-----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, E8eoNsTs6mSuG0Fa6PBtHbQsmsbR5Gvr1YEY+sL/yzQ4CZzW5TPlhtgc9OI43h80 uufP+EYBzGB+wjcHmMcO/g== 0000950135-99-002395.txt : 19990507 0000950135-99-002395.hdr.sgml : 19990507 ACCESSION NUMBER: 0000950135-99-002395 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19990506 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: 497 SEC ACT: SEC FILE NUMBER: 333-51293 FILM NUMBER: 99612440 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 497 1 MANULIFE FINANCIAL 1 PROSPECTUS THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA SEPARATE ACCOUNT FOUR 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" or "Manufacturers Life Of America"), a stock life insurance company that is an indirect wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manufacturers Life"). 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 Manufacturer 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 maintains a web site (http://www.sec.gov) that contains material incorporated by reference and other information regarding registrants that file electronically with the Commission. 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 SECURITIES AND EXCHANGE COMMISSION 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. 2 The Manufacturers Life Insurance Company of America 500 North Woodward Avenue Bloomfield Hills, Michigan 48304 The date of this Prospectus is May 1, 1999. 2 3 TABLE OF CONTENTS Cover Page...................................................................................1 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.....................................................................8 Investment Options and Investment Advisers.................................................8 Table of Charges and Deductions............................................................9 Table of Investment Management Fees and Expenses..........................................11 Table of Investment Options and Investment Advisers.......................................13 General Information about Manufacturers.....................................................12 Manufacturers Life of America.............................................................14 Separate Account Four.....................................................................12 Manufacturers Investment Trust............................................................12 Investment Objectives of the Portfolios...................................................12 Issuing A Policy............................................................................12 Use of the Policy.........................................................................12 Requirements..............................................................................12 Temporary Insurance Agreement.............................................................12 Underwriting..............................................................................12 Right to Examine the Policy...............................................................12 Death Benefits..............................................................................12 Life Insurance Qualification..............................................................12 Death Benefit Options.....................................................................12 Changing the Face Amount..................................................................12 Premium Payments............................................................................12 Initial Premiums..........................................................................12 Subsequent Premiums.......................................................................12 Maximum Premium Limitation................................................................12 Premium Allocation........................................................................12 Charges and Deductions......................................................................12 Amount Deducted from Premiums.............................................................12 Surrender Charges.........................................................................12 Monthly Charges...........................................................................12 Charges Assessed Against Assets of the Investment Accounts................................12 Charges for Transfers.....................................................................12 Company Tax Considerations..............................................................29 Policy Value................................................................................12 Determination of the Policy Value.........................................................12 Units and Unit Values.....................................................................12 Transfers of Policy Value.................................................................12 Policy Loans................................................................................12 Maximum Loan..............................................................................12
3 4 Effect of Policy Loan.....................................................................12 Interest Charged on Policy Loans..........................................................12 Loan Account..............................................................................12 Policy Surrender and Partial Withdrawals....................................................12 Policy Surrender..........................................................................12 Partial Withdrawals.......................................................................12 Lapse and Reinstatement.....................................................................12 Lapse.....................................................................................12 Reinstatement.............................................................................12 The General Account.........................................................................12 Guaranteed Interest Account...............................................................12 Other Provisions of the Policy..............................................................12 Policyholder Rights.......................................................................12 Beneficiary...............................................................................12 Incontestability..........................................................................12 Misstatement of Age or Sex................................................................12 Suicide Exclusion.........................................................................12 Supplementary Benefits....................................................................12 Tax Treatment of the Policy.................................................................12 Life Insurance Qualification..............................................................12 Tax Treatment of Policy Benefits..........................................................12 Alternate Minimum Tax.....................................................................12 Income Tax Reporting......................................................................12 Other Information...........................................................................12 Payment of Proceeds.......................................................................12 Reports to Policyholders..................................................................12 Distribution of the Policies..............................................................12 Responsibilities of Manufacturers Life....................................................12 Voting Rights.............................................................................12 Substitution of Portfolio Shares..........................................................12 Records and Accounts......................................................................12 State Regulations.........................................................................12 Litigation................................................................................12 Independent Auditors......................................................................12 Further Information.......................................................................12 Officers and Directors....................................................................12 Impact of Year 2000.......................................................................48 Death Benefit Schedule with Flexible Term Insurance Option..................................49 Illustrations...............................................................................51 Assumptions.................................................................................12 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 5 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. 5 6 Loan Account 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 6 7 death benefit is not determined by the minimum death benefit percentage. The Policy's provisions may vary in some states. 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." 7 8 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 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 Advisers shows the subadvisers that provide investment subadvisory services to the indicated Portfolios. 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. 8 9 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. 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 9 10 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. 10 11 TABLE OF INVESTMENT MANAGEMENT FEES AND EXPENSES TRUST ANNUAL EXPENSES (as a percentage of Trust average net assets)
OTHER EXPENSES MANAGEMENT (AFTER EXPENSE TOTAL TRUST TRUST PORTFOLIO FEES REIMBURSEMENT)*** ANNUAL EXPENSES - --------------------------- ---------------------- ------------------- ----------------- Pacific Rim Emerging Markets. 0.850% 0.360% 1.210% Science & Technology......... 1.100% 0.110% 1.210% International Small Cap...... 1.100% 0.150% 1.250% Aggressive Growth............ 1.000%+ 0.090% 1.090% Emerging Small Company....... 1.050% 0.050% 1.100% Small Company Blend.......... 1.050% 0.150%* 1.200% Mid Cap Growth............... 0.950%+ 0.040% 0.990% Mid Cap Stock................ 0.925% 0.000%* 0.925% Overseas..................... 0.950% 0.210% 1.160% International Stock.......... 1.050% 0.200% 1.250% International Value.......... 1.000% 0.300%* 1.300% Mid Cap Blend................ 0.850%+ 0.050% 0.900% Small Company Value.......... 1.050% 0.180% 1.230% Global Equity................ 0.900% 0.110% 1.010% Growth....................... 0.850% 0.050% 0.900% Large Cap Growth............. 0.875%+ 0.130% 1.005% Quantitative Equity.......... 0.700% 0.060% 0.760% Blue Chip Growth............. 0.875%+ 0.045% 0.920% Real Estate Securities....... 0.700% 0.060% 0.760% Value........................ 0.800% 0.050% 0.850% Equity Index................. 0.250% 0.150%** 0.400%** Growth & Income.............. 0.750% 0.040% 0.790% U.S. Large Cap Value......... 0.875% 0.100%* 0.975% Equity-Income................ 0.875%+ 0.050% 0.925% Income & Value............... 0.800% 0.090% 0.890% Balanced..................... 0.800% 0.070% 0.870% High Yield................... 0.775% 0.065% 0.840% Strategic Bond............... 0.775% 0.075% 0.850% Global Bond.................. 0.800% 0.110% 0.910% Total Return................. 0.775% 0.100%* 0.875% Investment Quality Bond...... 0.650% 0.070% 0.720% Diversified Bond............. 0.750% 0.140% 0.890% U.S. Government Securities... 0.650% 0.070% 0.720% Money Market................. 0.500% 0.120% 0.620% Lifestyle Aggressive 1000#... 0% 1.110%*** 1.110% Lifestyle Growth 820#........ 0% 1.000%*** 1.000% Lifestyle Balanced 640#...... 0% 0.920%*** 0.920% Lifestyle Moderate 460#...... 0% 0.830%*** 0.830% Lifestyle Conservative 280#.. 0% 0.720%*** 0.720%
+Management Fees for these portfolios changed effective May 1, 1999. Prior to May 1, 1999, management fees were as follows: Aggressive Growth Trust 1.050%
11 12 Aggressive Growth Trust 1.050% Mid Cap Growth Trust 1.000% Mid Cap Blend Trust 0.750% Large Cap Growth Trust 0.750% Blue Chip Growth Trust 0.925% Equity Income Trust 0.800% Income & Value Trust 0.750%
*Based on estimates of payments to be made during the current fiscal year. ** 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) exceed an annual rate of 0.15% of the average annual net assets of the Equity Index Trust. The expense limitation will continue in effect from year to year unless otherwise terminated at any year end by MSS on 30 days' notice to the Trust. 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. *** Reflects expenses of the Underlying Portfolios. MSS has voluntarily agreed to pay the expenses of each Lifestyle Trust (excluding the expenses of the Underlying Portfolios). This voluntary expense reimbursement may be terminated at any time. If such expense reimbursement was not in effect, Total Trust Annual Expenses would be 0.02% higher, except for the Lifestyle Conservative 280 Trust, which would be 0.03% higher (based on expenses of the Lifestyle Trusts for the fiscal year ended December 31, 1998) as noted in the chart below:
MANAGEMENT OTHER TOTAL TRUST TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES Lifestyle Aggressive 1000.... 0% 1.130% 1.130% Lifestyle Growth 820......... 0% 1.020% 1.020% Lifestyle Balanced 640....... 0% 0.940% 0.940% Lifestyle Moderate 460....... 0% 0.850% 0.850% Lifestyle Conservative 280... 0% 0.750% 0.750%
# Each Lifestyle Trust will bear its own 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 also bear its own expenses. However, MSS is currently paying those expenses as described in footnote (***) above. 12 13 TABLE OF INVESTMENT OPTIONS AND INVESTMENT ADVISERS
SUBADVISER PORTFOLIO A I M Capital Management, Inc. Mid Cap Growth Trust Aggressive Growth Trust AXA Rosenberg Investment Management 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 Manufacturers Adviser Corporation* Pacific Rim Emerging Markets Trust Quantitative Equity Trust Real Estate Securities Trust Equity Index Trust Money Market Trust Lifestyle Trusts Miller Anderson & Sherrerd, LLP Value Trust High Yield Trust Morgan Stanley Asset Management Inc. Global Equity 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 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
