-----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, VBE8zvTWW2uyHwbrUJnzBs2y6xHk8zUihkWplaINYcwTeo6ACruOBKWUWqP+wYtK d8DWb7rN1rhxPU26W9xDxw== 0000950135-00-002362.txt : 20000428 0000950135-00-002362.hdr.sgml : 20000428 ACCESSION NUMBER: 0000950135-00-002362 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20000427 EFFECTIVENESS DATE: 20000501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEPARATE ACCOUNT FOUR OF THE MANUFACTURERS LIFE INS CO OF AM CENTRAL INDEX KEY: 0000813572 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 232030787 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 333-51293 FILM NUMBER: 610577 BUSINESS ADDRESS: STREET 1: 200 BLOOR STREET EAST ST 10 STREET 2: TORONTO M4W 1EF CITY: ONTARIO CANADA STATE: A6 ZIP: 48304 BUSINESS PHONE: 4169266302 MAIL ADDRESS: STREET 1: P O BOX 600 CITY: BUFFALO STATE: NY ZIP: 14201-0600 485BPOS 1 THE MANUFACTURERS LIFE INSURANCE COMPANY 1 As filed with the Securities and Exchange Commission on April 27, 2000. Registration No. 333-51293 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT ON 1933 OF SECURITIES ON UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 POST-EFFECTIVE AMENDMENT NO. 2 SEPARATE ACCOUNT FOUR 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)
James D. Gallagher Copy to: Secretary and General Counsel J. Sumner Jones, Esq. The Manufacturers Life Insurance Company of America Jones & Blouch L.L.P. 73 Tremont Street 1025 Thomas Jefferson Street, NW Boston, MA 02108 Washington, DC 20007 (Name and Address of Agent for Service)
It is proposed that this filing will become effective: [___] immediately upon filing pursuant to paragraph (b) of Rule 485 [_X_] on May 1, 2000 pursuant to paragraph (b) of Rule 485 [___] 60 days after filing pursuant to paragraph (a)(1) of Rule 485 [___] on (date) pursuant to paragraph (a)(2) of Rule 485 2 SEPARATE ACCOUNT FOUR OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA REGISTRATION STATEMENT ON FORM S-6 CROSS-REFERENCE SHEET FORM N-8B-2 ITEM NO. CAPTION IN PROSPECTUS 1 Cover Page; General Information About Manufacturers (Separate Account Four) 2 Cover Page; General Information About Manufacturers (Manufacturers Life of America) 3 * 4 Other Information (Distribution of the Policy) 5 General Information About Manufacturers Life (Separate Account Four) 6 General Information About Manufacturers (Separate Account Four) 7 * 8 * 9 Other Information (Litigation) 10 Death Benefits; Premium Payments; Charges and Deductions; Policy Value; Policy Loans; Policy Surrender and Partial Withdrawals; Lapse and Reinstatement; Other Provisions of the Policy; Other Information 11 General Information About Manufacturers (Manufacturers Investment Trust) 12 General Information About Manufacturers (Manufacturers Investment Trust) 13 Charges and Deductions 14 Issuing A Policy; Other Information (Responsibilities Assumed By Manufacturers Life) 15 Issuing A Policy 16 ** 17 Policy Surrender and Partial Withdrawals 18 General Information About Manufacturers 19 Other Information (Reports to Policyholders; Responsibilities Assumed By Manufacturers Life) 20 * 3 21 Policy Loans 22 * 23 ** 24 Other Provisions of the Policy 25 General Information About Manufacturers (Manufacturers Life of America) 26 * 27 ** 28 Other Information (Officers and Directors) 29 General Information About Manufacturers (Manufacturers Life of America) 30 * 31 * 32 * 33 * 34 * 35 ** 36 * 37 * 38 Other Information (Distribution of the Policies; Responsibilities of Manufacturers Life) 39 Other Information (Distribution of the Policies) 40 * 41 ** 42 * 43 * 44 Policy Values --Determination of Policy Value; Units and Unit Values) 45 * 46 Policy Surrender and Partial Withdrawals; Other Information -- Payment of Proceeds) 4 47 General Information About Manufacturers (Manufacturers Investment Trust) 48 * 49 * 50 General Information About Manufacturers 51 Issuing a Policy; Death Benefits; Premium Payments; Charges and Deductions; Policy Value; Policy Loans; Policy Surrender and Partial Withdrawals; Lapse and Reinstatement; Other Policy Provisions 52 Other Information (Substitution of Portfolio Shares) 53 ** 54 * 55 * 56 * 57 * 58 * 59 Financial Statements * Omitted since answer is negative or item is not applicable. ** Omitted. 5 PART I INFORMATION CONTAINED IN THE PROSPECTUS 6 PROSPECTUS SEPARATE ACCOUNT FOUR OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA CORPORATE VUL A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY This prospectus describes Corporate VUL, a flexible premium variable universal life insurance policy (the "Policy") offered by The Manufacturers Life Insurance Company of America (the "Company," "Manufacturers Life Of America," "we" or "us"). The Policy is designed for use by corporations and other employers to provide life insurance and to fund other employee benefits. The Policy is designed to provide lifetime insurance protection together with flexibility as to the timing and amount of premium payments, the investments underlying the Policy Value, and the amount of insurance coverage. The Policy provides for: (1) a Net Cash Surrender Value that can be obtained by surrendering the Policy; (2) policy loans and partial withdrawals; and (3) an insurance benefit payable at the life insured's death. The Policy will remain in force so long as the Net Cash Surrender Value is sufficient to cover charges assessed against the Policy. Policy Value may be accumulated on a fixed basis or vary with the investment performance of the sub-accounts of Manufacturers Life of America's Separate Account Four (the "Separate Account") to which the policyholder allocates net premiums. The assets of each sub-account will be used to purchase shares of a particular investment portfolio (a "Portfolio") of Manufacturers Investment Trust (the "Trust"). The accompanying prospectus for the Trust, and the corresponding statement of additional information, describe the investment objectives of the Portfolios. The Portfolios available for allocation of net premiums are shown in the Policy Summary under "Investment Options and Fees". Other sub-accounts and Portfolios may be added in the future. BECAUSE OF THE SUBSTANTIAL NATURE OF THE SURRENDER CHARGES, THE POLICY IS NOT SUITABLE FOR SHORT-TERM INVESTMENT PURPOSES. ALSO, PROSPECTIVE PURCHASERS SHOULD NOTE THAT IT MAY NOT BE ADVISABLE TO PURCHASE A POLICY AS A REPLACEMENT FOR EXISTING INSURANCE. The Securities and Exchange Commission (the "SEC") maintains a web site (http://www.sec.gov) that contains material incorporated by reference and other information regarding registrants that file electronically with the SEC. PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE TRUST. THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Manufacturers Life Insurance Company of America 500 North Woodward Avenue Bloomfield Hills, Michigan 48304 THE DATE OF THIS PROSPECTUS IS MAY 1, 2000. COLI.PRO5/2000 2 7 TABLE OF CONTENTS
Cover Page........................................................................................................3 Table of Contents.................................................................................................3 Definitions.......................................................................................................5 Policy Summary....................................................................................................6 General........................................................................................................6 Death Benefits.................................................................................................7 Premiums.......................................................................................................7 Policy Value...................................................................................................7 Policy Loans...................................................................................................7 Surrender and Partial Withdrawals..............................................................................7 Lapse and Reinstatement........................................................................................7 Charges and Deductions.........................................................................................7 Investment Options and Investment Advisers.....................................................................8 Table of Charges and Deductions................................................................................8 Table of Investment Management Fees and Expenses...............................................................9 Table of Investment Options and Investment Subadvisers........................................................11 General Information about Manufacturers Life of America, the Separate Account and the Trust......................13 Manufacturers Life of America.................................................................................13 The Separate Account..........................................................................................13 The Trust.....................................................................................................14 Investment Objectives of the Portfolios.......................................................................14 Issuing A Policy.................................................................................................18 Use of the Policy.............................................................................................18 Requirements..................................................................................................18 Temporary Insurance Agreement.................................................................................19 Underwriting..................................................................................................19 Right to Examine the Policy...................................................................................19 Death Benefits...................................................................................................20 Life Insurance Qualification..................................................................................20 Death Benefit Options.........................................................................................22 Changing the Face Amount......................................................................................23 Premium Payments.................................................................................................24 Initial Premiums..............................................................................................24 Subsequent Premiums...........................................................................................24 Maximum Premium Limitation....................................................................................24 Premium Allocation............................................................................................25 Charges and Deductions...........................................................................................25 Amount Deducted from Premiums................................................................................25 Surrender Charges.............................................................................................25 Monthly Charges...............................................................................................26 Charges Assessed Against Assets of the Investment Accounts....................................................27 Charges for Transfers.........................................................................................27 Company Tax Considerations....................................................................................28 Policy Value.....................................................................................................28 Determination of the Policy Value.............................................................................28 Units and Unit Values.........................................................................................28 Transfers of Policy Value.....................................................................................29 Policy Loans.....................................................................................................30 Maximum Loan..................................................................................................30 Effect of Policy Loan.........................................................................................30
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Interest Charged on Policy Loans..............................................................................30 Loan Account..................................................................................................30 Policy Surrender and Partial Withdrawals.........................................................................31 Policy Surrender..............................................................................................31 Partial Withdrawals...........................................................................................31 Lapse and Reinstatement..........................................................................................32 Lapse.........................................................................................................32 Reinstatement.................................................................................................32 The General Account..............................................................................................32 Guaranteed Interest Account...................................................................................32 Other Provisions of the Policy...................................................................................33 Policyholder Rights...........................................................................................33 Beneficiary...................................................................................................33 Incontestability..............................................................................................34 Misstatement of Age or Sex....................................................................................34 Suicide Exclusion.............................................................................................34 Supplementary Benefits........................................................................................34 Tax Treatment of the Policy......................................................................................34 Life Insurance Qualification..................................................................................34 Tax Treatment of Policy Benefits..............................................................................36 Alternate Minimum Tax.........................................................................................39 Income Tax Reporting..........................................................................................40 Other Information................................................................................................40 Payment of Proceeds...........................................................................................40 Reports to Policyholders......................................................................................40 Distribution of the Policies..................................................................................40 Responsibilities of Manufacturers Life........................................................................41 Voting Rights.................................................................................................41 Substitution of Portfolio Shares..............................................................................42 Records and Accounts..........................................................................................42 State Regulations.............................................................................................42 Litigation....................................................................................................42 Independent Auditors..........................................................................................43 Further Information...........................................................................................43 Officers and Directors........................................................................................43 Year 2000 Issues..............................................................................................46 Death Benefit Schedule with Flexible Term Insurance Option.......................................................46 Appendix A -- Illustrations......................................................................................48 Appendix F -- Audited Financial Statements.......................................................................59
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE PROSPECTUS OF MANUFACTURERS INVESTMENT TRUST, OR THE STATEMENT OF ADDITIONAL INFORMATION OF MANUFACTURERS INVESTMENT TRUST. Examine this prospectus carefully. The Policy Summary will briefly describe the Policy. More detailed information will be found further in the prospectus. 4 9 DEFINITIONS Attained Age is the Issue Age of the life insured plus the number of completed Policy Years. Business Day is any day that the New York Stock Exchange is open for business. A Business Day ends at the close of regularly scheduled trading of the New York Stock Exchange (currently 4:00 p.m. Eastern Time) on that day. Case is a group of Policies covering individuals with common employment or other relationship, independent of the Policies. Cash Surrender Value is the Policy Value less the Surrender Charge and any outstanding monthly deductions due. Due Proof of Death Due Proof of Death is required upon the death of the insured. One of the following must be received at the Service Office: (a) A certified copy of a death certificate; (b) A certified copy of a decree of a court of competent jurisdiction as to the finding of death; or (c) Any other proof satisfactory to the Company. Effective Date is the date when the first monthly deductions are taken. The Effective Date is the later of: (a) the date the Company approves issuance of the Policy; and (b) the date the Company receives at least the initial premium. Guaranteed Interest Account is that part of the Policy Value which reflects the value the policyholder has in the general account of the Company. Home Office is the main office of the Company. Investment Account is that part of the Policy Value which reflects the value the policyholder has in one of the sub-accounts of the Separate Account. Issue Age is the life insured's age on the birthday closer to the Policy Date. Issue Date is the date the Company issued the Policy. The Issue Date is also the date from which the Suicide and Incontestability provisions of the Policy are measured. Loan Account 5 10 is that part of the Policy Value which reflects policy loans and interest credited to the Policy Value in connection with such loans. Net Cash Surrender Value is the Cash Surrender Value less the Policy Debt. Net Policy Value is the Policy Value less the value in the Loan Account. Net Premium is the premium paid less the Premium Load. Policy Anniversary is the same date each year as the Policy Date. Policy Date is the date coverage takes effect under the Policy, provided the Company receives the minimum initial premium at its Service Office, and the date from which charges for the first monthly deduction are calculated and from which Policy Years, Policy Months, and Policy Anniversaries are determined. Policy Debt as of any date is the aggregate amount of policy loans, including borrowed and accrued interest, less any loan repayments. Policy Year is a period beginning on a Policy Anniversary and ending on the day immediately preceding the next Policy Anniversary Policy Value is the sum of the values in the Loan Account, the Guaranteed Interest Account, and the Investment Accounts. Service Office is McCamish Systems, L.L.C., 6425 Powers Ferry Road, Atlanta, Georgia 30339, or such other service center or address as the Company may hereafter specify to the policyholder by written notice. Target Premium is an amount used to measure the Surrender Charge under a Policy. The Target Premium is based on the Face Amount, as well as the insured's age at issue and sex, and is set forth in the Policy. POLICY SUMMARY GENERAL The Policy is a flexible premium variable universal life insurance policy. The following summary is intended to provide a general description of the most important features of the Policy. It is not comprehensive and is qualified in its entirety by the more detailed information contained in this prospectus. Unless otherwise indicated or required by the context, the discussion throughout this prospectus assumes that the Policy has not gone into default, there is no outstanding Policy Debt, and the death benefit is not determined by the minimum death benefit percentage. The Policy's provisions may vary in some states. 6 11 DEATH BENEFITS The Policy provides a death benefit in the event of the death of the life insured. There are two death benefit options. Under Option 1 the death benefit is the Face Amount of the Policy at the date of death or, if greater, the Minimum Death Benefit. Under Option 2 the death benefit is the Face Amount plus the Policy Value of the Policy at the date of death or, if greater, the Minimum Death Benefit. The policyholder may change the death benefit option and increase or decrease the Face Amount. PREMIUMS Premium payments may be made at any time and in any amount, subject to certain limitations as described under "Premium Payments - Subsequent Premiums." Net Premiums will be allocated, according to the policyholder's instructions, to one or more of the general account and the sub-accounts of Manufacturers Life of America's Separate Account Four. Allocation instructions may be changed at any time and transfers among the accounts may be made. POLICY VALUE The Policy has a Policy Value reflecting premiums paid, certain charges for expenses and cost of insurance, and the investment performance of the accounts to which the policyholder has allocated premiums. The policyholder may obtain a portion of the Policy Value by taking a policy loan or a partial withdrawal, or by full surrender of the Policy. POLICY LOANS The policyholder may borrow against the Cash Surrender Value of the Policy. Loan interest at a rate of 5.00% is due and payable in arrears on each Policy Anniversary. All outstanding Policy Debt will be deducted from proceeds payable at the insured's death, or upon surrender. SURRENDER AND PARTIAL WITHDRAWALS The policyholder may make a partial withdrawal of the Policy Value. A partial withdrawal may result in a reduction in the Face Amount of the Policy and an assessment of a portion of the surrender charges to which the Policy is subject. A Policy may be surrendered for its Net Cash Surrender Value at any time while the life insured is living. The Net Cash Surrender Value is equal to the Policy Value less Surrender Charges and outstanding monthly deductions due minus the Policy Debt. LAPSE AND REINSTATEMENT A Policy will lapse (and terminate without value) when the Net Cash Surrender Value is insufficient to pay the next monthly deduction and a grace period of 61 days expires without an adequate payment being made by the policyholder. The Policies, therefore, differ in two important respects from conventional life insurance policies. First, the failure to make planned premium payments will not itself cause a Policy to lapse. Second, a Policy can lapse even if planned premiums have been paid. A lapsed Policy may be reinstated by the policyholder at any time within the five year period following lapse if the Policy was not surrendered for its Net Cash Surrender Value. Evidence of insurability is required, along with a certain amount of premium as described under "Reinstatement." CHARGES AND DEDUCTIONS The Company assesses certain charges and deductions in connection with the Policy. These include charges assessed monthly for cost of insurance and administration expenses, charges assessed daily against the assets 7 12 invested in the Investment Account, and loads deducted from premiums paid. These charges are summarized in the Table of Charges and Deductions. INVESTMENT OPTIONS AND INVESTMENT ADVISERS Net Premiums may be allocated to the general account or to one or more of the sub-accounts of Manufacturers Life of America's Separate Account Four. Each of the sub-accounts invests in the shares of one of the Portfolios of the Trust. The Trust receives investment advisory services from Manufacturers Securities Services, LLC ("MSS"). MSS is a registered investment adviser under the Investment Advisers Act of 1940. The Trust also employs subadvisers. The Table of Investment Options and Investment Subadvisers shows the subadvisers that provide investment subadvisory services to the indicated Portfolios. Allocating net premiums only to one or a small number of the investment options (other than the Lifestyle Trusts) should not be considered a balanced investment strategy. In particular, allocating net premiums to a small number of investment options that concentrate their investments in a particular business or market sector will increase the risk that the value of the Policy will be more volatile since these investment options may react similarly to business or market specific events. Examples of business or market sectors where this risk historically has been and may continue to be particularly high include: (a) technology related businesses, including internet related businesses, (b) small cap securities and (c) foreign securities. The Company does not provide advice regarding appropriate investment allocations, the policyowner should discuss this matter with his or her financial adviser. INVESTMENT MANAGEMENT FEES AND EXPENSES The Separate Account purchases shares of the Portfolios at net asset value. The net asset value of those shares reflects investment management fees and certain expenses. The fees and expenses of each Portfolio for the Trust's last fiscal year are shown in the Table of Investment Management Fees and Expenses. These fees and expenses are described in detail in the accompanying Trust prospectus to which reference should be made. TABLE OF CHARGES AND DEDUCTIONS Amount Deducted from Premiums 2.00% of the premium paid. Surrender Charges The Company will assess a Surrender Charge if, during the first 10 years following the Policy Date or the effective date of a Face Amount increase, the Policy is surrendered or lapses. The Surrender Charge is expressed as a percentage of total premiums paid from the Effective Date to the Policy Year shown. However, premiums paid in any year in excess of the Target Premium, and premiums paid after the fifth Policy Year are not included in the determination of total premiums paid. Percentages are as follows:
Policy Year Percentage Policy Year Percentage 1 10.00% 6 5.00% 2 7.50% 7 4.00% 3 5.00% 8 3.00% 4 5.00% 9 2.00% 5 5.00% 10+ 0.00%
The Target Premium is based on the Face Amount, as well as the insured's age at issue and sex, and is set forth in the Policy. 8 13 A portion of the Surrender Charge may be assessed on a partial withdrawal or a decrease in the Face Amount. See "Charges and Deductions - Surrender Charges on a Partial Withdrawal" and "Death Benefits - Changing the Face Amount - Surrender Charges Assessed on a Decrease." Monthly Deductions The following charges will be deducted from Net Policy Value: An administration charge of $12. The cost of insurance charge. Any additional charges for supplementary benefits. Investment Account Charges A mortality and expense risk charge is assessed daily against the value of the Investment Account assets. This charge varies by Policy Year as follows:
Annual Mortality and Policy Years Expense Risk Charge 1-10 0.75% 11+ 0.40%
Loan Charges A fixed loan interest rate of 5.00%. Interest credited to amounts in the Loan Account will be equal to the 5.00% rate charged to the loan less the following Loan Spread:
Policy Years Loan Spread 1-10 1.00% 11-20 0.50% 21+ 0.25%
Transfer Charge A charge of $25 per transfer for each transfer in excess of 12 in a Policy Year. TABLE OF INVESTMENT MANAGEMENT FEES AND EXPENSES TRUST ANNUAL EXPENSES (as a percentage of Trust average net assets for the fiscal year ended December 31, 1999)
OTHER EXPENSES MANAGEMENT (AFTER EXPENSE TOTAL TRUST TRUST PORTFOLIO FEES REIMBURSEMENT) ANNUAL EXPENSES - --------------- ---- -------------- --------------- Pacific Rim Emerging Markets........ 0.850% 0.260% 1.110% Internet Technologies............... 1.150% 0.136%(A) 1.286% Science & Technology................ 1.100% 0.060% 1.160% International Small Cap............. 1.100% 0.270% 1.370% Aggressive Growth................... 1.000%(F) 0.130% 1.130% Emerging Small Company.............. 1.050% 0.070% 1.120% Small Company Blend................. 1.050% 0.250%(A) 1.300%(E) Dynamic Growth...................... 1.000%(F) 0.132%(A) 1.132%
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Mid Cap Stock....................... 0.925% 0.100%(A) 1.025%(E) All Cap Growth(H)................... 0.950%(F) 0.070% 1.020% Overseas............................ 0.950% 0.260% 1.210% International Stock................. 1.050% 0.200% 1.250% International Value................. 1.000% 0.230%(A) 1.230%(E) Mid Cap Blend....................... 0.850%(F) 0.060% 0.910% Small Company Value................. 1.050% 0.170% 1.220% Global Equity....................... 0.900% 0.160% 1.060% Growth.............................. 0.850% 0.050% 0.900% Large Cap Growth.................... 0.875%(F) 0.100% 0.975% Quantitative Equity................. 0.700% 0.060% 0.760% Blue Chip Growth.................... 0.875%(F) 0.050% 0.925% Real Estate Securities.............. 0.700% 0.070% 0.770% Value............................... 0.800% 0.070% 0.870% Tactical Allocation................. 0.900% 0.127%(A) 1.027% Equity Index(I)..................... 0.250% 0.150%(I) 0.400%(I) Growth & Income..................... 0.750% 0.050% 0.800% U.S. Large Cap Value................ 0.875% 0.070%(A) 0.945%(E) Equity-Income....................... 0.875%(F) 0.060% 0.935% Income & Value...................... 0.800%(F) 0.080% 0.880% Balanced............................ 0.800% 0.070% 0.870% High Yield.......................... 0.775% 0.065% 0.840% Strategic Bond...................... 0.775% 0.095% 0.870% Global Bond......................... 0.800% 0.180% 0.980% Total Return........................ 0.775% 0.060%(A) 0.835%(E) Investment Quality Bond............. 0.650% 0.120% 0.770% Diversified Bond.................... 0.750% 0.090% 0.840% U.S. Government Securities.......... 0.650% 0.070% 0.720% Money Market........................ 0.500% 0.050% 0.550% Small Cap Index..................... 0.525% 0.075%(AG) 0.600% International Index................. 0.550% 0.050%(AG) 0.600% Mid Cap Index....................... 0.525% 0.075%(AG) 0.600% Total Stock Market Index............ 0.525% 0.075%(AG) 0.600% 500 Index(J)........................ 0.525% 0.039%(AG) 0.564% Lifestyle Aggressive 1000(D)........ 0.075% 1.060%(B) 1.135%(C) Lifestyle Growth 820(D)............. 0.057% 1.008%(B) 1.065%(C) Lifestyle Balanced 640(D)........... 0.057% 0.928%(B) 0.985%(C) Lifestyle Moderate 460(D)........... 0.066% 0.869%(B) 0.935%(C) Lifestyle Conservative 280(D)....... 0.075% 0.780%(B) 0.855%(C)
- ----------------- (A) Based on estimates to be made during the current fiscal year. (B) Reflects expenses of the Underlying Portfolios. (C) The investment adviser to the Trust, Manufacturers Securities Services, LLC ("MSS" or the "Adviser") has voluntarily agreed to pay certain expenses of each Lifestyle Trust (excluding the expenses of the Underlying Portfolios) as follows: If total expenses of a Lifestyle Trust (absent reimbursement) exceed 0.075%, the Adviser will reduce the advisory fee or reimburse expenses of that Lifestyle Trust by an amount such that total expenses of the Lifestyle Trust equal 0.075%. If the total expenses of a Lifestyle Trust (absent reimbursement) are equal to or less than 0.075%, then no expenses will be reimbursed by the Adviser. (For purposes of the expense reimbursement total expenses of Lifestyle Trust includes the advisory fee but excludes: (a) the expenses of the Underlying Portfolios, (b) taxes, (c) portfolio brokerage, (d) interest, (e) litigation and (f) indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Trust's business.) 10 15 This voluntary expense reimbursement may be terminated at any time. If such expense reimbursement was not in effect, Total Trust Annual Expenses would be higher (based on current advisory fees and the Other Expenses of the Lifestyle Trusts for the fiscal year ended December 31, 1999) as noted in the chart below:
MANAGEMENT OTHER TOTAL TRUST TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES --------------- ---- -------- --------------- Lifestyle Aggressive 1000........ 0.075% 1.090% 1.165% Lifestyle Growth 820............. 0.057% 1.030% 1.087% Lifestyle Balanced 640........... 0.057% 0.940% 0.997% Lifestyle Moderate 460........... 0.066% 0.900% 0.966% Lifestyle Conservative 280....... 0.075% 0.810% 0.885%
(D) Each Lifestyle Trust will invest in shares of the Underlying Portfolios. Therefore, each Lifestyle Trust will bear its pro rata share of the fees and expenses incurred by the Underlying Portfolios in which it invests, and the investment return of each Lifestyle Trust will be net of the Underlying Portfolio expenses. Each Lifestyle Portfolio must bear its own expenses. However, the Adviser is currently paying certain of these expenses as described in footnote (C) above. (E) Annualized - For the period May 1, 1999 (commencement of operations) to December 31, 1999. (F) Management Fees changed effective May 1, 1999. Fees shown are the current management fees. (G) MSS has voluntarily agreed to pay expenses of each Index Trust (excluding the advisory fee) that exceed the following amounts: 0.050% in the case of the International Index Trust and 500 Index Trust and 0.075% in the case of the Small Cap Index Trust, the Mid Cap Index Trust and Total Stock Market Index Trust. If such expense reimbursement were not in effect, it is estimated that "Other Expenses" and "Total Trust Annual Expenses" would be 0.022% higher for the International Index Trust, 0.014% higher for the Small Cap Index Trust, 0.060% higher for the Mid Cap Index Trust and 0.005% higher for the Total Stock Market Index Trust. It is estimated that the expense reimbursement will not be effective during the year end December 31, 2000 for the 500 Index Trust. The expense reimbursement may be terminated at any time by MSS. (H) Formerly, the Mid Cap Growth Trust. (I) The Equity Index Trust is available for Policies issued to clients (corporations or other entities) who as of May 1, 2000 have at least one currently effective variable life insurance policy with the Company. Under the Advisory Agreement, MSS has agreed to reduce its advisory fee or reimburse the Equity Index Trust if the total of all expenses (excluding advisory fees, taxes, portfolio brokerage commissions, interest, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Trust's business) exceeds an annual rate of 0.15% of the average annual net assets of the Equity Index Trust. The expense limitation may be terminated at any time by MSS. If this expense reimbursement had not been in effect, Total Trust Annual Expenses would have been 0.55%, and Other Expenses would have been 0.30%, of the average annual net assets of the Equity Index Trust. (J) For any policyowner who has allocated premiums to the 500 Index Trust, the Company will waive contract charges by an amount sufficient so that the total trust annual expenses for the 500 Index Trust will not exceed 0.40% per annum on an annualized basis. This waiver may be terminated at any time by the Company. TABLE OF INVESTMENT OPTIONS AND INVESTMENT SUBADVISERS The Trust currently has nineteen subadvisers who manage all of the portfolios, one of which subadvisers is Manufacturers Adviser Corporation ("MAC"). Both MSS and MAC are affiliates of Manufacturers Life of America.
