a statement showing a summary of: (a) each active account up to your last Policy Anniversary, including the Policy Value and the cash surrender value up to that Policy Anniversary, and (b) the transactions affecting each active account you held during the Policy Year. This includes total Units canceled and amounts deducted from each account for charges, and total Units and amounts credited as allocation of Purchase Payments or interest to each account. The statement will show the Policy Value prior to the application of any withdrawal charges or Market Value Adjustment. It will also specify the withdrawal charges and Market Value Adjustment used in determining the cash surrender value. ASSIGNMENT You may assign the policy at any time. A copy of any assignment must be filed with us. We are not responsible for the validity of any assignment. If you assign the policy, your rights and those of any revocable Beneficiary will be subject to the assignment. If you make an absolute assignment, your rights under this policy will end, and the assignee will become the new owner. An assignment will not affect any payments we may make or actions taken before we receive it. Because an assignment may be a taxable event, you should consult your tax advisor as to the tax consequences resulting from such an assignment. Page 23 23 AGE AND SEX If there is a misstatement of the Annuitant's age or sex, the amounts of annuity installments payable will be the amounts that should have been paid using the correct information. Any deficiency or any excess in amounts previously paid will be adjusted in future payments as if the information had been correct from the beginning. CURRENCY AND PLACE OF PAYMENT All amounts due under this policy are payable in United States currency at our Service Office. NON-PARTICIPATING Your policy is non-participating. It does not earn dividends. PROTECTION AGAINST CREDITORS So far as the law allows, all payments made to any person are exempt from that person's debts and contracts, and from seizure by court order. NOTICES, ELECTIONS AND TRANSACTIONS All notices, elections, payments or other transactions pertaining to this policy will be made by and through our Service Office. All notices and elections under the policy must be in writing, signed by the proper party and must be received at our Service Office in order to be effective. If acceptable to us, notices or elections relating to Beneficiaries and ownership will take effect on the date they are received at our Service Office. We are not responsible for their validity. Page 24 24 TABLES OF MONTHLY INSTALLMENTS UNDER GUARANTEED ANNUITY OPTIONS PER $1,000 OF POLICY VALUE 1st Installment due on the Annuity Commencement Date OPTION 1: ANNUITY CERTAIN
-------------------------------------------------------------------------------------------------------------------------- YEARS 5 6 7 8 9 10 11 12 13 -------------------------------------------------------------------------------------------------------------------------- INSTALLMENTS $17.91 $15.14 $13.16 $11.68 $10.53 $9.61 $8.86 $8.24 $7.71 ---------------------------------------------------------------------------------------------------------------------- YEARS 14 15 16 17 18 19 20 25 30 -------------------------------------------------------------------------------------------------------------------------- INSTALLMENTS $7.26 $6.87 $6.53 $6.23 $5.96 $5.73 $5.51 $4.71 $4.18 --------------------------------------------------------------------------------------------------------------------------
OPTION 2: LIFE ANNUITY (Based on age at the Annuity Commencement Date)
MALE FEMALE - ----------------------------------------------------------------- ---------------------------------------------------------------- WITHOUT WITHOUT REFUND ON 5 YEARS CERTAIN PERIOD 20 INSTALLMENT REFUND ON 5 CERTAIN PERIOD 20 INSTALLMENT AGE DEATH 10 YEARS YEARS REFUND AGE DEATH YEARS 10 YEARS YEARS REFUND - ----------------------------------------------------------------- ---------------------------------------------------------------- 10 $2.87 $2.87 $2.87 $2.87 $2.86 10 $2.80 $2.80 $2.80 $2.80 $2.79 15 2.95 2.95 2.95 2.94 2.93 15 2.86 2.86 2.86 2.86 2.85 20 3.04 3.04 3.03 3.03 3.02 20 2.93 2.93 2.93 2.93 2.92 25 3.14 3.14 3.14 3.13 3.12 25 3.02 3.02 3.02 3.01 3.01 30 3.28 3.28 3.27 3.26 3.24 30 3.13 3.13 3.12 3.12 3.11 35 3.44 3.44 3.44 3.41 3.39 35 3.26 3.26 3.26 3.24 3.23 40 3.66 3.65 3.65 3.60 3.57 40 3.42 3.42 3.42 3.40 3.38 45 3.93 3.92 3.90 3.82 3.80 45 3.64 3.63 3.63 3.59 3.57 50 4.27 4.26 4.22 4.08 4.08 50 3.90 3.90 3.89 3.82 3.80 55 4.70 4.68 4.62 4.39 4.42 55 4.25 4.25 4.22 4.11 4.10 56 4.80 4.78 4.72 4.45 4.50 56 4.34 4.33 4.30 4.17 4.17 57 4.91 4.89 4.82 4.51 4.59 57 4.42 4.41 4.38 4.23 4.24 58 5.03 5.00 4.92 4.58 4.67 58 4.52 4.51 4.47 4.30 4.31 59 5.15 5.12 5.03 4.65 4.77 59 4.61 4.60 4.56 4.37 4.39 60 5.28 5.25 5.14 4.71 4.86 60 4.72 4.70 4.66 4.44 4.48 61 5.43 5.39 5.27 4.78 4.97 61 4.83 4.81 4.76 4.51 4.57 62 5.58 5.53 5.39 4.84 5.07 62 4.95 4.93 4.87 4.58 4.66 63 5.74 5.69 5.53 4.90 5.19 63 5.08 5.05 4.98 4.65 4.76 64 5.91 5.85 5.66 4.96 5.31 64 5.21 5.18 5.10 4.72 4.86 65 6.10 6.03 5.81 5.02 5.43 65 5.36 5.32 5.22 4.79 4.97 66 6.30 6.21 5.96 5.08 5.56 66 5.51 5.47 5.36 4.86 5.08 67 6.51 6.41 6.12 5.13 5.71 67 5.67 5.63 5.50 4.93 5.21 68 6.73 6.62 6.28 5.18 5.85 68 5.85 5.80 5.65 5.00 5.34 69 6.97 6.84 6.44 5.23 6.01 69 6.04 5.98 5.80 5.06 5.47 70 7.23 7.07 6.61 5.27 6.17 70 6.25 6.18 5.97 5.12 5.61 71 7.51 7.32 6.79 5.31 6.33 71 6.47 6.39 6.14 5.18 5.77 72 7.80 7.58 6.96 5.34 6.52 72 6.71 6.62 6.32 5.23 5.94 73 8.12 7.85 7.14 5.37 6.71 73 6.98 6.86 6.50 5.28 6.10 74 8.46 8.14 7.32 5.40 6.90 74 7.26 7.12 6.69 5.32 6.29 75 8.82 8.45 7.50 5.42 7.12 75 7.57 7.40 6.89 5.35 6.48 76 9.21 8.76 7.67 5.44 7.34 76 7.90 7.69 7.09 5.39 6.69 77 9.63 9.10 7.85 5.45 7.57 77 8.26 8.01 7.29 5.41 6.90 78 10.08 9.44 8.01 5.47 7.81 78 8.65 8.34 7.49 5.43 7.14 79 10.56 9.80 8.18 5.48 8.06 79 9.08 8.70 7.69 5.45 7.39 80 11.07 10.17 8.33 5.49 8.33 80 9.54 9.07 7.89 5.47 7.64 81 11.62 10.55 8.48 5.49 8.61 81 10.03 9.47 8.08 5.48 7.93 82 12.20 10.94 8.61 5.50 8.91 82 10.58 9.88 8.26 5.49 8.23 83 12.82 11.33 8.74 5.50 9.23 83 11.16 10.31 8.43 5.49 8.53 84 13.47 11.73 8.86 5.51 9.57 84 11.80 10.75 8.59 5.50 8.85 85 14.17 12.12 8.97 5.51 9.88 85 12.48 11.20 8.74 5.50 9.22 - ----------------------------------------------------------------- -----------------------------------------------------------