13 14 *Manufacturers Adviser Corporation is an indirect wholly-owned subsidiary of Manufacturers Life. 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 Manufacturers Life of America is a stock life insurance company organized under the laws of Pennsylvania on April 11, 1977 and redomesticated under the laws of Michigan on December 9, 1992. It is a licensed life insurance company in the District of Columbia and all states of the United States except New York. The ultimate parent of Manufacturers Life of America is Manufacturers Life, a mutual life insurance company based in Toronto, Canada. Manufacturers Life and its subsidiaries, together, constitute one of the largest life insurance companies in North America and rank among the 60 largest life insurers in the world as measured by assets. However, neither Manufacturers Life of America nor Manufacturers Life guarantees the investment performance of the Separate Account. On January 20, 1998, the Board of Directors of Manufacturers Life announced that it had asked the management of Manufacturers Life to prepare a plan for conversion of Manufacturers Life from a mutual life insurance company to an investor owned, publicly traded stock company. Any demutualization plan for Manufacturers Life is subject to the approval of the Manufacturers Life Board of Directors and policyholders as well as regulatory approval. 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. SEPARATE ACCOUNT FOUR 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 14 15 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 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 Securities and Exchange Commission ("S.E.C.") under the Investment Company Act of 1940 ("1940 Act") as a unit investment trust. A unit investment trust is a type of investment company which invests its assets in specified securities, such as the shares of one or more investment companies, rather than in a portfolio of unspecified securities. Registration under the 1940 Act does not involve any supervision by the S.E.C. of the management or investment policies or practices of the Separate Account. For state law purposes the Separate Account is treated as a part or division of Manufacturers Life of America. MANUFACTURERS INVESTMENT 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 Manufacturers Investment 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 SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital. Current income is incidental to the portfolio's objective. 15 16 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 (formerly, the Pilgrim Baxter 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 (formerly, the Emerging Growth 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 small capitalization ("small cap") growth companies. In general, companies in which the portfolios invests will have market cap values of less than $1.5 billion 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 capitalization between $50 million and $1 billion. The MID CAP GROWTH TRUST (formerly, the Small/Mid Cap Trust) seeks long-term capital appreciation by investing the portfolio's assets principally in common stocks, with emphasis on medium-sized and smaller emerging growth companies. The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily in equity securities of companies with market capitalizations that approximately match the range of capitalization of the Wilshire Mid Cap 750 Index. The OVERSEAS TRUST (formerly, the International Growth & Income Trust) seeks growth of capital by investing, under normal market conditions, at least 65% of the portfolios' assets in foreign securities (including American Depositary Receipts (ADRs) and European Depositary Receipts (EDRs). The portfolios 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 in emerging markets. The MID CAP BLEND TRUST (formerly, the Equity Trust) seeks growth of capital by investing primarily in common stocks of United States 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 in equity securities of smaller companies which 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. 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). 16 17 The LARGE CAP GROWTH TRUST (formerly, the Aggressive Asset Allocation 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) and 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 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. 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 United States issuers which the subadviser believes are of high quality. The U.S. LARGE CAP 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 (formerly, the Moderate Asset Allocation 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. 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. 17 18 The GLOBAL BOND TRUST (formerly, the Global Government 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 PIMCO'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 (formerly, the Conservative Asset Allocation Trust) seeks high total return as is 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 United States entities. 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. 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 high 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 18 19 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. 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 distinquish 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 is accompanied by a check for the initial premium and the application is accepted: (i) the Policy Date will be the date the application and check were received at the Service Office (unless a special Policy Date is requested (See "Backdating a Policy" below); (ii) the Effective Date will be the date the Company's underwriters approve issuance of the Policy; and (iii) the Issue Date will be the date the Company issues the Policy. If an application accepted by the Company is not accompanied by a check for the initial premium: (i) the Policy Date will be the date the Company issues the Policy (unless a special Policy Date is requested (See "Backdating a Policy" below); (ii) the Effective Date will be the date the Service Office receives the initial premium; and (iii) the Issue Date will be the date the Company issues the Policy. The initial premium must be received within 60 days after the Policy Date. If the premium is not paid or if the application is rejected, the Policy will be cancelled and any partial premiums paid will be returned to the applicant. 19 20 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. 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 portfolio. 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 portfolio for the duration of the Right to Examine period. 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 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. 20 21 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. 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. 21 22 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: o A change in the policy's Face Amount. o A change in the death benefit option. o 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 and the Guideline Premium 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
CVA Test Percent CVA Test Percent -------------------- -------------------- GLP Test GLP 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% 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%
22 23
CVA Test Percent CVA Test Percent -------------------- -------------------- GLP Test GLP Test Age Percent Male Female Age Percent Male Female --- -------- ---- ------ --- ------- ---- ------ 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. 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. 23 24 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 (b) the amount of the coverage prior to the decrease; multiplied by (c) the Surrender Charge for the coverage. 24 25 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. 25 26 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 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: o the Policy is surrendered for its Net Cash Surrender Value, o a partial withdrawal is made in excess of the Free Partial Withdrawal Amount, o the Face Amount is decreased, or o 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%
26 27
Policy Year Percentage ----------- ---------- 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. 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 are 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 change permitted under a Policy. 27 28 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. 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: o the issue age, sex (unless unisex rates are required by law) and smoking status of the life insured; o the underwriting class of the Policy; o the number of years since issue or since an increase in Face Amount; o the amount of the Death Benefit in excess of the Face Amount, o 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: 28 29
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 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 29 30 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. 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. 30 31 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. 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. 31 32 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 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. 32 33 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 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 appliable premium load.. If the required payment is not received by the end of the grace period, the Policy will terminate with no value. 33 34 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 S.E.C. 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 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. 34 35 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: o Vary the premiums paid under the Policy. o Change the death benefit option. o Change the premium allocation for future premiums. o Transfer amounts between sub-accounts. o Take loans and/or partial withdrawals. o Surrender the contract. o Transfer ownership to a new owner. o Name a contingent owner that will automatically become owner if the policyholder dies before the insured. o Change or revoke a contingent owner. o 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 Manufacturers Life of America in a form satisfactory to the Company. If the life insured dies and there is no surviving beneficiary, the policyholder, or the policyholder's estate if 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. 35 36 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: 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. 36 37 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. 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 37 38 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 excludible 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 (c) the amount of any loan from, or secured by a Policy that is a MEC to the extent that such amount has been included in the gross income of the policyholder. 38 39 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 "Modified Endowment Contract" or "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. 39 40 These exceptions are not likely to apply in situations where the Policy is not owned by an individual. Definition of Modified Endowment Contracts 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. 40 41 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. 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. 41 42 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. 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: o the amount of death benefit; o the Policy Value and its allocation among the Investment Accounts, the Guaranteed Interest Account and the Loan Account; o the value of the units in each Investment Account to which the Policy Value is allocated; o the Policy Debt and any loan interest charged since the last report; o the premiums paid and other Policy transactions made during the period since the last report; and o any other information required by law. Each policyholder will also be sent an annual and a semi-annual report for the Trust 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 Manufacturers Life, will act as the principal underwriter of, and continuously offer, the Policies pursuant to a Distribution Agreement with Manufacturers Life of America. ManEquity, Inc. is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers. ManEquity, Inc. 42 43 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 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. In addition, a $100 per Policy per year administrative expense reimbursement is paid to the entity providing plan administration. RESPONSIBILITIES OF MANUFACTURERS LIFE Manufacturers Life and Manufacturers USA have entered into an agreement with ManEquity, Inc. pursuant to which Manufacturers Life or Manufacturers USA, on behalf of ManEquity, Inc. will pay the sales commissions in respect of the Policies and certain other policies issued by Manufacturers Life of America, prepare and maintain all books and records required to be prepared and maintained by ManEquity, Inc. with respect to the policies and such other policies, and send all confirmations required to be sent by ManEquity, Inc. with respect to the Policies and such other policies. ManEquity, Inc. will promptly reimburse Manufacturers Life or Manufacturers USA for all sales commissions paid by Manufacturers Life 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 43 44 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. 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 Manufacturers Life of America 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 S.E.C. 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, 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. 44 45 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. INDEPENDENT AUDITORS The consolidated financial statements of The Manufacturers Life Insurance Company of America and Separate Account Four of The Manufacturers Life Insurance Company of America at December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, 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 Commission also maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission 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
Position with Manufacturers Life Name of America Principal Occupation - ---- ------------------ -------------------- Sandra M. Cotter (36) Director Attorney, Dykema Gosset, PLLC, 1989 to (since December 1992) present. James D. Gallagher (44) Director (since May Vice President, Secretary and General 1996), Secretary and Counsel, The Manufacturers Life General Counsel 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,
45 46
Position with Manufacturers Life Name of America Principal Occupation - ---- ------------------ -------------------- January 1996 to present; Vice President, Secretary and General Counsel, The Manufacturers Life Insurance Company of North America , 1994 to present; Vice President and Associate General Counsel, The Prudential Insurance Company of America, 1991 to 1994. Donald A. Guloien (41) Director (since August Executive Vice President, Business 1990) and President Development, The Manufacturers Life Insurance Company, January 1999 to present, Senior Vice President, Business Development, The Manufacturers Life Insurance Company, 1994 to December 1998, Vice President, U.S. Individual Business, The Manufacturers Life Insurance Company, 1990 to 1994. Theodore Kilkuskie, Jr. (43) Director (since May Senior Vice President, U.S. Annuities, 1996) The Manufacturers Life Insurance Company, January 1999 to present; President, The Manufacturers Life Insurance Company of North America, January 1999 to present; Senior Vice President, U.S. Individual Insurance, The Manufacturers Life Insurance Company, August 1998 to December 1998; Vice President, U.S. Individual Insurance, The Manufacturers Life Insurance Company, June 1995 to February 1998; Executive Vice President, Mutual Fund Sales & Marketing, State Street Research, March 1994 to June 1995. James O'Malley (52) Director (since November Senior Vice President, U.S. Pensions, 1998) 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 (60) Director (since July Senior Vice President, General Counsel 1992) and Corporate Secretary, The Manufacturers Life Insurance Company, 1988 to present. John D. Richardson (61) Chairman and Director Senior Executive Vice President, The (since January 1995) 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
46 47
Position with Manufacturers Life Name of America Principal Occupation - ---- ------------------ -------------------- Insurance Company, January 1995 to October 1997; Senior Vice President and General Manager, Canadian Operations, The Manufacturers Life Insurance Company, June 1992 to December 1994. Victor Apps (51) 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 Manufacturers Life Insurance Company, 1993 to 1995; International Vice President, Asia Pacific Division, The Manufacturers Life Insurance Company, 1988 to 1993. Felix Chee (52) Vice President, Executive Vice President ,The Investments 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; Vice President and Treasurer, The Manufacturers Life Insurance Company, October 1993 to July 1994. Robert A. Cook (44) 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, 1996 to December 1998; Sales and Marketing Director, The Manufacturers Life Insurance Company, 1994 to 1995. Hugh C. McHaffie (40) Vice President Vice President, Product Development, U.S. Annuities, The Manufacturers Life Insurance Company, January 1996 to present; Vice President U.S. Annuities, The Manufacturers Life Insurance Company of North America, September 1996 to present; Vice President, Product Actuary, The Manufacturers Life Insurance Company of North America, August 1994 to September 1996; Product Development Executive, The Manufacturers Life Insurance Company of North America, August 1990 to August 1994.