SUBADVISER PORTFOLIO A I M Capital Management, Inc. Aggressive Growth Trust All Cap Growth Trust (C)
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AXA Rosenberg Investment Management LLC Small Company Value Trust Capital Guardian Trust Company Small Company Blend Trust U.S. Large Cap Value Trust Income & Value Trust Diversified Bond Trust Fidelity Management Trust Company Mid Cap Blend Trust Large Cap Growth Trust Overseas Trust Founders Asset Management LLC International Small Cap Trust Balanced Trust Franklin Advisers, Inc. Emerging Small Company Trust Janus Capital Corporation Dynamic Growth Trust Manufacturers Adviser Corporation Pacific Rim Emerging Markets Trust Quantitative Equity Trust Real Estate Securities Trust Equity Index Trust(B) Money Market Trust Index Trusts Lifestyle Trusts(A) Miller Anderson & Sherrerd, LLP Value Trust High Yield Trust Mitchell Hutchins Asset Management Inc. Tactical Allocation Trust Morgan Stanley Asset Management Inc. Global Equity Trust Munder Capital Management Internet Technologies Trust Pacific Investment Management Company Global Bond Trust Total Return Trust Rowe Price-Fleming International, Inc. International Stock Trust Salomon Brothers Asset Management Inc U.S. Government Securities Trust Strategic Bond Trust State Street Global Advisors Growth Trust Lifestyle Trusts(A) T. Rowe Price Associates, Inc. Science & Technology Trust Blue Chip Growth Trust Equity-Income Trust Templeton Investment Counsel, Inc. International Value Trust Wellington Management Company, LLP Growth & Income Trust Investment Quality Bond Trust Mid Cap Stock Trust
12 17 (A) State Street Global Advisors provides subadvisory consulting services to Manufacturers Adviser Corporation regarding management of the Lifestyle Trusts. (B) The Equity Index Trust is available for policies issued to clients (corporations and other entities) who as of May 1, 2000 have at least one currently effective variable life insurance policy with the Company. (C) Formerly, the Mid Cap Growth Trust. Each of the Trust's Subadvisers, except Capital Guardian Trust Company, Fidelity Management Trust Company and State Street Global Advisors, is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. GENERAL INFORMATION ABOUT MANUFACTURERS MANUFACTURERS LIFE OF AMERICA We are 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. We are a licensed life insurance company in the District of Columbia and all states of the United States except New York. Our ultimate parent is Manulife Financial Corporation ("MFC") a publicly traded company, based in Toronto, Canada. MFC is the holding company of The Manufacturers Life Insurance Company and its subsidiaries, collectively known as Manulife Financial. The Manufacturers Life Insurance Company is one of the largest life insurance companies in North America and ranks among the 60 largest life insurers in the world as measured by assets. However, neither Manufacturers Life nor any of its affiliated companies guarantees the investment performance of the Separate Account. RATINGS Manufacturers Life and Manufacturers Life of America have received the following ratings from independent rating agencies:
Standard and Poor's Insurance Ratings Service: AA+ (for financial strength) A.M.Best Company: A++ (for financial strength) Duff & Phelps Credit Rating Co.: AAA (for claims paying ability) Moody's Investors Service, Inc.: Aa2 (for financial strength)
These ratings, which are current as of the date of this prospectus and are subject to change, are assigned to Manufacturers Life of America as a measure of the Company's ability to honor the death benefit but not specifically to its products, the performance (return) of these products, the value of any investment in these products upon withdrawal or to individual securities held in any portfolio. THE SEPARATE ACCOUNT Manufacturers Life of America established its Separate Account Four on March 17, 1987 as a separate account under Pennsylvania Law. Since December 9, 1992, it has been operated under Michigan Law. The Separate Account holds assets that are segregated from all of Manufacturers Life of America's other assets. The Separate Account is currently used only to support variable life insurance policies. ASSETS OF THE SEPARATE ACCOUNT Manufacturers Life of America is the legal owner of the assets in the Separate Account. The income, gains, and losses of the Separate Account, whether or not realized, are, in accordance with applicable contracts, credited to or charged against the Account 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 Separate Account with a total market value at least equal to the reserves and other liabilities relating to variable benefits under all policies participating in the 13 18 Separate Account. These assets may not be charged with liabilities which arise from any other business Manufacturers Life of America conducts. However, all obligations under the variable life insurance policies are general corporate obligations of Manufacturers Life of America. REGISTRATION The Separate Account is registered with the SEC under the Investment Company Act of 1940 ("1940 Act") as a unit investment trust. A unit investment trust is a type of investment company which invests its assets in specified securities, such as the shares of one or more investment companies, rather than in a portfolio of unspecified securities. Registration under the 1940 Act does not involve any supervision by the SEC. of the management or investment policies or practices of the Separate Account. For state law purposes the Separate Account is treated as a part or division of Manufacturers Life of America. THE TRUST Each sub-account of the Separate Account will purchase shares only of a particular Portfolio of the Trust. The Trust is registered under the 1940 Act as an open-end management investment company. The Separate Account will purchase and redeem shares of the Portfolios 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 as requested by policyholders, and for other purposes not inconsistent with the Policies. Any dividend or capital gain distribution received from a Portfolio with respect to the policies will be reinvested immediately at net asset value in shares of that Portfolio and retained as assets of the corresponding sub-account. The Trust shares are issued to fund benefits under both variable annuity contracts and variable life insurance policies issued by the Company or life insurance companies affiliated with the Company. Manufacturers Life of America will also purchase shares through its general account for certain limited 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. INVESTMENT OBJECTIVES OF THE PORTFOLIOS The investment objectives and certain policies of the Portfolios currently available to policyowners through corresponding sub-accounts are set forth below. There is, of course, no assurance that these objectives will be met. A full description of the 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. ELIGIBLE PORTFOLIOS The Portfolios of the Trust available under the Policies are as follows: The PACIFIC RIM EMERGING MARKETS TRUST seeks long-term growth of capital by investing in a diversified portfolio that is comprised primarily of common stocks and equity-related securities of corporations domiciled in countries in the Pacific Rim region. The INTERNET TECHNOLOGIES TRUST seeks long-term capital appreciation by investing the portfolio's assets primarily in companies engaged in Internet-related business (such businesses also include Intranet-related businesses). The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital by investing at least 65% of the portfolio's total assets in common stocks of companies expected to benefit from the development, advancement, and use of science and technology. Current income is incidental to the portfolio's objective. 14 19 The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by investing primarily in securities issued by foreign companies which have total market capitalization or annual revenues of $1 billion or less. These securities may represent companies in both established and emerging economies throughout the world. The AGGRESSIVE GROWTH TRUST seeks long-term capital appreciation by investing the portfolio's asset principally in common stocks, convertible bonds, convertible preferred stocks and warrants of companies which in the opinion of the subadviser are expected to achieve earnings growth over time at a rate in excess of 15% per year. Many of these companies are in the small and medium-sized category. The EMERGING SMALL COMPANY TRUST seeks long-term growth of capital by investing, under normal market conditions, at least 65% of the portfolio's total assets in common stock equity securities of companies with market capitalizations that approximately match the range of capitalization of the Russell 2000 Index ("small cap stocks") at the time of purchase. The SMALL COMPANY BLEND TRUST seeks long-term growth of capital and income by investing the portfolio's assets, under normal market conditions, primarily in equity and equity-related securities of companies with market capitalizations that approximately match the range of capitalization of the Russell 2000 Index at the time of purchase. The DYNAMIC GROWTH TRUST seeks long-term growth of capital by investing the portfolio's assets primarily in equity securities selected for their growth potential. Normally at least 50% of its equity assets are invested in medium-sized companies. The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily in equity securities with significant capital appreciation potential, with emphasis on medium-sized companies. The ALL CAP GROWTH TRUST (formerly, Mid Cap Growth Trust) seeks long-term capital appreciation by investing the portfolio's assets, under normal market conditions, principally in common stocks of companies that are likely to benefit from new or innovative products, services or processes, as well as those that have experienced above-average, long-term growth in earnings and have excellent prospects for future growth. The OVERSEAS TRUST seeks growth of capital by investing, under normal market conditions, at least 65% of the portfolio's assets in foreign securities (including American Depositary Receipts (ADRs) and European Depositary Receipts (EDRs)). The portfolio expects to invest primarily in equity securities. The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by investing primarily in common stocks of established, non-U.S. companies. The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by investing, under normal market conditions, primarily in equity securities of companies located outside the U.S., including emerging markets. The MID CAP BLEND TRUST seeks growth of capital by investing primarily in common stocks of U.S. issuers and securities convertible into or carrying the right to buy common stocks. The SMALL COMPANY VALUE TRUST seeks long-term growth of capital by investing, under normal circumstances, at least 65% of the portfolio's assets in common stocks of companies with total market capitalization that approximately match the range of capitalization of the Russell 2000 Index and are traded principally in the markets of the United States. The GLOBAL EQUITY TRUST seeks long-term capital appreciation by investing primarily in equity securities throughout the world, including U.S. issuers and emerging markets. 15 20 The GROWTH TRUST seeks long-term growth of capital by investing primarily in large capitalization growth securities (market capitalizations of approximately $1 billion or greater). The LARGE CAP GROWTH TRUST seeks long-term growth of capital by investing, under normal market conditions, at least 65% of the portfolio's assets in equity securities of companies with large market capitalizations. The QUANTITATIVE EQUITY TRUST seeks 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. The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital (current income is a secondary objective) by investing at least 65% of the portfolio's total assets in the common stocks of large and medium-sized blue chip companies. Many of the stocks in the portfolio are expected to pay dividends. The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of long-term capital appreciation and satisfactory current income by investing in real estate related equity and debt securities. The VALUE TRUST seeks to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk, by investing primarily in common and preferred stocks, convertible securities, rights and warrants to purchase common stocks, ADRs and other equity securities of companies with equity capitalizations usually greater than $300 million. The TACTICAL ALLOCATION TRUST seeks total return, consisting of long-term capital appreciation and current income, by allocating the portfolio's assets between (i) a stock portion that is designed to track the performance of the S&P 500 Composite Stock Price Index, and (ii) a fixed income portion that consists of either five-year U.S. Treasury notes or U.S. Treasury bills with remaining maturities of 30 days. The EQUITY INDEX TRUST seeks to achieve investment results which approximate the aggregate total return of publicly traded common stocks which are included in the Standard & Poor's 500 Composite Stock Price Index. (The Equity Index Trust is available for policies issued to clients (corporations and other entities) who as of May 1, 2000 have at least one currently effective variable life insurance policy with the Company.) The GROWTH & INCOME TRUST seeks long-term growth of capital and income, consistent with prudent investment risk, by investing primarily in a diversified portfolio of common stocks of U.S. issuers which the subadviser believes are of high quality. The U.S. LARGE CAP VALUE TRUST seeks long-term growth of capital and income by investing the portfolio's assets, under normal market conditions, primarily in equity and equity-related securities of companies with market capitalization greater than $500 million. The EQUITY-INCOME TRUST seeks to provide substantial dividend income and also long-term capital appreciation by investing primarily in dividend-paying common stocks, particularly of established companies with favorable prospects for both increasing dividends and capital appreciation. The INCOME & VALUE TRUST seeks the balanced accomplishment of (a) conservation of principal and (b) long-term growth of capital and income by investing the portfolio's assets in both equity and fixed-income securities. The subadviser has full discretion to determine the allocation between equity and fixed income securities. The BALANCED TRUST seeks current income and capital appreciation by investing in a balanced portfolio of common stocks, U.S. and foreign government obligations and a variety of corporate fixed income securities. 16 21 The HIGH YIELD TRUST seeks to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk, by investing primarily in high yield debt securities, including corporate bonds and other fixed-income securities. The STRATEGIC BOND TRUST seeks a high level of total return consistent with preservation of capital by giving its subadviser broad discretion to deploy the portfolio's assets among certain segments of the fixed income market as the subadviser believes will best contribute to achievement of the portfolio's investment objective. The GLOBAL BOND TRUST seeks to realize maximum total return, consistent with preservation of capital and prudent investment management by investing the portfolio's asset primarily in fixed income securities denominated in major foreign currencies, baskets of foreign currencies (such as the ECU), and the U.S. dollar. The TOTAL RETURN TRUST seeks to realize maximum total return, consistent with preservation of capital and prudent investment management by investing, under normal market conditions, at least 65% of the portfolio's assets in a diversified portfolio of fixed income securities of varying maturities. The average portfolio duration will normally vary within a three- to six-year time frame based on the subadviser's forecast for interest rates. The INVESTMENT QUALITY BOND TRUST seeks a high level of current income consistent with the maintenance of principal and liquidity, by investing primarily in a diversified portfolio of investment grade corporate bonds and U.S. Government bonds with intermediate to longer term maturities. The portfolio may also invest up to 20% of its assets in non-investment grade fixed income securities. The DIVERSIFIED BOND TRUST seeks high total return consistent with the conservation of capital by investing at least 75% of the portfolio's assets in fixed income securities. The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current income consistent with preservation of capital and maintenance of liquidity, by investing in debt obligations and mortgage-backed securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and derivative securities such as collateralized mortgage obligations backed by such securities. The MONEY MARKET TRUST seeks maximum current income consistent with preservation of principal and liquidity by investing in high quality money market instruments with maturities of 397 days or less issued primarily by U.S. entities. The SMALL CAP INDEX TRUST seeks to approximate the aggregate total return of a small cap U.S. domestic equity market index by attempting to track the performance of the Russell 2000 Index.* The INTERNATIONAL INDEX TRUST seeks to approximate the aggregate total return of a foreign equity market index by attempting to track the performance of the Morgan Stanley European Australian Far East Free Index (the "MSCI EAFE Index").* The MID CAP INDEX TRUST seeks to approximate the aggregate total return of a mid cap U.S. domestic equity market index by attempting to track the performance of the S&P Mid Cap 400 Index.* The TOTAL STOCK MARKET INDEX seeks to approximate the aggregate total return of a broad U.S. domestic equity market index by attempting to track the performance of the Wilshire 5000 Equity Index.* The 500 INDEX TRUST seeks to approximate the aggregate total return of a broad U.S. domestic equity market index by attempting to track the performance of the S&P 500 Composite Stock Price Index.* The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth of capital (current income is not a consideration) by investing 100% of the Lifestyle Trust's assets in other portfolios of the Trust ("Underlying Portfolios") which invest primarily in equity securities. 17 22 The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of capital with consideration also given to current income by investing approximately 20% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 80% of its assets in Underlying Portfolios which invest primarily in equity securities. The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a high level of current income and growth of capital with a greater emphasis given to capital growth by investing approximately 40% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 60% of its assets in Underlying Portfolios which invest primarily in equity securities. The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a high level of current income and growth of capital with a greater emphasis given to current income by investing approximately 60% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 40% of its assets in Underlying Portfolios which invest primarily in equity securities. The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of current income with some consideration also given to growth of capital by investing approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 20% of its assets in Underlying Portfolios which invest primarily in equity securities. *"Standard & Poor's(R)," "S&P 500(R)," "Standard and Poor's 500(R)" and "Standard and Poor's 400(R)" are trademarks of The McGraw-Hill Companies, Inc. "Russell 2000(R)" is a trademark of Frank Russell Company. "Wilshire 5000(R)" is a trademark of Wilshire Associates. "Morgan Stanley European Australian Far East Free" and "EAFE(R)" are trademarks of Morgan Stanley & Co. Incorporated. None of the Index Trusts are sponsored, endorsed, managed, advised, sold or promoted by any of these companies, and none of these companies make any representation regarding the advisability of investing in the Trust. ISSUING A POLICY USE OF THE POLICY The Policy is designed to provide to corporations and other entities life insurance coverage on their employees or other persons in whose lives they have an insurable interest. The Policy may be owned individually or by a corporation, trust, association, or similar entity. The Policy may be used for such purposes as funding non-qualified executive deferred compensation or salary continuation plans, as a means of funding death benefit liabilities incurred under executive retirement plans, or as a source for funding cash flow obligations under such plans. REQUIREMENTS To purchase a Policy, an applicant must submit a completed application. A Policy will not be issued until the underwriting process has been completed to the Company's satisfaction. Policies may be issued on a basis which does not distinguish between the insured's sex and/or smoking status, with prior approval from the Company. A Policy will only be issued on the lives of insureds from ages 20 through 80. Each Policy is issued with a Policy Date, an Effective Date and an Issue Date. The Policy Date is the date coverage takes effect under the Policy and the date from which the first monthly deductions are calculated and from which Policy Years, Policy Months and Policy Anniversaries are determined. The Effective Date is the date the Company approves issuance of the Policy and the date the Company receives at least the minimum initial premium. The Issue Date is the date from which the Suicide and Incontestability provisions of the Policy are measured. If an application accepted by the Company is not accompanied by a check for the initial premium and no request to backdate the Policy has been made: 18 23 (i) the Policy Date and the Effective Date will be the date the Company receives the check at it's service office, and (ii) the Issue Date will be the date the Company issues the Policy. The initial premium must be received within 60 days after the Issue Date, and the policyowner must be in good health on the date the initial premium is received. If the premium is not paid or if the application is rejected, the Policy will be canceled and any partial premiums paid will be returned to the applicant. Regardless of whether or not a policy is backdated, Net Premiums received prior to the Effective Date of a Policy will be credited with interest from the date of receipt at the rate of return then being earned on amounts allocated to the Money Market Trust. As of the Effective Date, the premiums paid plus interest credited, net of the premium load, will be allocated among the Investment Accounts and/or Guaranteed Interest Account in accordance with the policyholder's instructions unless such amount is first allocated to the Money Market Trust for the duration of the Right to Examine period. MINIMUM INITIAL FACE AMOUNT Manufacturers Life of America will issue a Policy only if it has a Face Amount of at least $50,000. BACKDATING A POLICY Under limited circumstances, the Company may backdate a Policy, upon request, by assigning a Policy Date earlier than the date the application is signed. However, in no event will a Policy be backdated earlier than the earliest date allowed by state law, which is generally three months to one year prior to the date of application for the Policy. Monthly deductions will be made for the period the Policy Date is backdated. TEMPORARY INSURANCE AGREEMENT In accordance with the Company's underwriting practices, temporary insurance coverage may be provided under the terms of a Temporary Insurance Agreement. Generally, temporary life insurance may not exceed $1,000,000 and may not be in effect for more than 90 days. This temporary insurance coverage will be issued on a conditional receipt basis, which means that any benefits under such temporary coverage will only be paid if the life insured meets the Company's usual and customary underwriting standards for the coverage applied for. UNDERWRITING The policies are offered on three underwriting bases, which vary by the amount of information required of the prospective insured. These bases are: short form underwriting, simplified underwriting, and regular (medical) underwriting. These are described in more detail below. Regardless of which underwriting procedure is used, the acceptance of an application is subject to the Company's underwriting rules, and the Company reserves the right to request additional information or to reject an application for any reason. SHORT FORM UNDERWRITING Generally, the availability of short form underwriting depends on the characteristics of the Case, such as the number of lives to be insured and the amounts of insurance. Under Short Form underwriting, a proposed Insured is required to answer qualifying questions in the application, but is not required to submit to a medical or paramedical exam. Short form underwriting is generally available only up to issue age 65. SIMPLIFIED UNDERWRITING Like short form underwriting the availability of simplified underwriting depends on the characteristics of the Case. Under Simplified Underwriting, the proposed insured is required to respond satisfactorily to certain health questions 19 24 in the application. Medical records, such as "Attending Physician's Statements" (APS's) are generally required. In some instances, a blood test may also be required. REGULAR UNDERWRITING If the requirements for short form or simplified underwriting are not satisfied, the Company will require satisfactory evidence of insurability. This may include medical exams and other information. Persons failing to meet standard underwriting classification may be eligible for a Policy with an additional rating assigned to it. RIGHT TO EXAMINE THE POLICY A Policy may be returned for a refund within 10 days after it is received. Some states provide a longer period of time to exercise this right. The Policy will indicate if the policyholder has a longer time. The Policy can be mailed or delivered to the Manufacturers Life of America agent who sold it or to the Service Office. Immediately on such delivery or mailing, the Policy shall be deemed void from the beginning. Within seven days after receipt of the returned Policy at its Service Office, the Company will refund to the policyholder an amount equal to: (a) the difference between payments made and amounts allocated to the Separate Account and the Guaranteed Interest Account; plus (b) the value of the amount allocated to the Separate Account and the Guaranteed Interest Account as of the date the returned Policy is received by the Company; minus (c) any partial withdrawals made and policy loans taken. Some state laws require the refund of all premiums paid, without adjustment for the investment gains and losses of the Separate Account. In these states, all Net Premiums will be allocated to the Money Market Trust during the right to examine period, and the policyholder will receive a refund of all payments made less any partial withdrawals and policy loans taken. If a policyholder requests an increase in face amount which results in new surrender charges, he or she will have the same rights as described above to cancel the increase. If cancelled, the Policy Value and the surrender charges will be recalculated to the amounts they would have been had the increase not taken place. A policyholder may request a refund of all or any portion of premiums paid during the free look period, and the Policy Value and the surrender charges will be recalculated to the amounts they would have been had the premiums not been paid. The Company reserves the right to delay the refund of any premium paid by check until the check has cleared. DEATH BENEFITS If the Policy is in force at the time of the life insured's death, the Company will pay an insurance benefit upon receipt of Due Proof of Death. The amount payable will be the death benefit under the selected death benefit option, plus any amounts payable under any supplementary benefits added to the Policy, less the Policy Debt and any outstanding monthly deductions due. The insurance benefit will be paid in one lump sum unless another form of settlement option is agreed to by the beneficiary and the Company. If the insurance benefit is paid in one sum, the Company will pay interest from the date of death to the date of payment. If the life insured should die after the Company's receipt of a request for surrender, no insurance benefit will be payable, and the Company will pay only the Net Cash Surrender Value. LIFE INSURANCE QUALIFICATION A Policy must satisfy either of two tests to qualify as a life insurance contract for purposes of Section 7702 of the Internal Revenue Code of 1986, as amended. At the time of application, the policyholder may choose a Policy which uses either the Cash Value Accumulation Test or the Guideline Premium Test. The test cannot be changed once the Policy is issued. 20 25 CASH VALUE ACCUMULATION TEST Under the Cash Value Accumulation Test ("CVA Test"), the Policy's death benefit must be at least equal to the Minimum Death Benefit. There is no restriction on the amount of premiums that may be paid into a Policy. However, the Company reserves the right to require satisfactory evidence of insurability before accepting any premium that would increase the net amount at risk under the Policy. GUIDELINE PREMIUM TEST The Guideline Premium Test ("GLP Test") restricts the maximum premiums that may be paid into a life insurance policy for a given death benefit. The policy's death benefit must also be at least equal to the Minimum Death Benefit (described below). However, the Minimum Death Benefit Percentages are lower than those required under the Cash Value Accumulation Test. Changes to the Policy may affect the maximum amount of premiums, such as: - - A change in the policy's Face Amount. - - A change in the death benefit option. - - Partial Withdrawals. Any of the above changes could cause the total premiums paid to exceed the new maximum limit. In this situation, the Company will require the policyholder to take a partial withdrawal. In addition, these changes could reduce the future premium limitations. MINIMUM DEATH BENEFIT Both the Cash Value Accumulation Test ("CVA Test") and the Guideline Premium Test ("GLP Test") require a life insurance policy to meet minimum ratios of life insurance coverage to policy value. This is achieved by ensuring that the death benefit is at all times at least equal to the Minimum Death Benefit. The Minimum Death Benefit on any date is defined as the Policy Value on that date times the applicable Minimum Death Benefit Percentage for the Attained Age of the life insured. The Minimum Death Benefit Percentages for each test are shown in the Table of Minimum Death Benefit Percentages. TABLE OF MINIMUM DEATH BENEFIT PERCENTAGES
GLP TEST CVA TEST GLP TEST CVA TEST AGE PERCENT MALE FEMALE AGE PERCENT MALE FEMALE --- ------- ---- ------ --- ------- ---- ------ 20 250% 653% 779% 60 130% 192% 221% 21 250% 634% 754% 61 128% 187% 214% 22 250% 615% 730% 62 126% 182% 208% 23 250% 597% 706% 63 124% 178% 203% 24 250% 580% 684% 64 122% 174% 197% 25 250% 562% 662% 65 120% 170% 192% 26 250% 545% 640% 66 119% 166% 187% 27 250% 528% 619% 67 118% 162% 182% 28 250% 511% 599% 68 117% 159% 177% 29 250% 494% 580% 69 116% 155% 173% 30 250% 479% 561% 70 115% 152% 169% 31 250% 463% 542% 71 113% 149% 164% 32 250% 448% 525% 72 111% 146% 160%
21 26
GLP TEST CVA TEST GLP TEST CVA TEST AGE PERCENT MALE FEMALE AGE PERCENT MALE FEMALE --- ------- ---- ------ --- ------- ---- ------ 33 250% 433% 507% 73 109% 144% 156% 34 250% 419% 491% 74 107% 141% 153% 35 250% 406% 475% 75 105% 139% 149% 36 250% 392% 459% 76 105% 136% 146% 37 250% 380% 444% 77 105% 134% 143% 38 250% 367% 430% 78 105% 132% 140% 39 250% 356% 416% 79 105% 130% 138% 40 250% 344% 403% 80 105% 129% 135% 41 243% 333% 390% 81 105% 127% 133% 42 236% 323% 378% 82 105% 125% 130% 43 229% 313% 366% 83 105% 124% 128% 44 222% 303% 355% 84 105% 122% 126% 45 215% 294% 344% 85 105% 121% 124% 46 209% 285% 333% 86 105% 120% 123% 47 203% 277% 323% 87 105% 119% 121% 48 197% 268% 313% 88 105% 118% 119% 49 191% 260% 304% 89 105% 116% 118% 50 185% 253% 295% 90 105% 116% 117% 51 178% 245% 286% 91 104% 115% 115% 52 171% 238% 278% 92 103% 114% 114% 53 164% 232% 270% 93 102% 112% 113% 54 157% 225% 262% 94 101% 111% 112% 55 150% 219% 254% 95 100% 110% 110% 56 146% 213% 247% 96 100% 109% 109% 57 142% 207% 240% 97 100% 107% 107% 58 138% 202% 233% 98 100% 106% 106% 59 134% 197% 227% 99 100% 105% 105%