Page 25 25 TABLES OF MONTHLY INSTALLMENTS UNDER GUARANTEED ANNUITY OPTIONS (Continued) PER $1,000 OF POLICY VALUE 1st Installment due on the Annuity Commencement Date OPTION 3: JOINT AND SURVIVOR ANNUITY (Based on age at Annuity Commencement Date)
- ------------------------------------------------------------------------------------------------------------------------------- WITHOUT REFUND 10 YEAR WITHOUT REFUND 10 YEAR ON SURVIVOR'S CERTAIN ON SURVIVOR'S CERTAIN AGE* DEATH PERIOD AGE* DEATH PERIOD - ------------------------------------------------------------------------------------------------------------------------------- 56 $3.96 $3.96 71 $5.62 $5.56 57 4.03 4.03 72 5.80 5.72 58 4.10 4.10 73 5.99 5.89 59 4.18 4.18 74 6.20 6.08 60 4.26 4.26 75 6.42 6.27 61 4.35 4.34 76 6.66 6.46 62 4.44 4.44 77 6.92 6.67 63 4.54 4.53 78 7.20 6.88 64 4.65 4.64 79 7.50 7.09 65 4.76 4.75 80 7.82 7.30 66 4.88 4.86 81 8.17 7.52 67 5.01 4.99 82 8.54 7.73 68 5.14 5.12 83 8.94 7.93 69 5.29 5.26 84 9.37 8.13 70 5.45 5.40 85 9.83 8.32 - -------------------------------------------------------------------------------------------------------------------------------
* The amounts shown are based on the assumption that the Payees are a male and a female of equal ages, nearest birthday. On request, we will quote amounts for other combinations of age and sex. Page 26 26 The Manufacturers Life Insurance Company of America Bloomfield Hills, Michigan Service Office: 200 Bloor Street East, Toronto, Canada M4W 1E5 MULTI-ACCOUNT FLEXIBLE PAYMENT VARIABLE ANNUITY POLICY. FLEXIBLE PAYMENTS PAYABLE DURING ACCUMULATION PERIOD. INVESTMENT OPTIONS DESCRIBED IN THE PURCHASE PAYMENTS AND POLICY VALUE COMPOSITION PROVISIONS. ANNUITY PAYMENTS START ON ANNUITY COMMENCEMENT DATE. ELECTED ANNUITY DATE CAN BE DEFERRED. OPTIONAL FORMS OF ANNUITY AVAILABLE. NON-PARTICIPATING (NOT ELIGIBLE FOR DIVIDENDS). IMPORTANT NOTICE To claim a benefit or request a change in your policy, write to our Service Office at the address above. Please tell us promptly of any change in your address. WE STRONGLY URGE THAT, BEFORE YOU TAKE ANY ACTION TO REPLACE THIS OR ANY OTHER POLICY, YOU ASK THE ADVICE OF THE COMPANY THAT ISSUED THE POLICY. EX-99.B4(B)(II) 6 TRUSTEE-OWNED POLICIES 1 ENDORSEMENT This endorsement is part of the policy to which it is attached. TRUSTEE-OWNED POLICIES While this policy is owned by the trustee of a plan described in section 401(a) of the Internal Revenue Code: (1) the Death Before The Annuity Commencement Date section of the Death Of Owner provision of the policy shall not apply; (2) the trustee must be the designated Beneficiary on the policy; and (3) no transfer or assignment of the policy to a plan participant shall be permitted prior to the Annuity Commencement Date. (B) If the policy is assigned to a plan participant following the Annuity Commencement Date, benefits under the policy may not be sold, assigned, alienated, anticipated or pledged as collateral for a loan or security for the performance of an obligation by the plan participant or his or her Beneficiary, except that the policy may be transferred to a spouse or former spouse of the participant under a divorce or separation instrument as described in section 71(b)(2) of the Code. (C) If the policy is assigned to a plan participant on or after the Annuity Commencement Date, the annuity selected under the policy is a joint and last survivor annuity, and: (1) the Joint Annuitant is the participant's spouse, payments under the annuity upon the participant's death must be made to the Joint Annuitant; (2) the Joint Annuitant is someone other than the participant's spouse, payments upon the annuity upon the participant's death must be made to the Joint Annuitant unless: (a) the participant designates another person to receive such payments; (b) such person is younger than the Joint Annuitant; and (c) following the year of such change in designation, no adjustment is required to be made to the amount of 1 2 the payments to the participant under the annuity for purposes of its continued compliance with the incidental death benefit requirement under the Code. UNISEX RATES In order to make this policy comply with the requirements of federal law, it is amended as described below: AFFECTED PROVISION AMENDMENT Age and Sex All references to the sex of the Annuitant are withdrawn. No change will be made because of a misstatement of sex. Annuity Options The amount of the installments under Options 2 and 3 does not depend on the sex of the Annuitant(s). Table of Monthly The Table in the policy is replaced by the Installments Under Table attached to this Endorsement. Guaranteed Annuity Provisions AMENDMENT We reserve the right to amend this endorsement to comply with any changes in law occurring after the date this policy is issued. THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA President 2 3 TABLES OF MONTHLY INSTALLMENTS UNDER GUARANTEED ANNUITY PROVISIONS PER $1,000 OF POLICY VALUE 1st Installment due on the Annuity Commencement Date OPTION 1. ANNUITY CERTAIN YEARS 5 6 7 8 9 10 11 12 13 INSTALLMENTS $17.91 $15.14 $13.16 $11.68 $10.53 $9.61 $8.86 $8.24 $7.71 YEARS 14 15 16 17 18 19 20 25 30 INSTALLMENTS $7.26 $6.87 $6.53 $6.23 $5.96 $5.73 $5.51 $4.71 $4.18
OPTION 2. LIFE ANNUITY (Based on age at the Annuity Commencement Date)
Unisex Unisex Without Certain Without Certain Refund 5 Period 20 Installment Refund 5 Period 20 Installment Age on Death Years 10 Years Years Refund Age on Death Years 10 Years Years Refund 10 $2.85 $2.85 $2.85 $2.84 $2.84 66 $ 5.94 $ 5.88 $5.69 $5.00 $5.35 15 2.91 2.91 2.91 2.91 2.90 67 6.13 6.06 5.84 5.06 5.49 20 2.99 2.99 2.99 2.99 2.98 68 6.33 6.25 6.00 5.12 5.62 25 3.09 3.09 3.09 3.08 3.07 69 6.55 6.45 6.16 5.17 5.77 30 3.21 3.21 3.21 3.20 3.19 70 6.78 6.67 6.33 5.22 5.92 35 3.37 3.36 3.36 3.34 3.32 71 7.04 6.90 6.51 5.27 6.09 40 3.56 3.55 3.55 3.51 3.49 72 7.31 7.15 6.69 5.31 6.26 45 3.80 3.80 3.78 3.72 3.70 73 7.60 7.41 6.87 5.35 6.44 50 4.11 4.10 4.07 3.97 3.96 74 7.91 7.68 7.05 5.38 6.64 55 4.50 4.49 4.45 4.27 4.28 75 8.25 7.98 7.24 5.41 6.84 56 4.59 4.58 4.53 4.33 4.36 76 8.62 8.29 7.43 5.43 7.07 57 4.69 4.68 4.62 4.40 4.44 77 9.01 8.62 7.62 5.45 7.29 58 4.80 4.78 4.72 4.46 4.52 78 9.44 8.96 7.81 5.47 7.52 59 4.91 4.89 4.82 4.53 4.60 79 9.90 9.32 7.99 5.48 7.79 60 5.03 5.00 4.93 4.60 4.69 80 10.40 9.70 8.16 5.49 8.05 61 5.16 5.13 5.04 4.67 4.79 81 10.93 10.09 8.33 5.50 8.33 62 5.29 5.26 5.16 4.74 4.89 82 11.50 10.50 8.49 5.51 8.62 63 5.44 5.40 5.28 4.80 5.00 83 12.12 10.91 8.64 5.51 8.97 64 5.59 5.55 5.41 4.87 5.11 84 12.78 11.33 8.77 5.52 9.31 65 5.76 5.71 5.55 4.94 5.23 85 13.49 11.76 8.90 5.52 9.61