47 48
Position with Manufacturers Life Name of America Principal Occupation - ---- ------------------ -------------------- Douglas H. Myers (44) Vice President, Finance President, ManEquity, Inc., April 1994 and Compliance, to present; Assistant Vice President Controller and Controller, U.S. Operations, The Manufacturers Life Insurance Company, 1988 to present. John G. Vrysen (43) Vice President, Chief Financial Officer and Treasurer, Appointed 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. Jean Wong (35) Vice President and Vice President and Chief Accountant, Treasurer U.S. Division, The Manufacturers Life Insurance Company, May 1998 to present; Chief Accountant, U.S. Division, The Manufacturers Life Insurance Company, July 1996 to May 1998; Director, Finance and Administration, Star Data Systems Inc., December 1995 to July 1996; Vice President and Chief Financial Officer, Primerica Financial Services, June 1993 to December 1995.
IMPACT OF YEAR 2000 The Company makes extensive use of information systems in the operations of its various businesses, including for the exchange of financial data and other information with customers, suppliers and other counterparties. The Company also uses software and information systems provided by third parties in its accounting, business and investment systems. The Year 2000 risk, as it is commonly known, is the result of computer programs being written using two digits, rather than four, to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the Year 2000. This could result in systems failures or miscalculations causing disruptions of operations, including among other things, a temporary inability to process transactions, send premium billing notices, make claims payments or engage in other normal business activities. The systems used by the company have been assessed as part of a comprehensive written plan conducted by The Manufacturers Life Insurance Company (collectively with its subsidiaries, "Manulife Financial"), to ensure that computer systems and processes of Manulife Financial and its subsidiaries and affiliates, including the Company, will continue to perform through the end of this century and in the next. 48 49 In 1996, in order to make Manulife Financial's systems Year 2000 compliant, a program was instituted to modify or replace both Manulife Financial's information technology systems ("IT systems") and embedded technology systems "Non-IT systems"). The phases of this program include (I) an inventory and assessment of all systems to determine which are critical, (ii) planning and designing the required modifications and replacements, (iii) making these modifications and replacements, (iv) testing modified or replaced systems, (v) redeploying modified or replaced systems and (vi) final management review and certification. For most IT and Non-IT systems identified as critical, certification has been completed for the company. Of those systems classified as critical, management believes that over 99% were Year 2000 compliant at the end of 1998. Management continues to focus attention on the remaining 1% of critical systems. Those that affect the Company are expected to be compliant by the end of the first quarter in 1999. Management believes that the Company's non-critical systems will be Year 2000 compliant by the end of the first quarter 1999. In addition to efforts directed at Manulife Financial's own systems, Manulife Financial is presently consulting vendors, customers, and other third parties with which it deals in an effort to ensure that no material aspect of Manulife Financial's operations will be hindered by Year 2000 problems of these third parties. This process includes providing third parties with questionnaires regarding the state of their Year 2000 readiness and, where possible or where appropriate, conducting further due diligence activities. Manulife Financial recognizes the importance of preparing for the change to the Year 2000 and, in January 1999, commenced preparation of contingency plans, in the event that Manulife Financial's year 2000 program has not fully resolved its Year 2000 issues. The Year 2000 Project Management Office for Manulife Financial's U.S. division is coordinating the preparation of the Year 2000 contingency plan on behalf of U.S. Division affiliates and subsidiaries. Contingency planning is targeted for completion by mid-1999. Management currently believes that, with modifications to existing software and conversions to new software, the Year 2000 risk will not pose significant operations problems for Manulife Financial's computer systems. As part of the Year 2000 program, critical systems were "time-shift" tested in the year 2000 and beyond to confirm that they will continue to function properly before, during and after the change to the Year 2000. However, there can be no assurance that Manulife Financial's Year 2000 program, including consulting third parties and its contingency planning, will avoid any material adverse effect on Manulife Financial's operations, customer relations or financial condition. Manulife Financial estimates the total cost of its Year 2000 program will be approximately $59 million, of which $49.5 million has been incurred through December 31, 1998; however, there can be no assurance that the actual cost incurred will not be materially higher than such estimate. Most costs will be expensed as incurred; however, those costs attributed to the purchase of new software and hardware will generally be capitalized. The total cost of the Year 2000 program is not expected to have a material effect on Manulife Financial's net operating income. 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). 49 50 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 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. 50 51 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 o 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. o An Insured who is a male, Issue Age 45, non-smoker. o A Face Amount of $365,000 in all Policy Years. o Payment of an annual premium of $20,000 each year for the first seven Policy Years. Premiums are paid on the Policy Anniversary. o All Premiums are allocated to and remain in the Variable Account for the entire period shown. o There are no transfers, partial withdrawals, or policy loans. o Tables 1, 2, and 3 assume regular underwriting. Tables 4, 5, and 6 assume short form underwriting. o The Cash Value Accumulation Test is used. o 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. o 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 0.945% 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 -1.687% 4.212% 10.111% of Return 11+ -1.341% 4.579% 10.499%
Current cost of insurance charges are not guaranteed and may be changed. The illustrations reflect the expense reimbursement in effect for the Lifestyle Trusts and the expense limitation in effect for the Equity Index Trust. In the absence of such expense reimbursement and expense limitation, the average of the Portfolios' current expenses would have been 0.953% 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 -1.691%, 4.207% and 10.106% for Policy Years 1-10 and -1.345%, 4.575% and 10.494% for Policy Years 11 and after. The expense reimbursement for the Lifestyle Trusts and the expense limitation for the Equity Index Trust remained in effect during the fiscal year ended December 31, 51 52 1998 and are expected to remain in effect during the fiscal year ending December 31, 1999. Were the expense reimbursement and expense limitation 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 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. 52 53 Table 1 Regular Underwriting Hypothetical Gross Investment Return of 0.00%
Current Charges -------------------------------------------------------------------------------- Premiums Policy Plus Less Less Plus Policy Death Policy Annual Accum Value Net Admin Cost of Invest Value Surr Net Cash Benefit Year Premium at 5% Beg Yr Premium Fees Ins Earnings End Yr Charges Surrender End Yr - ------ ------- -------- ------- ------- ----- ------- -------- -------- ------- --------- ------- 1 20,000 21,000 0 19,600 144 732 -323 18,401 2,000 16,401 365,000 2 20,000 43,050 18,401 19,600 144 980 -631 36,246 3,000 33,246 365,000 3 20,000 66,203 36,246 19,600 144 1,198 -930 53,574 3,000 50,574 365,000 4 20,000 90,513 53,574 19,600 144 1,285 -1,222 70,523 4,000 66,523 365,000 5 20,000 116,038 70,523 19,600 144 1,320 -1,507 87,152 5,000 82,152 365,000 6 20,000 142,840 87,152 19,600 144 1,381 -1,787 103,439 5,000 98,439 365,000 7 20,000 170,982 103,439 19,600 144 1,431 -2,062 119,402 4,000 115,402 365,000 8 0 179,531 119,402 0 144 1,598 -1,999 115,661 3,000 112,661 365,000 9 0 188,508 115,661 0 144 1,794 -1,934 111,790 2,000 109,790 365,000 10 0 197,933 111,790 0 144 2,035 -1,866 107,744 0 107,744 365,000 11 0 207,830 107,744 0 144 2,082 -1,428 104,090 0 104,090 365,000 12 0 218,221 104,090 0 144 2,089 -1,379 100,477 0 100,477 365,000 13 0 229,132 100,477 0 144 2,041 -1,331 96,961 0 96,961 365,000 14 0 240,589 96,961 0 144 1,858 -1,285 93,673 0 93,673 365,000 15 0 252,619 93,673 0 144 1,518 -1,244 90,767 0 90,767 365,000 16 0 265,249 90,767 0 144 1,680 -1,204 87,740 0 87,740 365,000 17 0 278,512 87,740 0 144 1,855 -1,162 84,579 0 84,579 365,000 18 0 292,438 84,579 0 144 2,048 -1,118 81,269 0 81,269 365,000 19 0 307,059 81,269 0 144 2,247 -1,072 77,805 0 77,805 365,000 20 0 322,412 77,805 0 144 2,454 -1,024 74,183 0 74,183 365,000 25 0 411,489 57,096 0 144 4,370 -733 51,849 0 51,849 365,000 30 0 525,176 24,672 0 144 8,476 -268 15,783 0 15,783 365,000
Guaranteed Charges -------------------------------------------------------------------------------- Policy Plus Less Less Plus Policy Death Policy Value Net Admin Cost of Invest Value Surr Net Cash Benefit Year Beg Yr Premium Fees Ins Earnings End Yr Charges Surrender End Yr - ------ -------- ------- ----- ------- -------- -------- ------- --------- -------- 1 0 19,600 144 1,570 -315 17,571 2,000 15,571 365,000 2 17,571 19,600 144 1,612 -611 34,803 3,000 31,803 365,000 3 34,803 19,600 144 1,653 -902 51,705 3,000 48,705 365,000 4 51,705 19,600 144 1,687 -1,186 68,288 4,000 64,288 365,000 5 68,288 19,600 144 1,723 -1,466 84,555 5,000 79,555 365,000 6 84,555 19,600 144 1,753 -1,740 100,517 5,000 95,517 365,000 7 100,517 19,600 144 1,792 -2,009 116,172 4,000 112,172 365,000 8 116,172 0 144 1,986 -1,941 112,101 3,000 109,101 365,000 9 112,101 0 144 2,209 -1,870 107,877 2,000 105,877 365,000 10 107,877 0 144 2,466 -1,797 103,471 0 103,471 365,000 11 103,471 0 144 2,746 -1,366 99,214 0 99,214 365,000 12 99,214 0 144 3,056 -1,307 94,707 0 94,707 365,000 13 94,707 0 144 3,388 -1,244 89,931 0 89,931 365,000 14 89,931 0 144 3,754 -1,177 84,855 0 84,855 365,000 15 84,855 0 144 4,157 -1,106 79,448 0 79,448 365,000 16 79,448 0 144 4,615 -1,031 73,658 0 73,658 365,000 17 73,658 0 144 5,139 -949 67,425 0 67,425 365,000 18 67,425 0 144 5,747 -861 60,673 0 60,673 365,000 19 60,673 0 144 6,455 -766 53,308 0 53,308 365,000 20 53,308 0 144 7,271 -661 45,233 0 45,233 365,000 25 3,687 0 48 3,634 -5 0 0 0 0 30 0 0 0 0 0 0 0 0 0
o THE POLICY VALUE, CASH SURRENDER VALUE, AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. o 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. o 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. o 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. 53 54 Table 2 Regular Underwriting Hypothetical Gross Investment Return of 6.00%
Current Charges -------------------------------------------------------------------------------- Premiums Policy Plus Less Less Plus Policy Death Policy Annual Accum Value Net Admin Cost of Invest Value Surr Net Cash Benefit Year Premium at 5% Beg Yr Premium Fees Ins Earnings End Yr Charges Surrender End Yr - ------ ------- -------- ------- ------- ----- ------- -------- -------- ------- --------- ------- 1 20,000 21,000 0 19,600 144 731 806 19,530 2,000 17,530 365,000 2 20,000 43,050 19,530 19,600 144 973 1,623 39,636 3,000 36,636 365,000 3 20,000 66,203 39,636 19,600 144 1,179 2,465 60,378 3,000 57,378 365,000 4 20,000 90,513 60,378 19,600 144 1,246 3,337 81,925 4,000 77,925 365,000 5 20,000 116,038 81,925 19,600 144 1,253 4,244 104,372 5,000 99,372 365,000 6 20,000 142,840 104,372 19,600 144 1,272 5,189 127,745 5,000 122,745 365,000 7 20,000 170,982 127,745 19,600 144 1,273 6,173 152,102 4,000 148,102 372,650 8 0 179,531 152,102 0 144 1,370 6,372 156,959 3,000 153,959 373,563 9 0 188,508 156,959 0 144 1,486 6,574 161,902 2,000 159,902 375,614 10 0 197,933 161,902 0 144 1,620 6,779 166,917 0 166,917 375,564 11 0 207,830 166,917 0 144 1,598 7,600 172,776 0 172,776 378,378 12 0 218,221 172,776 0 144 1,547 7,870 178,954 0 178,954 381,173 13 0 229,132 178,954 0 144 1,457 8,155 185,508 0 185,508 384,002 14 0 240,589 185,508 0 144 1,289 8,459 192,535 0 192,535 388,920 15 0 252,619 192,535 0 144 1,031 8,787 200,147 0 200,147 394,290 16 0 265,249 200,147 0 144 1,111 9,134 208,026 0 208,026 399,410 17 0 278,512 208,026 0 144 1,196 9,493 216,179 0 216,179 404,255 18 0 292,438 216,179 0 144 1,285 9,864 224,614 0 224,614 408,797 19 0 307,059 224,614 0 144 1,390 10,248 233,328 0 233,328 415,323 20 0 322,412 233,328 0 144 1,500 10,644 242,327 0 242,327 421,650 25 0 411,489 281,082 0 144 2,312 12,811 291,437 0 291,437 451,727 30 0 525,176 335,096 0 144 3,688 15,250 346,514 0 346,514 488,585
Guaranteed Charges -------------------------------------------------------------------------------- Policy Plus Less Less Plus Policy Death Policy Value Net Admin Cost of Invest Value Surr Net Cash Benefit Year Beg Yr Premium Fees Ins Earnings End Yr Charges Surrender End Yr - ------ ------- ------- ----- ------- -------- -------- ------- --------- -------- 1 0 19,600 144 1,568 787 18,675 2,000 16,675 365,000 2 18,675 19,600 144 1,602 1,572 38,101 3,000 35,101 365,000 3 38,101 19,600 144 1,627 2,390 58,320 3,000 55,320 365,000 4 58,320 19,600 144 1,637 3,241 79,380 4,000 75,380 365,000 5 79,380 19,600 144 1,638 4,128 101,326 5,000 96,326 365,000 6 101,326 19,600 144 1,620 5,053 124,216 5,000 119,216 365,000 7 124,216 19,600 144 1,592 6,017 148,097 4,000 144,097 365,000 8 148,097 0 144 1,701 6,195 152,447 3,000 149,447 365,000 9 152,447 0 144 1,824 6,376 156,855 2,000 154,855 365,000 10 156,855 0 144 1,959 6,558 161,311 0 161,311 365,000 11 161,311 0 144 2,096 7,331 166,402 0 166,402 365,000 12 166,402 0 144 2,235 7,561 171,583 0 171,583 365,472 13 171,583 0 144 2,371 7,795 176,862 0 176,862 366,105 14 176,862 0 144 2,512 8,033 182,239 0 182,239 368,124 15 182,239 0 144 2,658 8,276 187,713 0 187,713 369,795 16 187,713 0 144 2,814 8,523 193,278 0 193,278 371,093 17 193,278 0 144 2,981 8,773 198,926 0 198,926 371,992 18 198,926 0 144 3,159 9,028 204,651 0 204,651 372,465 19 204,651 0 144 3,381 9,285 210,411 0 210,411 374,531 20 210,411 0 144 3,620 9,542 216,189 0 216,189 376,169 25 239,523 0 144 4,774 10,847 245,452 0 245,452 380,451 30 268,785 0 144 6,401 12,147 274,388 0 274,388 386,887
o THE POLICY VALUE, CASH SURRENDER VALUE, AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. o 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. o 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. o 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. 54 55 Table 3 Regular Underwriting Hypothetical Gross Investment Return of 12.00%