DEATH BENEFIT OPTIONS There are two death benefit options, described below. DEATH BENEFIT OPTION 1 Under Option 1 the death benefit is the Face Amount of the Policy at the date of death or, if greater, the Minimum Death Benefit. DEATH BENEFIT OPTION 2 Under Option 2 the death benefit is the Face Amount plus the Policy Value of the Policy at the date of death or, if greater, the Minimum Death Benefit. CHANGING THE DEATH BENEFIT OPTION The death benefit option may be changed on the first day of any Policy month. The change will occur on the first day of the next Policy month which is 30 days after a written request for a change is received at the Service Office. The Company reserves the right to limit a request for a change if the change would cause the Policy to fail to qualify as life insurance for tax purposes. 22 27 A change in the death benefit option will result in a change in the Policy's Face Amount, in order to avoid any change in the amount of the death benefit, as follows: CHANGE FROM OPTION 1 TO OPTION 2 The new Face Amount will be equal to the Face Amount prior to the change minus the Policy Value on the date of the change. The Policy will not be assessed a Surrender Charge for a reduction in Face Amount solely due to a change in the death benefit option. CHANGE FROM OPTION 2 TO OPTION 1 The new Face Amount will be equal to the Face Amount prior to the change plus the Policy Value on the date of the change. No new Surrender Charges will apply to an increase in Face Amount solely due to a change in the death benefit option. CHANGING THE FACE AMOUNT Subject to the limitations stated in this Prospectus, a policyholder may, upon written request, increase or decrease the Face Amount of the Policy. The Company reserves the right to limit a change in Face Amount so as to prevent the Policy from failing to qualify as life insurance for tax purposes. INCREASE IN FACE AMOUNT Increases in Face Amount are subject to satisfactory evidence of insurability. An increase will become effective at the beginning of the Policy month following the date Manufacturers Life of America approves the requested increase. The Company reserves the right to refuse a requested increase if the life insured's Attained Age at the effective date of the increase would be greater than the maximum Issue Age for new Policies at that time. NEW SURRENDER CHARGES FOR AN INCREASE An increase in Face Amount will result in the Policy's being subject to new Surrender Charges. The new Surrender Charges will be computed as if a new Policy were being purchased for the increase in Face Amount. For purposes of determining the new Surrender Charges a portion of the premiums paid on or subsequent to the increase will be deemed to be premiums attributable to the increase. The portion attributable to the increase in any Policy Year will be the amount of premiums in excess of the sum of the Target Premiums for the (i) initial Face Amount during the first five Policy Years and (ii) all prior increases that are in effect at the time of the increase in Face Amount and have been in effect for less than five years. INCREASE WITH PRIOR DECREASES If, at the time of the increase, there have been prior decreases in Face Amount, these prior decreases will be restored first. There will be no new Surrender Charges associated with these increases, since Surrender Charges will have already been assessed at the time of the prior decrease. DECREASE IN FACE AMOUNT A written request from a policyholder for a decrease in the Face Amount must be received by Manufacturers Life of America at least 30 days prior to the first day of a policy month for the change to take effect on the first day of that policy month. If there have been previous increases in Face Amount, the decrease will be applied to the most recent increase first and thereafter to the next most recent increases successively. SURRENDER CHARGES ASSESSED ON A DECREASE A portion of a Policy's Surrender Charge will be deducted from the Policy Value on a decrease in Face Amount. Since Surrender Charges are determined separately for the initial Face Amount and each Face Amount Increase, the portion of the Surrender Charges to be deducted with respect to each level of insurance coverage will be determined separately. The portion of the Surrender Charge deducted with respect to a level of coverage will be equal to: (a) the amount of the decrease; divided by 23 28 (b) the amount of the coverage prior to the decrease; multiplied by (c) the Surrender Charge for the coverage. The charges will be allocated among the Investment Accounts and the Guaranteed Interest Account in the same proportion as the Policy Value in each bears to the Net Policy Value. Whenever a portion of the surrender charges are deducted as a result of a decrease in Face Amount, the Policy's remaining surrender charges will be reduced in the same proportion that the surrender charge deducted bears to the total surrender charge immediately prior to the decrease in Face Amount. PREMIUM PAYMENTS INITIAL PREMIUMS No premiums will be accepted prior to receipt of a completed application by the Company. All premiums received prior to the Effective Date of the Policy will be held in the general account and credited with interest from the date of receipt at the rate of return then being earned on amounts allocated to the Money Market Trust. On the Effective Date, the Net Premiums paid plus interest credited will be allocated among the Investment Accounts or the Guaranteed Interest Account in accordance with the policyholder's instructions. All Net Premiums received on or after the Effective Date will be allocated among Investment Accounts or the Guaranteed Interest Account as of the date the premiums were received at the Service Office. Monthly deductions are due on the Policy Date and at the beginning of each policy month thereafter. However, if due prior to the Effective Date, they will be taken on the Effective Date instead of the dates they were due. EXCEPTION FOR CERTAIN STATES Some state laws require the refund of all premiums paid, without adjustment for gains and losses of the Separate Account, if a Policy is returned during the right to examine period. In these states, all Net Premiums will be allocated to the Money Market Trust during the right to examine period. At the end of this period, the Policy Value in the Money Market Trust will be allocated among the Investment Accounts or the Guaranteed Interest Account. The Policy will state if a return of premiums is required. SUBSEQUENT PREMIUMS After the payment of the initial premium, premiums may be paid at any time and in any amount during the lifetime of the life insured, subject to the limitations on premium amount described below. A Policy will be issued with a planned premium, which is based on the amount of premium the policyholder wishes to pay. Manufacturers Life of America will send notices to the policyholder setting forth the planned premium at the payment interval selected by the policyholder. However, the policyholder is under no obligation to make the indicated payment. Payment of premiums will not guarantee that the Policy will stay in force. Conversely, failure to pay premiums will not necessarily cause the Policy to lapse. MAXIMUM PREMIUM LIMITATION If the Policy is issued under the Guideline Premium Test, in no event may the total of all premiums paid exceed the then-current maximum premium limitations established by federal income tax law for a Policy to qualify as life insurance. If, at any time, a premium is paid which would result in total premiums exceeding the above maximum premium limitation, the Company will only accept that portion of the premium which will make the total premiums equal to 24 29 the maximum. Any part of the premium in excess of that amount will be returned and no further premiums will be accepted until allowed by the then-current maximum premium limitation. The maximum premium limitations are set forth in the Policy. PREMIUM ALLOCATION Premiums may be allocated to either the Guaranteed Interest Account for accumulation at a rate of interest equal to at least 4% or to one or more of the Investment Accounts for investment in the Portfolio shares held by the corresponding sub-account of the Separate Account. Allocations among the Investment Accounts and the Guaranteed Interest Account are made as a percentage of the premium. The percentage allocation to any account may be any number between zero and 100, provided the total allocation equals 100. Alternatively, a policyholder may specify the allocation of a specific premium payment in dollar amounts, so long as the total allocation among the Investment Accounts equals the Net Premium paid. A policyholder may change the way in which premiums are allocated at any time without charge. The change will take effect on the date a written request for change satisfactory to the Company is received at the Service Office. CHARGES AND DEDUCTIONS AMOUNT DEDUCTED FROM PREMIUMS Manufacturers Life of America deducts an amount from each premium payment equal to 2.00% of the premium. Premium Loads are deducted in order to cover federal, state and local taxes on premium payments. SURRENDER CHARGES The Company will deduct a Surrender Charge if during the first 10 years following the Policy Date, or the effective date of a Face Amount increase: - -- the Policy is surrendered for its Net Cash Surrender Value, - -- a partial withdrawal is made in excess of the Free Partial Withdrawal Amount, - -- the Face Amount is decreased, or - -- the Policy lapses. The Surrender Charge is expressed as a percentage of the total premiums paid from the Effective Date. However, premiums paid in any Policy Year in excess of the Target Premium, and premiums paid after the fifth Policy Year, are not counted in the determination of total premiums paid. Therefore, the timing of premium payments may affect the amount of the Surrender Charge. The percentages vary by Policy Year as follows:
Policy Year Percentage 1 10.00% 2 7.50% 3 5.00% 4 5.00% 5 5.00% 6 5.00% 7 4.00% 8 3.00% 9 2.00% 10+ 0.00%
Although the percentages remain level or decrease as the Policy Year increases, the total dollar amount of Surrender Charges may increase, as the total premium paid increases. 25 30 The Target Premium is based on the Face Amount, as well as the insured's age at issue and sex, and is set forth in the Policy. Depending upon the circumstances, including the premiums paid under the Policy and the performance of the underlying investment options, the Policy may have no Cash Surrender Value and, therefore, the policyowner may receive no surrender proceeds upon surrendering the Policy. SURRENDER CHARGES ON A PARTIAL WITHDRAWAL A partial withdrawal will result in the assessment of a portion of the Surrender Charges to which the Policy is subject. The portion of the Surrender Charges assessed will be based on the ratio of the amount of the withdrawal which exceeds the Free Withdrawal Amount to the Net Cash Surrender Value of the Policy immediately prior to the withdrawal. The Surrender Charges will be deducted on a pro-rata basis from each of the Investment Accounts and the Guaranteed Interest Account. If the amount in the accounts are not sufficient to pay the Surrender Charges assessed, then the amount of the withdrawal will be reduced. Whenever a portion of the surrender charges is deducted as a result of a partial withdrawal, the Policy's remaining surrender charges will be reduced in the same proportion that the surrender charge deducted bears to the total surrender charge immediately before the partial withdrawal. FREE WITHDRAWAL AMOUNT The Free Withdrawal Amount is equal to 10% of the Net Cash Surrender Value at the time of the withdrawal. In determining what, if any, portion of a partial withdrawal is in excess of the Free Withdrawal Amount, all previous partial withdrawals that have occurred in the current Policy Year are included. MONTHLY CHARGES On the Policy Date and at the beginning of each policy month, a deduction is due from the Policy Value to cover certain charges in connection with the Policy until the insured reaches age 100. Monthly deductions due prior to the Effective Date will be taken on the Effective Date instead of the dates they were due. The charges consist of: (i) a monthly administration charge; (ii) a monthly charge for the cost of insurance; (iii) a monthly charge for any supplementary benefits added to the Policy. Unless otherwise allowed by the Company and specified by the policyholder, the monthly deduction will be allocated among the Investment Accounts and the Guaranteed Interest Account in the same proportion as the Policy value in each bears to the Net Policy Value. ADMINISTRATION CHARGE This charge will be equal to $12 per policy month, which is guaranteed not to increase. The charge is designed to cover certain administrative expenses associated with the Policy, including maintaining policy records, collecting premiums and processing death claims, surrender and withdrawal requests and various changes permitted under a Policy. COST OF INSURANCE CHARGE The monthly charge for the cost of insurance is determined by multiplying the applicable cost of insurance rate times the net amount at risk at the beginning of each policy month. The cost of insurance rate and the net amount at risk are determined separately for the initial Face Amount and for each increase in Face Amount. In determining the net amount at risk, if there have been increases in the Face Amount, the Policy Value shall first be considered a part of the initial Face Amount. If the Policy Value exceeds the initial Face Amount, it shall then be considered a part of the additional increases in Face Amount resulting from the increases in the order of the increases. 26 31 The net amount at risk is equal to the greater of zero, or the result of (a)minus (b) where: (a) is the death benefit as of the first day of the month, divided by 1.0032737; and (b) is the Policy Value as of the first day of the month. The cost of insurance rate is based upon the following factors: - - the issue age, sex (unless unisex rates are required by law) and smoking status of the life insured; - - the underwriting class of the Policy; - - the number of years since issue or since an increase in Face Amount; - - the amount of the Death Benefit in excess of the Face Amount; and - - any extra charges for additional ratings indicated in the Policy. Cost of insurance rates will generally increase with the life insured's age. The cost of insurance rates reflect the Company's expectations as to future mortality experience. The rates may be changed from time to time on a basis which does not unfairly discriminate within the class of lives insured. In no event will the cost of insurance rate exceed the guaranteed rates set forth in the Policy except to the extent that an extra charge is imposed because of an additional rating applicable to the life insured. The guaranteed rates are based on the 1980 Commissioners Standard Ordinary Mortality Tables. CHARGES FOR SUPPLEMENTARY BENEFITS If the Policy includes Supplementary Benefits, a charge will be made applicable to such Supplementary Benefit. CHARGES ASSESSED AGAINST ASSETS OF THE INVESTMENT ACCOUNTS A daily charge is assessed against amounts in the Investment Accounts equal to a percentage of the value of the Investment Account. This charge is to compensate the Company for the mortality and expense risks it assumes under the Policy. The mortality risk assumed is that lives insured may live for a shorter period of time than the Company estimated. The expense risk assumed is that expenses incurred in issuing and administering the Policy will be greater than the Company estimated. The Company will realize a gain from this charge to the extent it is not needed to provide benefits and pay expenses under the Policy. The charge varies by Policy Year as follows:
Equivalent Annual Daily Mortality and Mortality and Expense Policy Year Expense Risk Charge Risk Charge 1-10 0.000020625% 0.75% 11+ 0.000010981% 0.40%
CHARGES FOR TRANSFERS A charge of $25 will be imposed on each transfer in excess of twelve in a policy year. REDUCTION IN CHARGES The Policy is available for purchase by corporations and other groups or sponsoring organizations for multiple life sales. Manufacturers Life of America reserves the right to reduce any of the Policy's loads or charges on certain Cases where it is expected that the amount or nature of such Cases will result in savings of sales, underwriting, administrative or other costs. Eligibility for these reductions and the amount of reductions will be determined by a 27 32 number of factors, including the number of lives to be insured, the total premiums expected to be paid, total assets under management for the policyholder, the nature of the relationship among the insured individuals, the purpose for which the policies are being purchased, expected persistency of the individual policies, and any other circumstances which Manufacturers Life of America believes to be relevant to the expected reduction of its expenses. Some of these reductions may be guaranteed and others may be subject to withdrawal or modification, on a uniform Case basis. Reductions in charges will not be unfairly discriminatory to any policyholders. COMPANY TAX CONSIDERATIONS At the present time, the Company makes no charge to the Separate Account for any federal, state, or local taxes that the Company incurs that may be attributable to such Account or to the Policies. The Company, however, reserves the right in the future to make a charge for any such tax or other economic burden resulting from the application of the tax laws that it determines to be properly attributable to the Separate Account or to the Policies. POLICY VALUE DETERMINATION OF THE POLICY VALUE A Policy has a Policy Value, a portion of which is available to the policyholder by making a policy loan or partial withdrawal, or upon surrender of the Policy. The Policy Value may also affect the amount of the death benefit. The Policy Value at any time is equal to the sum of the values in the Investment Accounts, the Guaranteed Interest Account, and the Loan Account. INVESTMENT ACCOUNTS An Investment Account is established under each Policy for each sub-account of the Separate Account to which net premiums or transfer amounts have been allocated. Each Investment Account under a Policy measures the interest of the Policy in the corresponding sub-account. The value of the Investment Account established for a particular sub-account is equal to the number of units of that sub-account credited to the Policy times the value of such units. GUARANTEED INTEREST ACCOUNT Amounts in the Guaranteed Interest Account do not vary with the investment performance of any sub-account. Instead, these amounts are credited with interest at a rate determined by Manufacturers Life of America. For a detailed description of the Guaranteed Interest Account, see "The General Account - Guaranteed Interest Account". LOAN ACCOUNT Amounts borrowed from the Policy are transferred to the Loan Account. Amounts in the Loan Account do not vary with the investment performance of any sub-account. Instead, these amounts are credited with interest at a rate which is equal to the amount charged on the outstanding Policy Debt less the Loan Spread. For a detailed description of the Loan Account, see "Policy Loans - Loan Account". UNITS AND UNIT VALUES CREDITING AND CANCELING UNITS Units of a particular sub-account are credited to a Policy when net premiums are allocated to that sub-account or amounts are transferred to that sub-account. Units of a sub-account are cancelled whenever amounts are deducted, transferred or withdrawn from the sub-account. 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 a premium payment will be based on the applicable unit values for the Business Day on which the premium is received at the Service Office, except for any premiums received before the Effective Date. For premiums received before the Effective Date, the values will be determined on the Effective Date. 28 33 Units are valued at the end of each Business Day. 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, Investment Account value or death benefit to be made on a day which is not a Business Day will be made on the next Business Day. UNIT VALUES The value of a unit of each sub-account was initially fixed at $10.00. For each subsequent Business Day the unit value for that sub-account is determined by multiplying the unit value for the immediately preceding Business Day by the net investment factor for the that sub-account on such subsequent Business Day. The net investment factor for a sub-account on any Business Day is equal to (a) divided by (b) minus (c), where: (a) is the net asset value of the underlying Portfolio shares held by that sub-account as of the end of such Business Day before any policy transaction are made on that day; (b) is the net asset value of the underlying Portfolio shares held by that sub-account as of the end of the immediately preceding Business Day after all policy transaction were made for that day; and (c) is a charge not exceeding the daily mortality and expense risk charge shown in the "Charges and Deductions Charges Assessed Against Assets of the Investment Accounts" section. The value of a unit may increase, decrease, or remain the same, depending on the investment performance of a sub-account from one Business Day to the next. Due to the fact that the daily mortality and expense risk charge varies by Policy Years, two unit values will be calculated for each sub-account commencing 10 years after the effective date of the first Policy. TRANSFERS OF POLICY VALUE At any time, a policyholder may transfer Policy Value from one sub-account to another or to the Guaranteed Interest Account. Transfer requests must be in writing in a format satisfactory to the Company, or by telephone if a currently valid telephone transfer authorization form is on file. These transfer privileges are subject to the Company's consent. The Company reserves the right to impose limitations on transfers, including the maximum amount that may be transferred. In addition, transfer privileges are subject to any restrictions that may be imposed by the Trust. TRANSFER CHARGES A policyholder may make up to twelve transfers each policy year free of charge. Additional transfers in each policy year may be made at a cost of $25 per transfer. This charge will be allocated among the Investment Accounts and the Guaranteed Interest Account in the same proportion as the amount transferred from each bears to the total amount transferred. All transfer requests received by the Company on the same Business Day are treated as a single transfer request. Transfers under the Dollar Cost Averaging and Asset Allocation Balancer programs, discussed below, do not count against the number of free transfers permitted per Policy Year. TRANSFERS INVOLVING GUARANTEED INTEREST ACCOUNT 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 Investment Account for the Money Market Trust. 29 34 TELEPHONE TRANSFERS Although failure to follow reasonable procedures may result in the Company being liable for any losses resulting from unauthorized or fraudulent telephone transfers, Manufacturers Life of America will not be liable for following instructions communicated by telephone that the Company reasonably believes to be genuine. The Company will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Such procedures shall consist of confirming that a valid telephone authorization form is on file, tape recording of all telephone transactions and providing written confirmation thereof. POLICY LOANS At any time while this Policy is in force, a policyholder may borrow against the Policy Value of the Policy. The Policy serves as the only security for the loan. Policy loans may have tax consequences, see "Tax Treatment of Policy Benefits - Policy Loan Interest." MAXIMUM LOAN The amount of any loan cannot exceed the amount which would cause the Policy Debt to equal the Loan Value of the Policy on the date of the loan. LOAN VALUE The Loan Value is equal to the Policy's Cash Surrender Value less the monthly deductions due to the next Policy Anniversary. EFFECT OF POLICY LOAN A policy loan will have an effect on future Policy Values, since that portion of the Policy Value in the Loan Account will increase in value at the crediting interest rate rather than varying with the performance of the underlying Portfolios or increasing in value at the rate of interest credited for amounts allocated to the Guaranteed Interest Account. A policy loan may cause a Policy to be more susceptible to going into default since a policy loan will be reflected in the Net Cash Surrender Value. See "Lapse and Reinstatement." Finally, a policy loan will affect the amount payable on the death of the life insured, since the death benefit is reduced by the Policy Debt at the date of death in arriving at the insurance benefit. INTEREST CHARGED ON POLICY LOANS Interest on the Policy Debt will accrue daily and be payable annually on the Policy Anniversary. The rate of interest charged will be an effective annual rate of 5.00%. LOAN ACCOUNT When a loan is made, an amount equal to the loan will be deducted from the Investment Accounts or the Guaranteed Interest Account and transferred to the Loan Account. The policyholder may designate how the amount to be transferred to the Loan Account is allocated among the accounts from which the transfer is to be made. In the absence of instructions, the amount to be transferred will be allocated to each account in the same proportion as the value in each Investment Account and the Guaranteed Interest Account bears to the Net Policy Value. A transfer from an Investment Account will result in the cancellation of units of the underlying sub-account equal in value to the amount transferred from the Investment Account. However, since the Loan Account is part of the Policy Value, transfers made in connection with a loan will not change the Policy Value. INTEREST CREDITED TO THE LOAN ACCOUNT Interest will be credited to amounts in the Loan Account at an effective annual rate of at least 4.00%. The actual rate credited is equal to the rate of interest charged on the policy loan less the Loan Spread. The Loan Spread varies by policy year as follows:
Policy Year Loan Spread
30 35 1-10 1.00% 11-20 0.50% 21+ 0.25%
LOAN ACCOUNT ADJUSTMENTS On the first day of each policy month the difference between the Loan Account and the Policy Debt is transferred to the Loan Account from the Investment Accounts or the Guaranteed Interest Account. Amounts transferred from the Loan Account will be allocated to the Investment Accounts and the Guaranteed Interest Account in the same proportion as the value in each Investment Account and the Guaranteed Interest Account bears to the Net Policy Value. LOAN REPAYMENTS Policy Debt may be repaid in whole or in part at any time prior to the death of the life insured, provided that the Policy is in force. When a repayment is made, the amount is credited to the Loan Account and transferred to the Guaranteed Interest Account or the Investment Accounts. Loan repayments will be allocated to the Guaranteed Interest Account and each Investment Account in the same proportion as the value in each Investment Account and the Guaranteed Interest Account bears to the Net Policy Value. Amounts paid to the Company not specifically designated in writing as loan repayments will be treated as premiums. POLICY SURRENDER AND PARTIAL WITHDRAWALS POLICY SURRENDER A Policy may be surrendered for its Net Cash Surrender Value at any time while the life insured is living. The Net Cash Surrender Value is equal to the Policy Value less any surrender charges and outstanding monthly deductions due (the "Cash Surrender Value") minus the Policy Debt. The Net Cash Surrender Value will be determined at the end of the Business Day on which Manufacturers Life of America receives the Policy and a written request for surrender at its Service Office. After a Policy is surrendered, the insurance coverage and all other benefits under the Policy will terminate. PARTIAL WITHDRAWALS A policyholder may make a partial withdrawal of the Net Cash Surrender Value. The policyholder may specify the portion of the withdrawal to be taken from each Investment Account and the Guaranteed Interest Account. In the absence of instructions, the withdrawal will be allocated among such accounts in the same proportion as the Policy Value in each account bears to the Net Policy Value. For information on Surrender Charges on a Partial Withdrawal see "Charges and Deductions - Surrender Charges." REDUCTION IN FACE AMOUNT DUE TO A PARTIAL WITHDRAWAL If Death Benefit Option 1 is in effect when a partial withdrawal is made, the Face Amount of the Policy will be reduced by the amount of the withdrawal plus any applicable Surrender Charges. Reductions in Face Amount resulting from partial withdrawals will not incur any Surrender Charges above the Surrender Charges applicable to the withdrawal. If the death benefit is based upon the Policy Value times the minimum death benefit percentage set forth under "Death Benefit - Minimum Death Benefit," the Face Amount will be reduced only to the extent that the amount of the withdrawal plus the portion of the Surrender Charge assessed exceeds the difference between the death benefit and the Face Amount. When the Face Amount of a Policy is based on one or more increases subsequent to issuance of the Policy, a reduction resulting from a partial withdrawal will be applied in the same manner as a requested 31 36 decrease in Face Amount, i.e., against the Face Amount provided by the most recent increase, then against the next most recent increases successively and finally against the initial Face Amount. LAPSE AND REINSTATEMENT LAPSE A Policy will go into default if at the beginning of any policy month the Policy's Net Cash Surrender Value would go below zero after deducting the monthly deduction then due. Therefore, a Policy could lapse eventually if increases in Policy Value (prior to deduction of Policy charges) are not sufficient to cover Policy charges. A lapse could have adverse tax consequences as described under "Tax Treatment of the Policy - Tax Treatment of Policy Benefits - Surrender or Lapse." Manufacturers Life of America will notify the policyholder of the default and will allow a 61 day grace period in which the policyholder may make a premium payment sufficient to bring the Policy out of default. The required payment will be equal to the amount necessary to bring the Net Cash Surrender Value to zero, if it was less than zero on the date of default, plus the monthly deductions due at the date of default and payable at the beginning of each of the two policy months thereafter, plus any applicable premium load. If the required payment is not received by the end of the grace period, the Policy will terminate with no value. DEATH DURING GRACE PERIOD If the life insured should die during the grace period, the Policy Value used in the calculation of the death benefit will be the Policy Value as of the date of default and the insurance benefit will be reduced by any outstanding monthly deductions due at the time of death. REINSTATEMENT A policyholder can reinstate a Policy which has terminated after going into default at any time within the five year period following the date of termination subject to the following conditions: (a) The Policy must not have been surrendered for its Net Cash Surrender Value; (b) Evidence of the life insured's insurability satisfactory to Manufacturers Life of America is furnished to the Company; and (c) A premium equal to the payment required during the grace period following default to keep the Policy in force is paid to the Company. THE GENERAL ACCOUNT The general account of Manufacturers Life of America consists of all assets owned by the Company other than those in the Separate Account and other separate accounts of the Company. Subject to applicable law, Manufacturers Life of America has sole discretion over the investment of the assets of the general account. By virtue of exclusionary provisions, interests in the general account of Manufacturers Life of America have not been registered under the Securities Act of 1933 and the general account has not been registered as an investment company under the Investment Company Act of 1940. Accordingly, neither the general account nor any interests therein are subject to the provisions of these acts, and as a result the staff of the SEC. has not reviewed the disclosures in this prospectus relating to the general account. Disclosures regarding the general account may, however, be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in a prospectus. GUARANTEED INTEREST ACCOUNT A policyholder may elect to allocate net premiums to the Guaranteed Interest Account or to transfer all or a portion of the Policy Value to the Guaranteed Interest Account from the Investment Accounts. Manufacturers Life of America will hold the reserves required for any portion of the Policy Value allocated to the Guaranteed Interest 32 37 Account in its general account. Transfers from the Guaranteed Interest Account to the Investment Accounts are subject to restrictions. POLICY VALUE IN THE GUARANTEED INTEREST ACCOUNT The Policy Value in the Guaranteed Interest Account is equal to: (a) the portion of the net premiums allocated to it; plus (b) any amounts transferred to it; plus (c) interest credited to it; less (d) any charges deducted from it; less (e) any partial withdrawals from it; less (f) any amounts transferred from it. INTEREST ON THE GUARANTEED INTEREST ACCOUNT An allocation of Policy Value to the Guaranteed Interest Account does not entitle the policyholder to share in the investment experience of the general account. Instead, Manufacturers Life of America guarantees that the Policy Value in the Guaranteed Interest Account will accrue interest daily at an effective annual rate of at least 4%, without regard to the actual investment experience of the general account. Consequently, if a policyholder pays the planned premiums, allocates all net premiums only to the general account and makes no transfers, partial withdrawals, or policy loans, the minimum amount and duration of the death benefit of the Policy will be determinable and guaranteed. OTHER PROVISIONS OF THE POLICY POLICYHOLDER RIGHTS Unless otherwise restricted by a separate agreement, the policyholder may: - - Vary the premiums paid under the Policy. - - Change the death benefit option. - - Change the premium allocation for future premiums. - - Transfer amounts between sub-accounts. - - Take loans and/or partial withdrawals. - - Surrender the contract. - - Transfer ownership to a new owner. - - Name a contingent owner that will automatically become owner if the policyholder dies before the insured. - - Change or revoke a contingent owner. - - Change or revoke a beneficiary. ASSIGNMENT OF RIGHTS Manufacturers Life of America will not be bound by an assignment until it receives a copy of the assignment at its Service Office. Manufacturers Life of America assumes no responsibility for the validity or effects of any assignment. BENEFICIARY One or more beneficiaries of the Policy may be appointed by the policyholder by naming them in the application. Beneficiaries may be appointed in three classes - - primary, secondary, and final. Beneficiaries may also be revocable or irrevocable. Unless an irrevocable designation has been elected, the beneficiary may be changed by the policyholder during the life insured's lifetime by giving written notice to the Company in a form satisfactory to us. If the life insured dies and there is no surviving beneficiary, the policyholder, or the policyholder's estate if 33 38 the policyholder is the life insured, will be the beneficiary. If a beneficiary dies before the seventh day after the death of the life insured, the Company will pay the insurance benefit as if the beneficiary had died before the life insured. INCONTESTABILITY Manufacturers Life of America will not contest the validity of a Policy after it has been in force during the life insured's lifetime for two years from the Issue Date. It will not contest the validity of an increase in Face Amount, after such increase or addition has been in force during the life insured's lifetime for two years. If a Policy has been reinstated and been in force for less than two years from the reinstatement date, the Company can contest any misrepresentation of a fact material to the reinstatement. MISSTATEMENT OF AGE OR SEX If the life insured's stated age or sex or both in the Policy are incorrect, Manufacturers Life of America will change the Face Amount, and if applicable, so that the death benefit will be that which the most recent monthly charge for the cost of insurance would have purchased for the correct age and sex. SUICIDE EXCLUSION If the life insured, whether sane or insane, dies by suicide within two years from the Issue Date (or within the maximum period permitted by the state in which the Policy was delivered, if less than two years), Manufacturers Life of America will pay only the premiums paid less any partial withdrawals and any Policy Debt. If the life insured should die by suicide within two year after a Face Amount increase, the death benefit for the increase will be limited to the monthly deduction for the increase. At the discretion of the Company, this provision may be waived under some circumstances, such as policies purchased in conjunction with certain existing benefit plans. SUPPLEMENTARY BENEFITS Subject to certain requirements, one or more supplementary benefits may be added to a Policy, including, in the case of a Policy owned by a corporation or other similar entity, a benefit permitting a change in the life insured. More detailed information concerning these supplementary benefits may be obtained from an authorized agent of the Company. The cost of any supplementary benefits will be deducted as part of the monthly deduction. TAX TREATMENT OF THE POLICY The following summary provides a general description of the federal income tax considerations associated with the Policy and does not purport to be complete or to cover all situations. This discussion is not intended as tax advice. Counsel or other competent tax advisers should be consulted for more complete information. This discussion is based upon the Company's understanding of the present federal income tax laws as they are currently interpreted by the Internal Revenue Service (the "Service"). No representation is made as to the likelihood of continuation of the present federal income tax laws nor of the current interpretations by the Service. MANUFACTURERS LIFE OF AMERICA DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY POLICY OR ANY TRANSACTION REGARDING THE POLICIES. The Policies may be used in various arrangements, including non-qualified deferred compensation or salary continuation plans, split dollar insurance plans, executive bonus plans, retiree medical benefit plans and others. The tax consequences of such plans may vary depending on the particular facts and circumstances of each individual arrangement. Therefore, if the use of such Policies in any such arrangement, the value of which depends in part on the tax consequences, is contemplated, a qualified tax adviser should be consulted for advice on the tax attributes of the particular arrangement. LIFE INSURANCE QUALIFICATION There are several requirements that must be met for a Policy to be considered a Life Insurance Contract under the Internal Revenue Code, and thereby to enjoy the tax benefits of such a contract: 34 39 1. The Policy must satisfy the definition of life insurance under Section 7702 of the Internal Revenue Code of 1986 (the "Code"). 