3 4 TABLES OF MONTHLY INSTALLMENTS UNDER GUARANTEED ANNUITY PROVISIONS (continued) PER $1,000 OF POLICY VALUE 1st Installment due on the Annuity Commencement Date OPTION 3. JOINT AND SURVIVOR ANNUITY (Based on age at the Annuity Commencement Date)
Unisex Unisex Age* Without Refund 10 Year Certain Age* Without Refund 10 Year Certain on Survivor's Period on Survivor's Period Death Death 56 $3.98 $3.98 71 $5.65 $5.59 57 4.05 4.04 72 5.83 5.75 58 4.12 4.12 73 6.03 5.93 59 4.20 4.19 74 6.24 6.11 60 4.28 4.28 75 6.46 6.30 61 4.37 4.36 76 6.71 6.50 62 4.46 4.46 77 6.97 6.70 63 4.56 4.55 78 7.25 6.91 64 4.67 4.66 79 7.56 7.13 65 4.78 4.77 80 7.89 7.34 66 4.90 4.89 81 8.24 7.56 67 5.03 5.01 82 8.62 7.77 68 5.17 5.14 83 9.02 7.97 69 5.32 5.28 84 9.46 8.17 70 5.48 5.43 85 9.92 8.36
*The amounts shown are based on the assumption that the payees are of equal ages, nearest birthday. On request, we will quote amounts for other combinations of age. 4 EX-99.B4(B)(III) 7 INDIVIDUAL RETIREMENT ANNUITY 1 ENDORSEMENT INDIVIDUAL RETIREMENT ANNUITY This endorsement is a part of the policy to which it is attached by the Company. This policy is hereby modified as specified below to qualify as an Individual Retirement Annuity under the terms of the Internal Revenue Code of 1986, as amended (the Code). Notwithstanding any provisions in the policy to the contrary: 1. The Annuitant will at all times be the Owner of the policy, except as provided in Item 2, below. The policy shall be non-forfeitable and for the exclusive benefit of the Annuitant and his or her beneficiaries. 2. The policy is nontransferable and no loan may be made under this policy and no benefits under the policy may be sold, assigned, alienated or pledged as collateral for a loan or as security for the performance of an obligation, or for any other purpose to any person, except that the policy may be transferred to a spouse or former spouse of the Annuitant under a divorce or separation instrument as described in Section 71(b)(2) of the Code. 3. Except in the case of a "rollover contribution" as described in Section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3) of the Code, or an employer contribution to a simplified employee pension as defined in Section 408(k), the aggregate of premiums paid during any taxable year of the Annuitant shall not exceed $2,000, or such other maximum as the Code may allow. No contributions will be accepted unless they are made in cash. 4. Any premium refund, other than refunds attributable to excess contributions, will be applied before the close of the calendar year following the year of the refund toward the payment of future premiums or the purchase of additional benefits. 5. In accordance with regulations prescribed by the Secretary of the Treasury or his delegate, the entire interest of the Annuitant in the policy will be distributed to the Annuitant as follows. (i) Notwithstanding any provision of the policy to the contrary, the distribution of the Annuitant's interest shall be made in accordance with the minimum distribution requirements of Section 401(a)(9) of the Code and the regulations thereunder, including the incidental death benefit provisions of Section 401(a)(9)(G) and Section 1.401(a)(9)-2 of the proposed regulations, all of which are herein incorporated by reference. (ii) The Annuitant's entire interest in the policy must be distributed, or begin to be distributed, by the Annuitant's required beginning date, which is the April 1 following the calendar year in which the Annuitant reaches age 70 1/2 . For each succeeding year, a non-increasing payment must be made on or before December 31. By the required beginning date the Annuitant may elect to have the balance in the policy distributed in one of the forms of annuity described in the policy provision entitled "Guaranteed Annuity Provisions", provided however, that: 1 2 A. if payments are to be made in the form of an Annuity Certain or Life Annuity, the periods over which such payments shall be made shall not exceed a period that is longer than the life or the life expectancy of the Annuitant; B. if payments are to be made in the form of a Joint and Survivor Annuity, the periods over which such payments hall be made shall not exceed a period that is longer than (a) the joint lives, or (b) the joint life and last survivor expectancy, of the Annuitant and his or her designated beneficiary. (iii)If the Annuitant dies before his or her entire interest is distributed, the entire remaining interest will be distributed as follows: A. If the Annuitant dies on or after distributions have begun under paragraph (ii), the entire remaining interest must be distributed at least as rapidly as provided under paragraph (ii) and payments of such interest shall not be accelerated unless specifically permitted in the policy. B. If the Annuitant dies before distributions have begun under Paragraph (ii), the entire remaining interest must be distributed to the Annuitant's beneficiary as elected by the Annuitant or, if the Annuitant has not so elected, as elected by the beneficiary or beneficiaries, in one of the forms of annuity permitted under the policy, provided that (a) the period elected for payments must not extend beyond the life or life expectancy of the designated beneficiary or beneficiaries; and (b) such payments must start by December 31st of the year following the year of the Annuitant's death. Not withstanding the preceding clause (b), if the beneficiary is the Annuitant's surviving spouse, such payments are not required to begin before December 31st of the year in which the Annuitant would have turned age 70 1/2. C. If the designated beneficiary is the Annuitant's surviving spouse, the surviving spouse may, by written request to the company, convert the policy as his or her own IRA. If a request is made under this subdivision C, the surviving spouse shall be deemed the Owner and Annuitant for purposes of applying the restrictions contained in this endorsement. (iv) For purposes of Item 5 hereof, life expectancy shall be computed by use of the expected return of multiples in Tables V and VI of Section 1.72.9 of the Income Tax Regulations. Life expectancy of an Annuitant