Current Charges ---------------------------------------------------------------------------------- Premiums Policy Plus Less Less Plus Policy Death Policy Annual Accum Value Net Admin Cost of Invest Value Surr Net Cash Benefit Year Premium at 5% Beg Yr Premium Fees Ins Earnings End Yr Charges Surrender End Yr - ------ ------- -------- ------- ------- ----- ------- -------- -------- ------- --------- -------- 1 20,000 21,000 0 19,600 144 730 1,934 20,660 2,000 18,660 365,000 2 20,000 43,050 20,660 19,600 144 967 4,011 43,160 3,000 40,160 365,000 3 20,000 66,203 43,160 19,600 144 1,158 6,275 67,733 3,000 64,733 365,000 4 20,000 90,513 67,733 19,600 144 1,203 8,757 94,743 4,000 90,743 365,000 5 20,000 116,038 94,743 19,600 144 1,176 11,489 124,513 5,000 119,513 365,000 6 20,000 142,840 124,513 19,600 144 1,188 14,499 157,280 5,000 152,280 397,919 7 20,000 170,982 157,280 19,600 144 1,357 17,803 193,183 4,000 189,183 473,297 8 0 179,531 193,183 0 144 1,479 19,445 211,004 3,000 208,004 502,190 9 0 188,508 211,004 0 144 1,619 21,239 230,480 2,000 228,480 534,713 10 0 197,933 230,480 0 144 1,769 23,200 251,767 0 251,767 566,475 11 0 207,830 251,767 0 144 1,785 26,325 276,163 0 276,163 604,796 12 0 218,221 276,163 0 144 1,783 28,886 303,122 0 303,122 645,650 13 0 229,132 303,122 0 144 1,767 31,718 332,929 0 332,929 689,163 14 0 240,589 332,929 0 144 1,702 34,851 365,935 0 365,935 739,188 15 0 252,619 365,935 0 144 1,618 38,321 402,494 0 402,494 792,913 16 0 265,249 402,494 0 144 1,941 42,142 442,550 0 442,550 849,697 17 0 278,512 442,550 0 144 2,320 46,326 486,413 0 486,413 909,593 18 0 292,438 486,413 0 144 2,764 50,907 534,412 0 534,412 972,630 19 0 307,059 534,412 0 144 3,318 55,916 586,866 0 586,866 1,044,621 20 0 322,412 586,866 0 144 3,957 61,388 644,152 0 644,152 1,120,825 25 0 411,489 931,042 0 144 8,230 97,286 1,019,954 0 1,019,954 1,580,928 30 0 525,176 1,461,935 0 144 16,768 152,55 21,597,57 5 0 1,597,575 2,252,580
Guaranteed Charges ------------------------------------------------------------------------------------- Policy Plus Less Less Plus Policy Death Policy Value Net Admin Cost of Invest Value Surr Net Cash Benefit Year Beg Yr Premium Fees Ins Earnings End Yr Charges Surrender End Yr - ------ -------- ------- ----- ------- -------- --------- ------- --------- -------- 1 0 19,600 144 1,566 1,889 19,780 2,000 17,780 365,000 2 19,780 19,600 144 1,591 3,888 41,532 3,000 38,532 365,000 3 41,532 19,600 144 1,600 6,087 65,475 3,000 62,475 365,000 4 65,475 19,600 144 1,582 8,508 91,857 4,000 87,857 365,000 5 91,857 19,600 144 1,541 11,178 120,950 5,000 115,950 365,000 6 120,950 19,600 144 1,505 14,122 153,023 5,000 148,023 387,148 7 153,023 19,600 144 1,890 17,345 187,934 4,000 183,934 460,439 8 187,934 0 144 2,134 18,880 204,536 3,000 201,536 486,795 9 204,536 0 144 2,431 20,543 222,504 2,000 220,504 516,208 10 222,504 0 144 2,747 22,342 241,955 0 241,955 544,398 11 241,955 0 144 3,119 25,222 263,914 0 263,914 577,971 12 263,914 0 144 3,535 27,504 287,740 0 287,740 612,885 13 287,740 0 144 3,976 29,982 313,601 0 313,601 649,155 14 313,601 0 144 4,493 32,668 341,632 0 341,632 690,097 15 341,632 0 144 5,057 35,580 372,011 0 372,011 732,862 16 372,011 0 144 5,684 38,735 404,918 0 404,918 777,443 17 404,918 0 144 6,379 42,151 440,546 0 440,546 823,821 18 440,546 0 144 7,153 45,849 479,097 0 479,097 871,957 19 479,097 0 144 8,117 49,843 520,679 0 520,679 926,809 20 520,679 0 144 9,191 54,149 565,493 0 565,493 983,958 25 782,194 0 144 15,996 81,228 847,282 0 847,282 1,313,288 30 1,158,347 0 144 28,302 120,038 1,249,940 0 1,249,940 1,762,415
o THE POLICY VALUE, CASH SURRENDER VALUE, AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. o 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. o 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. o 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 56 Table 4 Short Form Issue Hypothetical Gross Investment Return of 0.00%
Current Charges ---------------------------------------------------------------------------------- Premiums Policy Plus Less Less Plus Policy Death Policy Annual Accum Value Net Admin Cost of Invest Value Surr Net Cash Benefit Year Premium at 5% Beg Yr Premium Fees Ins Earnings End Yr Charges Surrender End Yr - ------ ------- -------- ------- ------- ----- ------- -------- -------- ------- --------- -------- 1 20,000 21,000 0 19,600 144 840 -322 18,294 2,000 16,294 365,000 2 20,000 43,050 18,294 19,600 144 1,023 -629 36,098 3,000 33,098 365,000 3 20,000 66,203 36,098 19,600 144 1,235 -927 53,391 3,000 50,391 365,000 4 20,000 90,513 53,391 19,600 144 1,455 -1,217 70,176 4,000 66,176 365,000 5 20,000 116,038 70,176 19,600 144 1,624 -1,499 86,509 5,000 81,509 365,000 6 20,000 142,840 86,509 19,600 144 1,678 -1,774 102,514 5,000 97,514 365,000 7 20,000 170,982 102,514 19,600 144 1,686 -2,044 118,240 4,000 114,240 365,000 8 0 179,531 118,240 0 144 1,841 -1,977 114,278 3,000 111,278 365,000 9 0 188,508 114,278 0 144 2,030 -1,909 110,195 2,000 108,195 365,000 10 0 197,933 110,195 0 144 2,248 -1,838 105,966 0 105,966 365,000 11 0 207,830 105,966 0 144 2,287 -1,403 102,132 0 102,132 365,000 12 0 218,221 102,132 0 144 2,276 -1,352 98,360 0 98,360 365,000 13 0 229,132 98,360 0 144 2,222 -1,302 94,693 0 94,693 365,000 14 0 240,589 94,693 0 144 2,043 -1,254 91,252 0 91,252 365,000 15 0 252,619 91,252 0 144 1,723 -1,210 88,175 0 88,175 365,000 16 0 265,249 88,175 0 144 1,872 -1,168 84,992 0 84,992 365,000 17 0 278,512 84,992 0 144 2,035 -1,124 81,689 0 81,689 365,000 18 0 292,438 81,689 0 144 2,206 -1,078 78,260 0 78,260 365,000 19 0 307,059 78,260 0 144 2,371 -1,031 74,714 0 74,714 365,000 20 0 322,412 74,714 0 144 2,540 -982 71,048 0 71,048 365,000 25 0 411,489 53,994 0 144 4,414 -691 48,745 0 48,745 365,000 30 0 525,176 21,501 0 144 8,555 -225 12,577 0 12,577 365,000
Guaranteed Charges ----------------------------------------------------------------------------------- Policy Plus Less Less Plus Policy Death Policy Value Net Admin Cost of Invest Value Surr Net Cash Benefit Year Beg Yr Premium Fees Ins Earnings End Yr Charges Surrender End Yr - ------ -------- ------- ----- ------- -------- --------- ------- --------- -------- 1 0 19,600 144 1,570 -315 17,571 2,000 15,571 365,000 2 17,571 19,600 144 1,612 -611 34,803 3,000 31,803 365,000 3 34,803 19,600 144 1,653 -902 51,705 3,000 48,705 365,000 4 51,705 19,600 144 1,687 -1,186 68,288 4,000 64,288 365,000 5 68,288 19,600 144 1,723 -1,466 84,555 5,000 79,555 365,000 6 84,555 19,600 144 1,753 -1,740 100,517 5,000 95,517 365,000 7 100,517 19,600 144 1,792 -2,009 116,172 4,000 112,172 365,000 8 116,172 0 144 1,986 -1,941 112,101 3,000 109,101 365,000 9 112,101 0 144 2,209 -1,870 107,877 2,000 105,877 365,000 10 107,877 0 144 2,466 -1,797 103,471 0 103,471 365,000 11 103,471 0 144 2,746 -1,366 99,214 0 99,214 365,000 12 99,214 0 144 3,056 -1,307 94,707 0 94,707 365,000 13 94,707 0 144 3,388 -1,244 89,931 0 89,931 365,000 14 89,931 0 144 3,754 -1,177 84,855 0 84,855 365,000 15 84,855 0 144 4,157 -1,106 79,448 0 79,448 365,000 16 79,448 0 144 4,615 -1,031 73,658 0 73,658 365,000 17 73,658 0 144 5,139 -949 67,425 0 67,425 365,000 18 67,425 0 144 5,747 -861 60,673 0 60,673 365,000 19 60,673 0 144 6,455 -766 53,308 0 53,308 365,000 20 53,308 0 144 7,271 -661 45,233 0 45,233 365,000 25 3,687 0 48 3,634 -5 0 0 0 0 30 0 0 0 0 0 0 0 0 0
o THE POLICY VALUE, CASH SURRENDER VALUE, AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. o 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. o 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. o 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 57 Table 5 Short Form Issue Hypothetical Gross Investment Return of 6.00%
Current Charges ---------------------------------------------------------------------------------- Premiums Policy Plus Less Less Plus Policy Death Policy Annual Accum Value Net Admin Cost of Invest Value Surr Net Cash Benefit Year Premium at 5% Beg Yr Premium Fees Ins Earnings End Yr Charges Surrender End Yr - ------ ------- -------- ------- ------- ----- ------- -------- -------- ------- --------- -------- 1 20,000 21,000 0 19,600 144 839 803 19,420 2,000 17,420 365,000 2 20,000 43,050 19,420 19,600 144 1,017 1,617 39,477 3,000 36,477 365,000 3 20,000 66,203 39,477 19,600 144 1,216 2,457 60,174 3,000 57,174 365,000 4 20,000 90,513 60,174 19,600 144 1,411 3,324 81,544 4,000 77,544 365,000 5 20,000 116,038 81,544 19,600 144 1,541 4,222 103,681 5,000 98,681 365,000 6 20,000 142,840 103,681 19,600 144 1,546 5,154 126,745 5,000 121,745 365,000 7 20,000 170,982 126,745 19,600 144 1,495 6,126 150,832 4,000 146,832 369,539 8 0 179,531 150,832 0 144 1,573 6,313 155,429 3,000 152,429 369,920 9 0 188,508 155,429 0 144 1,674 6,505 160,116 2,000 158,116 371,469 10 0 197,933 160,116 0 144 1,780 6,700 164,891 0 164,891 371,006 11 0 207,830 164,891 0 144 1,743 7,504 170,508 0 170,508 373,413 12 0 218,221 170,508 0 144 1,669 7,763 176,458 0 176,458 375,855 13 0 229,132 176,458 0 144 1,568 8,038 182,783 0 182,783 378,362 14 0 240,589 182,783 0 144 1,399 8,332 189,573 0 189,573 382,937 15 0 252,619 189,573 0 144 1,149 8,649 196,929 0 196,929 387,950 16 0 265,249 196,929 0 144 1,214 8,984 204,555 0 204,555 392,745 17 0 278,512 204,555 0 144 1,282 9,332 212,460 0 212,460 397,301 18 0 292,438 212,460 0 144 1,350 9,692 220,658 0 220,658 401,598 19 0 307,059 220,658 0 144 1,426 10,065 229,153 0 229,153 407,893 20 0 322,412 229,153 0 144 1,507 10,453 237,955 0 237,955 414,042 25 0 411,489 276,030 0 144 2,261 12,581 286,206 0 286,206 443,619 30 0 525,176 329,122 0 144 3,607 14,979 340,350 0 340,350 479,894
Guaranteed Charges -------------------------------------------------------------------------------------- Premiums Policy Plus Less Less Plus Policy Death Policy Annual Accum Value Net Admin Cost of Invest Value Surr Net Cash Benefit Year Premium at 5% Beg Yr Premium Fees Ins Earnings End Yr Charges Surrender End Yr - ------ ------- -------- -------- ------- ----- ------- -------- -------- ------- --------- -------- 1 20,000 21,000 0 19,600 144 1,568 787 18,675 2,000 16,675 365,000 2 20,000 43,050 18,675 19,600 144 1,602 1,572 38,101 3,000 35,101 365,000 3 20,000 66,203 38,101 19,600 144 1,627 2,390 58,320 3,000 55,320 365,000 4 20,000 90,513 58,320 19,600 144 1,637 3,241 79,380 4,000 75,380 365,000 5 20,000 116,038 79,380 19,600 144 1,638 4,128 101,326 5,000 96,326 365,000 6 20,000 142,840 101,326 19,600 144 1,620 5,053 124,216 5,000 119,216 365,000 7 20,000 170,982 124,216 19,600 144 1,592 6,017 148,097 4,000 144,097 365,000 8 0 179,531 148,097 0 144 1,701 6,195 152,447 3,000 149,447 365,000 9 0 188,508 152,447 0 144 1,824 6,376 156,855 2,000 154,855 365,000 10 0 197,933 156,855 0 144 1,959 6,558 161,311 0 161,311 365,000 11 0 207,830 161,311 0 144 2,096 7,331 166,402 0 166,402 365,000 12 0 218,221 166,402 0 144 2,235 7,561 171,583 0 171,583 365,472 13 0 229,132 171,583 0 144 2,371 7,795 176,862 0 176,862 366,105 14 0 240,589 176,862 0 144 2,512 8,033 182,239 0 182,239 368,124 15 0 252,619 182,239 0 144 2,658 8,276 187,713 0 187,713 369,795 16 0 265,249 187,713 0 144 2,814 8,523 193,278 0 193,278 371,093 17 0 278,512 193,278 0 144 2,981 8,773 198,926 0 198,926 371,992 18 0 292,438 198,926 0 144 3,159 9,028 204,651 0 204,651 372,465 19 0 307,059 204,651 0 144 3,381 9,285 210,411 0 210,411 374,531 20 0 322,412 210,411 0 144 3,620 9,542 216,189 0 216,189 376,169 25 0 411,489 239,523 0 144 4,774 10,847 245,452 0 245,452 380,451 30 0 525,176 268,785 0 144 6,401 12,147 274,388 0 274,388 386,887
o THE POLICY VALUE, CASH SURRENDER VALUE, AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. o 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. o 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. o 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 58 Table 6 Short Form Issue Hypothetical Gross Investment Return of 12.00%
Current Charges ------------------------------------------------------------------------------------ Premiums Policy Plus Less Less Plus Policy Death Policy Annual Accum Value Net Admin Cost of Invest Value Surr Net Cash Benefit Year Premium at 5% Beg Yr Premium Fees Ins Earnings End Yr Charges Surrender End Yr - ------ ------- -------- ------- ------- ----- ------- -------- -------- ------- --------- -------- 1 20,000 21,000 0 19,600 144 837 1,929 20,547 2,000 18,547 365,000 2 20,000 43,050 20,547 19,600 144 1,010 3,997 42,990 3,000 39,990 365,000 3 20,000 66,203 42,990 19,600 144 1,195 6,256 67,507 3,000 64,507 365,000 4 20,000 90,513 67,507 19,600 144 1,362 8,726 94,327 4,000 90,327 365,000 5 20,000 116,038 94,327 19,600 144 1,446 11,432 123,769 5,000 118,769 365,000 6 20,000 142,840 123,769 19,600 144 1,440 14,410 156,196 5,000 151,196 395,175 7 20,000 170,982 156,196 19,600 144 1,613 17,680 191,719 4,000 187,719 469,711 8 0 179,531 191,719 0 144 1,727 19,284 209,131 3,000 206,131 497,733 9 0 188,508 209,131 0 144 1,867 21,037 228,157 2,000 226,157 529,324 10 0 197,933 228,157 0 144 2,002 22,953 248,963 0 248,963 560,168 11 0 207,830 248,963 0 144 2,016 26,018 272,821 0 272,821 597,478 12 0 218,221 272,821 0 144 2,003 28,523 299,198 0 299,198 637,291 13 0 229,132 299,198 0 144 1,977 31,294 328,371 0 328,371 679,728 14 0 240,589 328,371 0 144 1,902 34,361 360,686 0 360,686 728,586 15 0 252,619 360,686 0 144 1,795 37,761 396,508 0 396,508 781,120 16 0 265,249 396,508 0 144 2,112 41,504 435,756 0 435,756 836,651 17 0 278,512 435,756 0 144 2,477 45,604 478,739 0 478,739 895,242 18 0 292,438 478,739 0 144 2,901 50,094 525,788 0 525,788 956,935 19 0 307,059 525,788 0 144 3,402 55,006 577,248 0 577,248 1,027,50 20 0 322,412 577,248 0 144 3,988 60,376 633,493 0 633,493 1,102,27 25 0 411,489 915,623 0 144 8,094 95,675 1,003,060 0 1,003,060 1,554,74 30 0 525,176 1,437,709 0 144 16,490 150,024 1,571,099 0 1,571,099 2,215,250
Guaranteed Charges ---------------------------------------------------------------------------------------- Policy Plus Less Less Plus Policy Death Policy Value Net Admin Cost of Invest Value Surr Net Cash Benefit Year Beg Yr Premium Fees Ins Earnings End Yr Charges Surrender End Yr - ------ -------- ------- ----- ------- -------- --------- ------- --------- --------- 1 0 19,600 144 1,566 1,889 19,780 2,000 17,780 365,000 2 19,780 19,600 144 1,591 3,888 41,532 3,000 38,532 365,000 3 41,532 19,600 144 1,600 6,087 65,475 3,000 62,475 365,000 4 65,475 19,600 144 1,582 8,508 91,857 4,000 87,857 365,000 5 91,857 19,600 144 1,541 11,178 120,950 5,000 115,950 365,000 6 120,950 19,600 144 1,505 14,122 153,023 5,000 148,023 387,148 7 153,023 19,600 144 1,890 17,345 187,934 4,000 183,934 460,439 8 187,934 0 144 2,134 18,880 204,536 3,000 201,536 486,795 9 204,536 0 144 2,431 20,543 222,504 2,000 220,504 516,208 10 222,504 0 144 2,747 22,342 241,955 0 241,955 544,398 11 241,955 0 144 3,119 25,222 263,914 0 263,914 577,971 12 263,914 0 144 3,535 27,504 287,740 0 287,740 612,885 13 287,740 0 144 3,976 29,982 313,601 0 313,601 649,155 14 313,601 0 144 4,493 32,668 341,632 0 341,632 690,097 15 341,632 0 144 5,057 35,580 372,011 0 372,011 732,862 16 372,011 0 144 5,684 38,735 404,918 0 404,918 777,443 17 404,918 0 144 6,379 42,151 440,546 0 440,546 823,821 18 440,546 0 144 7,153 45,849 479,097 0 479,097 871,957 19 2 479,097 0 144 8,117 49,843 520,679 0 520,679 926,809 20 7 520,679 0 144 9,191 54,149 565,493 0 565,493 983,958 25 3 782,194 0 144 15,996 81,228 847,282 0 847,282 1,313,288 30 1,158,347 0 144 28,302 120,038 1,249,940 0 1,249,940 1,762,415
o THE POLICY VALUE, CASH SURRENDER VALUE, AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. o 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. o 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. o 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 59 Separate Account Four of The Manufacturers Life Insurance Company of America Financial Statements Three years ended December 31, 1998 CONTENTS Report of Independent Auditors.................................... Audited Financial Statements Statement of Assets and Liabilities............................... Statements of Operations.......................................... Statements of Changes in Net Assets............................... Notes to Financial Statements.....................................