2. The investments of the Separate Account must be "adequately diversified" in accordance with Section 817(h) of the Code and Treasury Regulations. 3. The Policy must be a valid life insurance contract under applicable state law. 4. The Policyholder must not possess "incidents of ownership" in the assets of the Separate Account. These four items are discussed in detail below. DEFINITION OF LIFE INSURANCE Section 7702 of the Code sets forth a definition of a life insurance contract for federal tax purposes. For a Policy to be a life insurance contract, it must satisfy either the Cash Value Accumulation Test or the Guideline Premium Test. The Cash Value Accumulation Test requires a minimum death benefit for a given Policy Value. The Guideline Premium Test also requires a minimum death benefit, but in addition limits the total premiums that can be paid into a Policy for a given amount of death benefit. With respect to a Policy which is issued on the basis of a standard rate class, the Company believes (largely in reliance on IRS Notice 88-128 and the proposed mortality charge regulations under Section 7702, issued on July 5, 1991) that such a Policy should meet the Section 7702 definition of a life insurance contract. With respect to a Policy that is issued on a substandard basis (i.e., a rate class involving higher-than-standard mortality risk), there is less guidance, in particular as to how mortality and other expense requirements of Section 7702 are to be applied in determining whether such a Policy meets the Section 7702 definition of a life insurance contract. Thus it is not clear whether or not such a Policy would satisfy Section 7702, particularly if the policyholder pays the full amount of premiums permitted under the Policy. The Secretary of the Treasury (the "Treasury") is authorized to prescribe regulations implementing Section 7702. However, while proposed regulations and other interim guidance have been issued, final regulations have not been adopted and guidance as to how Section 7702 is to be applied is limited. If a Policy were determined not to be a life insurance contract for purposes of Section 7702, such a Policy would not provide the tax advantages normally provided by a life insurance policy. If it is subsequently determined that a Policy does not satisfy Section 7702, the Company may take whatever steps are appropriate and reasonable to attempt to cause such a Policy to comply with Section 7702. For these reasons, the Company reserves the right to restrict Policy transactions as necessary to attempt to qualify it as a life insurance contract under Section 7702. DIVERSIFICATION Section 817(h) of the Code requires that the investments of the Separate Account be "adequately diversified" in accordance with Treasury regulations in order for the Policy to qualify as a life insurance contract under Section 7702 of the code (discussed above). The Separate Account, through the Trust, intends to comply with the diversification requirements prescribed in Treas. Reg. Sec. 1.817-5, which affect how the Trust's assets are to be invested. The Company believes that the Separate Account will thus meet the diversification requirement, and the Company will monitor continued compliance with the requirement. STATE LAW State regulations require that the policyholder have appropriate insurable interest in the life insured. Failure to establish an insurable interest may result in the Policy not qualifying as a life insurance contract for federal tax purposes. 35 40 INVESTOR CONTROL In certain circumstances, owners of variable life insurance 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 policyholder's gross income. The IRS has stated in published rulings that a variable policyholder will be considered the owner of separate account assets if the policyholder 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 policyholder), rather than the insurance company, to be treated as the owner of the assets in the account." This announcement also stated that guidance would be issued by way of regulations or rulings on the "extent to which policyholders may direct their investments to particular sub-accounts without being treated as owners of the underlying assets". As of the date of this prospectus, no such guidance has been issued. 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 policyholders were not owners of separate account assets. For example, the policyholder has additional flexibility in allocating premium payments and Policy Values. These differences could result in an owner 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. The company therefore reserves the right to modify the Policy as necessary to attempt to prevent an owner from being considered the owner of a pro rata share of the assets of the Separate Account. TAX TREATMENT OF POLICY BENEFITS The following discussion assumes that the Policy will qualify as a life insurance contract for federal income tax purposes. The Company believes that the proceeds and cash value increases of a Policy should be treated in a manner consistent with a fixed-benefit life insurance policy for federal income tax purposes. Depending on the circumstances, the exchange of a Policy, a change in the Policy's death benefit option, a Policy loan, partial withdrawal, surrender, change in ownership, the addition of an accelerated death benefit rider, or an assignment of the Policy may have federal income tax consequences. In addition, federal, state and local transfer, and other tax consequences of ownership or receipt of Policy proceeds depend on the circumstances of each policyholder or beneficiary. DEATH BENEFIT The death benefit under the Policy should be excludable from the gross income of the beneficiary under Section 101(a)(1) of the Code. CASH VALUES Generally, the policyholder will not be deemed to be in constructive receipt of the Policy Value until there is a distribution. This includes additions attributable to interest, dividends, appreciation or gains realized on transfers among sub-accounts. INVESTMENT IN THE POLICY Investment in the Policy means: (a) the aggregate amount of any premiums or other consideration paid for a Policy; minus (b) the aggregate amount, other than loan amounts, received under the Policy which has been excluded from the gross income of the policyholder (except that the amount of any loan from, or secured by, a Policy that is a MEC, to the extent such amount has been excluded from gross income, will be disregarded); plus 36 41 (c) the amount of any loan from, or secured by a Policy that is a Modified Endowment Contract or "MEC" to the extent that such amount has been included in the gross income of the policyholder. The repayment of a policy loan, or the payment of interest on a loan, does not affect the Investment in the Policy. SURRENDER OR LAPSE Upon a complete surrender or lapse of a Policy or when benefits are paid at a Policy's maturity date, if the amount received plus the amount of Policy Debt exceeds the total investment in the Policy, the excess will generally be treated as ordinary income subject to tax. If, at the time of lapse, a Policy has a loan, the loan is extinguished and the amount of the loan is a deemed payment to the policyholder. If the amount of this deemed payment exceeds the investment in the contract, the excess is taxable income and is subject to Internal Revenue Service reporting requirements. DISTRIBUTIONS The tax consequences of distributions from, and loans taken from or secured by, a Policy depend on whether the Policy is classified as a MEC. DISTRIBUTIONS FROM NON-MEC'S A distribution from a non-MEC is generally treated as a tax-free recovery by the policyholder of the Investment in the Policy to the extent of such Investment in the Policy, and as a distribution of taxable income only to the extent the distribution exceeds the Investment in the Policy. Loans from, or secured by, a non-MEC are not treated as distributions. Instead, such loans are treated as indebtedness of the policyholder. Force Outs An exception to this general rule occurs in the case of a decrease in the Policy's death benefit or any other change that reduces benefits under the Policy in the first 15 years after the Policy is issued and that results in a cash distribution to the policyholder in order for the Policy to continue to comply with the Section 7702 definitional limits. Such a cash distribution will be taxed in whole or in part as ordinary income (to the extent of any gain in the Policy) under rules prescribed in Section 7702. Changes include partial withdrawals and death benefit option changes. DISTRIBUTIONS FROM MEC'S Policies classified as MEC's will be subject to the following tax rules: (a) First, all partial withdrawals from such a Policy are treated as ordinary income subject to tax up to the amount equal to the excess (if any) of the Policy Value immediately before the distribution over the Investment in the Policy at such time. (b) Second, loans taken from or secured by such a Policy are treated as partial withdrawals from the Policy and taxed accordingly. Past-due loan interest that is added to the loan amount is treated as a loan. (c) Third, a 10% additional income tax is imposed on the portion of any distribution (including distributions on surrender) from, or loan taken from or secured by, such a policy that is included in income except where the distribution or loan: (i) is made on or after the policyholder attains age 59 1/2; (ii) is attributable to the policyholder becoming disabled; or (iii) is part of a series of substantially equal periodic payments for the life (or life expectancy) of the policyholder or the joint lives (or joint life expectancies) of the policyholder and the policyholder's beneficiary. These exceptions are not likely to apply in situations where the Policy is not owned by an individual. Definition of Modified Endowment Contracts 37 42 Section 7702A establishes a class of life insurance contracts designated as "Modified Endowment Contracts," which applies to Policies entered into or materially changed after June 20, 1988. In general, a Policy will be a Modified Endowment Contract if the accumulated premiums paid at any time during the first seven policy years exceed the "seven-pay premium limit". The seven-pay premium limit on any date is equal to the sum of the net level premiums that would have been paid on or before such date if the policy provided for paid-up future benefits after the payment of seven level annual premiums (the "seven-pay premium"). The rules relating to whether a Policy will be treated as a MEC are extremely complex and cannot be adequately described in the limited confines of this summary. Therefore, a current or prospective policyholder should consult with a competent adviser to determine whether a transaction will cause the Policy to be treated as a MEC. Material Changes A policy that is not a MEC may become a MEC if it is "materially changed". If there is a material change to the policy, the seven year testing period for MEC status is restarted. The material change rules for determining whether a Policy is a MEC are complex. In general, however, the determination of whether a Policy will be a MEC after a material change generally depends upon the relationship among the death benefit of the Policy at the time of such change, the Policy Value at the time of the change, and the additional premiums paid into the Policy during the seven years starting with the date on which the material change occurs. Reductions in Face Amount If there is a reduction in benefits during the first seven policy years, the seven-pay premium limit is recalculated as if the policy had been originally issued at the reduced benefit level. Failure to comply would result in classification as a MEC regardless of any efforts by the Company to provide a payment schedule that will not violate the seven pay test. Exchanges A life insurance contract received in exchange for a MEC will also be treated as a MEC. Processing of Premiums If a premium is received which would cause the Policy to become a MEC within 23 days of the next Policy Anniversary, the Company will not apply the portion of the premium which would cause MEC status ("excess premium") to the Policy when received. The excess premium will be placed in a suspense account until the next anniversary date, at which point the excess premium, along with interest, earned on the excess premium at a rate of 3.5% from the date the premium was received, will be applied to the Policy. The policyholder will be advised of this action and will be offered the opportunity to have the premium credited as of the original date received or to have the premium returned. If the policyholder does not respond, the premium and interest will be applied to the Policy as of the first day of the next anniversary. If a premium is received which would cause the Policy to become a MEC more than 23 days prior to the next Policy Anniversary, the Company will refund any excess premium to the policyholder. The portion of the premium which is not excess will be applied as of the date received. The policyholder will be advised of this action and will be offered the opportunity to return the premium and have it credited to the account as of the original date received. Multiple Policies All MEC's that are issued by a Company (or its affiliates) to the same policyholder during any calendar year are treated as one MEC for purposes of determining the amount includible in gross income under Section 72(e) of the Code. 38 43 POLICY LOAN INTEREST Generally, personal interest paid on any loan under a Policy which is owned by an individual is not deductible. For policies purchased on or after January 1, 1996, interest on any loan under a Policy owned by a taxpayer and covering the life of any individual who is an officer or employee of or is financially interested in the business carried on by the taxpayer will not be tax deductible unless the employee is a key person within the meaning of Section 264 of the Code. A deduction will not be permitted for interest on a loan under a Policy held on the life of a key person to the extent the aggregate of such loans with respect to contracts covering the key person exceed $50,000. The number of employees who can qualify as key persons depends in part on the size of the employer but cannot exceed 20 individuals. Furthermore, if a non-natural person owns a Policy, or is the direct or indirect beneficiary under a Policy, section 264(f) of the Code disallows a pro-rata portion of the taxpayer's interest expense allocable to unborrowed Policy cash values attributable to insurance held on the lives of individuals who are not 20% (or more) owners of the taxpayer-entity, officers, employees, or former employees of the taxpayer. The portion of the interest expense that is allocable to unborrowed Policy cash values is an amount that bears the same ratio to that interest expense as the taxpayer's average unborrowed Policy cash values under such life insurance policies bear to the average adjusted bases for all assets of the taxpayer. If the taxpayer is not the Policyholder, but is the direct or indirect beneficiary under the Policy, then the amount of unborrowed cash value of the Policy taken into account in computing the portion of the taxpayer's interest expense allocable to unborrowed Policy cash values cannot exceed the benefit to which the taxpayer is directly or indirectly entitled under the Policy. POLICY EXCHANGES A policyholder generally will not recognize gain upon the exchange of a Policy for another life insurance policy issued by the Company or another insurance company, except to the extent that the policyholder receives cash in the exchange or is relieved of Policy indebtedness as a result of the exchange. In no event will the gain recognized exceed the amount by which the Policy Value (including any unpaid loans) exceeds the policyholder's Investment in the Policy. OTHER TRANSACTIONS A transfer of the Policy, a change in the owner, a change in the beneficiary, and certain other changes to the Policy, as well as particular uses of the Policy (including use in a so called "split-dollar" arrangement) may have tax consequences depending upon the particular circumstances and should not be undertaken prior to consulting with a qualified tax adviser. For instance, if the owner transfers the Policy or designates a new owner in return for valuable consideration (or, in some cases, if the transferor is relieved of a liability as a result of the transfer), then the Death Benefit payable upon the death of the Insured may in certain circumstances be includible in taxable income to the extent that the Death Benefit exceeds the prior consideration paid for the transfer and any premiums or other amounts subsequently paid by the transferee. Further, in such a case, if the consideration received exceeds the transferor's Investment in the Policy, the difference will be taxed to the transferor as ordinary income. Federal estate and state and local estate, inheritance and other tax consequences of ownership or receipt of Policy proceeds depend on the individual circumstances of each policyholder and beneficiary. ALTERNATE MINIMUM TAX Corporate owners may be subject to Alternate Minimum Tax on the annual increases in Cash Surrender Values and on the Death Benefit proceeds. 39 44 INCOME TAX REPORTING In certain employer-sponsored life insurance arrangements, including equity-split dollar arrangements, participants may be required to report for income tax purposes, one or more of the following: (a) the value each year of the life insurance protection provided; (b) an amount equal to any employer-paid premiums; or (c) some or all of the amount by which the current value exceeds the employer's interest in the Policy. Participants should consult with their tax adviser to determine the tax consequences of these arrangements. OTHER INFORMATION PAYMENT OF PROCEEDS As long as the Policy is in force, Manufacturers Life of America will ordinarily pay any policy loans, surrenders, partial withdrawals or insurance benefit within seven days after receipt at its Service Office of all the documents required for such a payment. The Company may delay the payment of any policy loans, surrenders, partial withdrawals, or insurance benefit that depends on Guaranteed Interest Account values for up to six months or in the case of any Investment Account for any period during which (i) the New York Stock Exchange is closed for trading (except for normal weekend and holiday closings), (ii) trading on the New York Stock Exchange is restricted (iii) an emergency exists as a result of which disposal of securities held in the Separate Account is not reasonably practicable or it is not reasonably practicable to determine the value of the Separate Account's net assets or (iv) the SEC, by order, so permits for the protection of security holders; provided that applicable rules and regulations of the SEC shall govern as to whether the conditions described in (2) and (3) exist. REPORTS TO POLICYHOLDERS Within 30 days after each Policy Anniversary, Manufacturers Life of America will send the policyholder a statement showing, among other things: - - the amount of death benefit; - - the Policy Value and its allocation among the Investment Accounts, the Guaranteed Interest Account and the Loan Account; - - the value of the units in each Investment Account to which the Policy Value is allocated; - - the Policy Debt and any loan interest charged since the last report; - - the premiums paid and other Policy transactions made during the period since the last report; and - - any other information required by law. Each policyholder will also be sent an annual and a semi-annual report for theTrust which will include a list of the securities held in each Portfolio as required by the 1940 Act. DISTRIBUTION OF THE POLICIES ManEquity, Inc., an indirect wholly-owned subsidiary of MFC, 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. ManEquity, Inc. is located at 200 Bloor Street East, Toronto, Ontario, Canada, M4W 1E5 and was organized under the laws of Colorado on May 4, 1970. The directors of ManEquity, Inc. are: John Richardson, Roy Bubbs, Bruce Gordon, Gary Buchanan and Douglas Myers. The officers of ManEquity, Inc. are: (i) Douglas Myers - President, (ii) Gary Buchanan - Vice President, Compliance, (iii) Thomas Reives - Treasurer, (iv) Brian Buckley - Secretary and General Counsel. The principal business address of each director and officer of ManEquity, Inc., except Brian Buckley, is Manulife Financial, 200 Bloor Street East, Toronto, Ontario, Canada, M4W 1E5. The principal business address of Brian Buckley is Manulife Financial, 73 40 45 Tremont Street, Boston, MA 02108. The Policies will be sold by registered representatives of either ManEquity or other broker-dealers having distribution agreements with ManEquity who are also authorized by state insurance departments to do so. A registered representative will receive commissions not to exceed 15% of premiums paid up to the Target Premium, and 2.5% of premiums paid in excess of the Target Premium in Policy Years 1 through 5, commissions of 2.5% of premiums paid in Policy Years 6 and later, and after the fifth anniversary 0.20% of the Policy Value per year. Representatives who meet certain productivity standards with regard to the sale of the Policies and certain other policies issued by Manufacturers Life of America or Manufacturers Life will be eligible for additional compensation. RESPONSIBILITIES OF MANUFACTURERS LIFE Manufacturers Life and The Manufacturers Life Insurance Company (U.S.A.), ("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 or Manufacturers USA and will pay Manufacturers Life or Manufacturers USA for its other services under the agreement in such amounts and at such times as agreed to by the parties. Manufacturers Life and Manufacturers USA have also entered into a Service Agreement with Manufacturers Life of America pursuant to which Manufacturers Life and Manufacturers USA will provide to Manufacturers Life of America all issue, administrative, general services and recordkeeping functions on behalf of Manufacturers Life of America with respect to all of its insurance policies including the Policies. Finally, Manufacturers USA has entered into a Stoploss Reinsurance Agreement with Manufacturers Life of America under which Manufacturers Life (or Manufacturers USA) reinsures all aggregate claims in excess of 110% of the expected claims for all flexible premium variable life insurance policies issued by Manufacturers Life of America. Under the agreement, Manufacturers USA will automatically reinsure the risk for any one life up to a maximum of $7,500,000, except in the case of aviation risks where the maximum will be $5,000,000. However, Manufacturers USA may also consider reinsuring any non-aviation risk in excess of $7,500,000 and any aviation risk in excess of $5,000,000. VOTING RIGHTS As stated previously, all of the assets held in the sub-accounts of the Separate Account will be invested in shares of a particular Portfolio of the 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 sub-accounts in accordance with instructions received from policyholders having an interest in such sub-accounts. Shares held in each sub-account for which no timely instructions from policyholders are received, including shares not attributable to the Policies, will be voted by Manufacturers Life of America in the same proportion as those shares in that sub-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 Separate Account in its own right, it may elect to do so. The number of shares in each sub-account for which instructions may be given by a policyholder is determined by dividing the portion of the Policy Value derived from participation in that sub-account, if any, by the value of one share of the corresponding Portfolio. 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 meeting. 41 46 Manufacturers Life of America may, if required by state officials, disregard voting instructions if such instructions would require shares to be voted so as to cause a change in the sub-classification or investment policies of one or more of the Portfolios, or to approve or disapprove an investment management contract. In addition, the Company itself may disregard voting instructions that would require changes in the investment policies or investment adviser, provided that the Company reasonably disapproves such changes in accordance with applicable federal regulations. If Manufacturers Life of America does disregard voting instructions, it will advise policyholders of that action and its reasons for such action in the next communication to policyholders. SUBSTITUTION OF PORTFOLIO SHARES It is possible that in the judgment of the management of Manufacturers Life of America, one or more of the Portfolios may become unsuitable for investment by the Separate Account because of a change in investment policy or a change in the applicable laws or regulation, 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 (i) to combine other separate accounts with the Separate Account, (ii) to create new separate accounts, (iii) to establish additional sub-accounts within the Separate Account to invest in additional portfolios of the Trust or another management investment company, (iv) to eliminate existing sub-accounts and to stop accepting new allocations and transfers into the corresponding portfolio, (v) to combine sub-accounts or to transfer assets in one sub-account to another sub-account or (vi) to transfer assets from the Separate Account to another separate account and from another separate account to the Separate Account. The Company also reserves the right to operate the Separate Account as a management investment company or other form permitted by law, and to de-register the Separate Account under the 1940 Act. Any such change would be made only if permissible under applicable federal and state law. RECORDS AND ACCOUNTS McCamish Systems, L.L.C., 6425 Powers Ferry Road, Atlanta, Georgia 30339, will act as a Transfer Agent on behalf of Manufacturers Life of America as it relates to the Policies described in this Prospectus. In the role of a Transfer Agent, McCamish Systems will perform administrative functions, such as decreases, increases, surrenders and partial withdrawals and fund transfers on behalf of the Company. All records and accounts relating to the Separate Account and the Portfolios will be maintained by the Company. All financial transactions will be handled by the Company. All reports required to be made and information required to be given will be provided by McCamish Systems on behalf of the Company. STATE REGULATIONS Manufacturers Life of America is subject to the regulation and supervision by the Michigan Department of Insurance, which periodically examines its financial condition and operations. It is also subject to the insurance laws and regulations of all jurisdictions in which it is authorized to do business. The Policies have been filed with insurance officials, and meet all standards set by law, in each jurisdiction where they are sold. Manufacturers Life of America is required to submit annual statements of its operations, including financial statements, to the insurance departments of the various jurisdictions in which it does business for the purposes of determining solvency and compliance with local insurance laws and regulations. LITIGATION No litigation is pending that would have a material effect upon the Separate Account or the Trust. 42 47 INDEPENDENT AUDITORS The consolidated financial statements of The Manufacturers Life Insurance Company of America at December 31, 1999 and 1998, and for each of the three years ended December 31, 1999 and the financial statements of Separate Account Four of The Manufacturers Life Insurance Company of America at December 31, 1999 and 1998, and for each of the two years ended December 31, 1999, appearing in this prospectus, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon 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. FURTHER INFORMATION A registration statement under the Securities Act of 1933 has been filed with the S.E.C. relating to the offering described in this prospectus. This prospectus does not include all the information set forth in the registration statement. The omitted information may be obtained from the S.E.C.'s principal office in Washington D.C. upon payment of the prescribed fee. The SEC also maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC which is located at http://www.sec.gov. For further information you may also contact Manufacturers Life of America's Home Office, the address and telephone number of which are on the first page of the prospectus. OFFICERS AND DIRECTORS The directors and executive officers of the Company, together with their principal occupations during the past five years are as follows:
POSITION WITH MANUFACTURERS NAME LIFE OF AMERICA PRINCIPAL OCCUPATION Sandra M. Cotter (37)* Director Attorney, Dykema Gossett, PLLC, 1989 to present. (since December 1992) James D. Gallagher (45)** Director (since May 1996), President, The Manufacturers Life Insurance Secretary and General Counsel Company of New York, August 1999 to Present; Vice President, Secretary and General Counsel, The Manufacturers Life Insurance Company (USA), January 1997 to present; Secretary and General Counsel, Manufacturers Adviser Corporation, January 1997 to present; Vice President, Legal Services - U.S. Operations, The Manufacturers Life Insurance Company, January 1996 to present; Vice President, Secretary and General Counsel, The Manufacturers Life Insurance Company of North America, 1994 to present; Donald A. Guloien (42)*** Director (since August 1990) Executive Vice President, Business Development, and President The Manufacturers Life Insurance Company, January 1999 to present, Senior Vice President, Business Development, The Manufacturers Life Insurance Company, 1994 to December 1998.
43 48
POSITION WITH MANUFACTURERS NAME LIFE OF AMERICA PRINCIPAL OCCUPATION James O'Malley (54)*** Director (since November 1998) Senior Vice President, U.S. Pensions, The Manufacturers Life Insurance Company, January 1999 to present; Vice President, Systems New Business Pensions, The Manufacturers Life Insurance Company, 1984 to December 1998. Joseph J. Pietroski (61)*** Director (since July 1992) Senior Vice President and Corporate Secretary, The Manufacturers Life Insurance Company, 1999 to present; Senior Vice President, General Counsel and Corporate Secretary, The Manufacturers Life Insurance Company, 1988 to 1999. John D. Richardson (62)*** Director (since January 1995) Senior Executive Vice President, The and Chairman Manufacturers Life Insurance Company; January 1999 to present; Executive Vice President, U.S. Operations, The Manufacturers Life Insurance Company, November 1995 to December 1998; Senior Vice President and General Manager, U.S. Operations, The Manufacturers Life Insurance Company, January 1995 to October 1997. Victor Apps (52)*** Vice President, Asia Executive Vice President, Asia Operations, The Manufacturers Life Insurance Company, November 1997 to present; Senior Vice President and General Manager, Greater China Division, The Manufacturers Life Insurance Company, 1995 to 1997; Vice President and General Manager, Greater China Division, The
44 49
POSITION WITH MANUFACTURERS NAME LIFE OF AMERICA PRINCIPAL OCCUPATION Manufacturers Life Insurance Company, 1993 to 1995. Felix Chee (53)*** Vice President, Investments Executive Vice President and Chief Investment Officer, The Manufacturers Life Insurance Company; November 1997 to present; Chief Investment Officer, The Manufacturers Life Insurance Company, June 1997 to present, Senior Vice President and Treasurer, The Manufacturers Life Insurance Company, August 1994 to May 1997. Robert A. Cook (45)** Vice President, Marketing Senior Vice President, U.S. Individual Insurance, The Manufacturers Life Insurance Company, January 1999 to present; Vice President, Product Management, The Manufacturers Life Insurance Company, January 1996 to December 1998; Sales and Marketing Director, The Manufacturers Life Insurance Company, 1994 to 1995. Douglas H. Myers (45)*** Vice President, Finance and President, ManEquity, Inc., April 1994 to Compliance, Controller present; Assistant Vice President and Controller, U.S. Operations, The Manufacturers Life Insurance Company, 1988 to present. John G. Vrysen (44)** Vice President, Appointed Chief Financial Officer and Treasurer, Actuary Manulife-Wood Logan Holding Co., Inc., January 1996 to present; Vice President and Chief Financial Officer, U.S. Operations, The Manufacturers Life Insurance Company, January 1996 to present; Vice President and Chief Actuary, The Manufacturers Life Insurance Company of New York, March 1992 to present; Vice President and Chief Actuary, The Manufacturers Life Insurance Company of North America, January 1986 to present. Denis Turner (44)*** Vice President and Treasurer Vice President and Treasurer, The Manufacturers Life Insurance Company of America, May 1999 to present; Vice President & Chief Accountant, U.S. Division, The Manufacturers Life Insurance Company, May 1999 to present; Assistant Vice President, Financial Operations, Reinsurance Division, The Manufacturers Life Insurance Company, February 1998 to April 1999; Assistant Vice President & Controller, Reinsurance Division, The Manufacturers Life Insurance Company, November 1995, to
45 50
POSITION WITH MANUFACTURERS NAME LIFE OF AMERICA PRINCIPAL OCCUPATION January 1998, Assistant Vice President, Corporate Controllers, The Manufacturers Life Insurance Company, January 1989 to October 1995.