or spouse beneficiary of an Annuitant or spouse beneficiary shall be recalculated annually. The life expectancies of a non-spouse beneficiary shall not be recalculated. Instead, life expectancy will be calculated at the time payment first commences and payments for any subsequent 12-consecutive-month period will be calculated based on such life expectancy reduced by one for each whole year that has elapsed since distributions first commenced. (v) An individual may satisfy the minimum distribution requirements under Section 408(a)(6) and 408(b)(3) of the Code by receiving a distribution from one IRA that is equal to the amount required to satisfy the minimum distribution requirements for 2 3 two or more IRAs. For this purpose, the Annuitant may use the "alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the minimum distribution requirements described above, provided, that the Annuitant shall inform the Company in writing of his or her election to use the alternative method at least 30 days before distributions under this policy, as amended by this endorsement, are required to begin. If such election is made, the Annuity Commencement Date shall be postponed to a later date selected by the Annuitant, which date shall in no event be later than the end of the Policy Year in which the Annuitant reaches age 85. The Annuitant shall notify the Company in writing the date so selected at least 30 days before the annuity installment payments under this policy is to commence. While an election to use the alternative method is in effect (and prior to the Annuity Commencement Date), the Company shall have no responsibility for calculating the minimum distribution amount required from the policy. For each year that the alternative method is used, the Annuitant shall inform the Company in writing the amount, if any, to be withdrawn under the policy to satisfy the minimum distribution requirements and the accounts from which such withdrawal is to be made. Any withdrawals made under the policy pursuant to an election described in this paragraph (v) shall be subject to all charges otherwise applicable to withdrawals made prior to the Annuity Commencement Date. 6. If the Annuitant dies before his or her entire interest has been distributed to him or her and the Annuitant's beneficiary is other than the Annuitant's surviving spouse, no additional cash contributions or rollover contributions shall be accepted. 7. The Company reserves the right to amend this endorsement to comply with future changes in the Code and any regulations or rulings issued under the provisions of the Code. The Company shall provide the Owner of the policy with a copy of any such amendment. 8. The Company shall furnish annual calendar year reports concerning the status of the policy. THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA PRESIDENT 3 EX-99.B4(B)(IV) 8 CHANGE OF INVESTMENT MANAGEMENT COMPANY 1 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA 200 Bloor Street East Toronto, Ontario, Canada M4W 1E5 CHANGE OF INVESTMENT MANAGEMENT COMPANY NAME ENDORSEMENT This endorsement attaches to and forms part of the Contract to which it is attached. Whenever in the said Contract the name NASL Series Trust is used, the name Manufacturers Investment Trust is hereby substituted. THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA President EX-99.B5(A) 9 FORM OF APPLICATION FOR THE POLICY 1 ====================================================================== Application for Multi-Account Flexible Payment Variable Annuity Policy The Manufacturers Life Insurance Company of America (hereinafter referred to as The Company) Manulife Financial Logo Application No. Please print. Owner must initial call changes. - -------------------------------------------------------------------------------- 1. Owner Note: If joint ownership is intended, the contract will be held in joint tenancy with right of survivorship unless specified otherwise. ________________________________________________________________________________ Name (Last First Middle) ________________________________________________________________________________ Address ________________________________________________________________________________ City State Zip Code [ ] Male [ ] Female __________________________________ Date of Birth (mmm/dd/yy) ________________________________________________________________________________ Employer Name and Address ________________________________________________________________________________ Tax I.D. No./Soc. Sec. No. ( ) - ________________________________________________________________________________ Occupation Telephone Number Joint Owner (if any) ________________________________________________________________________________ Name (Last First Middle) ________________________________________________________________________________ Address ________________________________________________________________________________ City State Zip Code [ ] Male [ ] Female __________________________________ Date of Birth (mmm/dd/yy) ________________________________________________________________________________ Employer Name and Address ________________________________________________________________________________ Tax I.D. No./Soc. Sec. No. ( ) - ________________________________________________________________________________ Occupation Telephone Number 2. Annuitant (Complete this Section only if the Annuitant is different from the Owner) Note; For an IRA, the Annuitant and the Owner must be the same person. ________________________________________________________________________________ Name (Last First Middle) ________________________________________________________________________________ Address ________________________________________________________________________________ City State Zip Code [ ] Male [ ] Female __________________________________ Date of Birth (mmm/dd/yy) ________________________________________________________________________________ Tax I.D. No./Soc. Sec. No. 3. Beneficiary Primary_________________________________________________________________________ Name (Last First Middle) ________________________________________________________________________________ Relationship to Owner ________________________________________________________________________________ Date of Birth (mmm/dd/yy) Tax I.D. No./Soc. Sec. No. Secondary _______________________________________________________________________ Name (Last First Middle) ________________________________________________________________________________ Relationship to Owner ________________________________________________________________________________ Date of Birth (mmm/dd/yy) Tax I.D. No./Soc. Sec. No. 4. Type of Plan (a) Check (x) type of Plan [ ] Non-Qualified Plan [ ] Qualified Plan (b) Check (x) type of Qualified Plan Purchase as an investment by: [ ] Pension Plan/Profit Sharing Plan (Complete Qualified Plan Supplement Form IA0102) [ ] IRA Trust (Complete Application Supplement for Investment of IRA Trust Form IA0103) [ ] Other ___________________________________________ (c) Check (x) type of IRA and complete IRA Supplement Form IA0101 [ ] Regular [ ] Spousal [ ] Transfer from another IRA (Complete Form IA0100) [ ] Rollover [ ] Combined-Rollover & Regular Contributions 5. Annuity Date Note: If not completed, the Elected Annuity Date will be the last day of the Policy Year in which the Annuitant reaches Age 85, except for IRA where payments must begin no later than April 1 of the year following the year in which age 70 1/2 is attained. Elected Annuity Date______________________________________ (mmm/dd/yy) ================================================================================ Page 1 [Bar Code] Manulife Financial and the block design are registered service marks of The Manufacturers Life Insurance Company and are used by it and its subsidiaries. Form NB0175UA (0197) 2 Application No. PLEASE PRINT ================================================================================ 6. Asset Allocation (a) Initial Purchase Payment Select the account(s) for allocation of your initial purchase payment. Indicate the percentage to be allocated to each account selected. There are no minimum percentage, but allocation percentages must be whole numbers. The total must be 100%. Variable Accounts [ ] Pacific Rim Emerging Markets Trust ______% [ ] Emerging Growth Trust ______% [ ] International Stock Trust ______% [ ] Quantitative Equity Trust ______% [ ] Real Estate Securities Trust ______% [ ] Balanced Trust ______% [ ] Capital Growth Bond Trust ______% [ ] Money Market Trust ______% Fixed Accounts [ ] ______ Year Guarantee Period ______% [ ] ______ Year Guarantee Period ______% [ ] ______ Year Guarantee Period ______% [ ] ______ Year Guarantee Period ______% [ ] ______ Year Guarantee Period ______% [ ] ______ Year Guarantee Period ______% [ ] ______ Year Guarantee Period ______% [ ] ______ Year Guarantee Period ______% [ ] Guaranteed Interest Account ______% (Refer to the prospectus for applicable conditions) Total check amount $__________ (Make check payable to The Manufacturers Life Insurance Company of America) IRA PLANS This payment represents (a) [ ] regular contributions of ONLY: $__________ for tax year _______ and $_________ for tax year _________; or (b) [ ] a rollover/transfer contribution of $_______ (b) Planned Subsequent Purchase Payments Allocation percentages for subsequent purchase payments will be based on your last request unless otherwise directed. (c) Telephone Transfers [ ] Yes, I have read the telephone transfer authorization under the Special Features section and have decided to elect telephone transfers. 7. Other Coverage (a) Have you purchased another life insurance or annuity product from The Manufacturers Life Insurance Company, The Manufacturers Life Insurance Company (USA), or The Manufacturers Life Insurance Company of America within the last 12 months? [ ] Yes [ ] No If "yes", give details: ____________________________________________________________________________ (b) Is this annuity intended to replace/exchange or change any existing life insurance or annuity policy? [ ] Replace [ ] Exchange [ ] Change Specify company and plan.___________________________________________________ 8. Agreement and Signature (a) Have you received a current prospectus for the policy you have applied for? [ ] Yes [ ] No Date of prospectus ________________ date of any supplement ________________ (b) DO YOU UNDERSTAND THAT, UNDER THE POLICY APPLIED FOR, THE PORTION OF THE CASH VALUE INVESTED IN THE VARIABLE ACCOUNTS MAY INCREASE OR DECREASE DEPENDING ON INVESTMENT EXPERIENCE? [ ] Yes [ ] No (c) WITH THAT IN MIND, IS THE POLICY IN ACCORD WITH YOUR INVESTMENT OBJECTIVES AND YOUR ANTICIPATED FINANCIAL NEEDS? [ ] Yes [ ] No The Owner(s) agrees that the answers and statements in this application are complete and true to the best of his/her knowledge and belief. Acceptance of any policy issued in response to this application will constitute agreement to the terms of the policy, and ratification of any changes specified by The Company in the policy. Any change of amount, classification, plan, benefits or age at issue will be made only with the Owner(s)' written consent. The Owner(s) assumes full responsibility for tax and interest penalties for withdrawals from this policy. THE OWNER(S) UNDERSTANDS THAT: (A) UNDER THE POLICY APPLIED FOR, THE POSITION OF THE AMOUNT INVESTED IN THE VARIABLE ACCOUNTS MAY INCREASE OR DECREASE DEPENDING ON THE INVESTMENT EXPERIENCE OF THE CHOSEN ACCOUNTS, AND IS NOT GUARANTEED AS TO THE DOLLAR AMOUNT; AND (B) AMOUNTS REMOVED FROM A FIXED ACCOUNT PRIOR TO THE MATURITY DATE OF THAT ACCOUNT ARE SUBJECT TO A MARKET VALUE ADJUSTMENT, WHICH WILL RESULT IN EITHER AN UPWARD OR DOWNWARD ADJUSTMENT. Signed at _______________________________________ this ___________day of ___________________________________ 19_____. _____________________________________________ _________________________________ Witness (Registered Representative) Signature of Owner _____________________________________________ _________________________________ Witness (Registered Representative) Signature of Joint Owner (if any) _____________________________________________ Name of Registered Representative (Print Name) ================================================================================ Page 2 3 Application No. PLEASE PRINT ================================================================================ Special Features DOLLAR [ ] Check here if you would like to participate in Dollar Cost COST Averaging. AVERAGING If the Policy Value is equal to or less than $15,000 there will be a $5 charge each month. Select one Variable Account to Dollar Cost Average FROM: We recommend the Money Market Trust Fund.