59 60 Report of Independent Auditors To the Board of Directors The Manufacturers Life Insurance Company of America We have audited the accompanying statement of assets and liabilities of Separate Account Four of The Manufacturers Life Insurance Company of America as of December 31, 1998 and the related statements of operations and changes in net assets for each of the periods presented therein. These financial statements are the responsibility of The Manufacturers Life Insurance Company of America's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Separate Account Four of The Manufacturers Life Insurance Company of America at December 31, 1998, and the results of its operations and the changes in its net assets for each of the periods presented therein, in conformity with generally accepted accounting principles. Philadelphia, Pennsylvania Ernst & Young LLP February 4, 1999 60 61 Separate Account Four of The Manufacturers Life Insurance Company of America Statement of Assets and Liabilities December 31, 1998
SUB-ACCOUNT NET ASSET NET ASSET UNITS VALUE PER VALUE OUTSTANDING UNIT ------------ ----------- --------- ASSETS Investment in Manufacturers Investment Trust -- at market value: Emerging Growth Trust, 2,465,025 shares (cost $52,446,755) $ 58,716,890 937,509 $ 62.63 Quantitative Equity Trust, 1,613,702 shares (cost $28,995,117) 40,697,561 785,365 51.82 Real Estate Securities Trust, 1,296,403 shares (cost $20,805,297) 19,147,874 549,377 34.85 Balanced Trust, 3,002,629 shares (cost $49,702,852) 58,251,003 1,731,082 33.65 Capital Growth Bond Trust, 1,299,933 shares ($14,478,301) 15,716,187 678,424 23.17 Money Market Trust, 1,767,365 shares (cost $17,673,646) 17,673,646 1,054,016 16.77 International Stock Trust 832,207 shares (cost $10,156,158) 10,802,045 795,689 13.58 Pacific Rim Emerging Markets Trust, 337,072 shares (cost $3,215,535) 2,302,204 326,271 7.06 Equity Index Trust, 1,177,479 shares (cost $16,162,991) 18,168,494 938,819 19.35 Equity Trust, 374,634 shares (cost $7,416,764) 7,297,872 501,327 14.56 Value Equity Trust, 523,430 shares (cost $8,860,905) 9,306,580 589,237 15.79 Growth and Income Trust, 575,987 shares (cost $13,881,790) 16,375,318 845,204 19.37 U.S. Government Securities Trust, 263,780 shares (cost $3,582,989) 3,645,434 311,036 11.72 Conservative Asset Allocation Trust, 74,847 shares (cost $852,870) 885,434 69,520 12.74 Moderate Asset Allocation Trust, 198,373 shares (cost $2,537,410) 2,646,291 188,906 14.01 Aggressive Asset Allocation Trust, 177,443 shares (cost $2,585,291) 2,707,778 178,009 15.21 International Small Cap Trust, 74,504 shares (cost $1,176,222) 1,138,417 81,531 13.96 Blue Chip Growth Trust, 767,750 shares (cost $12,207,080) 14,525,825 713,640 20.35 Science & Technology Trust, 361,301 shares (cost $5,377,957) 7,052,603 353,734 19.94 Pilgram Baxter Growth Trust, 37,791 shares (cost $439,995) 492,789 32,854 15.00 Small/Mid Cap Trust, 125,021 shares (cost $2,029,738) 2,471,657 127,586 19.37 Worldwide Growth Trust, 33,589 shares (cost $491,790) 508,867 34,643 14.69 Global Equity Trust, 68,843 shares (cost $1,407,885) 1,403,018 86,633 16.19 Growth Trust, 132,267 shares (cost $2,436,698) 2,711,479 147,717 18.36 Value Trust, 414,000 shares (cost $6,122,311) 5,820,837 414,136 14.06 International Growth and Income Trust, 23,779 shares (cost $285,535) 269,178 20,182 13.34 High Yield Trust, 159,361 shares (cost $2,192,664) 2,058,949 146,174 14.09 Strategic Bond Trust, 107,784 shares (cost $1,283,094) 1,263,227 92,517 13.65 Global Government Bond Trust, 3,112 shares (cost $42,347) 42,723 3,037 14.07 Investment Quality Bond Trust, 239,497 shares (cost $2,907,887) 2,984,128 204,187 14.61 Lifestyle Aggressive 1000 Trust, 53,885 shares (cost $702,298) 721,522 48,566 14.86 Lifestyle Growth 820 Trust, 215,621 shares (cost $2,995,360) 2,971,264 198,733 14.95 Lifestyle Balanced 640 Trust, 83,128 shares (cost $1,118,040) 1,121,394 76,044 14.75 Lifestyle Moderate 460 Trust, 2,421 shares (cost $32,477) 33,683 2,240 15.04 Lifestyle Conservative 280 Trust, 5,919 shares (cost $77,238) 80,080 5,359 14.94 Small Company Value Trust, 6,961 shares (cost $77,238) 79,142 9,319 8.49 ------------ Net assets $332,091,393 ============
See accompanying notes. 61 62 Separate Account Four of The Manufacturers Life Insurance Company of America Statements of Operations
EMERGING GROWTH QUANTITATIVE EQUITY SUB-ACCOUNT SUB-ACCOUNT ----------------------------------------- ---------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 ----------- ----------- ----------- ----------- ----------- ----------- Investment income: Dividend income $ 879,733 $ -- $ 8,843,524 $ 4,420,030 $ -- $ 3,890,071 Expenses: Mortality and expense risks charge 374,898 373,014 368,823 238,491 197,730 151,076 ----------- ----------- ----------- ----------- ----------- ----------- Net investment income (loss) 504,835 (373,014) 8,474,701 4,181,539 (197,730) 3,738,995 ----------- ----------- ----------- ----------- ----------- ----------- Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 9,170,072 10,933,692 6,561,190 5,060,725 3,733,685 3,065,148 Cost of securities sold 7,556,840 9,991,336 4,628,761 3,345,458 2,720,036 2,226,724 ----------- ----------- ----------- ----------- ----------- ----------- Net realized gain (loss) 1,613,232 942,356 1,932,429 1,715,267 1,013,649 838,424 ----------- ----------- ----------- ----------- ----------- ----------- Unrealized appreciation (depreciation) of investments: Beginning of year 8,747,614 586,387 8,388,250 9,076,188 2,395,112 3,250,703 End of year 6,270,135 8,747,614 586,387 11,702,444 9,076,188 2,395,112 ----------- ----------- ----------- ----------- ----------- ----------- Net unrealized appreciation (depreciation) during the year (2,477,479) 8,161,227 (7,801,863) 2,626,256 6,681,076 (855,591) ----------- ----------- ----------- ----------- ----------- ----------- Net realized and unrealized gain (loss) on investments (864,247) 9,103,583 (5,869,434) 4,341,523 7,694,725 (17,167) ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets derived from operations $ (359,412) $ 8,730,569 $ 2,605,267 $ 8,523,062 $ 7,496,995 $ 3,721,828 =========== =========== =========== =========== =========== ===========
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996. ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997. *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998. See accompanying notes. 62 63
REAL ESTATE SECURITIES BALANCED CAPITAL GROWTH BOND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------------------ ------------------------------------------ ----------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 - ----------- --------- ----------- ----------- --------- ----------- ---------- ---------- ----------- $ 2,921,055 $ -- $ 3,089,196 $ 6,701,569 $ -- $ 6,191,018 $ 789,202 $ -- $ 813,220 142,970 138,789 97,165 353,472 312,899 274,346 95,779 88,739 86,787 - ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- 2,778,085 (138,789) 2,992,031 6,348,097 (312,899) 5,916,672 693,423 (88,739) 726,433 - ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- 4,306,616 2,341,949 2,069,989 4,630,030 7,720,982 3,782,322 1,275,288 2,670,789 2,257,680 3,791,432 1,932,587 1,848,111 3,845,125 6,543,277 3,146,020 1,200,846 2,837,578 2,354,529 - ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- 515,184 409,362 221,878 784,905 1,177,705 636,302 74,442 (166,789) (96,849) - ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- 5,733,444 2,357,828 829,392 8,870,245 2,233,057 4,756,710 969,325 (322,754) 29,751 (1,657,423) 5,733,444 2,357,828 8,548,150 8,870,245 2,233,057 1,237,886 969,325 (322,754) - ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- (7,390,867) 3,375,616 1,528,436 (322,095) 6,637,188 (2,523,653) 268,561 1,292,079 (352,505) - ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- (6,875,683) 3,784,978 1,750,314 462,810 7,814,893 (1,887,351) 343,003 1,125,290 (449,354) - ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- $(4,097,598) $ 3,646,189 $ 4,742,345 $ 6,810,907 $ 7,501,994 $ 4,029,321 $1,036,426 $ 1,036,551 $ 277,079 =========== =========== =========== =========== =========== =========== ========== =========== ===========
63 64 Separate Account Four of The Manufacturers Life Insurance Company of America Statements of Operations (continued)
MONEY MARKET INTERNATIONAL STOCK SUB-ACCOUNT SUB-ACCOUNT ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 ----------- ----------- ----------- ----------- ----------- ---------- Investment income: Dividend income $ 618,267 $ 363,575 $ 522,633 $ 162,650 $ 91,567 $102,007 Expenses: Mortality and expense risks charge 81,828 47,049 38,258 58,840 31,392 18,357 ---------- ----------- ----------- ----------- ----------- -------- Net investment income (loss) 536,439 316,526 484,375 103,810 60,175 83,650 ---------- ----------- ----------- ----------- ----------- -------- Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 8,216,338 6,596,321 4,574,935 4,839,048 1,816,518 481,615 Cost of securities sold 8,216,338 6,872,137 4,366,887 4,508,409 1,550,916 416,277 ---------- ----------- ----------- ----------- ----------- -------- Net realized gain (loss) -- (275,816) 208,048 330,639 265,602 65,338 ---------- ----------- ----------- ----------- ----------- -------- Unrealized appreciation (depreciation) of investments: Beginning of year -- (275,826) 165,832 (52,878) 231,185 110,424 End of year -- -- (275,826) 645,888 (52,878) 231,185 ---------- ----------- ----------- ----------- ----------- -------- Net unrealized appreciation (depreciation) during the year -- 275,826 (441,658) 698,766 (284,063) 120,761 ---------- ----------- ----------- ----------- ----------- -------- Net realized and unrealized gain (loss) on investments -- 10 (233,610) 1,029,405 (18,461) 186,099 ---------- ----------- ----------- ----------- ----------- -------- Net increase (decrease) in net assets derived from operations $ 536,439 $ 316,536 $ 250,765 $ 1,133,215 $ 41,714 $269,749 ========== =========== =========== =========== =========== ========
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996. ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997 *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998. See accompanying notes. 64 65
PACIFIC RIM EMERGING MARKETS EQUITY INDEX EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------------------ ----------------------------------------- ------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 - ----------- ----------- --------- ---------- --------- -------- ----------- ---------- ------------ $ -- $ 6,802 $ 152,468 $ 558,787 $ 868,880 $ 79,858 $ 1,580,782 $1,074,319 $ 37,137 14,226 22,205 18,290 75,611 21,448 4,113 49,176 39,559 12,389 - ----------- ----------- --------- ---------- --------- -------- ----------- ---------- -------- (14,226) (15,403) 134,178 483,176 847,432 75,745 1,531,606 1,034,760 24,748 - ----------- ----------- --------- ---------- --------- -------- ----------- ---------- -------- 485,743 1,610,390 936,603 2,236,893 170,943 42,748 3,293,649 1,651,482 646,845 852,657 1,704,271 774,951 1,742,663 133,983 39,927 3,647,842 1,627,042 622,356 - ----------- ----------- --------- ---------- --------- -------- ----------- ---------- -------- (366,914) (93,881) 161,652 494,230 36,960 2,821 (354,193) 24,440 24,489 - ----------- ----------- --------- ---------- --------- -------- ----------- ---------- -------- (1,155,601) 5,325 114,318 13,995 46,173 -- 292,111 270,657 -- (913,332) (1,155,601) 5,325 2,005,503 13,995 46,173 (118,892) 292,111 270,657 - ----------- ----------- --------- ---------- --------- -------- ----------- ---------- -------- 242,269 (1,160,926) (108,993) 1,991,508 (32,178) 46,173 (411,003) 21,454 270,657 - ----------- ----------- --------- ---------- --------- -------- ----------- ---------- -------- (124,645) (1,254,807) 52,659 2,485,738 4,782 48,994 (765,196) 45,894 295,146 - ----------- ----------- --------- ---------- --------- -------- ----------- ---------- -------- $ (138,871) $(1,270,210) $ 186,837 $2,968,914 $ 852,214 $124,739 $ 766,410 $1,080,654 $319,894 =========== =========== ========= ========== ========= ======== =========== ========== ========
65 66 Separate Account Four of The Manufacturers Life Insurance Company of America Statements of Operations (continued)