* Principal business address is: Dykema Gossett, 800 Michigan National Tower, Lansing Michigan 48933 ** Principal business address is: Manulife Financial, 73 Tremont Street, Boston, MA 02108 *** Principal business address is: Manulife Financial, 200 Bloor Street, Toronto, Ontario, Canada M4W 1E5 YEAR 2000 ISSUES The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. Although the change in date has occurred, it is not possible to conclude that all aspects of the Year 2000 Issue that may affect us, including those related to customers, suppliers, or other third parties, have been fully resolved. DEATH BENEFIT SCHEDULE WITH FLEXIBLE TERM INSURANCE OPTION A Policy can be issued with a schedule of death benefits which may vary by Policy Year. The entire schedule is called the Death Benefit Schedule. The Death Benefit Schedule will provide flexible term insurance to age 100. The amount of death benefit shown in the Death Benefit Schedule for any Policy Year is called the Scheduled Annual Death Benefit for that Policy Year. Any amount of Scheduled Annual Death Benefit over and above the death benefit provided by the Policy will be provided by Flexible Term Insurance (the "Rider"). The combined death benefit of the Policy and Rider may be the Scheduled Annual Death Benefit alone (similar to Death Benefit Option 1), or the Scheduled Annual Death Benefit plus the Policy Value (similar to Death Benefit Option 2). A Policy may be combined with the Rider to result in an initial Scheduled Annual Death Benefit equal to the same Face Amount that could be acquired under the Policy alone. Depending upon the amount of premium paid into the Policy, combining the Policy and the Rider may result in a surrender charge for the Policy that is lower than the surrender charge provided under the Policy alone. In addition, current cost of insurance rates for the Rider are less than those for the Policy in the first fifteen Policy years, but greater than the rates for the Policy in Policy Year 16 and later. A policyholder may, upon written request, change the Death Benefit Schedule. A written request for a change which results in a decrease to the Scheduled Annual Death Benefit must be received at least 30 days prior to the first day of a policy month for the change to take effect as of that policy month. A written request for a change which results in an increase to the Scheduled Annual Death Benefit in any Policy Year will take effect at the beginning of the month following the date the Company approves the request. Increases in the Death Benefit Schedule are subject to evidence of insurability satisfactory to the Company, A requested decrease in the Schedule will require a decrease in the Policy's Face Amount if the new Death Benefit Schedule in any year is less than the Face Amount. In this case, the Face Amount will be reduced to the Scheduled Annual Death Benefit. If a decrease in Face Amount is required, Surrender Charges will be assessed as provided under "Decrease in Face Amount - Surrender Charges Assessed on a Decrease". If the policyholder changes the Death Benefit Option of the Policy from Death Benefit Option 2 to Death Benefit Option 1 and if the Face Amount of the Policy after the change would be greater than the Scheduled Annual Death Benefit in effect at the time of the change, then the Face Amount after the change will be equal to the Scheduled Annual Death Benefit. If the Face Amount of the Policy is increased then the Scheduled Annual Death Benefit for all Policy Years after and including the effective date of the change will be increased by the same amount. If the Face Amount of the Policy is decreased then the Scheduled Annual Death Benefit for all Policy Years after and including the effective 46 51 date of the change will be decreased by the same amount. This provision does not apply to increases or decreases in Face Amount due to a change in the Death Benefit Option. If in any Policy Year, the Face Amount is greater than the Scheduled Annual Death Benefit for that Policy Year, the Face Amount will be reduced to be equal to the Scheduled Annual Death Benefit. If the Face Amount is decreased, Surrender Charges will be assessed as provided under "Decrease in Face Amount - Surrender Charged Assessed on a Decrease." Year to year changes within the Death Benefit Schedule, as well as a change in the Death Benefit Schedule itself, may also have an effect on the maximum amount of premium that a policyholder may pay into a Policy. The Company will inform you of any such change. The Company reserves the right to limit a change in the Death Benefit Schedule so as to prevent the Policy from failing to qualify as life insurance for tax purposes. The Rider is subject to the same Incontestability, Misstatement of Age or Sex, and Suicide Exclusion provisions as the Policy. The Rider terminates on the termination date of the Policy. The policyholder may, however, terminate the Rider prior to the termination date of the Policy by sending the Company a written request to terminate the Rider. The Rider will then terminate at the end of the month in which the Company receives the request. 47 52 Appendix A ILLUSTRATIONS The following tables illustrate the way in which a Policy's Death Benefit, Policy Value, and Cash Surrender Value could vary over an extended period of time. ASSUMPTIONS - - Hypothetical gross annual investment returns for the Portfolios (i.e., investment income and capital gains and losses, realized or unrealized) equivalent to constant gross annual rates of 0%, 6%, and 12% over the periods indicated. - - An Insured who is a male, Issue Age 45, non-smoker. - - A Face Amount of $365,000 in all Policy Years. - - Payment of an annual premium of $20,000 each year for the first seven Policy Years. Premiums are paid on the Policy Anniversary. - - All Premiums are allocated to and remain in the Variable Account for the entire period shown. - - There are no transfers, partial withdrawals, or policy loans. - - Tables 1, 2, and 3 assume regular underwriting. Tables 4, 5, and 6 assume short form underwriting. - - The Cash Value Accumulation Test is used. - - The illustrations assume all charges currently assessed against the Policy, including monthly cost of insurance charges and administrative charges and mortality and expense risk charges. The first set of columns in each table, under the heading "Current Charges", assumes cost of insurance rates currently expected to be charged. The second set of columns, under the heading "Guaranteed Charges", assumes maximum cost of insurance rates. - - The amounts shown in the Tables also take into account the Portfolios' advisory fees and operating expenses, which are assumed to be at an annual rate of 0.931% of the average daily net assets of the portfolio. The Death Benefits, Policy Values, and Cash Surrender Values would be different from those shown if the returns averaged 0%, 6%, and 12%, but fluctuated over and under those averages throughout the years. The values would also be different depending on the allocation of a Policy's total Policy Value among the sub-accounts, if the actual rates of return averaged 0%, 6%, or 12%, but the rates of each Portfolio varied above and below such averages. The gross annual rates of returns correspond to net annual rates of return according to the table below:
Gross Rate of Return Policy Year 0.00% 6.00% 12.00% Net Rate 1-10 -1.670% 4.230% 10.130% of Return 11+ -1.323% 4.598% 10.519%
Current cost of insurance charges are not guaranteed and may be changed. The illustrations reflect the expense reimbursements in effect for the Lifestyle Trusts, the Equity Index Trust and the Index Trusts. In the absence of such expense reimbursements, the average of the Portfolios' current expenses would have been 0.943% per annum and the gross annual rates of return of 0%, 6% and 12% would have corresponded to approximate net annual rates of return of - -1.682%, 4.218% and 10.117% for Policy Years 1-10 and -1.335%, 4.585% and 10.505% for Policy Years 11 and after. The expense reimbursements are expected to remain in effect during the fiscal year ending December 31, 2000. Were the expense reimbursements to terminate, the average of the Portfolios' current expenses would be higher and the approximate net annual rates of return would be lower. Upon request, Manufacturers Life of America will furnish a comparable illustration based on the proposed life insured's Issue Age, sex and risk class, any additional ratings and the death benefit option, Face Amount, Death 48 53 Benefit Schedule (if applicable), and planned premium requested. Illustrations for smokers would show less favorable results than the illustration shown in this prospectus. From time to time, in advertisements or sales literature for the Policies that quote performance data of one or more of the Portfolios, the Company may include cash surrender values and death benefit figures computed or using the same methodology as that used in the following illustrations, but with the average annual total return of the Portfolio for which performance data is shown in the advertisement replacing the hypothetical rates of return shown in the following tables. The Policies were first sold to the public on September 11, 1998. However, total return data may be advertised for as long a period of time as the underlying Portfolio has been in existence. The results for any period prior to the Policies being offered would be calculated as if the Policies had been offered during that period of time, with all charges assumed to be the same as for the first full year the Policies were offered. 49 54 Table 1 - Regular Underwriting Hypothetical Gross Investment Return of 0.00%
Current Charges - -------------------------------------------------------------------------------------------------------------------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 733 -319 18,404 2,000 16,404 365,000 2 20,000 43,050 18,404 19,600 144 980 -624 36,256 3,000 33,256 365,000 3 20,000 66,203 36,256 19,600 144 1,197 -921 53,594 3,000 50,594 365,000 4 20,000 90,513 53,594 19,600 144 1,286 -1,209 70,555 4,000 66,555 365,000 5 20,000 116,038 70,555 19,600 144 1,320 -1,492 87,199 5,000 82,199 365,000 6 20,000 142,840 87,199 19,600 144 1,381 -1,769 103,505 5,000 98,505 365,000 7 20,000 170,982 103,505 19,600 144 1,431 -2,041 119,489 4,000 115,489 365,000 8 0 179,531 119,489 0 144 1,598 -1,979 115,768 3,000 112,768 365,000 9 0 188,508 115,768 0 144 1,792 -1,916 111,916 2,000 109,916 365,000 10 0 197,933 111,916 0 144 2,034 -1,849 107,889 0 107,889 365,000 11 0 207,830 107,889 0 144 2,081 -1,411 104,253 0 104,253 365,000 12 0 218,221 104,253 0 144 2,088 -1,363 100,658 0 100,658 365,000 13 0 229,132 100,658 0 144 2,040 -1,316 97,158 0 97,158 365,000 14 0 240,589 97,158 0 144 1,857 -1,271 93,886 0 93,886 365,000 15 0 252,619 93,886 0 144 1,517 -1,230 90,995 0 90,995 365,000 16 0 265,249 90,995 0 144 1,678 -1,191 87,982 0 87,982 365,000 17 0 278,512 87,982 0 144 1,853 -1,150 84,835 0 84,835 365,000 18 0 292,438 84,835 0 144 2,046 -1,107 81,538 0 81,538 365,000 19 0 307,059 81,538 0 144 2,244 -1,062 78,088 0 78,088 365,000 20 0 322,412 78,088 0 144 2,453 -1,014 74,477 0 74,477 365,000 25 0 411,489 57,434 0 144 4,364 -728 52,198 0 52,198 365,000 30 0 525,176 25,057 0 144 8,466 -270 16,177 0 16,177 365,000
Guaranteed Charges - --------------------------------------------------------------------------------------------------------------------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 1,570 -312 17,574 2,000 15,574 365,000 2 20,000 43,050 17,574 19,600 144 1,612 -605 34,813 3,000 31,813 365,000 3 20,000 66,203 34,813 19,600 144 1,652 -892 51,724 3,000 48,724 365,000 4 20,000 90,513 51,724 19,600 144 1,687 -1,174 68,319 4,000 64,319 365,000 5 20,000 116,038 68,319 19,600 144 1,723 -1,451 84,601 5,000 79,601 365,000 6 20,000 142,840 84,601 19,600 144 1,753 -1,723 100,582 5,000 95,582 365,000 7 20,000 170,982 100,582 19,600 144 1,792 -1,989 116,257 4,000 112,257 365,000 8 0 179,531 116,257 0 144 1,985 -1,922 112,206 3,000 109,206 365,000 9 0 188,508 112,206 0 144 2,208 -1,852 108,001 2,000 106,001 365,000 10 0 197,933 108,001 0 144 2,465 -1,780 103,613 0 103,613 365,000 11 0 207,830 103,613 0 144 2,745 -1,350 99,374 0 99,374 365,000 12 0 218,221 99,374 0 144 3,054 -1,292 94,884 0 94,884 365,000 13 0 229,132 94,884 0 144 3,386 -1,230 90,124 0 90,124 365,000 14 0 240,589 90,124 0 144 3,751 -1,164 85,065 0 85,065 365,000 15 0 252,619 85,065 0 144 4,153 -1,095 79,673 0 79,673 365,000 16 0 265,249 79,673 0 144 4,611 -1,020 73,897 0 73,897 365,000 17 0 278,512 73,897 0 144 5,135 -940 67,679 0 67,679 365,000 18 0 292,438 67,679 0 144 5,742 -853 60,940 0 60,940 365,000 19 0 307,059 60,940 0 144 6,449 -759 53,588 0 53,588 365,000 20 0 322,412 53,588 0 144 7,264 -656 45,524 0 45,524 365,000 25 0 411,489 4,018 0 144 13,234 42 0 0 0 0 30 0 525,176 0 0 0 0 0 0 0 0 0
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of manufacturers investment trust. - - The policy value, cash surrender value and death benefit for a policy would be different from those shown if actual rates of investment return averaged the rate shown above over a period of years, but also fluctuated above or below that average for individual policy years. - - No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 55 Table 2 - Regular Underwriting Hypothetical Gross Investment Return of 6.00%
Current Charges - --------------------------------------------------------------------------------------------------------------------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 731 809 19,534 2,000 17,534 365,000 2 20,000 43,050 19,534 19,600 144 973 1,630 39,647 3,000 36,647 365,000 3 20,000 66,203 39,647 19,600 144 1,179 2,476 60,400 3,000 57,400 365,000 4 20,000 90,513 60,400 19,600 144 1,246 3,353 81,963 4,000 77,963 365,000 5 20,000 116,038 81,963 19,600 144 1,253 4,265 104,431 5,000 99,431 365,000 6 20,000 142,840 104,431 19,600 144 1,272 5,215 127,830 5,000 122,830 365,000 7 20,000 170,982 127,830 19,600 144 1,273 6,205 152,218 4,000 148,218 372,935 8 0 179,531 152,218 0 144 1,370 6,405 157,109 3,000 154,109 373,919 9 0 188,508 157,109 0 144 1,486 6,609 162,088 2,000 160,088 376,043 10 0 197,933 162,088 0 144 1,621 6,817 167,140 0 167,140 376,065 11 0 207,830 167,140 0 144 1,599 7,642 173,039 0 173,039 378,956 12 0 218,221 173,039 0 144 1,547 7,914 179,262 0 179,262 381,828 13 0 229,132 179,262 0 144 1,458 8,203 185,863 0 185,863 384,736 14 0 240,589 185,863 0 144 1,289 8,510 192,940 0 192,940 389,738 15 0 252,619 192,940 0 144 1,033 8,842 200,605 0 200,605 395,193 16 0 265,249 200,605 0 144 1,113 9,193 208,541 0 208,541 400,399 17 0 278,512 208,541 0 144 1,198 9,555 216,754 0 216,754 405,331 18 0 292,438 216,754 0 144 1,288 9,931 225,253 0 225,253 409,961 19 0 307,059 225,253 0 144 1,394 10,319 234,034 0 234,034 416,581 20 0 322,412 234,034 0 144 1,505 10,720 243,105 0 243,105 423,003 25 0 411,489 282,184 0 144 2,323 12,914 292,631 0 292,631 453,577 30 0 525,176 336,701 0 144 3,711 15,386 348,232 0 348,232 491,007
Guaranteed Charges - --------------------------------------------------------------------------------------------------------------------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 1,568 790 18,678 2,000 16,678 365,000 2 20,000 43,050 18,678 19,600 144 1,602 1,580 38,112 3,000 35,112 365,000 3 20,000 66,203 38,112 19,600 144 1,627 2,401 58,342 3,000 55,342 365,000 4 20,000 90,513 58,342 19,600 144 1,637 3,257 79,418 4,000 75,418 365,000 5 20,000 116,038 79,418 19,600 144 1,638 4,148 101,384 5,000 96,384 365,000 6 20,000 142,840 101,384 19,600 144 1,619 5,078 124,299 5,000 119,299 365,000 7 20,000 170,982 124,299 19,600 144 1,591 6,048 148,212 4,000 144,212 365,000 8 0 179,531 148,212 0 144 1,700 6,228 152,596 3,000 149,596 365,000 9 0 188,508 152,596 0 144 1,822 6,410 157,040 2,000 155,040 365,000 10 0 197,933 157,040 0 144 1,957 6,595 161,534 0 161,534 365,000 11 0 207,830 161,534 0 144 2,093 7,372 166,668 0 166,668 365,004 12 0 218,221 166,668 0 144 2,232 7,604 171,896 0 171,896 366,139 13 0 229,132 171,896 0 144 2,368 7,841 177,226 0 177,226 366,858 14 0 240,589 177,226 0 144 2,510 8,083 182,655 0 182,655 368,963 15 0 252,619 182,655 0 144 2,657 8,329 188,183 0 188,183 370,721 16 0 265,249 188,183 0 144 2,815 8,579 193,803 0 193,803 372,102 17 0 278,512 193,803 0 144 2,983 8,834 199,509 0 199,509 373,083 18 0 292,438 199,509 0 144 3,163 9,092 205,294 0 205,294 373,636 19 0 307,059 205,294 0 144 3,391 9,352 211,111 0 211,111 375,778 20 0 322,412 211,111 0 144 3,637 9,613 216,944 0 216,944 377,482 25 0 411,489 240,476 0 144 4,817 10,934 246,449 0 246,449 381,996 30 0 525,176 269,875 0 144 6,501 12,243 275,474 0 275,474 388,418
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of manufacturers investment trust. - - The policy value, cash surrender value and death benefit for a policy would be different from those shown if actual rates of investment return averaged the rate shown above over a period of years, but also fluctuated above or below that average for individual policy years. - - No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 56 Table 3 - Regular Underwriting Hypothetical Gross Investment Return of 12.00%
Current Charges - --------------------------------------------------------------------------------------------------------------------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 730 1,938 20,664 2,000 18,664 365,000 2 20,000 43,050 20,664 19,600 144 967 4,019 43,172 3,000 40,172 365,000 3 20,000 66,203 43,172 19,600 144 1,158 6,289 67,759 3,000 64,759 365,000 4 20,000 90,513 67,759 19,600 144 1,203 8,777 94,789 4,000 90,789 365,000 5 20,000 116,038 94,789 19,600 144 1,175 11,516 124,586 5,000 119,586 365,000 6 20,000 142,840 124,586 19,600 144 1,188 14,535 157,389 5,000 152,389 398,194 7 20,000 170,982 157,389 19,600 144 1,357 17,849 193,337 4,000 189,337 473,675 8 0 179,531 193,337 0 144 1,479 19,498 211,212 3,000 208,212 502,684 9 0 188,508 211,212 0 144 1,620 21,302 230,750 2,000 228,750 535,339 10 0 197,933 230,750 0 144 1,770 23,273 252,109 0 252,109 567,244 11 0 207,830 252,109 0 144 1,787 26,411 276,589 0 276,589 605,731 12 0 218,221 276,589 0 144 1,784 28,986 303,647 0 303,647 646,769 13 0 229,132 303,647 0 144 1,768 31,833 333,568 0 333,568 690,486 14 0 240,589 333,568 0 144 1,703 34,984 366,705 0 366,705 740,744 15 0 252,619 366,705 0 144 1,622 38,475 403,414 0 403,414 794,726 16 0 265,249 403,414 0 144 1,945 42,318 443,643 0 443,643 851,794 17 0 278,512 443,643 0 144 2,326 46,529 487,702 0 487,702 912,003 18 0 292,438 487,702 0 144 2,772 51,139 535,925 0 535,925 975,383 19 0 307,059 535,925 0 144 3,328 56,180 588,633 0 588,633 1,047,768 20 0 322,412 588,633 0 144 3,969 61,689 646,209 0 646,209 1,124,404 25 0 411,489 934,690 0 144 8,263 97,852 1,024,135 0 1,024,135 1,587,409 30 0 525,176 1,468,988 0 144 16,850 153,578 1,605,572 0 1,605,572 2,263,856
Guaranteed Charges - --------------------------------------------------------------------------------------------------------------------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 1,565 1,893 19,784 2,000 17,784 365,000 2 20,000 43,050 19,784 19,600 144 1,591 3,896 41,544 3,000 38,544 365,000 3 20,000 66,203 41,544 19,600 144 1,600 6,100 65,500 3,000 62,500 365,000 4 20,000 90,513 65,500 19,600 144 1,582 8,527 91,901 4,000 87,901 365,000 5 20,000 116,038 91,901 19,600 144 1,540 11,204 121,021 5,000 116,021 365,000 6 20,000 142,840 121,021 19,600 144 1,505 14,157 153,129 5,000 148,129 387,416 7 20,000 170,982 153,129 19,600 144 1,892 17,389 188,082 4,000 184,082 460,802 8 0 179,531 188,082 0 144 2,190 18,926 204,674 3,000 201,674 487,125 9 0 188,508 204,674 0 144 2,511 20,589 222,608 2,000 220,608 516,450 10 0 197,933 222,608 0 144 2,856 22,386 241,994 0 241,994 544,487 11 0 207,830 241,994 0 144 3,262 25,259 263,847 0 263,847 577,826 12 0 218,221 263,847 0 144 3,720 27,530 287,514 0 287,514 612,405 13 0 229,132 287,514 0 144 4,209 29,990 313,151 0 313,151 648,222 14 0 240,589 313,151 0 144 4,785 32,651 340,873 0 340,873 688,563 15 0 252,619 340,873 0 144 5,417 35,529 370,841 0 370,841 730,556 16 0 265,249 370,841 0 144 6,124 38,637 403,210 0 403,210 774,164 17 0 278,512 403,210 0 144 6,911 41,993 438,149 0 438,149 819,338 18 0 292,438 438,149 0 144 7,794 45,614 475,824 0 475,824 866,000 19 0 307,059 475,824 0 144 8,887 49,509 516,302 0 516,302 919,017 20 0 322,412 516,302 0 144 10,096 53,691 559,753 0 559,753 973,970 25 0 411,489 767,254 0 144 17,965 79,586 828,732 0 828,732 1,284,534 30 0 525,176 1,116,526 0 144 32,580 115,360 1,199,161 0 1,199,161 1,690,817
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of manufacturers investment trust. - - The policy value, cash surrender value and death benefit for a policy would be different from those shown if actual rates of investment return averaged the rate shown above over a period of years, but also fluctuated above or below that average for individual policy years. - - No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 57 Table 4 - Short Form Underwriting Hypothetical Gross Investment Return of 0.00%
Current Charges - --------------------------------------------------------------------------------------------------------------------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 840 -318 18,298 2,000 16,298 365,000 2 20,000 43,050 18,298 19,600 144 1,024 -622 36,108 3,000 33,108 365,000 3 20,000 66,203 36,108 19,600 144 1,235 -918 53,411 3,000 50,411 365,000 4 20,000 90,513 53,411 19,600 144 1,454 -1,205 70,208 4,000 66,208 365,000 5 20,000 116,038 70,208 19,600 144 1,623 -1,484 86,557 5,000 81,557 365,000 6 20,000 142,840 86,557 19,600 144 1,677 -1,756 102,580 5,000 97,580 365,000 7 20,000 170,982 102,580 19,600 144 1,685 -2,024 118,327 4,000 114,327 365,000 8 0 179,531 118,327 0 144 1,840 -1,958 114,385 3,000 111,385 365,000 9 0 188,508 114,385 0 144 2,030 -1,890 110,321 2,000 108,321 365,000 10 0 197,933 110,321 0 144 2,247 -1,820 106,110 0 106,110 365,000 11 0 207,830 106,110 0 144 2,286 -1,386 102,294 0 102,294 365,000 12 0 218,221 102,294 0 144 2,274 -1,336 98,540 0 98,540 365,000 13 0 229,132 98,540 0 144 2,220 -1,287 94,889 0 94,889 365,000 14 0 240,589 94,889 0 144 2,042 -1,240 91,463 0 91,463 365,000 15 0 252,619 91,463 0 144 1,721 -1,197 88,401 0 88,401 365,000 16 0 265,249 88,401 0 144 1,870 -1,155 85,232 0 85,232 365,000 17 0 278,512 85,232 0 144 2,034 -1,112 81,942 0 81,942 365,000 18 0 292,438 81,942 0 144 2,204 -1,067 78,527 0 78,527 365,000 19 0 307,059 78,527 0 144 2,369 -1,021 74,993 0 74,993 365,000 20 0 322,412 74,993 0 144 2,538 -973 71,338 0 71,338 365,000 25 0 411,489 54,326 0 144 4,409 -686 49,087 0 49,087 365,000 30 0 525,176 21,877 0 144 8,545 -227 12,961 0 12,961 365,000
Guaranteed Charges - --------------------------------------------------------------------------------------------------------------------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 1,570 -312 17,574 2,000 15,574 365,000 2 20,000 43,050 17,574 19,600 144 1,612 -605 34,813 3,000 31,813 365,000 3 20,000 66,203 34,813 19,600 144 1,652 -892 51,724 3,000 48,724 365,000 4 20,000 90,513 51,724 19,600 144 1,687 -1,174 68,319 4,000 64,319 365,000 5 20,000 116,038 68,319 19,600 144 1,723 -1,451 84,601 5,000 79,601 365,000 6 20,000 142,840 84,601 19,600 144 1,753 -1,723 100,582 5,000 95,582 365,000 7 20,000 170,982 100,582 19,600 144 1,792 -1,989 116,257 4,000 112,257 365,000 8 0 179,531 116,257 0 144 1,985 -1,922 112,206 3,000 109,206 365,000 9 0 188,508 112,206 0 144 2,208 -1,852 108,001 2,000 106,001 365,000 10 0 197,933 108,001 0 144 2,465 -1,780 103,613 0 103,613 365,000 11 0 207,830 103,613 0 144 2,745 -1,350 99,374 0 99,374 365,000 12 0 218,221 99,374 0 144 3,054 -1,292 94,884 0 94,884 365,000 13 0 229,132 94,884 0 144 3,386 -1,230 90,124 0 90,124 365,000 14 0 240,589 90,124 0 144 3,751 -1,164 85,065 0 85,065 365,000 15 0 252,619 85,065 0 144 4,153 -1,095 79,673 0 79,673 365,000 16 0 265,249 79,673 0 144 4,611 -1,020 73,897 0 73,897 365,000 17 0 278,512 73,897 0 144 5,135 -940 67,679 0 67,679 365,000 18 0 292,438 67,679 0 144 5,742 -853 60,940 0 60,940 365,000 19 0 307,059 60,940 0 144 6,449 -759 53,588 0 53,588 365,000 20 0 322,412 53,588 0 144 7,264 -656 45,524 0 45,524 365,000 25 0 411,489 4,018 0 144 13,234 42 0 0 0 0 30 0 525,176 0 0 0 0 0 0 0 0 0
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of manufacturers investment trust. - - The policy value, cash surrender value and death benefit for a policy would be different from those shown if actual rates of investment return averaged the rate shown above over a period of years, but also fluctuated above or below that average for individual policy years. - - No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 58 Table 5 - Short Form Underwriting Hypothetical Gross Investment Return of 6.00%
Current Charges - --------------------------------------------------------------------------------------------------------------------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 839 807 19,424 2,000 17,424 365,000 2 20,000 43,050 19,424 19,600 144 1,016 1,624 39,488 3,000 36,488 365,000 3 20,000 66,203 39,488 19,600 144 1,216 2,469 60,197 3,000 57,197 365,000 4 20,000 90,513 60,197 19,600 144 1,410 3,340 81,583 4,000 77,583 365,000 5 20,000 116,038 81,583 19,600 144 1,541 4,242 103,740 5,000 98,740 365,000 6 20,000 142,840 103,740 19,600 144 1,545 5,179 126,830 5,000 121,830 365,000 7 20,000 170,982 126,830 19,600 144 1,494 6,157 150,949 4,000 146,949 369,824 8 0 179,531 150,949 0 144 1,573 6,346 155,578 3,000 152,578 370,276 9 0 188,508 155,578 0 144 1,673 6,540 160,301 2,000 158,301 371,898 10 0 197,933 160,301 0 144 1,779 6,737 165,115 0 165,115 371,508 11 0 207,830 165,115 0 144 1,743 7,545 170,773 0 170,773 373,992 12 0 218,221 170,773 0 144 1,670 7,807 176,766 0 176,766 376,512 13 0 229,132 176,766 0 144 1,569 8,085 183,138 0 183,138 379,095 14 0 240,589 183,138 0 144 1,400 8,382 189,976 0 189,976 383,752 15 0 252,619 189,976 0 144 1,150 8,703 197,385 0 197,385 388,848 16 0 265,249 197,385 0 144 1,216 9,042 205,067 0 205,067 393,729 17 0 278,512 205,067 0 144 1,284 9,393 213,032 0 213,032 398,370 18 0 292,438 213,032 0 144 1,353 9,758 221,293 0 221,293 402,753 19 0 307,059 221,293 0 144 1,430 10,136 229,855 0 229,855 409,141 20 0 322,412 229,855 0 144 1,513 10,528 238,726 0 238,726 415,384 25 0 411,489 277,120 0 144 2,272 12,682 287,386 0 287,386 445,449 30 0 525,176 330,708 0 144 3,629 15,113 342,048 0 342,048 482,287