* [ ] Pacific Rim Emerging Markets Trust [ ] Emerging Growth Trust [ ] International Stock Trust [ ] Quantitative Equity Trust [ ] Real Estate Securities Trust [ ] Balanced Trust [ ] Capital Growth Bond Trust [ ] Money Market Trust ____________________________________ Signature of Owner(s) Select the Variable Account(s) and/or the Guaranteed Interest Account to Dollar Cost Average TO by indicating the dollar amount to be transferred monthly. Total amount must be at least $500. Must be whole dollars. Pacific Rim Emerging Markets Trust $__________ Emerging Growth Trust $__________ International Stock Trust $__________ Quantitative Equity Trust $__________ Real Estate Securities Trust $__________ Balanced Trust $__________ Capital Growth Bond Trust $__________ Money Market Trust $__________ Fixed Account (Term _______) $__________ Guaranteed Interest Account ___________________________________ Date (mmm/dd/yy) * Although you may dollar cost average from any of the eight funds, dollar cost averaging assumes the use of a stable FROM fund such as the Money-Market Trust Fund. Selecting the Money-Market Trust Fund as the FROM fund will minimize the impact of volatile selling prices on transfers TO the fund(s) selected. ================================================================================ ASSET [ ] Check here if you would like your asset allocation re-balanced ALLOCATION semi-annually. BALANCING Select the asset allocation to be maintained on a semi-annual basis by indicating percentages of the Variable Account(s). Percentages must be whole numbers and total 100%. Pacific Rim Emerging Markets Trust __________% Emerging Growth Trust __________% International Stock Trust __________% Quantitative Equity Trust __________% ____________________________________ Signature of Owner(s) Real Estate Securities Trust __________% Balanced Trust __________% Capital Growth Bond Trust __________% Money Market Trust __________% __________________________________ Date (mmm/dd/yy) ================================================================================ TELEPHONE Toll-Free Telephone Number 1-800-827-4546 TRANSFER AND 1-800-VARILINE ALLOCATION I understand and agree that: Telephone transfers and allocation AUTHORIZATION changes will be subject to the conditions of the CHANGE policy, the administrative requirements of The Company, and the provisions of the policy's prospectus. The Company may act on telephone instructions from any person purporting to be the policyholder. The Company, its agents, representatives or employees who act on its behalf will not be subject to any claim, liability, loss, expense or cost if it acted in good faith upon telephone instructions it reasonably believes to be genuine in reliance on this signed authorization. The Company 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 conversations and providing written confirmation thereof. The Company, at its option alone and without prior or subsequent notice to the Policyowner, or nay other person or representative of the Policyowner, may record all or part of any telephone conversation containing telephone transfer and/or allocation change instructions. All terms of authorization are binding upon the agents, heirs and assignees of the Policyowner. This telephone Transfer/Allocation Change Authorization will be effective until such time as (a) written revocation is received by The Company's Service Office, or (b) The Company discontinues this privilege, whichever occurs first. __________________________________ _________________________ Signature of Owner(s) Date (mmm/dd/yy) ================================================================================ MANUMATIC [ ] Check here if you wish to elect the Manumatic feature. Complete Manumatic Check Plan Agreement Form PS1612UA. ================================================================================ Page 3 4 Application No. PLEASE PRINT ================================================================================ Agent's Report (To be answered by the Registered Representative) Please complete both Agent/Broker and Region sections. Agent/Broker Information: 1. Name Code Share % 1._____________________________________________________________ 2._____________________________________________________________ 3._____________________________________________________________ Region Information: Name Code Share % 1._____________________________________________________________ 2._____________________________________________________________ 3._____________________________________________________________ 2. If the Owner is a Corporation, Partnership, Trust or other legal entity, the NASD requires such entity to provide The Company with documentation detailing the name(s) of all individuals authorized to transact business on behalf of the entity. This requirement will be satisfied by submitting a copy of the Corporation Resolution, Partnership Agreement or Certification by Trustee form. List the Name(s) of individual(s) authorized to transact business on behalf of the entity:______________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ ================================================================================ INVESTOR These questions apply to the Owner(s) of the Policy. SUITABILITY Check the applicable boxes. 1. Annual Income [ ] under $10,000 [ ] $10,000-$14,999 [ ] $15,000-$24,999 [ ] $25,000-$34,999 [ ] $35,000-$49,999 [ ] $50,000-$99,999 [ ] $100,000-$249,999 [ ] $249,999 + 2. Net Worth [ ] under $100,000 [ ] $100,000-$250,000 [ ] $250,000-$500,000 [ ] $500,000-$1,000,000 [ ] $1,000,000 + 3. [ ] The Owner(s) decline to provide answers to the questions relating to income and net worth. 