VALUE EQUITY GROWTH AND INCOME SUB-ACCOUNT SUB-ACCOUNT ----------------------------------------- --------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 ----------- ---------- ------------- ---------- ---------- ------------- Investment income: Dividend income $ 439,236 $406,015 $ 14,881 $ 687,431 $ 274,008 $ 461 Expenses: Mortality and expense risks charge 54,912 24,945 6,019 80,279 32,434 4,797 ----------- -------- -------- ---------- ---------- --------- Net investment income (loss) 384,324 381,070 8,862 607,152 241,574 (4,336) ----------- -------- -------- ---------- ---------- --------- Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 2,818,396 573,549 90,317 2,286,017 912,556 376,632 Cost of securities sold 2,525,017 498,698 88,968 1,725,531 705,805 332,811 ----------- -------- -------- ---------- ---------- --------- Net realized gain (loss) 293,379 74,851 1,349 560,486 206,751 43,821 ----------- -------- -------- ---------- ---------- --------- Unrealized appreciation (depreciation) of investments: Beginning of year 659,769 162,428 -- 926,995 145,719 -- End of year 445,675 659,769 162,248 2,493,528 926,995 145,719 ----------- -------- -------- ---------- ---------- --------- Net unrealized appreciation (depreciation) during the year (214,094) 497,341 162,428 1,566,533 781,276 145,719 ----------- -------- -------- ---------- ---------- --------- Net realized and unrealized gain (loss) on investments 79,285 572,192 163,777 2,127,019 988,027 189,540 ----------- -------- -------- ---------- ---------- --------- Net increase (decrease) in net assets derived from operations $ 463,609 $953,262 $172,639 $2,734,171 $1,229,601 $ 185,204 =========== ======== ======== ========== ========== =========
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996. ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997. *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998. See accompanying notes. 66 67
U.S. GOVERNMENT CONSERVATIVE MODERATE SECURITIES ASSET ALLOCATION ASSET ALLOCATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ---------------------------------------- -------------------------------------- -------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 - ---------- ---------- ------------- ---------- ---------- ------------- ---------- ---------- ------------- $ 34,788 $ 19,990 $ -- $ 61,639 $34,960 $ -- $276,382 $ 98,004 $ -- 10,351 2,737 849 4,793 2,565 685 15,938 8,091 2,050 - ---------- -------- --------- --------- ------- -------- -------- -------- -------- 24,437 17,253 (849) 56,846 32,395 (685) 260,444 89,913 (2,050) - ---------- -------- --------- --------- ------- -------- -------- -------- -------- 1,227,921 590,817 322,161 346,296 13,446 43,255 716,698 474,116 31,213 1,207,888 580,482 317,325 356,032 12,672 40,504 676,118 439,434 29,641 - ---------- -------- --------- --------- ------- -------- -------- -------- -------- 20,033 10,335 4,836 (9,736) 774 2,751 40,580 34,682 1,572 - ---------- -------- --------- --------- ------- -------- -------- -------- -------- 9,987 3,780 -- 17,238 7,208 -- 94,990 36,462 -- 62,445 9,987 3,780 32,565 17,238 7,208 108,881 94,990 36,462 - ---------- -------- --------- --------- ------- -------- -------- -------- -------- 52,458 6,207 3,780 15,327 10,030 7,208 13,891 58,528 36,462 - ---------- -------- --------- --------- ------- -------- -------- -------- -------- 72,491 16,542 8,616 5,591 10,804 9,959 54,471 93,210 38,034 - ---------- -------- --------- --------- ------- -------- -------- -------- -------- $ 96,928 $ 33,795 $ 7,767 $ 62,437 $43,199 $ 9,274 $314,915 $183,123 $ 35,984 ========== ======== ========= ========= ======= ======== ======== ======== ========
67 68 Separate Account Four of The Manufacturers Life Insurance Company of America Statements of Operations (continued)
AGGRESSIVE INTERNATIONAL ASSET ALLOCATION SMALL CAP SUB-ACCOUNT SUB-ACCOUNT ----------------------------------------- ------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 ---------- ---------- ------------- ---------- --------- Investment income: Dividend income $ 445,314 $ 63,599 $ 2,110 $ 1,473 $ 46 Expenses: Mortality and expense risks charge 19,046 6,368 1,342 5,414 2,815 ---------- -------- ------- --------- --------- Net investment income (loss) 426,268 57,231 768 (3,941) (2,769) ---------- -------- ------- --------- --------- Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 2,912,284 294,332 86,943 542,737 461,080 Cost of securities sold 2,820,937 275,851 82,784 500,120 450,930 ---------- -------- ------- --------- --------- Net realized gain (loss) 91,347 18,481 4,159 42,617 10,150 ---------- -------- ------- --------- --------- Unrealized appreciation (depreciation) of investments: Beginning of year 100,678 19,871 -- (15,134) -- End of year 122,487 100,678 19,871 (37,804) (15,134) ---------- -------- ------- --------- --------- Net unrealized appreciation (depreciation) during the year 21,809 80,807 19,871 (22,670) (15,134) ---------- -------- ------- --------- --------- Net realized and unrealized gain (loss) on investments 113,156 99,288 24,030 19,947 (4,984) ---------- -------- ------- --------- --------- Net increase (decrease) in net assets derived from operations $ 539,424 $156,519 $24,798 $ 16,006 $ (7,753) ========== ======== ======= ========= =========
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996. ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997. *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998. See accompanying notes. 68 69
BLUE CHIP PILGRIM BAXTER SMALL/MID GROWTH SCIENCE & TECHNOLOGY GROWTH CAP SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------ --------------------------- ---------------------------- ---------------------------- YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 - ---------- ---------- ----------- -------------- ---------- -------------- ---------- -------------- $ 163,206 $ 55,879 $ -- $ 22,881 $ -- $ -- $ -- $ -- 62,944 6,989 25,363 853 2,341 764 12,596 1,669 - ---------- --------- ---------- -------- --------- ------- ----------- -------- 100,262 48,890 (25,363) 22,028 (2,341) (764) (12,596) (1,669) - ---------- --------- ---------- -------- --------- ------- ----------- -------- 2,423,098 205,667 1,609,594 19,777 186,473 4,772 1,304,353 95,793 2,019,530 217,790 1,449,652 18,232 203,463 4,339 1,205,775 96,560 - ---------- --------- ---------- -------- --------- ------- ----------- -------- 403,568 (12,123) 159,942 1,545 (16,990) 433 98,578 (767) - ---------- --------- ---------- -------- --------- ------- ----------- -------- 235,927 -- (31,717) -- (1,826) -- (41,211) -- 2,318,744 235,927 1,674,646 (31,717) 52,793 (1,826) 441,919 (41,211) - ---------- --------- ---------- -------- --------- ------- ----------- -------- 2,082,817 235,927 1,706,363 (31,717) 54,619 (1,826) 483,130 (41,211) - ---------- --------- ---------- -------- --------- ------- ----------- -------- 2,486,385 223,804 1,866,305 (30,172) 37,629 (1,393) 581,708 (41,978) - ---------- --------- ---------- -------- --------- ------- ----------- -------- $2,586,647 $ 272,694 $1,840,942 $ (8,144) $ 35,288 $(2,157) $ 569,112 $(43,647) ========== ========= ========== ======== ========= ======= == ======== ========
WORLDWIDE GROWTH SUB-ACCOUNT ---------------------------- YEAR ENDED PERIOD ENDED** DEC. 31/98 DEC. 31/97 ---------- -------------- $ 2,514 $ 1,726 1,535 142 --------- ------- 979 1,584 --------- ------- 195,348 3,228 174,828 3,203 --------- ------- 20,520 25 --------- ------- (1,636) -- 17,078 (1,636) --------- ------- 18,714 (1,636) --------- ------- 39,234 (1,611) --------- ------- $ 40,213 $ (27) ========= =======
69 70 Separate Account Four of The Manufacturers Life Insurance Company of America Statements of Operations (continued)
GLOBAL EQUITY GROWTH VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------------- ------------------------ -------------------------- YEAR PERIOD YEAR PERIOD YEAR PERIOD ENDED ENDED** ENDED ENDED** ENDED ENDED** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 ----------- ---------- ----------- ---------- ----------- ---------- Investment income: Dividend income $ 283,512 $ -- $ 88,404 $ -- $ 189,862 $ 42,077 Expenses: Mortality and expense risks charge 15,149 2,697 14,183 1,748 27,317 1,979 ----------- --------- ---------- ------- ----------- -------- Net investment income (loss) 268,363 (2,697) 74,221 1,748 162,545 40,098 ----------- --------- ---------- ------- ----------- -------- Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 3,788,282 28,974 1,528,941 4,007 1,280,412 10,858 Cost of securities sold 3,425,983 27,932 1,372,307 3,543 1,260,539 9,724 ----------- --------- ---------- ------- ----------- -------- Net realized gain (loss) 362,299 1,042 156,634 464 19,873 1,134 ----------- --------- ---------- ------- ----------- -------- Unrealized appreciation (depreciation) of investments: Beginning of year 142,878 -- 42,938 -- (5,269) -- End of year (4,866) 142,878 274,781 42,938 (301,474) (5,269) Net unrealized appreciation (depreciation) during the year (147,744) 142,878 231,843 42,938 (296,205) (5,269) ----------- --------- ---------- ------- ----------- -------- Net realized and unrealized gain (loss) on investments 214,555 143,920 388,477 43,402 (276,332) (4,135) ----------- --------- ---------- ------- ----------- -------- Net increase (decrease) in net assets derived from operations $ 482,918 $ 141,223 $ 462,698 $41,654 $ (113,787) $ 35,963 =========== ========= ========== ======= =========== ========
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996. ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997. *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998. See accompanying notes. 70 71
INTERNATIONAL GLOBAL GROWTH HIGH STRATEGIC GOVERNMENT AND YIELD BOND BOND INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------ --------------------------- ------------------------ ----------------------- YEAR PERIOD YEAR PERIOD YEAR PERIOD YEAR PERIOD ENDED ENDED** ENDED ENDED** ENDED ENDED** ENDED ENDED** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- $ 2,310 $ -- $ 147,116 $ 31,277 $ 41,408 $ -- $ 5,515 $ -- 1,074 61 10,890 1,095 5,989 827 319 17 - -------- ------- ----------- -------- --------- -------- -------- ----- 1,236 (61) 136,226 30,182 35,419 (827) 5,196 (17) - -------- ------- ----------- -------- --------- -------- -------- ----- 21,555 4,308 984,151 80,117 407,942 6,519 37,112 131 22,591 4,568 1,000,808 75,733 427,862 6,233 40,662 128 - -------- ------- ----------- -------- --------- -------- -------- ----- (1,036) (260) (16,657) 4,384 (19,920) 286 (3,550) 3 - -------- ------- ----------- -------- --------- -------- -------- ----- (1,097) -- (22,649) -- 10,671 -- 186 -- (16,357) (1,097) (133,716) (22,649) (19,866) 10,671 376 186 - -------- ------- ----------- -------- --------- -------- -------- ----- (15,260) (1,097) (111,067) (22,649) (30,537) 10,671 190 186 - -------- ------- ----------- -------- --------- -------- -------- ----- (16,296) (1,357) (127,724) (18,265) (50,457) 10,957 (3,360) 189 - -------- ------- ----------- -------- --------- -------- -------- ----- $(15,060) $(1,418) $ 8,502 $ 11,917 $ (15,038) $ 10,130 $ 1,836 $ 172 ======== ======= =========== ======== ========= ======== ======== =====
71 72 Separate Account Four of The Manufacturers Life Insurance Company of America Statements of Operations (continued)
INVESTMENT LIFESTYLE LIFESTYLE QUALITY AGGRESSIVE GROWTH BOND 1000 820 SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------------- ----------------------- -------------------------- YEAR PERIOD YEAR PERIOD YEAR PERIOD ENDED ENDED** ENDED ENDED** ENDED ENDED** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 ---------- ---------- --------- ---------- ----------- ---------- Investment income: Dividend income $ 62,454 $ -- $ 28,212 $ 954 $ 177,818 $ 16,099 Expenses: Mortality and expense risks charge 10,846 391 3,611 798 18,498 5,554 -------- ------- --------- ------- ----------- -------- Net investment income (loss) 51,608 (391) 24,601 156 159,320 10,545 -------- ------- --------- ------- ----------- -------- Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 326,040 2,867 172,432 22,090 1,008,813 139,748 Cost of securities sold 325,044 2,800 173,356 20,473 1,119,216 133,241 -------- ------- --------- ------- ----------- -------- Net realized gain (loss) 996 67 (924) 1,617 (110,403) 6,507 -------- ------- --------- ------- ----------- -------- Unrealized appreciation (depreciation) of investments: Beginning of year 5,485 -- 1,104 -- 7,721 -- End of year 76,241 5,485 19,224 1,104 (24,096) 7,721 -------- ------- --------- ------- ----------- -------- Net unrealized appreciation (depreciation) during the year 70,756 5,485 18,120 1,104 (31,817) 7,721 -------- ------- --------- ------- ----------- -------- Net realized and unrealized gain (loss) on investments 71,752 5,552 17,196 2,721 (142,220) 14,228 -------- ------- --------- ------- ----------- -------- Net increase (decrease) in net assets derived from operations $123,360 $ 5,161 $ 41,797 $ 2,877 $ 17,100 $ 24,773 ======== ======= ========= ======= =========== ========
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996. ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997. *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998. See accompanying notes. 72 73