Guaranteed Charges - --------------------------------------------------------------------------------------------------------------------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 1,568 790 18,678 2,000 16,678 365,000 2 20,000 43,050 18,678 19,600 144 1,602 1,580 38,112 3,000 35,112 365,000 3 20,000 66,203 38,112 19,600 144 1,627 2,401 58,342 3,000 55,342 365,000 4 20,000 90,513 58,342 19,600 144 1,637 3,257 79,418 4,000 75,418 365,000 5 20,000 116,038 79,418 19,600 144 1,638 4,148 101,384 5,000 96,384 365,000 6 20,000 142,840 101,384 19,600 144 1,619 5,078 124,299 5,000 119,299 365,000 7 20,000 170,982 124,299 19,600 144 1,591 6,048 148,212 4,000 144,212 365,000 8 0 179,531 148,212 0 144 1,700 6,228 152,596 3,000 149,596 365,000 9 0 188,508 152,596 0 144 1,822 6,410 157,040 2,000 155,040 365,000 10 0 197,933 157,040 0 144 1,957 6,595 161,534 0 161,534 365,000 11 0 207,830 161,534 0 144 2,093 7,372 166,668 0 166,668 365,004 12 0 218,221 166,668 0 144 2,232 7,604 171,896 0 171,896 366,139 13 0 229,132 171,896 0 144 2,368 7,841 177,226 0 177,226 366,858 14 0 240,589 177,226 0 144 2,510 8,083 182,655 0 182,655 368,963 15 0 252,619 182,655 0 144 2,657 8,329 188,183 0 188,183 370,721 16 0 265,249 188,183 0 144 2,815 8,579 193,803 0 193,803 372,102 17 0 278,512 193,803 0 144 2,983 8,834 199,509 0 199,509 373,083 18 0 292,438 199,509 0 144 3,163 9,092 205,294 0 205,294 373,636 19 0 307,059 205,294 0 144 3,391 9,352 211,111 0 211,111 375,778 20 0 322,412 211,111 0 144 3,637 9,613 216,944 0 216,944 377,482 25 0 411,489 240,476 0 144 4,817 10,934 246,449 0 246,449 381,996 30 0 525,176 269,875 0 144 6,501 12,243 275,474 0 275,474 388,418
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of manufacturers investment trust. - - The policy value, cash surrender value and death benefit for a policy would be different from those shown if actual rates of investment return averaged the rate shown above over a period of years, but also fluctuated above or below that average for individual policy years. - - No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 59 Table 6 - Short Form Underwriting Hypothetical Gross Investment Return of 12.00%
Current Charges - --------------------------------------------------------------------------------------------------------------------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 837 1,932 20,551 2,000 18,551 365,000 2 20,000 43,050 20,551 19,600 144 1,010 4,005 43,002 3,000 40,002 365,000 3 20,000 66,203 43,002 19,600 144 1,194 6,269 67,533 3,000 64,533 365,000 4 20,000 90,513 67,533 19,600 144 1,362 8,745 94,372 4,000 90,372 365,000 5 20,000 116,038 94,372 19,600 144 1,445 11,459 123,842 5,000 118,842 365,000 6 20,000 142,840 123,842 19,600 144 1,440 14,446 156,304 5,000 151,304 395,449 7 20,000 170,982 156,304 19,600 144 1,613 17,725 191,872 4,000 187,872 470,087 8 0 179,531 191,872 0 144 1,728 19,337 209,337 3,000 206,337 498,223 9 0 188,508 209,337 0 144 1,868 21,099 228,424 2,000 226,424 529,944 10 0 197,933 228,424 0 144 2,003 23,025 249,302 0 249,302 560,929 11 0 207,830 249,302 0 144 2,018 26,103 273,243 0 273,243 598,403 12 0 218,221 273,243 0 144 2,004 28,622 299,717 0 299,717 638,396 13 0 229,132 299,717 0 144 1,979 31,408 329,002 0 329,002 681,034 14 0 240,589 329,002 0 144 1,905 34,493 361,446 0 361,446 730,122 15 0 252,619 361,446 0 144 1,799 37,912 397,415 0 397,415 782,908 16 0 265,249 397,415 0 144 2,117 41,678 436,832 0 436,832 838,718 17 0 278,512 436,832 0 144 2,483 45,804 480,009 0 480,009 897,616 18 0 292,438 480,009 0 144 2,909 50,322 527,278 0 527,278 959,645 19 0 307,059 527,278 0 144 3,412 55,266 578,988 0 578,988 1,030,599 20 0 322,412 578,988 0 144 4,000 60,673 635,517 0 635,517 1,105,799 25 0 411,489 919,213 0 144 8,127 96,232 1,007,174 0 1,007,174 1,561,120 30 0 525,176 1,444,648 0 144 16,570 151,033 1,578,967 0 1,578,967 2,226,343
Guaranteed Charges - --------------------------------------------------------------------------------------------------------------------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 1,565 1,893 19,784 2,000 17,784 365,000 2 20,000 43,050 19,784 19,600 144 1,591 3,896 41,544 3,000 38,544 365,000 3 20,000 66,203 41,544 19,600 144 1,600 6,100 65,500 3,000 62,500 365,000 4 20,000 90,513 65,500 19,600 144 1,582 8,527 91,901 4,000 87,901 365,000 5 20,000 116,038 91,901 19,600 144 1,540 11,204 121,021 5,000 116,021 365,000 6 20,000 142,840 121,021 19,600 144 1,505 14,157 153,129 5,000 148,129 387,416 7 20,000 170,982 153,129 19,600 144 1,892 17,389 188,082 4,000 184,082 460,802 8 0 179,531 188,082 0 144 2,190 18,926 204,674 3,000 201,674 487,125 9 0 188,508 204,674 0 144 2,511 20,589 222,608 2,000 220,608 516,450 10 0 197,933 222,608 0 144 2,856 22,386 241,994 0 241,994 544,487 11 0 207,830 241,994 0 144 3,262 25,259 263,847 0 263,847 577,826 12 0 218,221 263,847 0 144 3,720 27,530 287,514 0 287,514 612,405 13 0 229,132 287,514 0 144 4,209 29,990 313,151 0 313,151 648,222 14 0 240,589 313,151 0 144 4,785 32,651 340,873 0 340,873 688,563 15 0 252,619 340,873 0 144 5,417 35,529 370,841 0 370,841 730,556 16 0 265,249 370,841 0 144 6,124 38,637 403,210 0 403,210 774,164 17 0 278,512 403,210 0 144 6,911 41,993 438,149 0 438,149 819,338 18 0 292,438 438,149 0 144 7,794 45,614 475,824 0 475,824 866,000 19 0 307,059 475,824 0 144 8,887 49,509 516,302 0 516,302 919,017 20 0 322,412 516,302 0 144 10,096 53,691 559,753 0 559,753 973,970 25 0 411,489 767,254 0 144 17,965 79,586 828,732 0 828,732 1,284,534 30 0 525,176 1,116,526 0 144 32,580 115,360 1,199,161 0 1,199,161 1,690,817
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of manufacturers investment trust. - - The policy value, cash surrender value and death benefit for a policy would be different from those shown if actual rates of investment return averaged the rate shown above over a period of years, but also fluctuated above or below that average for individual policy years. - - No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 60 AUDITED CONSOLIDATED FINANCIAL STATEMENTS THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA Years ended December 31, 1999, 1998 and 1997 61 The Manufacturers Life Insurance Company of America Audited Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 CONTENTS Report of Independent Auditors .......................................... 1 Audited Consolidated Financial Statements Consolidated Balance Sheets ............................................. 2 Consolidated Statements of Income ....................................... 3 Consolidated Statements of Changes in Shareholder's Equity .............. 4 Consolidated Statements of Cash Flows ................................... 5 Notes to Consolidated Financial Statements .............................. 6
62 REPORT OF INDEPENDENT AUDITORS The Board of Directors The Manufacturers Life Insurance Company of America We have audited the accompanying consolidated balance sheets of The Manufacturers Life Insurance Company of America as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in capital and surplus and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Manufacturers Life Insurance Company of America at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young, LLP Philadelphia, Pennsylvania March 3, 2000 1 63 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA CONSOLIDATED BALANCE SHEETS
As at December 31 ($ thousands) ASSETS 1999 1998 - --------------------------------------------------------------------------------------------------- INVESTMENTS: Securities available-for-sale, at fair value: (note 3) Fixed-maturity (amortized cost: 1999 $73,780; 1998 $45,248) $ 73,081 $ 49,254 Equity (cost: 1999 $0; 1998 $19,219) -- 20,524 Short-term investments 6,942 459 Policy loans 26,174 19,320 - --------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS $ 106,197 $ 89,557 - --------------------------------------------------------------------------------------------------- Cash and cash equivalents $ 17,383 $ 23,789 Deferred acquisition costs (note 5) 201,642 163,506 Due from affiliates 2,851 -- Income taxes recoverable -- 2,665 Deferred income taxes (note 6) 1,596 -- Other assets 11,318 9,062 Separate account assets 1,399,527 1,075,231 - --------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 1,740,514 $ 1,363,810 ===================================================================================================
LIABILITIES, CAPITAL AND SURPLUS 1999 1998 - --------------------------------------------------------------------------------------------------- LIABILITIES: Policyholder liabilities and accruals $ 75,688 $ 60,830 Due to affiliates -- 5,133 Deferred income taxes (note 6) -- 763 Income taxes payable 11,122 -- Other liabilities 29,006 18,656 Separate account liabilities 1,399,527 1,075,231 - --------------------------------------------------------------------------------------------------- TOTAL LIABILITIES $ 1,515,343 $ 1,160,613 =================================================================================================== CAPITAL AND SURPLUS: Common shares (note 7) $ 4,502 $ 4,502 Preferred shares (note 7) 10,500 10,500 Contributed surplus 195,596 193,096 Retained earnings (deficit) 19,256 (2,664) Accumulated other comprehensive loss (note 4) (4,683) (2,237) - --------------------------------------------------------------------------------------------------- TOTAL CAPITAL AND SURPLUS $ 225,171 $ 203,197 - --------------------------------------------------------------------------------------------------- TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 1,740,514 $ 1,363,810 ===================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 2 64 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------- REVENUE: Premiums $ 10,185 $ 9,290 $ 8,607 Consideration paid on reinsurance terminated (note 9) -- (40,975) -- Fee income 77,899 55,322 38,682 Net investment income (note 3) 6,784 6,128 8,275 Realized investment gains (losses) 1,051 (206) 118 Other 152 307 544 - -------------------------------------------------------------------------------------------------------------- TOTAL REVENUE $ 96,071 $ 29,866 $ 56,226 - -------------------------------------------------------------------------------------------------------------- BENEFITS AND EXPENSES: Policyholder benefits and claims $ 14,820 $ 16,541 $ 6,733 Reduction of reserves on reinsurance terminated (note 9) -- (40,975) -- Operating costs and expenses 41,617 41,676 41,742 Commissions 2,189 2,561 2,838 Amortization of deferred acquisition costs (note 5) 2,718 9,266 4,860 Interest expense 50 1,722 2,750 Policyholder dividends 171 221 1,416 - -------------------------------------------------------------------------------------------------------------- TOTAL BENEFITS AND EXPENSES 61,565 31,012 60,339 - -------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES 34,506 (1,146) (4,113) - -------------------------------------------------------------------------------------------------------------- INCOME TAX (EXPENSE) BENEFIT (NOTE 6) (12,586) 392 477 - -------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 21,920 $ (754) $ (3,636) ==============================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 3 65 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
ACCUMULATED COMMON AND RETAINED OTHER TOTAL FOR THE YEARS ENDED DECEMBER 31 PREFERRED CONTRIBUTED EARNINGS COMPREHENSIVE CAPITAL AND ($ thousands) SHARES SURPLUS (DEFICIT) INCOME (LOSS) SURPLUS - ------------------------------------------------------------------------------------------------------------------ Balance at January 1, 1997 $ 15,002 $ 98,569 $ 1,726 $ 1,333 $ 116,630 Comprehensive loss (note 4) -- -- (3,636) (6,225) (9,861) - ----------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1997 $ 15,002 $ 98,569 $ (1,910) $ (4,892) $ 106,769 Capital contribution (note 7) -- 94,527 -- -- 94,527 Comprehensive income (loss) (note 4) -- -- (754) 2,655 1,901 - ----------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1998 $ 15,002 $ 193,096 $ (2,664) $ (2,237) $ 203,197 Capital contribution (note 7) -- 2,500 -- -- 2,500 Comprehensive income (loss) (note 4) -- -- 21,920 (2,446) 19,474 - ----------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1999 $ 15,002 $ 195,596 $ 16,655 $ (4,683) $ 225,171 =================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 4 66 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net Income (Loss) $ 21,920 $ (754) $ (3,636) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Additions (deductions) to policy liabilities and accruals 6,563 (36,217) (2,147) Deferred acquisition costs (39,540) (43,065) (33,544) Amortization of deferred acquisition costs 2,718 9,266 4,860 Realized (gains) losses on investments (1,051) 206 (118) (Increases) decreases to deferred income taxes (1,592) (1,796) 2,730 Income taxes 13,787 3,014 4,870 Other 2,866 53 2,788 - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities $ 6,671 $ (69,293) $ (24,197) - --------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Fixed-maturity securities sold, matured or repaid $ 1,193 $ 27,852 $ 73,772 Fixed-maturity securities purchased (29,498) (6,429) (89,763) Equity securities sold 20,284 8,555 10,586 Equity securities purchased (14) (8,082) (11,289) Net change in short-term investments (6,483) 1,671 4,558 Net policy loans advanced (6,854) (4,647) (4,851) Guaranteed annuity contracts -- -- 171,691 - --------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by investing activities $ (21,372) $ 18,920 $ 154,704 - --------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Receipts from variable universal life and annuity policies credited to policyholder account balances $ 11,526 $ 7,981 $ 7,582 Withdrawals of policyholder account balances on variable universal life and annuity policies (3,231) (5,410) (3,252) Bonds payable repaid -- -- (158,760) Issuance of promissory note -- -- 33,000 Capital contribution -- 51,709 -- - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities $ 8,295 $ 54,280 $(121,430) - --------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS: (Decrease) increase during the year (6,406) 3,907 9,077 Balance, beginning of year 23,789 19,882 10,805 - --------------------------------------------------------------------------------------------------------------------------- BALANCE, END OF YEAR $ 17,383 $ 23,789 $ 19,882 ===========================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 5 67 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 (IN THOUSANDS OF DOLLARS) 1. ORGANIZATION The Manufacturers Life Insurance Company of America (hereafter referred to as "ManAmerica" or the "Company") is a direct wholly-owned U.S. subsidiary of The Manufacturers Life Insurance Company (U.S.A.) ("ManUSA"), which is an indirect wholly-owned subsidiary of The Manufacturers Life Insurance Company ("MLI"), which in turn is a wholly-owned subsidiary of Manulife Financial Corporation, a publicly traded company. Manulife Financial Corporation and its subsidiaries are known collectively as "Manulife Financial." The Company issues and sells variable universal life insurance products in the United States. The Company also has a branch operation in Taiwan to develop and market traditional life insurance products for the Taiwanese market. The Company owns 100% of Manulife Holding Corporation ("Holdco"), an investment holding company. Holdco has primarily three wholly-owned subsidiaries, ManEquity Inc., a registered broker/dealer, Manufacturers Advisor Corporation ("MAC"), an investment fund management company, and Manulife Capital Corporation ("MCC"), an investment holding company. In October 1997, the Manufacturers Life Mortgage Securities Corporation ("MLMSC"), a subsidiary of Holdco, was absorbed into Holdco, and all of the assets and liabilities of MLMSC were transferred to Holdco at their respective book values. MLMSC had historically invested amounts received as repayments of mortgage loans in annuities issued by ManUSA. These annuities were collateral for the 8 1/4 % mortgage-backed bonds payable outstanding as at December 31, 1996. On March 1, 1997 the annuities matured and the proceeds were used to repay the bonds payable. 2. SIGNIFICANT ACCOUNTING POLICIES a) BASIS OF PRESENTATION The accompanying consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted ("GAAP") in the United States and include the accounts and operations, after intercompany eliminations, of the Company and its wholly-owned subsidiary, Holdco. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from reported results using those estimates. Certain reclassifications have been made to 1998 and 1997 financial information to conform to the 1999 presentation. 6 68 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) b) RECENT ACCOUNTING STANDARDS i)In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. Contracts that contain embedded derivatives, such as certain insurance contracts, are also addressed by the Statement. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In July 1999, the FASB issued Statement 137, which delayed the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company is evaluating the accounting implications of SFAS No. 133 and has not determined its impact on the Company's results of operations or its financial condition. ii)In December 1997, the American Institute of Certified Public Accountant's Accounting Standards Executive Committee (AcSEC) issued Statement of Position (SOP) 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." SOP 97-3 provides guidance on the recognition and measurement of liabilities for various assessments related to insurance activities, including those by state guaranty funds. The Company adopted SOP 97-3 during 1999. Prior to the adoption of SOP 97-3, the Company expensed and recognized liabilities for such assessments on a "pay-as-you-go" basis. The effect of adopting SOP 97-3 did not have a material impact on the results of operations and financial condition of the Company for the year ended December 31, 1999. iii)In March 1998, AcSEC issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires the capitalization of certain costs incurred in connection with developing or obtaining internal-use software. The Company adopted SOP 98-1 during 1999. Prior to the adoption of SOP 98-1, the Company expensed internal-use software-related costs as incurred. The effect of adopting SOP 98-1 did not have a material impact on the results of operations and financial condition of the Company for the year ended December 31, 1999. c) INVESTMENTS The Company classifies all of its fixed maturity and equity securities as available-for-sale and records these securities at fair value. Realized gains and losses on sales of securities classified as available-for-sale are recognized in net income using the specific identification method. Changes in the fair value of securities available-for-sale are reflected directly in accumulated other comprehensive income after adjustments for deferred taxes and deferred acquisition costs. Discounts and premiums on investments are amortized using the effective interest method. Policy loans are reported at aggregate unpaid balances, which approximate fair value. Short-term investments include investments with maturities of less than one year at the date of acquisition. 7 69 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) d) CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with an original maturity date of three months or less to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. e) DEFERRED ACQUISITION COSTS (DAC) Commissions and other expenses which vary with and are primarily related to the production of new business are deferred to the extent recoverable and included as an asset. DAC associated with variable annuity and variable universal life insurance contracts is charged to expense in relation to the estimated gross profits of those contracts. The amortization is adjusted retrospectively when estimates of current or future gross profits are revised. DAC associated with traditional life insurance policies is charged to expense over the premium paying period of the related policies. DAC is adjusted for the impact on estimated future gross profits assuming the unrealized gains or losses on securities had been realized at year-end. The impact of any such adjustments is included in net unrealized gains (losses) in accumulated other comprehensive income. DAC is reviewed annually to determine recoverability from future income and, if not recoverable, it is immediately expensed. f) POLICYHOLDER LIABILITIES For variable annuity and variable universal life contracts, reserves equal the policyholder account value. Account values are increased for deposits received and interest credited and are reduced by withdrawals, mortality charges and administrative expenses charged to the policyholders. Policyholder liabilities for traditional life insurance policies sold in Taiwan are computed using the net level premium method and are based upon estimates as to future mortality, persistency, maintenance expense and interest rate yields that were established in the year of issue. g) SEPARATE ACCOUNTS Separate account assets and liabilities represent funds that are separately administered, principally for variable annuity and variable universal life contracts, and for which the contract holder, rather than the Company, bears the investment risk. Separate account assets are recorded at market value. Operations of the separate accounts are not included in the accompanying financial statements. h) REVENUE RECOGNITION Fee income from variable annuity and variable universal life insurance policies consists of policy charges for the cost of insurance, expenses and surrender charges that have been assessed against the policy account balances. Policy charges that are designed to compensate the Company for future services are deferred and recognized in income over the period benefited, using the same assumptions used to amortize DAC. Premiums on long-duration life insurance contracts are recognized as revenue when due. Investment income is recorded when due. 8 70 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) i) EXPENSES Expenses for variable annuity and variable universal life insurance policies include interest credited to policy account balances and benefit claims incurred during the period in excess of policy account balances. j) REINSURANCE The Company is routinely involved in reinsurance transactions in order to minimize exposure to large risks. Life reinsurance is accomplished through various plans including yearly renewable term, coinsurance and modified coinsurance. Reinsurance premiums, policy charges for cost of insurance and claims are accounted for on a basis consistent with that used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums, fees and claims are reported net of reinsured amounts. Amounts paid with respect to ceded reinsurance contracts are reported as reinsurance receivables in other assets. k) FOREIGN EXCHANGE The Company's Taiwanese branch balance sheet and statement of income are translated at the current exchange and average exchange rates for the year respectively. The resultant translation adjustments are included in accumulated other comprehensive income. l) INCOME TAX Income taxes have been provided for in accordance with SFAS No. 109 "Accounting for Income Taxes." The Company joins ManUSA, Manulife Reinsurance Corporation ("MRC") and Manulife Reinsurance Limited ("MRL") in filing a U.S. consolidated income tax return as a life insurance group under provisions of the Internal Revenue Code. In accordance with an income tax sharing agreement, the Company's income tax provision (or benefit) is computed as if the Company filed a separate income tax return. Tax benefits from operating losses are provided at the U.S. statutory rate plus any tax credits attributable to the Company, provided the consolidated group utilizes such benefits currently. Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their recorded amounts for financial reporting purposes. Income taxes recoverable represents amounts due from ManUSA in connection with the consolidated return. 9 71 3. INVESTMENTS AND INVESTMENT INCOME a) FIXED-MATURITY AND EQUITY SECURITIES At December 31, 1999 and 1998, all fixed-maturity and equity securities have been classified as available-for-sale and reported at fair value. The amortized cost and fair value is summarized as follows:
GROSS GROSS AMORTIZED COST UNREALIZED UNREALIZED FAIR VALUE AS AT DECEMBER 31, GAINS LOSSES ($ thousands) 1999 1998 1999 1998 1999 1998 1999 1998 ------------------------------------------------------------------------------------------------------------------- FIXED-MATURITY SECURITIES: U.S. government $50,714 $27,349 $ -- $ 2,578 $ (936) $ -- $49,778 $29,927 Foreign governments 13,218 9,353 385 709 -- -- 13,603 10,062 Corporate 9,848 8,546 39 719 (187) -- 9,700 9,265 ------------------------------------------------------------------------------------------------------------------- Total fixed-maturity securities $73,780 $45,248 $ 424 $ 4,006 $(1,123) $ -- $73,081 $49,254 =================================================================================================================== Equity securities $ -- $19,219 $ -- $ 3,217 $ -- $(1,912) $ -- $20,524 ===================================================================================================================
There were no sales of fixed-maturity securities during 1999. Proceeds from sales of fixed-maturity securities were $26,105 and $70,914 for 1998 and 1997, respectively. Gross realized gains and gross realized losses on those sales were $362 and $107 for 1998 and, $955 and $837 for 1997, respectively. Proceeds from sales of equity securities during 1999 were $20,284 (1998 $8,555; 1997 $10,586). Gross gains of $1,051 and gross losses of $0 were realized on those sales (1998 $16 and $477; 1997 $0 and $0, respectively). The contractual maturities of fixed maturity securities at December 31, 1999 are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. Corporate requirements and investment strategies may result in the sale of investments before maturity.