4. Additional information to be used in assessing suitability (please give explanation if spouse's income is to be included in determining suitability, if answer to income and net worth have not been provided, etc.): _______________ ___________________________________________________________ ___________________________________________________________ ___________________________________________________________ ================================================================================ REPLACEMENT To the best of your knowledge, is this policy to replace or will it cause a change in, or involve a loan under, any insurance or annuity policy on nay Annuitant's life, or in any insurance or annuity policy owned by the Owner? [ ] Yes [ ] No If yes, give details and complete any replacement forms that are required. Advise whether any policy being replaced was itself a replacement policy within the past 5 years. _______________________________________________________________ _______________________________________________________________ ================================================================================ CERTIFICATION I certify that a current prospectus (and any supplement) for OF the policy applied for has been given to the Owner(s) and that REGISTERED no written sales materials other than those approved by the REPRESENTATIVE appropriate authorities have been used. _______________________________________________________________ Signature of Registered Representative _______________________________________________________________ Place and Date (mmm//dd//yy) OFFICE OF Has this application been approved by the Office of SUPERVISORY Supervisory Jurisdiction? [ ] Yes [ ] No JURISDICTION If answer is "No", explain_____________________________________ _______________________________________________________________ ________________________________ Name of Broker/Dealer ________________________________ Signature of Registered Principal ________________________________ Date (mmm/dd/yy) ================================================================================ Page 4 EX-99.B7 10 REINSURANCE AGREEMENT 1 EXCESS OF LOSS REINSURANCE AGREEMENT (hereinafter referred to as "The Agreement") entered into by and between THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA (hereinafter referred to as "The Company") and THE MANUFACTURERS LIFE INSURANCE COMPANY (hereinafter referred to as "The Reinsurer") 2 In consideration of the mutual promises set forth in this Agreement the parties agree as follows: ARTICLE I INTERESTS AND RISK COVERED This Agreement is to indemnify the Company as set forth in ARTICLE II hereof, in respect of all losses incurred by the Company during the term hereof from all claims sustained under policies, binders or contracts of insurance (hereinafter called "Policies") now in force or which may hereafter come into force and classified by the Company as VARIABLE ANNUITY BUSINESS. ARTICLE II REINSURING CLAUSE The Reinsurer agrees to indemnify the Company with respect to claim payments made by the Company for amounts in excess of $50,000 per policy. The Company shall retain the first $50,000 of any one policy. Claim payments are only in respect of the life risk of the business described in Article I. For the purposes of this Agreement, claims adjustment expenses or litigation expenses of the Company are not to be included in calculating the Reinsurer's liability hereunder. ARTICLE III NET RETAINED LINES CLAUSE This Agreement applies only to that portion of any insurance which the Company retains net for its own account, and in calculating the amount of any loss hereunder, and also in computing the amount or amounts in excess of which this Agreement attaches, only loss or losses in respect of that portion of any insurance which the Company retains net for its own accounts shall be included. The amount of the Reinsurer's liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other Reinsurers, whether specific or general, any amounts which may have become due from them, whether such inability arises from the insolvency of such other Reinsurers or otherwise. 3 ARTICLE IV TERMS AND CANCELLATION CLAUSE This contract shall take effect at 12:01 a.m., April 1, 1994 and shall remain in full force for an indefinite period but either party may cancel this contract by giving the other party ninety (90) days prior written notice. ARTICLE V PREMIUM AND REMITTANCE CLAUSE As soon as practicable following December 31, 1994 and after each subsequent December 31st the payment of premiums shall be made at an annual reinsurance rate of 0.02% of the total asset value as at each December 31st of the policies covered hereunder. If premiums are not paid according to the terms herein, the Reinsurer has the right to terminate this Agreement by giving 30 days written notice. ARTICLE VI NOTICE OF LOSS CLAUSE In the event of a possible loss under this Agreement notice is to be given to the Reinsurer as soon as practicable, and all papers connected with the adjustment of same shall be at all times at the command of the Reinsurer or parties designated by it for inspection. ARTICLE VII LOSS SETTLEMENTS CLAUSE Amounts due from the Reinsurer shall be payable by it immediately after the Company has furnished reasonable evidence of settlements made or agreed upon by the Company under its original policies. All recoveries and payments recovered or received subsequent to a loss settlement under this Agreement shall be applied as if recovered or received prior to the said settlement and all necessary adjustments shall be made by the parties hereto. ARTICLE VIII ERRORS AND OMISSIONS CLAUSE Any inadvertent delays, omissions or errors made in connection with this Agreement shall not be held to relieve either party hereto from any liability which would 4 attach to it hereunder if such delays, omissions or errors had not been made provided such errors or omissions are advised to the Reinsurer and rectified immediately upon discovery. Unless otherwise provided, in all things coming within the scope of this Agreement, the Reinsurer shall follow, to the extent of its interest, the fortunes of the Company. ARTICLE IX INSPECTION OF RECORDS CLAUSE The Company shall allow the Reinsurer to inspect, at all reasonable times, all records of the Company with respect to the business reinsured under this Agreement, or with respect to claims, losses or legal proceedings which involve or are likely to involve the Reinsurer. ARTICLE X INSOLVENCY CLAUSE In the event of the insolvency of the Company, this reinsurance shall be payable directly to the Company, or its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Company without diminution due to the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claims. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of any claims against the Company indicating the policy reinsured, which claims would involve a possible liability on the part of the Reinsurer, within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in any proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expenses thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the Company as part of the expense of conversion or liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. The reinsurance shall be payable by the Reinsurer to the Company or its liquidator, receiver, conservator or statutory successor, except (a) where the Agreement specifically provides another payee of such reinsurance in the event of the insolvency of the Company and (b) where the Reinsurer with the consent of the direct Insured or Insured has assumed such policy obligations of the Company as direct obligations of the 5 Reinsurer to the payees under such policies and in substitution for the obligations of the Company to such payees. The Company or the Reinsurer may offset any balance, whether on account of premium, commission, claims or losses, adjustment expense, salvage, or any other amount due from one party to the other under this Agreement or under any other agreement herefore or hereafter entered into between the Company and the Reinsurer, whether acting as assuming reinsurer or as ceding company. ARTICLE XI ARBITRATION CLAUSE If any dispute shall arise between the Company and the Reinsurer with reference to the interpretation of this Agreement or their rights with respect to any transactions involved, the dispute shall be referred to three arbitrators, one to be chosen by each party and the third by the two so chosen. If either party refuses or neglects to appoint an arbitrator within sixty days after the receipt of written notice from the other party requesting it to do so, the requesting party may nominate two arbitrators who shall choose the third. Each party shall submit its case to the arbitrators within sixty days of the appointment of the arbitrators. The arbitrators shall consider this Agreement an honorable engagement rather than merely a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of a majority of the arbitrators shall be final and binding on both the Company and the Reinsurer. The expense of the arbitrators and of the arbitrations shall be divided equally between the Company and the Reinsurer. 6 ARTICLE XII EXECUTION IN WITNESS of the above, this Agreement is signed in duplicate on the date and in the place indicated below. DATE:____________________________ DATE:_____________________________ PLACE:___________________________ PLACE:____________________________ FOR: THE MANUFACTURERS FOR: THE MANUFACTURERS LIFE LIFE INSURANCE INSURANCE COMPANY OF COMPANY AMERICA BY:_______________________________ BY:________________________________ TITLE:____________________________ TITLE:_____________________________ EX-99.B8(A)(VII) 11 AMENDMENT TO SERVICE AGREEMENT 1 AMENDMENT TO SERVICE AGREEMENT BETWEEN THE MANUFACTURERS LIFE INSURANCE COMPANY AND THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) AND THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA THIS AMENDMENT is made as of December 31, 1998; WHEREAS, THE MANUFACTURERS LIFE INSURANCE COMPANY ("Manufacturers") and THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA ("Manufacturers America") entered into a Service Agreement dated May 31, 1998 under which Manufacturers provides to Manufacturers America all issue, administrative, investment, general services and recording functions with respect to all of its insurance policies in Toronto, Ontario (the "Service Agreement"); and WHEREAS following the subsidiarization of Manufacturers's business in the United States and by an Amendment to Service Agreement dated December 31, 1996, THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) ("Manufacturers USA") has assumed responsibility for all services previously provided by Manufacturers in the United States (the "Amendment Agreement"); and WHEREAS, the parties wish to amend the Service Agreement with a view to reflecting fairly and equitably the compensation for the services to be performed or provided pursuant to the terms of the Service Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. The services provided under the Amendment Agreement by Manufacturers USA will continue to be provided at cost. 2. Section 8 of the Service Agreement is hereby deleted and replaced by the following: SECTION 8. COMPENSATION (a) Manufacturers America shall pay Manufacturers a fee as compensation for services performed or provided pursuant to this Agreement as determined and agreed to by Manufacturers and Manufacturers America from time to time. (b) The fee for the services provided shall be determined by reference to the arm's length principle as proposed by the Organization for Economic Cooperation and 2 Development and as interpreted by Revenue Canada and the Internal Revenue Services pursuant to Section 247 of the Income Tax Act of Canada and Section 482 of the United States Internal Revenue Code respectively. (c) Manufacturers shall submit to Manufacturers America a written statement of the amount charged by Manufacturers for the services and the use of facilities provided pursuant to this Agreement from time to time but no less often than quarterly, and payment shall be made by Manufacturers America as soon thereafter as is reasonably possible. (d) If Manufacturers America objects to any such charges, it shall so advise Manufacturers within thirty (30) days of receipt of notice of said written statement. Unless the parties can reconcile any such reconciliation, they shall agree to the selection of a firm of independent certified public accountants or such other body as the parties consider appropriate, which shall determine the fee properly allocable to Manufacturers America and shall, within a reasonable time, submit such determination, together with the basis therefor, in writing to Manufacturers and Manufacturers America whereupon such determination shall be binding. The expenses of such a determination by a firm of independent certified accountants or third party shall be borne equally by Manufacturers and Manufacturers America; (e) This Section shall be effective as of January 1, 1998. 3. Except as amended herein, the Service Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed under seal by their duly authorized officers as of the 31st day of December, 1998. THE MANUFACTURERS LIFE INSURANCE COMPANY By: ____________________________ Its: ____________________________ 3 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) By: ____________________________ Its: ____________________________ THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA By: ____________________________ Its: ____________________________ -----END PRIVACY-ENHANCED MESSAGE-----