LIFESTYLE LIFESTYLE SMALL LIFESTYLE BALANCED MODERATE COMPANY CONSERVATIVE 640 460 VALUE TRUST 280 SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL - ------------------------- ---------------------- ----------- ----------- ---------------------------------------------- YEAR PERIOD YEAR PERIOD PERIOD YEAR YEAR YEAR YEAR ENDED ENDED** ENDED ENDED** ENDED ENDED ENDED ENDED ENDED DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/9 DEC. 31/98 DEC. 31/98 DEC. 31/97 DEC. 31/96 - ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ---------- $ 65,526 $ 6,641 $ 4,852 $ 653 $ -- $ 319 $21,841,366 $ 3,479,952 $ 23,738,584 7,070 2,300 495 32 168 130 1,896,542 1,380,695 1,085,346 - --------- ------- ------- ----- -------- ------- ----------- ----------- ------------ 58,456 4,341 4,357 621 (168) 189 19,944,824 2,099,257 22,653,238 - --------- ------- ------- ----- -------- ------- ----------- ----------- ------------ 288,757 10,642 90,558 227 20,177 18,824 70,107,964 43,206,372 25,369,596 283,137 10,202 89,986 229 24,431 18,012 63,206,786 39,511,965 21,316,576 - --------- ------- ------- ----- -------- ------- ----------- ----------- ------------ 5,620 440 572 (2) (4,254) 812 6,901,178 3,694,407 4,053,020 - --------- ------- ------- ----- -------- ------- ----------- ----------- ------------ 17,177 -- 361 -- -- -- 34,648,009 7,902,612 17,645,380 3,354 17,177 1,206 361 1,904 2,842 35,332,869 34,648,009 7,902,612 - --------- ------- ------- ----- -------- ------- ----------- ----------- ------------ (13,823) 17,177 845 361 1,904 2,842 684,860 26,745,397 (9,742,768) - --------- ------- ------- ----- -------- ------- ----------- ----------- ------------ (8,203) 17,617 1,417 359 (2,350) 3,654 7,586,038 30,439,804 (5,689,748) - --------- ------- ------- ----- -------- ------- ----------- ----------- ------------ $ 50,253 $21,958 $ 5,774 $ 980 $ (2,518) $ 3,843 $27,530,862 $32,539,061 $ 16,963,490 ========= ======= ======= ===== ======== ======= =========== =========== ============
73 74 Separate Account Four of The Manufacturers Life Insurance Company of America Statements of Changes in Net Assets
EMERGING GROWTH QUANTITATIVE EQUITY SUB-ACCOUNT SUB-ACCOUNT -------------------------------------------- ------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 ----------- ------------ ----------- ----------- ----------- ----------- FROM OPERATIONS Net investment income (loss) $ 504,835 $ (373,014) $ 8,474,701 $ 4,181,539 $ (197,730) $ 3,738,995 Net realized gain (loss) 1,613,232 942,356 1,932,429 1,715,267 1,013,649 838,424 Net unrealized appreciation (depreciation) of investments during the year (2,477,479) 8,161,227 (7,801,863) 2,626,256 6,681,076 (855,591) ----------- ------------ ----------- ----------- ----------- ----------- Net increase (decrease) in net assets derived from operations (359,412) 8,730,569 2,605,267 8,523,062 7,496,995 3,721,828 ----------- ------------ ----------- ----------- ----------- ----------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 10,095,423 10,968,515 14,023,834 3,887,475 5,269,678 4,853,989 Transfer on terminations (7,645,380) (5,398,115) (5,184,577) (3,507,300) (3,038,289) (1,960,658) Transfer on policy loans (281,289) (624,209) (629,038) (227,928) (229,614) (199,046) Net interfund transfers (5,175,422) (10,114,334) (4,559,177) (2,590,590) (447,386) (1,140,965) ----------- ------------ ----------- ----------- ----------- ----------- (3,006,668) (5,168,143) 3,651,042 (2,438,343) 1,554,389 1,553,320 ----------- ------------ ----------- ----------- ----------- ----------- Net increase (decrease) in net assets (3,366,080) 3,562,426 6,256,309 6,084,719 9,051,384 5,275,148 NET ASSETS Beginning of year 62,082,970 58,520,544 52,264,235 34,612,842 25,561,458 20,286,310 ----------- ------------ ----------- ----------- ----------- ----------- End of year $58,716,890 $ 62,082,970 $58,520,544 $40,697,561 $34,612,842 $25,561,458 =========== ============ =========== =========== =========== ===========
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996. ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997. *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998. See accompanying notes. 74 75
CAPITAL GROWTH REAL ESTATE SECURITIES BALANCED BOND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ---------------------------------------- ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 - ----------- ------------ ----------- ------------ ------------ ------------ ------------ ------------ ------------ $ 2,778,085 $ (138,789) $ 2,992,031 $ 6,348,097 $ (312,899) $ 5,916,672 $ 693,423 $ (88,739) $ 726,433 515,184 409,362 221,878 784,905 1,177,705 636,302 74,442 (166,789) (96,849) (7,390,867) 3,375,616 1,528,436 (322,095) 6,637,188 (2,523,653) 268,561 1,292,079 (352,505) - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- (4,097,598) 3,646,189 4,742,345 6,810,907 7,501,994 4,029,321 1,036,426 1,036,551 277,079 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 3,172,812 3,087,313 2,765,182 7,779,255 7,548,194 8,726,978 2,121,220 1,927,024 2,665,999 (2,063,583) (2,187,862) (1,467,190) (5,263,498) (5,118,735) (3,748,227) (1,358,276) (1,630,139) (923,256) (158,565) (150,861) (101,471) (166,218) (520,775) (345,242) (52,477) (60,413) (81,852) (2,267,624) 1,362,290 (1,015,253) (516,113) (5,272,252) (2,422,119) 266,572 (1,458,915) (809,388) - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- (1,316,960) 2,110,880 181,268 1,833,426 (3,363,568) 2,211,390 977,039 (1,222,443) 851,503 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- (5,414,558) 5,757,069 4,923,613 8,644,333 4,138,426 6,240,711 2,013,465 (185,892) 1,128,582 24,562,432 18,805,363 13,881,750 49,606,670 45,468,244 39,227,533 13,702,722 13,888,614 12,760,032 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $19,147,874 $24,562,432 $18,805,363 $58,251,003 $49,606,670 $45,468,244 $15,716,187 $13,702,722 $13,888,614 =========== =========== =========== =========== =========== =========== =========== =========== ===========
75 76 Separate Account Four of The Manufacturers Life Insurance Company of America Statements of Changes in Net Assets (continued)
MONEY MARKET INTERNATIONAL STOCK SUB-ACCOUNT SUB-ACCOUNT ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 ------------ ----------- ----------- ------------ ----------- ----------- FROM OPERATIONS Net investment income (loss) $ 536,439 $ 316,526 $ 484,375 $ 103,810 $ 60,175 $ 83,650 Net realized gain (loss) -- (275,816) 208,048 330,639 265,602 65,338 Net unrealized appreciation (depreciation) of investments during the year -- 275,826 (441,658) 698,766 (284,063) 120,761 ------------ ----------- ----------- ------------ ----------- ----------- Net increase (decrease) in net assets derived from operations 536,439 316,536 250,765 1,133,215 41,714 269,749 ------------ ----------- ----------- ------------ ----------- ----------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 9,080,518 3,105,289 2,628,791 4,424,007 2,524,804 870,119 Transfer on terminations (1,630,779) (1,271,291) (956,767) (873,572) (503,518) (194,570) Transfer on policy loans (241,862) 17,308 (13,756) (33,326) (88,083) (27,661) Net interfund transfers 3,412,497 (2,379,177) (1,146,057) (559,362) 871,148 1,135,964 ------------ ----------- ----------- ------------ ----------- ----------- 10,620,374 (527,871) 512,211 2,957,747 2,804,351 1,783,852 ------------ ----------- ----------- ------------ ----------- ----------- Net increase (decrease) in net assets 11,156,813 (211,335) 762,976 4,090,962 2,846,065 2,053,601 NET ASSETS Beginning of year 6,516,833 6,728,168 5,965,192 6,711,083 3,865,018 1,811,417 ------------ ----------- ----------- ------------ ----------- ----------- End of year $ 17,673,646 $ 6,516,833 $ 6,728,168 $ 10,802,045 $ 6,711,083 $ 3,865,018 ============ =========== =========== ============ =========== ===========
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996. ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997. *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998. See accompanying notes. 76 77
PACIFIC RIM EMERGING MARKETS EQUITY INDEX EQUITY SUB-ACCOUNT SUB-ACCOUN SUB-ACCOUNT - ---------------------------------------- ------------------------------------------- ----------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 - ----------- ----------- ----------- ------------ ----------- ------------- ----------- ----------- ------------- $ (14,226) $ (15,403) $ 134,178 $ 483,176 $ 847,432 $ 75,745 $ 1,531,606 $ 1,034,760 $ 24,748 (366,914) (93,881) 161,652 494,230 36,960 2,821 (354,193) 24,440 24,489 242,269 (1,160,926) (108,993) 1,991,508 (32,178) 46,173 (411,003) 21,454 270,657 - ---------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ----------- (138,871) (1,270,210) 186,837 2,968,914 852,214 124,739 766,410 1,080,654 319,894 - ---------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ----------- 602,999 858,191 683,676 5,759,699 3,106,131 279,042 1,882,059 3,023,077 961,034 (205,435) (808,786) (201,928) (1,427,792) (166,672) (38,180) (659,930) (778,177) (85,993) (41,088) (65,080) (20,049) (167,037) (3,054) (3,251) (57,084) (30,340) (8,149 (258,865) (58,053) 1,647,145 4,120,011 1,961,503 802,227 (2,647,372) 582,252 2,949,537 - ---------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ----------- 97,611 (73,728) 2,108,844 8,284,881 4,897,908 1,039,838 (1,482,327) 2,796,812 3,816,429 - ---------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ----------- (41,260) (1,343,938) 2,295,681 11,253,795 5,750,122 1,164,577 (715,917) 3,877,466 4,136,323 2,343,464 3,687,402 1,391,721 6,914,699 1,164,577 -- 8,013,789 4,136,323 -- - ---------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ----------- $2,302,204 $ 2,343,464 $ 3,687,402 $ 18,168,494 $ 6,914,699 $ 1,164,577 $ 7,297,872 $ 8,013,789 $ 4,136,323 ========== =========== =========== ============ =========== =========== =========== =========== ===========
77 78 Separate Account Four of The Manufacturers Life Insurance Company of America Statements of Changes in Net Assets (continued)
GROWTH VALUE EQUITY AND INCOME SUB-ACCOUNT SUB-ACCOUNT -------------------------------------------- --------------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 ------------ ------------ ------------ ------------ ------------ ------------ FROM OPERATIONS Net investment income (loss) $ 384,324 $ 381,070 $ 8,862 $ 607,152 $ 241,574 $ (4,336) Net realized gain (loss) 293,379 74,851 1,349 560,486 206,751 43,821 Net unrealized appreciation (depreciation) of investments during the year (214,094) 497,341 162,428 1,566,533 781,276 145,719 ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets derived from operations 463,609 953,262 172,639 2,734,171 1,229,601 185,204 ------------ ------------ ------------ ------------ ------------ ------------ FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 3,319,426 856,465 351,584 3,712,205 2,327,523 316,929 Transfer on terminations (837,249) (394,553) (35,519) (1,272,523) (494,932) (36,051) Transfer on policy loans (5,179) (21,910) (4,090) (68,077) (11,939) (439) Net interfund transfers 764,417 2,113,454 1,610,224 3,032,604 3,120,002 1,601,040 ------------ ------------ ------------ ------------ ------------ ------------ 3,241,415 2,553,456 1,922,199 5,404,209 4,940,654 1,881,479 ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets 3,705,024 3,506,718 2,094,838 8,138,380 6,170,255 2,066,683 NET ASSETS Beginning of year 5,601,556 2,094,838 -- 8,236,938 2,066,683 -- ------------ ------------ ------------ ------------ ------------ ------------ End of year $ 9,306,580 $ 5,601,556 $ 2,094,838 $ 16,375,318 $ 8,236,938 $ 2,066,683 ============ ============ ============ ============ ============ ============
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996. ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997. *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998. See accompanying notes. 78 79