($ thousands) AMORTIZED COST FAIR VALUE ----------------------------------------------------------------------- Fixed maturity securities One year or less $ 1,743 $ 1,772 Greater than 1; up to 5 years 27,321 27,185 Greater than 5; up to 10 years 29,468 28,549 Due after 10 years 15,248 15,575 ----------------------------------------------------------------------- TOTAL FIXED MATURITY SECURITIES $73,780 $73,081 -----------------------------------------------------------------------
10 72 3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED) b) INVESTMENT INCOME Income by type of investment was as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1999 1998 1997 --------------------------------------------------------------------- Fixed maturity securities $ 3,686 $ 4,078 $ 4,545 Equity securities - 227 331 Guaranteed annuity contracts - - 2,796 Other investments 3,371 2,082 772 --------------------------------------------------------------------- Gross investment income 7,057 6,387 8,444 --------------------------------------------------------------------- Investment expenses 273 259 169 --------------------------------------------------------------------- NET INVESTMENT INCOME $ 6,784 $ 6,128 $ 8,275 =====================================================================
4. COMPREHENSIVE INCOME Total comprehensive income was as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1999 1998 1997 ------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $19,319 $ (754) $(3,636) ------------------------------------------------------------------------------------------------------- OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: Unrealized holding gains (losses) arising during the period (3,965) 2,435 (1,030) Reclassification adjustment for realized gains and losses included in net income (loss) 683 134 77 Foreign currency translation 836 86 (5,272) ------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) (2,446) 2,655 (6,225) ------------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME (LOSS) $19,474 $ 1,901 $(9,861) -------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) is reported net of taxes recoverable (payable) of $1,767, ($1,430), and $513 for 1999, 1998, and 1997, respectively. Accumulated other comprehensive income is comprised of the following:
AS AT DECEMBER 31 ($ thousands) 1999 1998 ---------------------------------------------------------------------- UNREALIZED GAINS (LOSSES): Beginning balance $ 2,949 $ 380 Current period change (3,282) 2,569 ---------------------------------------------------------------------- Ending balance $ (333) $ 2,949 ---------------------------------------------------------------------- FOREIGN CURRENCY: Beginning balance $(5,186) $(5,272) Current period change 836 86 ---------------------------------------------------------------------- Ending balance $(4,350) $(5,186) ---------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE LOSS $(4,683) $(2,237) ----------------------------------------------------------------------
11 73 5. DEFERRED ACQUISITION COSTS The components of the change in DAC were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1999 1998 1997 ----------------------------------------------------------------------------------- Balance at January 1, $163,506 $130,355 $102,610 Capitalization 39,540 43,065 33,544 Accretion of interest 14,407 11,417 9,357 Amortization (17,125) (20,683) (14,217) Effect of net unrealized gains (losses) on securities available for sale 1,039 (784) 1,268 Foreign currency 275 136 (2,207) ----------------------------------------------------------------------------------- BALANCE AT DECEMBER 31 $201,642 $163,506 $130,355 ===================================================================================
6. INCOME TAXES Components of income tax (expense) benefit were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1999 1998 1997 ----------------------------------------------------------------------------------- Current (expense) benefit $(13,178) $(1,404) $ 3,207 Deferred (expense) benefit 592 1,796 (2,730) ----------------------------------------------------------------------------------- TOTAL (EXPENSE) BENEFIT $(12,586) $ 392 $ 477 ===================================================================================
Income before federal income taxes differs from taxable income principally due to tax-exempt investment income, dividends-received tax deductions, policy acquisition costs, and differences in reserves for policy and contract liabilities for tax and financial reporting purposes. The Company's deferred income tax asset (liability), which results from tax effecting the differences between financial statement values and tax values of assets and liabilities at each balance sheet date, relates to the following:
AS AT DECEMBER 31 ($ thousands) 1999 1998 ----------------------------------------------------------------------------------- DEFERRED TAX ASSETS: Differences in computing policy reserves $ 47,884 $ 38,888 Investments 246 708 Other deferred tax assets 2,768 333 ----------------------------------------------------------------------------------- Deferred tax assets $ 50,898 $ 39,929 ----------------------------------------------------------------------------------- DEFERRED TAX LIABILITIES: Deferred acquisition costs $ 49,103 $ 38,778 Investments 136 1,859 Policyholder dividends payable 63 55 ----------------------------------------------------------------------------------- Deferred tax liabilities $ 49,382 $ 40,692 ----------------------------------------------------------------------------------- NET DEFERRED TAX ASSETS (LIABILITIES) $ 1,596 $ (763) ===================================================================================
12 74 6. INCOME TAXES (CONTINUED) At December 31, 1999, the consolidated group has utilized all available operating loss carryforwards and net capital loss carryforwards. The losses of the Company, MRC and ManUSA may be used to offset the ordinary and capital gain income of MRL. However, losses of MRL may not be used to offset the income of the other members of the consolidated group. 7. CAPITAL AND SURPLUS The Company has two classes of capital stock, as follows:
AS AT DECEMBER 31: ($ thousands, except per share amounts) 1999 1998 ---------------------------------------------------------------------------- AUTHORIZED: 5,000,000 Common shares, Par value $1 5,000,000 Preferred shares, Par value $100 ISSUED AND OUTSTANDING: 4,501,861 Common shares $ 4,502 $ 4,502 105,000 Preferred shares 10,500 10,500 ---------------------------------------------------------------------------- TOTAL $15,002 $15,002 ----------------------------------------------------------------------------
On January 29, 1999 and in exchange for one common share, ManUSA contributed $1,722 which represented a receivable from a subsidiary to the Company. On April 15, 1999, ManUSA contributed an additional amount receivable of $778 from a subsidiary to the Company, which was recorded as a capital contribution. In 1998, the outstanding promissory note in the amount of $33,000 plus interest at 6.95% issued on December 5, 1997 payable to ManUSA was discharged and the amount due of $34,318 ($33,000 plus interest of $1,318) was recorded as a capital contribution. On December 31, 1998, the Company issued one common share to ManUSA in exchange for a capital contribution of $60,209. Included in this capital contribution was the discharge of the surplus debenture in the amount of $8,500 issued on December 31, 1995 to ManUSA. The Company is subject to statutory limitations on the payment of dividends to its Parent. Under Michigan Insurance Law, the payment of dividends to shareholders is restricted to the surplus earnings of the Company, unless prior approval is obtained from the Michigan Insurance Bureau. The aggregate statutory capital and surplus of the Company at December 31, 1999 was $137,039 (1998 $121,799). The aggregate statutory net income (loss) of the Company for the year ended 1999 was $5,770 (1998 $(23,491); 1997 $(2,550)). State regulatory authorities prescribe statutory accounting practices that differ in certain respects from accounting principles generally accepted in the United States followed by stock life insurance companies. The significant differences relate to investments, deferred acquisition costs, deferred income taxes, non-admitted asset balances and reserve calculation assumptions. 13 75 8. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values and the estimated fair values of certain of the Company's financial instruments at December 31, 1999 were as follows:
CARRYING ESTIMATED ($ thousands) VALUE FAIR VALUE --------------------------------------------------------------------------- ASSETS: Fixed-maturity securities $ 73,081 $ 73,081 Short-term investments 6,942 6,942 Policy loans 26,174 26,174 Cash and cash equivalents 17,383 17,383 ---------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair values of the above financial instruments: FIXED-MATURITY SECURITIES: Fair values of fixed maturity securities were based on quoted market prices, where available. Fair values were estimated using values obtained from independent pricing services. SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS: Carrying values approximate fair values. POLICY LOANS: Carrying values approximate fair values. 9. RELATED PARTY TRANSACTIONS The Company has formal service agreements with MLI and ManUSA which can be terminated by any party upon two months' notice. Under the agreements, the Company will pay direct operating expenses incurred each year by MLI and ManUSA on its behalf. Services provided under the agreement include legal, actuarial, investment, data processing and certain other administrative services. Costs incurred under these agreements were $28,214, $34,070 and $32,733 in 1999, 1998 and 1997 respectively. At December 31, 1999 and 1998, the Company had a net receivable from MLI and ManUSA for these services of $2,552 and $2,617, respectively. In addition, there were $10,489, $12,817 and $11,249 of agents bonuses allocated to the Company during 1999, 1998 and 1997, respectively, which are included in deferred acquisition costs. The Company shares office facilities and personnel with its affiliates. Such shared costs and expenses are allocated to the Company and its subsidiaries based on time and usage studies; such allocations would vary depending on the assumptions underlying those studies. The Company has several reinsurance agreements with affiliated companies which may be terminated upon the specified notice by either party. These agreements are summarized as follows: (a) The Company cedes the risk in excess of $25 per life on its variable and single premium variable life products to MRC under the terms of an automatic reinsurance agreement. Under the same treaty the Company cedes a substantial portion of its risk on its flexible premium variable life and variable universal life policies via stop loss reinsurance. 14 76 9. RELATED PARTY TRANSACTIONS (CONTINUED) (b) The Company cedes the excess of a $10 million retention limit up to the consolidated group retention limit of $15 million on survivorship cases via yearly-renewable-term (YRT) reinsurance. Effective February 28, 1999, the Company recaptured the excess of the $10 million retention limit up to the consolidated group retention limit of $15 million on survivorship cases, effectively retaining the full $15 million. (c) The Company cedes the risk in excess of NTD$2,500 per life on its Taiwan individual and group life business to MRL under the terms of a YRT reinsurance agreement. The Company also cedes a small portion of the Taiwan accident and health business under the same treaty. (d) On December 31, 1998, the coinsurance treaties under which the Company had assumed two blocks of insurance from ManUSA were terminated. The Company's risk under these treaties was limited to $100 of initial face amount per claim plus a pro-rata share of any increase in face amount. Upon the termination of the treaties, the Company paid consideration in the amount of approximately $41.0 million to ManUSA and policyholder reserves totaling $41.0 million were recaptured by ManUSA. No gain or loss resulted from the termination of these treaties. Selected amounts relating to the above treaties reflected in the financial statements are as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1999 1998 1997 ----------------------------------------------------------------------- Life and annuity premiums assumed $ - $ 48 $ 509 Life and annuity premiums ceded 84 76 69 Policy reserves assumed - - 40,975 Policy reserves ceded 84 145 130 -----------------------------------------------------------------------
Reinsurance recoveries on ceded reinsurance contracts to affiliates were $0, $0 and $3,972 during 1999, 1998 and 1997 respectively. The Company and MLI have entered into an agreement whereby MLI provides a claims paying guarantee to the Company's U.S. policyholders. This claims paying guarantee does not apply to the Company's separate account contract holders 10. REINSURANCE In the normal course of business, the Company cedes reinsurance as a party to several reinsurance treaties with major unrelated insurance companies. The Company remains liable for amounts ceded in the event that reinsurers do not meet their obligations. 15 77 10. REINSURANCE (CONTINUED) The effects of reinsurance on premiums were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1999 1998 1997 --------------------------------------------------------------------- Direct premiums $10,699 $9,723 $8,607 Reinsurance ceded 430 405 440 --------------------------------------------------------------------- TOTAL PREMIUMS $10,269 $9,318 $8,167 ---------------------------------------------------------------------
Reinsurance recoveries on ceded reinsurance contracts with unrelated insurance companies were $1,707, $1,362 and $909 during 1999, 1998 and 1997 respectively. 11. CONTINGENCIES The Company is subject to various lawsuits that have arisen in the course of its business. Contingent liabilities arising from litigation, income taxes and other matters are not considered material in relation to the financial position of the Company. 16 78 Audited Financial Statements The Manufacturers Life Insurance Company of America Separate Account Four Years ended December 31, 1999 and 1998 with Report of Independent Auditors 79 The Manufacturers Life Insurance Company of America Separate Account Four Audited Financial Statements Years ended December 31, 1999 and 1998
CONTENTS Report of Independent Auditors.............................................. 1 Audited Financial Statements Statement of Assets and Contract Owners' Equity............................. 2 Statements of Operations and Changes in Contract Owners' Equity............. 3 Notes to Financial Statements............................................... 19
80 Report of Independent Auditors To the Contract Owners of The Manufacturers Life Insurance Company of America Separate Account Four We have audited the accompanying statement of assets and contract owners' equity of The Manufacturers Life Insurance Company of America Separate Account Four as of December 31, 1999 and the related statements of operations and changes in contract owners' equity for each of the years presented therein. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Manufacturers Life Insurance Company of America Separate Account Four at December 31, 1999, and the results of its operations and the changes in its contract owners' equity for each of the years presented therein, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young Philadelphia, Pennsylvania February 4, 2000 1 81 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Assets and Contract Owners' Equity December 31, 1999
ASSETS Investments at market value: Sub-Accounts: Emerging Small Company Trust - 2,052,231 shares (cost $45,718,578) $ 83,607,893 Quantitative Equity Trust - 1,625,300 shares (cost $34,096,421) 45,768,457 Real Estate Securities Trust - 1,088,666 shares (cost $17,699,791) 14,032,899 Balanced Trust - 2,970,199 shares (cost $50,945,983) 52,928,961 Money Market Trust - 2,781,197 shares (cost $27,811,969) 27,811,969 International Stock Trust - 1,072,678 shares (cost $14,220,959) 16,551,423 Pacific Rim Emerging Markets Trust - 502,107 shares (cost $4,422,642) 5,462,921 Equity Index Trust - 2,079,653 shares (cost $32,381,212) 37,704,112 Mid-Cap Blend Trust - 417,448 shares (cost $8,122,149) 9,142,129 Equity Income Trust - 571,988 shares (cost $9,981,797) 9,752,393 Growth and Income Trust - 898,185 shares (cost $24,669,858) 29,343,696 U.S. Government Securities Trust - 191,208 shares (cost $2,555,178) 2,531,572 Diversified Bond Trust - 126,496 shares (cost $1,415,552) 1,368,687 Income and Value Trust - 266,642 shares (cost $3,422,205) 3,442,353 Large Cap Growth Trust - 346,203 shares (cost $5,101,249) 5,965,084 Blue Chip Growth Trust - 1,537,674 shares (cost $28,169,476) 33,275,270 Science & Technology Trust - 978,513 shares (cost $22,884,782) 35,392,816 Aggressive Growth Trust - 63,560 shares (cost $817,792) 1,102,140 Mid Cap Growth Trust - 223,935 shares (cost $4,228,210) 5,573,744 Global Equity Trust - 168,902 shares (cost $3,156,947) 3,173,669 Growth Trust - 288,982 shares (cost $6,452,326) 7,767,857 Value Trust - 251,131 shares (cost $3,598,916) 3,322,459 Overseas Trust - 35,061 shares (cost $439,526) 558,175 High Yield Trust - 269,257 shares (cost $3,598,259) 3,457,255 Strategic Bond Trust - 114,787 shares (cost $1,309,669) 1,278,721 Global Bond Trust - 27,861 shares (cost $328,077) 323,189 Investment Quality Bond Trust - 1,655,343 shares (cost $19,465,024) 19,201,985 Lifestyle Aggressive 1000 Trust - 55,428 shares (cost $711,215) 805,917 Lifestyle Growth 820 Trust - 127,688 shares (cost $1,730,140) 1,938,299 Lifestyle Balanced 640 Trust - 109,928 shares (cost $1,473,080) 1,565,366 Lifestyle Moderate 460 Trust - 25,557 shares (cost $357,460) 361,126 Lifestyle Conservative 280 Trust - 37,435 shares (cost $484,291) 492,268 International Small Cap Trust - 70,542 shares (cost $1,356,595) 1,986,465 Small Company Value Trust - 91,842 shares (cost $1,025,367) 1,126,903 U.S. Large Cap Value Trust - 111,059 shares (cost $1,377,308) 1,426,011 Mid Cap Stock Trust - 14,353 shares (cost $182,399) 180,847 Small Company Blend Trust - 14,977 shares (cost $196,876) 236,041 International Value Trust - 38,077 shares (cost $454,493) 494,241 Total Return Trust - 24,261 shares (cost $299,740) 300,108 ------------ Total assets $470,755,421 ============ CONTRACT OWNERS' EQUITY Variable life contracts $470,755,421 ============
See accompanying notes. 2 82 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity
SUB-ACCOUNT EMERGING SMALL COMPANY QUANTITATIVE EQUITY YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 Income: Dividends $ 803,802 $ 879,733 $ 3,879,881 $ 4,420,030 Expenses: Mortality and expense risks, and administrative charges 379,062 374,898 274,779 238,491 Net investment income (loss) during the year 424,740 504,835 3,605,102 4,181,539 Net realized gain (loss) during the year 4,060,457 1,613,232 4,912,245 1,715,267 Unrealized appreciation (depreciation) during the year 31,619,181 (2,477,479) (30,408) 2,626,256 --------------------------------------------------------------------------------- Net increase (decrease) in assets from operations 36,104,378 (359,412) 8,486,939 8,523,062 --------------------------------------------------------------------------------- Change from principal transactions: Transfer of net premiums 7,671,430 10,095,423 3,232,515 3,887,475 Transfer on terminations (5,786,669) (7,645,380) (4,266,534) (3,507,300) Transfer on policy loans (593,870) (281,289) (385,967) (227,928) Net interfund transfers (12,504,266) (5,175,422) (1,996,057) (2,590,590) --------------------------------------------------------------------------------- Net increase (decrease) in assets from principle transactions (11,213,375) (3,006,668) (3,416,043) (2,438,343) --------------------------------------------------------------------------------- Total increase (decrease) in assets 24,891,003 (3,366,080) 5,070,896 6,084,719 Assets beginning of year 58,716,890 62,082,970 40,697,561 34,612,842 --------------------------------------------------------------------------------- Assets end of year $ 83,607,893 $ 58,716,890 $ 45,768,457 $ 40,697,561 =================================================================================
See accompanying notes. 3 83
SUB-ACCOUNT REAL ESTATE SECURITIES BALANCED CAPITAL GROWTH BOND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 $ 891,478 $ 2,921,055 $ 3,948,555 $ 6,701,569 $ 1,127,241 $ 789,202 108,666 142,970 372,889 353,472 33,753 95,779 ------------------------------------------------------------------------------------------------------------------------------ 782,812 2,778,085 3,575,666 6,348,097 1,093,488 693,423 (225,546) 515,184 1,671,479 784,905 (44,948) 74,442 (2,009,468) (7,390,867) (6,565,173) (322,095) (1,237,887) 268,561 ------------------------------------------------------------------------------------------------------------------------------ (1,452,202) (4,097,598) (1,318,028) 6,810,907 (189,347) 1,036,426 ------------------------------------------------------------------------------------------------------------------------------ 2,273,286 3,172,812 7,828,360 7,779,255 923,685 2,121,220 (2,001,726) (2,063,583) (5,350,233) (5,263,498) (419,351) (1,358,276) (97,819) (158,565) (437,651) (166,218) (41,697) (52,477) (3,836,514) (2,267,624) (6,044,490) (516,113) (15,989,477) 266,572 ------------------------------------------------------------------------------------------------------------------------------ (3,662,773) (1,316,960) (4,004,014) 1,833,426 (15,526,840) 977,039 ------------------------------------------------------------------------------------------------------------------------------ (5,114,975) (5,414,558) (5,322,042) 8,644,333 (15,716,187) 2,013,465 19,147,874 24,562,432 58,251,003 49,606,670 15,716,187 13,702,722 ------------------------------------------------------------------------------------------------------------------------------ $ 14,032,899 $ 19,147,874 $ 52,928,961 $ 58,251,003 $ -- $ 15,716,187 ==============================================================================================================================
4 84 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT MONEY MARKET INTERNATIONAL STOCK YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 Income: Dividends $ 961,677 $ 618,267 $ 1,366,973 $ 162,650 Expenses: Mortality and expense risks, and administrative charges 138,259 81,828 79,622 58,840 --------------------------------------------------------------------------------- Net investment income (loss) during the year 823,418 536,439 1,287,351 103,810 Net realized gain (loss) during the year -- -- 647,233 330,639 Unrealized appreciation (depreciation) during the year -- -- 1,684,577 698,766 --------------------------------------------------------------------------------- Net increase (decrease) in assets from operations 823,418 536,439 3,619,161 1,133,215 --------------------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 7,082,683 9,080,518 4,383,338 4,424,007 Transfer on terminations (3,222,729) (1,630,779) (745,024) (873,572) Transfer on policy loans (836,807) (241,862) (71,835) (33,326) Net interfund transfers 6,291,758 3,412,497 (1,436,262) (559,362) --------------------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 9,314,905 10,620,374 2,130,217 2,957,747 --------------------------------------------------------------------------------- Total increase (decrease) in assets 10,138,323 11,156,813 5,749,378 4,090,962 Assets beginning of year 17,673,646 6,516,833 10,802,045 6,711,083 --------------------------------------------------------------------------------- Assets end of year $ 27,811,969 $ 17,673,646 $ 16,551,423 $ 10,802,045 =================================================================================
See accompanying notes. 5 85
SUB-ACCOUNT PACIFIC RIM EMERGING MARKETS EQUITY INDEX MID-CAP BLEND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 $ 91,583 $ -- $ 909,767 $ 558,787 $ 945,696 $ 1,580,782 21,588 14,226 186,998 75,611 51,669 49,176 ---------------------------------------------------------------------------------------------------------------------------- 69,995 (14,226) 722,769 483,176 894,027 1,531,606 (303,549) (366,914) 1,279,721 494,230 (60,193) (354,193) 1,953,611 242,269 3,317,397 1,991,508 1,138,871 (411,003) ---------------------------------------------------------------------------------------------------------------------------- 1,720,057 (138,871) 5,319,887 2,968,914 1,972,705 766,410 ---------------------------------------------------------------------------------------------------------------------------- 569,478 602,999 11,677,308 5,759,699 1,546,812 1,882,059 (362,876) (205,435) (1,432,735) (1,427,792) (667,965) (659,930) 3,238 (41,088) (55,679) (167,037) (87,722) (57,084) 1,230,820 (258,865) 4,026,837 4,120,011 (919,573) (2,647,372) ---------------------------------------------------------------------------------------------------------------------------- 1,440,660 97,611 14,215,731 8,284,881 (128,448) (1,482,327) ---------------------------------------------------------------------------------------------------------------------------- 3,160,717 (41,260) 19,535,618 11,253,795 1,844,257 (715,917) 2,302,204 2,343,464 18,168,494 6,914,699 7,297,872 8,013,789 ---------------------------------------------------------------------------------------------------------------------------- $ 5,462,921 $ 2,302,204 $ 37,704,112 $ 18,168,494 $ 9,142,129 $ 7,297,872 ============================================================================================================================
6 86 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT EQUITY INCOME GROWTH AND INCOME YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 Income: Dividends $ 781,192 $ 439,236 $ 683,192 $ 687,431 Expenses: Mortality and expense risks, and administrative charges 64,646 54,912 148,390 80,279 --------------------------------------------------------------------------------- Net investment income (loss) during the year 716,546 384,324 534,802 607,152 Net realized gain (loss) during the year 345,133 293,379 1,008,826 560,486 Unrealized appreciation (depreciation) during the year (675,079) (214,094) 2,180,310 1,566,533 --------------------------------------------------------------------------------- Net increase (decrease) in assets from operations 386,600 463,609 3,723,938 2,734,171 --------------------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 3,340,138 3,319,426 5,660,404 3,712,205 Transfer on terminations (883,815) (837,249) (1,211,402) (1,272,523) Transfer on policy loans (74,633) (5,179) (206,558) (68,077) Net interfund transfers (2,322,477) 764,417 5,001,996 3,032,604 --------------------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 59,213 3,241,415 9,244,440 5,404,209 --------------------------------------------------------------------------------- Total increase (decrease) in assets 445,813 3,705,024 12,968,378 8,138,380 Assets beginning of year 9,306,580 5,601,556 16,375,318 8,236,938 --------------------------------------------------------------------------------- Assets end of year $ 9,752,393 $ 9,306,580 $ 29,343,696 $ 16,375,318 =================================================================================
See accompanying notes. 7 87
SUB-ACCOUNT U.S. GOVERNMENT SECURITIES DIVERSIFIED BOND INCOME AND VALUE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 $ 125,143 $ 34,788 $ 102,127 $ 61,639 $ 344,990 $ 276,382 19,463 10,351 6,973 4,793 20,857 15,938 ------------------------------------------------------------------------------------------------------------------------- 105,680 24,437 95,154 56,846 324,133 260,444 (43,062) 20,033 (11,663) (9,736) (3,448) 40,580 (86,051) 52,458 (79,430) 15,327 (88,733) 13,891 ------------------------------------------------------------------------------------------------------------------------ (23,433) 96,928 4,061 62,437 231,952 314,915 ------------------------------------------------------------------------------------------------------------------------ 931,141 368,181 404,943 111,885 1,201,432 741,631 (111,231) (76,557) (24,590) (144,859) (426,670) (196,822) (1,783) (476) -- -- 9,522 (12,957) (1,908,556) 2,596,506 98,839 290,044 (220,174) (60,740) ------------------------------------------------------------------------------------------------------------------------- (1,090,429) 2,887,654 479,192 257,070 564,110 471,112 ------------------------------------------------------------------------------------------------------------------------- (1,113,862) 2,984,582 483,253 319,507 796,062 786,027 3,645,434 660,852 885,434 565,927 2,646,291 1,860,264 ------------------------------------------------------------------------------------------------------------------------- $ 2,531,572 $ 3,645,434 $ 1,368,687 $ 885,434 $ 3,442,353 $ 2,646,291 =========================================================================================================================
8 88 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT LARGE CAP GROWTH INTERNATIONAL SMALL CAP YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 Income: Dividends $ 321,797 $ 445,314 $ 3,477 $ 1,473 Expenses: Mortality and expense risks, and administrative charges 25,655 19,046 7,349 5,414 ----------------------------------------------------------------------------- Net investment income (loss) during the year 296,142 426,268 (3,872) (3,941) Net realized gain (loss) during the year 20,062 91,347 136,316 42,617 Unrealized appreciation (depreciation) during the year 741,348 21,809 667,674 (22,670) ----------------------------------------------------------------------------- Net increase (decrease) in net assets from operations 1,057,552 539,424 800,118 16,006 ----------------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 1,078,127 1,188,269 187,515 210,960 Transfer on terminations (247,991) (216,987) (90,713) (59,723) Transfer on policy loans (13,546) (1,768) (9,869) (8,482) Net interfund transfers 1,383,164 (2,012,227) (39,003) 425,368 ----------------------------------------------------------------------------- Net increase (decrease) in net assets from principal transactions 2,199,754 (1,042,713) 47,930 568,123 ----------------------------------------------------------------------------- Total increase (decrease) in net assets 3,257,306 (503,289) 848,048 584,129 Net assets beginning of year 2,707,778 3,211,067 1,138,417 554,288 ----------------------------------------------------------------------------- Net assets end of year $ 5,965,084 $ 2,707,778 $ 1,986,465 $ 1,138,417 =============================================================================
See accompanying notes. 9 89
SUB-ACCOUNT BLUE CHIP GROWTH SCIENCE & TECHNOLOGY AGGRESSIVE GROWTH YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 $ 852,462 $ 163,206 $ 2,459,232 $ -- $ -- $ -- 152,654 62,944 111,705 25,363 4,009 2,341 ------------------------------------------------------------------------------------------------------------------------------- 699,808 100,262 2,347,527 (25,363) (4,009) (2,341) 955,115 403,568 1,200,045 159,942 4,279 (16,990) 2,787,049 2,082,817 10,833,388 1,706,363 231,555 54,619 ------------------------------------------------------------------------------------------------------------------------------- 4,441,972 2,586,647 14,380,960 1,840,942 231,825 35,288 ------------------------------------------------------------------------------------------------------------------------------- 10,118,553 7,650,835 7,569,309 3,784,735 264,328 188,214 (1,220,684) (836,755) (835,547) (307,967) (53,536) (16,593) (90,784) (12,374) (128,372) (5,733) 1,030 (9,931) 5,500,388 620,404 7,353,863 291,311 165,704 6,266 ------------------------------------------------------------------------------------------------------------------------------- 14,307,473 7,422,110 13,959,253 3,762,346 377,526 167,956 ------------------------------------------------------------------------------------------------------------------------------- 18,749,445 10,008,757 28,340,213 5,603,288 609,351 203,244 14,525,825 4,517,068 7,052,603 1,449,315 492,789 289,545 ------------------------------------------------------------------------------------------------------------------------------- $ 33,275,270 $ 14,525,825 $ 35,392,816 $ 7,052,603 $ 1,102,140 $ 492,789 ===============================================================================================================================
10 90 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT MID CAP GROWTH WORLDWIDE GROWTH YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 Income: Dividends $ 424,170 $ -- $ 6,399 $ 2,514 Expenses: Mortality and expense risks, and administrative charges 23,442 12,596 1,502 1,535 ----------------------------------------------------------------------------- Net investment income (loss) during the year 400,728 (12,596) 4,897 979 Net realized gain (loss) during the year 279,819 98,578 46,114 20,520 Unrealized appreciation (depreciation) during the year 903,615 483,130 (17,078) 18,714 ----------------------------------------------------------------------------- Net increase (decrease) in assets from operations 1,584,162 569,112 33,933 40,213 ----------------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 800,199 579,891 40,904 112,933 Transfer on terminations (141,560) (111,777) (13,226) (29,603) Transfer on policy loans (23,845) (9,073) (2,288) -- Net interfund transfers 883,131 (354,048) (568,190) 184,048 ----------------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 1,517,925 104,993 (542,800) 267,378 ----------------------------------------------------------------------------- Total increase (decrease) in assets 3,102,087 674,105 (508,867) 307,591 Assets beginning of year 2,471,657 1,797,552 508,867 201,276 ----------------------------------------------------------------------------- Assets end of year $ 5,573,744 $ 2,471,657 $ -- $ 508,867 =============================================================================
See accompanying notes. 11 91
SUB-ACCOUNT GLOBAL EQUITY GROWTH VALUE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 $ 170,310 $ 283,512 $ 180,570 $ 88,404 $ 104,384 $ 189,862 14,066 15,149 31,123 14,183 29,270 27,317 ------------------------------------------------------------------------------------------------------------------------ 156,244 268,363 149,447 74,221 75,114 162,545 (98,806) 362,299 454,764 156,634 (107,245) 19,873 21,590 (147,744) 1,040,751 231,843 25,016 (296,205) ------------------------------------------------------------------------------------------------------------------------ 79,028 482,918 1,644,962 462,698 (7,115) (113,787) ------------------------------------------------------------------------------------------------------------------------ 850,651 977,760 1,712,932 819,142 1,736,465 4,558,587 (126,551) (197,507) (270,861) (118,387) (346,470) (402,675) (30,830) (604) (22,232) (6,515) 1,434 (25,308) 998,353 (3,258,055) 1,991,577 (199,981) (3,882,692) 431,082 ------------------------------------------------------------------------------------------------------------------------ 1,691,623 (2,478,406) 3,411,416 494,259 (2,491,263) 4,561,686 ------------------------------------------------------------------------------------------------------------------------ 1,770,651 (1,995,488) 5,056,378 956,957 (2,498,378) 4,447,899 1,403,018 3,398,506 2,711,479 1,754,522 5,820,837 1,372,938 ------------------------------------------------------------------------------------------------------------------------ $ 3,173,669 $ 1,403,018 $ 7,767,857 $ 2,711,479 $ 3,322,459 $ 5,820,837 ========================================================================================================================
12 92 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT OVERSEAS HIGH YIELD YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 Income: Dividends $ -- $ 2,310 $ 274,823 $ 147,116 Expenses: Mortality and expense risks, and administrative charges 2,131 1,074 17,262 10,890 Net investment income (loss) during the year (2,131) 1,236 257,561 136,226 Net realized gain (loss) during the year ----------------------------------------------------------------------------- 4,626 (1,036) (46,236) (16,657) Unrealized appreciation (depreciation) during the year 135,006 (15,260) (7,289) (111,067) ----------------------------------------------------------------------------- Net increase (decrease) in assets from operations 137,501 (15,060) 204,036 8,502 ----------------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 96,022 37,028 1,554,579 1,047,209 Transfer on terminations (33,807) (9,110) (148,261) (111,277) Transfer on policy loans (2,559) (417) (12,933) (3,925) Net interfund transfers 91,840 235,679 (199,115) 279,547 ----------------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 151,496 263,180 1,194,270 1,211,554 ----------------------------------------------------------------------------- Total increase (decrease) in assets 288,997 248,120 1,398,306 1,220,056 Assets beginning of year 269,178 21,058 2,058,949 838,893 ----------------------------------------------------------------------------- Assets end of year $ 558,175 $ 269,178 $ 3,457,255 $ 2,058,949 =============================================================================
See accompanying notes. 13 93
SUB-ACCOUNT STRATEGIC BOND GLOBAL BOND INVESTMENT QUALITY BOND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 $ 70,133 $ 41,408 $ 3,386 $ 5,515 $ 218,156 $ 62,454 7,044 5,989 872 319 95,809 10,846 ----------------------------------------------------------------------------------------------------------------------------- 63,089 35,419 2,514 5,196 122,347 51,608 (32,990) (19,920) (8,982) (3,550) (132,850) 996 (11,082) (30,537) (5,265) 190 (339,279) 70,756 ----------------------------------------------------------------------------------------------------------------------------- 19,017 (15,038) (11,733) 1,836 (349,782) 123,360 ----------------------------------------------------------------------------------------------------------------------------- 270,594 372,334 13,248 10,166 3,725,347 1,117,077 (48,315) (56,296) (5,238) (3,976) (1,167,642) (123,130) (7,840) (8,000) (292) (104) (56,091) (7,602) (217,962) 563,277 284,481 26,715 14,066,025 1,404,610 ----------------------------------------------------------------------------------------------------------------------------- (3,523) 871,315 292,199 32,801 16,567,639 2,390,955 ----------------------------------------------------------------------------------------------------------------------------- 15,494 856,277 280,466 34,637 16,217,857 2,514,315 1,263,227 406,950 42,723 8,086 2,984,128 469,813 ----------------------------------------------------------------------------------------------------------------------------- $ 1,278,721 $ 1,263,227 $ 323,189 $ 42,723 $ 19,201,985 $ 2,984,128 =============================================================================================================================
14 94 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT LIFESTYLE AGGRESSIVE 1000 LIFESTYLE GROWTH 820 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 Income: Dividends $ 40,136 $ 28,212 $ 146,899 $ 177,818 Expenses: Mortality and expense risks, and administrative charges 4,878 3,611 15,004 18,498 ----------------------------------------------------------------------------- Net investment income (loss) during the year 35,258 24,601 131,895 159,320 Net realized gain (loss) during the year (11,996) (924) (73,346) (110,403) Unrealized appreciation (depreciation) during the year 75,477 18,120 232,254 (31,817) ----------------------------------------------------------------------------- Net increase (decrease) in assets from operations 98,739 41,797 290,803 17,100 ----------------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 73,879 70,842 449,067 406,823 Transfer on terminations (53,935) (63,229) (458,963) (237,067) Transfer on policy loans (4,406) (9,477) (78,888) (5,252) Net interfund transfers (29,882) 210,882 (1,234,984) 475,327 ----------------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions (14,344) 209,018 (1,323,768) 639,831 ----------------------------------------------------------------------------- Total increase (decrease) in assets 84,395 250,815 (1,032,965) 656,931 Assets beginning of year 721,522 470,707 2,971,264 2,314,333 ----------------------------------------------------------------------------- Assets end of year $ 805,917 $ 721,522 $ 1,938,299 $ 2,971,264 =============================================================================
See accompanying notes. 15 95
SUB-ACCOUNT LIFESTYLE BALANCED 640 LIFESTYLE MODERATE 460 LIFESTYLE CONSERVATIVE 280 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 $ 60,854 $ 65,526 $ 2,368 $ 4,852 $ 10,742 $ 319 7,273 7,070 524 495 1,979 130 ----------------------------------------------------------------------------------------------------------------------------- 53,581 58,456 1,844 4,357 8,763 189 (7,766) 5,620 11,079 572 3,924 812 88,932 (13,823) 2,460 845 5,136 2,842 ----------------------------------------------------------------------------------------------------------------------------- 134,747 50,253 15,383 5,774 17,823 3,843 ----------------------------------------------------------------------------------------------------------------------------- 752,004 227,592 9,334 12,212 23,038 12,677 (104,617) (46,788) (5,225) (4,396) (11,055) (1,796) (221) (13,308) (1,053) (83,848) (160) -- (337,941) 53,428 309,004 6,509 382,542 65,356 ----------------------------------------------------------------------------------------------------------------------------- 309,225 220,924 312,060 (69,523) 394,365 76,237 ----------------------------------------------------------------------------------------------------------------------------- 443,972 271,177 327,443 (63,749) 412,188 80,080 1,121,394 850,217 33,683 97,432 80,080 -- ----------------------------------------------------------------------------------------------------------------------------- $ 1,565,366 $ 1,121,394 $ 361,126 $ 33,683 $ 492,268 $ 80,080 =============================================================================================================================
16 96 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT U.S. LARGE MID CAP SMALL COMPANY VALUE CAP VALUE STOCK YEAR PERIOD PERIOD PERIOD ENDED ENDED* ENDED** ENDED** DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/99 Income: Dividends $ 248 $ -- $ -- $ -- Expenses: Mortality and expense risks, and administrative charges 4,096 168 4,379 462 ----------------------------------------------------------------------------- Net investment (loss) income during the year (3,848) (168) (4,379) (462) Net realized gain (loss) during the year 34,012 (4,254) (10,928) 19 Unrealized appreciation (depreciation) during the year 99,631 1,904 48,703 (1,552) ----------------------------------------------------------------------------- Net increase (decrease) in assets from operations 129,795 (2,518) 33,396 (1,995) ----------------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 249,987 11,881 48,789 27,792 Transfer on terminations (30,096) (4,420) (37,726) (2,165) Transfer on policy loans (6,213) (41) (15,190) (38) Net interfund transfers 704,288 74,240 1,396,742 157,253 ----------------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 917,966 81,660 1,392,615 182,842 ----------------------------------------------------------------------------- Total increase (decrease) in assets 1,047,761 79,142 1,426,011 180,847 Assets beginning of year 79,142 -- -- -- ----------------------------------------------------------------------------- Assets end of year $ 1,126,903 $ 79,142 $ 1,426,011 $ 180,847 =============================================================================
* Reflects the period from commencement of operations May 1, 1998 through December 31, 1998. ** Reflects the period from commencement of operations May 1, 1999 through December 31, 1999. See accompanying notes. 17 97
SUB-ACCOUNT SMALL COMPANY INTERNATIONAL BLEND VALUE TOTAL RETURN TOTAL PERIOD PERIOD PERIOD YEAR YEAR ENDED** ENDED** ENDED** ENDED ENDED DEC. 31/99 DEC. 31/99 DEC. 31/99 DEC. 31/99 DEC. 31/98 $ 4,498 $ -- $ -- $ 22,318,341 $ 21,841,366 530 885 1,187 2,472,704 1,896,542 -------------------------------------------------------------------------------------------------------------- 3,968 (885) (1,187) 19,845,637 19,944,824 960 (11,916) 4,906 15,845,664 6,901,178 39,165 39,749 368 48,759,040 684,860 -------------------------------------------------------------------------------------------------------------- 44,093 26,948 4,087 84,450,341 27,530,862 -------------------------------------------------------------------------------------------------------------- 25,426 40,220 15,252 90,460,514 80,455,962 (2,182) (7,916) (5,447) (32,383,279) (30,123,014) (41) (7,407) -- (3,391,895) (1,725,325) 168,745 442,396 286,216 (471,653) (63,699) -------------------------------------------------------------------------------------------------------------- 191,948 467,293 296,021 54,213,687 48,543,924 -------------------------------------------------------------------------------------------------------------- 236,041 494,241 300,108 138,664,028 76,074,786 -- -- -- 332,091,393 256,016,607 -------------------------------------------------------------------------------------------------------------- $ 236,041 $ 494,241 $ 300,108 $ 470,755,421 $ 332,091,393 ==============================================================================================================
18 98 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements 1. ORGANIZATION The Manufacturers Life Insurance Company of America Separate Account Four (the Account) is a separate account established by The Manufacturers Life Insurance Company of America (the Company). The Account operates as a Unit Investment Trust under the Investment Company Act of 1940, as amended and invests in thirty nine sub-accounts of Manufacturers Investment Trust (the Trust). The Account is a funding vehicle for allocation of net premiums under variable universal life insurance contracts (the Contracts) issued by the Company. The Account was established by the Company, a life insurance company organized in 1983 under Michigan law. The Company is an indirect, wholly-owned subsidiary of The Manufacturers Life Insurance Company (Manulife Financial), a Canadian life insurance company. Each investment sub-account invests solely in shares of a particular portfolio of the Trust. The Trust is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company is required to maintain assets in the Account with a total market value at least equal to the reserves and other liabilities relating to the variable benefits under all contracts participating in the Account. These assets may not be charged with liabilities which arise from any other business the Company conducts. However, all obligations under the variable contracts are general corporate obligations of the Company. Additional assets are held in the Company's general account to cover the contingency that the guaranteed minimum death benefit might exceed the death benefit which would have been payable in the absence of such guarantee. As the result of portfolio changes, effective May 1, 1999, the following sub-accounts of the Account have been replaced with a new fund as follows: PREVIOUS FUND Emerging Growth Trust Conservative Asset Allocation Trust Moderate Asset Allocation Trust Aggressive Asset Allocation Trust Pilgrim Baxter Growth Trust Small/Mid Cap Trust International Growth & Income Trust Global Government Bond Trust Equity Trust NEW FUND Emerging Small Company Trust Diversified Bond Trust Income & Value Trust Large Cap Growth Trust Aggressive Growth Trust Mid Cap Growth Trust Overseas Trust Global Bond Trust Mid-Cap Blend Trust 19 99 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 1. ORGANIZATION (CONTINUED) Effective May 1, 1999, the following sub-accounts of the Account were merged with existing funds as follows: Capital Growth Bond Trust merged with Investment Quality Bond Trust Worldwide Growth Trust merged with Global Equity Trust The following sub-accounts of the Account were added as investment options for variable universal life insurance contract holders of Manufacturers Life of America:
COMMENCEMENT OF OPERATIONS OF THE SUB-ACCOUNTS U.S. Large Cap Value Trust May 1, 1999 Mid Cap Stock Trust May 1, 1999 Small Company Blend Trust May 1, 1999 International Value Trust May 1, 1999 Total Return Trust May 1, 1999 Small Company Value Trust May 1, 1998
2. SIGNIFICANT ACCOUNTING POLICIES Investments are made in the portfolios of the Trust and are valued at the reported net asset value of such portfolios. Transactions are recorded on the trade date. Income from dividends is recorded on the ex-dividend date. Realized gains and losses on the sales of investments are computed on the basis of the identified cost of the investment sold. In addition to the Account, a contract holder may also allocate funds to the Fixed Account, which is part of the Company's general account. Because of exemptive and exclusionary provisions, interests in the Fixed Account have not been registered under the Securities Act of 1933, and the Company's general account has not been registered as an investment company under the Investment Company Act of 1940. 20 100 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The operations of the Account are included in the federal income tax return of the Company, which is taxed as a life insurance company under the provisions of the Internal Revenue Code (the Code). Under the current provisions of the Code, the Company does not expect to incur federal income taxes on the earnings of the Account to the extent the earnings are credited under the contracts. Based on this, no charge is being made currently to the Account for federal income taxes. The Company will review periodically the status of such decision based on changes in the tax law. Such a charge may be made in future years for any federal income taxes that would be attributable to the contract. The preparation of financial statements in conformity with accounting principals generally accepted in the United States requires management to make estimates and assumptions that could affect the amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. 3. MORTALITY AND EXPENSE RISKS CHARGE Manufacturers Life of America deducts from the assets of the Account a daily charge equivalent to annual rates between 0.55% and 0.65% of the average net value of the Account's assets for mortality and expense risks. 4. PREMIUM DEDUCTIONS Manufacturers Life of America deducts certain charges for state, local, and federal taxes from the gross premium before placing the remaining net premiums in the sub-accounts. 21 101 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 5. PURCHASES AND SALES OF INVESTMENTS The following table shows aggregate cost of shares purchased and proceeds from sales of each Trust portfolio for the year ended December 31, 1999:
PURCHASES SALES Emerging Small Company Trust $ 8,830,178 $19,618,814 Quantitative Equity Trust 12,349,619 12,160,560 Real Estate Securities Trust 3,912,162 6,792,121 Balanced Trust 15,347,865 15,776,213 Money Market Trust 32,552,209 22,413,885 Capital Growth Bond Trust 2,879,240 17,312,593 International Stock Trust 13,455,553 10,037,984 Pacific Rim Emerging Markets Trust 2,505,891 995,234 Equity Index Trust 26,777,409 11,838,909 Mid-Cap Blend Trust 5,214,535 4,448,956 Equity Income Trust 6,373,056 5,597,298 Growth and Income Trust 16,604,078 6,824,836 U.S. Government Securities Trust 3,721,183 4,705,931 Diversified Bond Trust 1,292,710 718,366 Income and Value Trust 3,100,976 2,212,732 Large Cap Growth Trust 4,569,975 2,074,079 Blue Chip Growth Trust 26,032,442 11,025,161 Science & Technology Trust 23,235,756 6,928,976 Aggressive Growth Trust 878,895 505,376 Mid Cap Trust 5,114,584 3,195,930 Worldwide Growth Trust 522,410 1,060,314 Global Equity Trust 3,676,292 1,828,425 Growth Trust 7,219,867 3,659,003 Value Trust 7,630,377 10,046,526
22 102 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 5. PURCHASES AND SALES OF INVESTMENTS (CONTINUED)
PURCHASES SALES Overseas Trust $ 327,892 $ 178,527 High Yield Trust 4,583,289 3,131,458 Strategic Bond Trust 1,544,223 1,484,657 Global Bond Trust 596,548 301,835 Investment Quality Bond Trust 24,233,053 7,543,067 Lifestyle Aggressive 1000 Trust 297,498 276,585 Lifestyle Growth 820 Trust 1,355,903 2,547,778 Lifestyle Balanced 640 Trust 1,346,079 983,273 Lifestyle Moderate 460 Trust 636,617 322,713 Lifestyle Conservative 280 Trust 806,379 403,250 International Small Cap Trust 1,973,366 1,929,308 Small Company Value Trust 1,501,975 587,857 U.S. Large Cap Value Trust 1,717,106 328,870 Mid Cap Stock Trust 217,462 35,083 Small Company Blend Trust 211,066 15,150 International Value Trust 1,023,784 557,375 Total Return Trust 772,908 478,076 ------------ ------------ Total $276,942,410 $204,158,239 ============ ============
6. UNIT VALUES A summary of the accumulation unit values at December 31, 1999 and 1998 and the accumulation units and dollar value outstanding at December 31, 1999 for the variable universal life contracts are as follows: 1998 1999 UNIT UNIT VALUE VALUE UNITS DOLLARS Emerging Small Company Trust: Individual Variable Life Type K Contracts $ 62.63 $ 107.98 774,282 $83,607,893 Quantitative Equity Trust: Individual Variable Life Type K Contracts 51.82 62.97 726,887 45,768,457
Real Estate Securities Trust: Individual Variable Life Type K Contracts 34.85 31.86 440,492 14,032,899 Balanced Trust: Individual Variable Life Type K Contracts 33.65 32.88 1,609,782 52,928,961
23 103 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. UNIT VALUES (CONTINUED)
1998 1999 UNIT UNIT VALUE VALUE UNITS DOLLARS Money Market Trust: Individual Variable Life Type K Contracts 16.77 17.43 1,595,413.20 27,801,940 Corporate Variable Life Type L Contracts -- 12.57 797.98 10,029 ---------- 27,811,969 International Stock Trust: Individual Variable Life Type K Contracts 13.58 17.50 946,036.60 16,551,423 Pacific Rim Emerging Markets Trust: Individual Variable Life Type K Contracts 7.06 11.42 478,484.77 5,462,921 Equity Index Trust: Individual Variable Life Type K Contracts 19.35 23.18 1,624,831.03 37,670,418 Corporate Variable Life Type L Contracts -- 12.94 2,604.73 33,694 ---------- 37,704,112 Mid-Cap Blend Trust: Individual Variable Life Type K Contracts 14.56 18.48 493,648.28 9,120,529 Corporate Variable Life Type L Contracts -- 13.73 1,573.61 21,600 ---------- 9,142,129 Equity Income Trust: Individual Variable Life Type K Contracts 15.79 16.23 601,052.36 9,752,393 Growth and Income Trust: Individual Variable Life Type K Contracts 19.37 22.88 1,280,842.18 29,307,697 Corporate Variable Life Type L Contracts -- 12.81 2,809.50 35,999 ---------- 29,343,696 U.S. Government Securities Trust: Individual Variable Life Type K Contracts 11.72 11.62 217,907.61 2,531,572 Diversified Bond Trust: Individual Variable Life Type K Contracts 12.74 12.75 106,414.99 1,356,248 Corporate Variable Life Type L Contracts -- 12.40 1,003.14 12,439 ---------- 1,368,687 Income and Value Trust: Individual Variable Life Type K Contracts 14.01 15.13 226,217.19 3,421,815 Corporate Variable Life Type L Contracts -- 12.66 1,622.46 20,538 ---------- 3,442,353
24 104 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. UNIT VALUES (CONTINUED)
1998 1999 UNIT UNIT VALUE VALUE UNITS DOLLARS Large Cap Growth Trust: Individual Variable Life Type K Contracts $ 15.21 $ 18.93 315,045.97 $ 5,965,084 International Small Cap Trust: Individual Variable Life Type K Contracts 13.96 25.65 77,434.31 1,986,465 Blue Chip Growth Trust: Individual Variable Life Type K Contracts 20.35 24.15 1,376,320.29 33,241,417 Corporate Variable Life Type L Contracts -- 12.90 2,623.64 33,853 ----------- 33,275,270 Science & Technology Trust: Individual Variable Life Type K Contracts 19.94 39.51 894,204.23 35,334,321 Corporate Variable Life Type L Contracts -- 15.00 3,898.90 58,495 ---------- 35,392,816 Aggressive Growth Trust: Individual Variable Life Type K Contracts 15.00 19.81 55,619.98 1,102,140 Mid Cap Trust: Individual Variable Life Type K Contracts 19.37 27.85 199,648.44 5,559,966 Corporate Variable Life Type L Contracts -- 14.43 954.53 13,778 ---------- 5,573,744 Global Equity Trust: Individual Variable Life Type K Contracts 16.19 16.68 190,276.47 3,173,669 Growth Trust: Individual Variable Life Type K Contracts 18.36 25.02 310,444.26 7,767,857 Value Trust: Individual Variable Life Type K Contracts 14.06 13.57 244,747.64 3,322,459 Overseas Trust: Individual Variable Life Type K Contracts 13.34 18.64 28,779.52 536,316 Corporate Variable Life Type L Contracts -- 14.38 1,520.15 21,859 ---------- 558,175 High Yield Trust: Individual Variable Life Type K Contracts 14.09 15.11 228,581.13 3,454,742 Corporate Variable Life Type L Contracts -- 12.71 197.59 2,513 ---------- 3,457,255
25 105 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. UNIT VALUES (CONTINUED)
1998 1999 UNIT UNIT VALUE VALUE UNITS DOLLARS Strategic Bond Trust: Individual Variable Life Type K Contracts $ 13.65 $ 13.87 92,210.47 $ 1,278,721 Global Bond Trust: Individual Variable Life Type K Contracts 14.07 13.04 24,777.84 323,189 Investment Quality Bond Trust: Individual Variable Life Type K Contracts 14.61 14.26 1,346,597.13 19,201,985 Lifestyle Aggressive 1000 Trust: Individual Variable Life Type K Contracts 14.86 16.92 47,640.05 805,917 Lifestyle Growth 820 Trust: Individual Variable Life Type K Contracts 14.95 17.32 111,946.34 1,938,299 Lifestyle Balanced 640 Trust: Individual Variable Life Type K Contracts 14.75 16.47 95,036.53 1,565,366 Lifestyle Moderate 460 Trust: Individual Variable Life Type K Contracts 15.04 16.12 22,399.23 361,126 Lifestyle Conservative 280 Trust Individual Variable Life Type K Contracts 14.94 15.47 31,819.99 492,268 Small Company Value Trust: Individual Variable Life Type K Contracts 8.49 9.11 123,672.84 1,126,903 U.S. Large Cap Value Trust: Individual Variable Life Type K Contracts - 12.78 111,538.37 1,426,011 Mid Cap Stock Trust: Individual Variable Life Type K Contracts - 12.55 14,414.44 180,847 Small Company Blend Trust: Individual Variable Life Type K Contracts - 16.00 14,750.22 236,041 International Value Trust: Individual Variable Life Type K Contracts - 12.92 38,241.00 494,241 Total Return Trust: Individual Variable Life Type K Contracts - 12.32 24,365.60 300,108 ------------- Total $ 470,755,421 =============
26 106 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 7. RELATED PARTY TRANSACTIONS ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary of Manulife Financial, acts as the principal underwriter of the Contracts pursuant to a Distribution Agreement with the Company. Registered representatives of either ManEquity, Inc. or other broker-dealers having distribution agreements with ManEquity, Inc. who are also authorized as variable life insurance agents under applicable state insurance laws, sell the Contracts. Registered representatives are compensated on a commission basis. The Company has a formal service agreement with its affiliates, Manulife Financial and The Manufacturers Life Insurance Company (U.S.A.), which can be terminated by either party upon two months notice. Under this Agreement, the Company pays for legal, actuarial, investment, and certain other administrative services. 27 107 PART II OTHER INFORMATION 108 PART II. OTHER INFORMATION Representation of Insurer Pursuant to Section 26 of the Investment Company Act of 1940 The Manufacturers Life Insurance Company of America hereby represents that the fees and charges deducted under the Policy 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. CONTENTS OF REGISTRATION STATEMENT This registration statement comprises the following papers and documents: The facing sheet; Cross Reference Sheet The Prospectus, consisting of [47] pages; Representation of Insurer pursuant to Section 26 of the Investment Company Act of 1940; The Signatures; Written consents of the following persons: Ernst & Young LLP-Filed Herein Opinion and Consent of Actuary- Filed Herein The following exhibits are filed, or are incorporated by reference to the designated filings, as part of this registration statement: 1. Copies of all exhibits required by paragraph A of the instructions as to exhibits in Form N-8B-2 are set forth below under designations based on such instructions: A(1) Resolutions of Board of Directors of The Manufacturers Life Insurance Company of America establishing Separate Account Four. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(3)(a)(i) Distribution Agreement between The Manufacturers Life Insurance Company of America and ManEquity, Inc. dated August 11, 1987. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(3)(a)(ii) Amendment to Distribution Agreement between The Manufacturers Life Insurance Company of America and ManEquity, Inc. dated July 2, 1991. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(3)(a)(iii) Supplemental Agreement to Distribution Agreement between The Manufacturers Life Insurance Company of America and ManEquity, Inc. dated October 1, 1992. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(3)(b)(i) Specimen agreement between ManEquity, Inc. and registered representatives. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(3)(b)(ii) Specimen agreement between The Manufacturers Life Insurance Company of America and registered representatives. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(3)(b)(iii) Specimen agreement between ManEquity, Inc. and dealers. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998.
109 A(3)(b)(iv) Specimen agreement between The Manufacturers Life Insurance Company of America and dealers. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(3)(c) Schedule of Sales Commissions. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(5)(a) Form of Flexible Premium Variable Universal Life Insurance Policy FTIO Rider form 121 and Unisex endorsement form. Previously filed as Exhibit A(5)(a) to the initial registration statement on Form S-6, file number 333-51293, filed April 29, 1998. A(6)(a) Restated Articles of Redomestication of the Company. Incorporated by reference to Exhibit A(6)(a) to post-effective amendment no. 20 to the registration statement on Form S-6, file number 33-13774, filed April 26, 1996. A(6)(b) By-Laws of the Company. Incorporated by reference to Exhibit A(6)(b) to post-effective amendment no. 20 to the registration statement on Form S-6, file number 33-13774, filed April 26, 1996. A(8)(a)(i) Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated June 1, 1988. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(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. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(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. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(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. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(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. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(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. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998.
110 A(8)(b) Stoploss Reinsurance Agreement between The Manufacturers Life Insurance Company of America and The Manufacturers Life Insurance Company dated January 1, 1988. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(8)(c)(i) Service Agreement between The Manufacturers Life Insurance Company and ManEquity, Inc. dated January 2, 1991. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(8)(c)(ii) Amendment to Service Agreement between The Manufacturers Life Insurance Company and ManEquity, Inc. dated March 1, 1994. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(8)(d) Service Agreement with McCamish Systems, L.L.C. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998. A(10) Form of Application for Flexible Premium Variable Life Insurance Policy. Previously filed with pre-effective amendment no. 1 to this registration statement, filed August 28, 1998.
2 Consents of the following: A. Opinion and consent of James D. Gallagher, Esq., Secretary and General Counsel of the Manufacturers Life Insurance Company of America. Previously filed as Exhibit 2A to pre-effective amendment no.1 to this registration statement, filed August 28, 1998. B. Opinion and Consent of Paul Smalley, Actuary. -Filed Herein C. Consent of Ernst & Young LLP- Filed Herein 3 No financial statements are omitted from the prospectus pursuant to instruction 1(b) or (c) of Part I. 4 Not Applicable 6 Memorandum Regarding Issuance, Face Amount Increase, Redemption and Transfer Procedures for the Policies. Previously filed with pre-effective amendment no.1 to this registration statement, filed August 28, 1998. 7 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. James P. O'Malley - Incorporated by reference to Exhibit 7 to initial registration statement made on Form S-6, file number 333-82449, filed July 8, 1999. Incorporated by reference to Exhibit 7 to post effective amendment no. 1 to the registration statement on Form S-6, file number 333-69719, filed February 25, 2000. 111 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant and the Depositor certify that they meet all the requirements for the effectiveness of this amendment to the Registration Statement pursuant to rule 485(b) under the Securities Act of 1933 and have duly caused this amendment to their Registration Statement to be signed on their behalf in the City of Toronto, Province of Ontario, Canada, on this [27th] day of April, 2000. SEPARATE ACCOUNT FOUR 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 112 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 [27th] day of April, 2000.
Signature Title *___________________________________ Chairman and Director JOHN D. RICHARDSON /s/ Donald A. Guloien President and Director ___________________________________ (Principal Executive Officer) DONALD A. GULOIEN *___________________________________ Director SANDRA M. COTTER /s/ JAMES D. GALLAGHER Director ____________________________________ JAMES D. GALLAGHER *___________________________________ Director JAMES O'MALLEY *___________________________________ Director JOSEPH J. PIETROSKI *___________________________________ Director THEODORE KILKUSKIE, JR. /s/ Denis Turner Vice President, and Treasurer ____________________________________ (Principal Financial and Accounting Officer) DENIS TURNER */s/ JAMES D. GALLAGHER ____________________________________ JAMES D. GALLAGHER Pursuant to Power of Attorney
113 EXHIBIT INDEX
Item No. Description - -------- ----------- 2A Opinion and Consent of Actuary 2B Consent of Ernst & Young
EX-99.2A 2 OPINION AND CONSENT OF ACTUARY 1 April 27, 2000 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Re: Actuarial Opinion on Illustrations Contained in Post-Effective Amendment No. 2 to a Registration Statement on Form S-6 (File No. 333-51293) (the "Amendment") Dear Sirs: This opinion is furnished in connection with the above-referenced Amendment under the Securities Act of 1933, as amended, describing a flexible premium variable life insurance policy (the "Policy") that is offered and sold by The Manufacturers Life Insurance Company of America. The hypothetical illustrations of death benefits, Policy values and surrender values used in this Amendment are consistent with the provisions of the Policy and the Company's administrative procedures. The rate structure of the Policy has not been designed so as to make the relationship between premiums and benefits, as shown in the illustrations, appear disproportionately more favorable to a prospective purchaser of the Policy for the age and risk class illustrated than for any other prospective purchaser. The particular illustrations shown are for a commonly used risk class and for premium amounts and ages appropriate to the markets in which the Policy is sold. I hereby consent to the use of this opinion as an exhibit to the Amendment. Sincerely, /s/Paul N. Smalley Paul N. Smalley, ASA, MAAA Actuary EX-99.2B 3 CONSENT OF ERNST AND YOUNG 1 CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Independent Auditors" and to the use of our reports dated March 3, 2000 accompanying the consolidated financial statements of The Manufacturers Life Insurance Company of America and our reports dated February 3, 2000 with respect to the financial statements of Separate Account 4 of The Manufacturers Life Insurance Company of America, in Post Effective Amendment No. 2 to the Registration Statement No. 333-51293 on Form S-6 and related prospectus of Separate Account Four of The Manufacturers Life Insurance Company of America. Ernst & Young LLP Philadelphia, Pennsylvania April 24, 2000 -----END PRIVACY-ENHANCED MESSAGE-----