U.S. GOVERNMENT CONSERVATIVE MODERATE SECURITIES ASSET ALLOCATION ASSET ALLOCATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - --------------------------------------- ------------------------------------- ---------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 - ----------- ---------- ------------ ---------- ---------- ------------ ----------- ----------- --------- $ 24,437 $ 17,253 $ (849) $ 56,846 $ 32,395 $ (685) $ 260,444 $ 89,913 $ (2,050) 20,033 10,335 4,836 (9,736) 774 2,751 40,580 34,682 1,572 52,458 6,207 3,780 15,327 10,030 7,208 13,891 58,528 36,462 - ----------- --------- --------- --------- --------- --------- ----------- ----------- --------- 96,928 33,795 7,767 62,437 43,199 9,274 314,915 183,123 35,984 - ----------- --------- --------- --------- --------- --------- ----------- ----------- --------- 368,181 112,190 18,521 111,885 107,136 44,311 741,631 887,517 131,528 (76,557) (28,622) (299,154) (144,859) (13,120) (5,606) (196,822) (176,631) (12,696) (476) (10,083) -- -- -- -- (12,957) (10) (1,206) 2,596,506 378,086 448,352 290,044 285,503 95,230 (60,740) 254,676 557,979 - ----------- --------- --------- --------- --------- --------- ----------- ----------- --------- 2,887,654 451,571 167,719 257,070 379,519 133,935 471,112 965,552 675,605 - ----------- --------- --------- --------- --------- --------- ----------- ----------- --------- 2,984,582 485,366 175,486 319,507 422,718 143,209 786,027 1,148,675 711,589 660,852 175,486 -- 565,927 143,209 -- 1,860,264 711,589 -- - ----------- --------- --------- --------- --------- --------- ----------- ----------- --------- $ 3,645,434 $ 660,852 $ 175,486 $ 885,434 $ 565,927 $ 143,209 $ 2,646,291 $ 1,860,264 $ 711,589 =========== ========= ========= ========= ========= ========= =========== =========== =========
79 80 Separate Account Four of The Manufacturers Life Insurance Company of America Statements of Changes in Net Assets (continued)
AGGRESSIVE INTERNATIONAL BLUE CHIP ASSET ALLOCATION SMALL CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------------------------------- -------------------------- --------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 ----------- ----------- ------------ ----------- ----------- ------------ ----------- FROM OPERATIONS Net investment income (loss) $ 426,268 $ 57,231 $ 768 $ (3,941) $ (2,769) $ 100,262 $ 48,890 Net realized gain (loss) 91,347 18,481 4,159 42,617 10,150 403,568 (12,123) Net unrealized appreciation (depreciation) of investments during the year 21,809 80,807 19,871 (22,670) (15,134) 2,082,817 235,927 ----------- ----------- --------- ----------- ----------- ------------ ----------- Net increase (decrease) in net assets derived from operations 539,424 156,519 24,798 16,006 (7,753) 2,586,647 272,694 ----------- ----------- --------- ----------- ----------- ------------ ----------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 1,188,269 2,451,770 67,783 210,960 78,736 7,650,835 3,002,085 Transfer on terminations (216,987) (230,373) (10,117) (59,723) (20,504) (836,755) (121,898) Transfer on policy loans (1,768) (296) (1,206) (8,482) (2,010) (12,374) (545) Net interfund transfers (2,012,227) 471,051 281,138 425,368 505,819 620,404 1,364,732 ----------- ----------- --------- ----------- ----------- ------------ ----------- (1,042,713) 2,692,152 337,598 568,123 562,041 7,422,110 4,244,374 ----------- ----------- --------- ----------- ----------- ------------ ----------- Net increase (decrease) in net assets (503,289) 2,848,671 362,396 584,129 554,288 10,008,757 4,517,068 NET ASSETS Beginning of year 3,211,067 362,396 -- 554,288 -- 4,517,068 -- ----------- ----------- --------- ----------- ----------- ------------ ----------- End of year $ 2,707,778 $ 3,211,067 $ 362,396 $ 1,138,417 $ 554,288 $ 14,525,825 $ 4,517,068 =========== =========== ========= =========== =========== ============ ===========
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996. ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997. *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998. See accompanying notes. 80 81
PILGRAM SCIENCE & BAXTER SMALL/MID WORLDWIDE TECHNOLOGY GROWTH CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ---------------------------- ------------------------- --------------------------- ------------------------- YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 - ----------- ------------ ---------- ------------ ----------- ------------ --------- ------------ $ (25,363) $ 22,028 $ (2,341) $ (764) $ (12,596) $ (1,669) $ 979 $ 1,584 159,942 1,545 (16,990) 433 98,578 (767) 20,520 25 1,706,363 (31,717) 54,619 (1,826) 483,130 (41,211) 18,714 (1,636) - ----------- ----------- --------- --------- ----------- ----------- --------- --------- 1,840,942 (8,144) 35,288 (2,157) 569,112 (43,647) 40,213 (27) - ----------- ----------- --------- --------- ----------- ----------- --------- --------- 3,784,735 1,280,093 188,214 52,430 579,891 1,504,311 112,933 3,589 (307,967) (8,796) (16,593) (3,413) (111,777) (24,555) (29,603) (385) (5,733) -- (9,931) -- (9,073) -- -- -- 291,311 186,162 6,266 242,685 (354,048) 361,443 184,048 198,099 - ----------- ----------- --------- --------- ----------- ----------- --------- --------- 3,762,346 1,457,459 167,956 291,702 104,993 1,841,199 267,378 201,303 - ----------- ----------- --------- --------- ----------- ----------- --------- --------- 5,603,288 1,449,315 203,244 289,545 674,105 1,797,552 307,591 201,276 1,449,315 -- 289,545 -- 1,797,552 -- 201,276 -- - ----------- ----------- --------- --------- ----------- ----------- --------- --------- $ 7,052,603 $ 1,449,315 $ 492,789 $ 289,545 $ 2,471,657 $ 1,797,552 $ 508,867 $ 201,276 =========== =========== ========= ========= =========== =========== ========= =========
81 82 Separate Account Four of The Manufacturers Life Insurance Company of America Statements of Changes in Net Assets (continued)
GLOBAL EQUITY GROWTH VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------------------- --------------------------- --------------------------- YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 ----------- ------------ ----------- ------------ ----------- ------------ FROM OPERATIONS Net investment (loss) income $ 268,363 $ (2,697) $ 74,221 $ (1,748) $ 162,545 $ 40,098 Net realized gain (loss) 362,299 1,042 156,634 464 19,873 1,134 Net unrealized appreciation (depreciation) of investments during the year (147,744) 142,878 231,843 42,938 (296,205) (5,269) ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets derived from operations 482,918 141,223 462,698 41,654 (113,787) 35,963 ----------- ----------- ----------- ----------- ----------- ----------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 977,760 3,088,398 819,142 1,408,136 4,558,587 811,955 Transfer on terminations (197,507) (47,709) (118,387) (22,975) (402,675) (29,096) Transfer on policy loans (604) -- (6,515) -- (25,308) (4,630) Net interfund transfers (3,258,055) 216,594 (199,981) 327,707 431,082 558,746 ----------- ----------- ----------- ----------- ----------- ----------- (2,478,406) 3,257,283 494,259 1,712,868 4,561,686 1,336,975 ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets (1,995,488) 3,398,506 956,957 1,754,522 4,447,899 1,372,938 NET ASSETS Beginning of year 3,398,506 -- 1,754,522 -- 1,372,938 -- ----------- ----------- ----------- ----------- ----------- ----------- End of year $ 1,403,018 $ 3,398,506 $ 2,711,479 $ 1,754,522 $ 5,820,837 $ 1,372,938 =========== =========== =========== =========== =========== ===========
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996. ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997. *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998. See accompanying notes. 82 83
INTERNATIONAL GLOBAL GROWTH STRATEGIC GOVERNMENT AND INCOME HIGH YIELD BOND BOND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - -------------------------- ---------------------------- ---------------------------- ------------------------ YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 - ---------- ------------ ----------- ------------ ----------- ------------ ---------- ------------ $ 1,236 $ (61) $ 136,226 $ 30,182 $ 35,419 $ (827) $ 5,196 $ (17) (1,036) (260) (16,657) 4,384 (19,920) 286 (3,550) 3 (15,260) (1,097) (111,067) (22,649) (30,537) 10,671 190 186 - --------- -------- ----------- --------- ----------- --------- -------- ------- (15,060) (1,418) 8,502 11,917 (15,038) 10,130 1,836 172 - --------- -------- ----------- --------- ----------- --------- -------- ------- 37,028 1,816 1,047,209 563,344 372,334 174,730 10,166 185 (9,110) (376) (111,277) (17,818) (56,296) (7,767) (3,976) (187) (417) -- (3,925) (2,703) (8,000) (83) (104) (52) 235,679 21,036 279,547 284,153 563,277 229,940 26,715 7,968 - --------- -------- ----------- --------- ----------- --------- -------- ------- 263,180 22,476 1,211,554 826,976 871,315 396,820 32,801 7,914 - --------- -------- ----------- --------- ----------- --------- -------- ------- 248,120 21,058 1,220,056 838,893 856,277 406,950 34,637 8,086 21,058 -- 838,893 -- 406,950 -- 8,086 -- - --------- -------- ----------- --------- ----------- --------- -------- ------- $ 269,178 $ 21,058 $ 2,058,949 $ 838,893 $ 1,263,227 $ 406,950 $ 42,723 $ 8,086 ========= ======== =========== ========= =========== ========= ======== =======
83 84 Separate Account Four of The Manufacturers Life Insurance Company of America Statements of Changes in Net Assets (continued)
LIFESTYLE LIFESTYLE INVESTMENT AGGRESSIVE GROWTH QUALITY BOND 1000 820 SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------------- ----------------------- --------------------------- YEAR PERIOD YEAR PERIOD YEAR PERIOD ENDED ENDED** ENDED ENDED** ENDED ENDED** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 ----------- ---------- ---------- ---------- ----------- ------------ FROM OPERATIONS Net investment income (loss) $ 51,608 $ (391) $ 24,601 $ 156 $ 159,320 $ 10,545 Net realized gain (loss) 996 67 (924) 1,617 (110,403) 6,507 Net unrealized appreciation (depreciation) of investments during the year 70,756 5,485 18,120 1,104 (31,817) 7,721 Net increase (decrease) in net ----------- --------- --------- --------- ----------- ----------- assets derived from operations 123,360 5,161 41,797 2,877 17,100 24,773 ----------- --------- --------- --------- ----------- ----------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 1,117,077 298,577 70,842 33,139 406,823 104,216 Transfer on terminations (123,130) (8,387) (63,229) (7,521) (237,067) (42,295) Transfer on policy loans (7,602) -- (9,477) (10,340) (5,252) (91,693) Net interfund transfers 1,404,610 174,462 210,882 452,552 475,327 2,319,332 ----------- --------- --------- --------- ----------- ----------- 2,390,955 464,652 209,018 467,830 639,831 2,289,560 ----------- --------- --------- --------- ----------- ----------- Net increase (decrease) in net assets 2,514,315 469,813 250,815 470,707 656,931 2,314,333 NET ASSETS Beginning of year 469,813 -- 470,707 -- 2,314,333 -- ----------- --------- --------- --------- ----------- ----------- End of year $ 2,984,128 $ 469,813 $ 721,522 $ 470,707 $ 2,971,264 $ 2,314,333 =========== ========= ========= ========= =========== ===========
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996. ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997. *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998. See accompanying notes. 84 85
LIFESTYLE LIFESTYLE SMALL LIFESTYLE BALANCED MODERATE COMPANY CONSERVATIVE 640 460 VALUE TRUST 280 SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL - ------------------------- ----------------------- ----------- ------------- ----------------------------------------------- YEAR PERIOD YEAR PERIOD PERIOD YEAR YEAR YEAR YEAR ENDED ENDED** ENDED ENDED** ENDED*** ENDED ENDED ENDED ENDED DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/98 DEC. 31/98 DEC. 31/97 DEC. 31/96 - ----------- ---------- ---------- ---------- ----------- ------------- ------------- ------------- ------------- $ 58,456 $ 4,341 $ 4,357 $ 621 $ (168) $ 189 $ 19,944,824 $ 2,099,257 $ 22,653,238 5,620 440 572 (2) (4,254) 812 6,901,178 3,694,407 4,053,020 (13,823) 17,177 845 361 1,904 2,842 684,860 26,745,397 (9,742,768) - ----------- --------- -------- -------- -------- ------- ------------- ------------- ------------- 50,253 21,958 5,774 980 (2,518) 3,843 27,530,862 32,539,061 16,963,490 - ----------- --------- -------- -------- -------- ------- ------------- ------------- ------------- 227,592 30,549 12,212 890 11,881 12,677 80,455,962 60,597,996 39,389,300 (46,788) (8,966) (4,396) (274) (4,420) (1,796) (30,123,014) (22,612,737) (15,160,489) (13,308) -- (83,848) -- (41) -- (1,725,325) (1,911,415) (1,436,456) 53,428 806,676 6,509 95,836 74,240 65,356 (63,699) 23,790 35,877 - ----------- --------- -------- -------- -------- ------- ------------- ------------- ------------- 220,924 828,529 (69,523) 96,452 81,660 79,237 48,543,924 36,097,634 22,828,232 - ----------- --------- -------- -------- -------- ------- ------------- ------------- ------------- 271,177 850,217 (63,749) 97,432 79,142 80,080 76,074,786 68,636,695 39,791,722 850,217 -- 97,432 -- -- -- 256,016,607 187,379,912 147,588,190 - ----------- --------- -------- -------- -------- ------- ------------- ------------- ------------- $ 1,121,394 $ 850,217 $ 33,683 $ 97,432 $ 79,142 $80,080 $ 332,091,393 $ 256,016,607 $ 187,379,912 =========== ========= ======== ======== ======== ======= ============= ============= =============
85 86 Separate Account Four of The Manufacturers Life Insurance Company of America Notes to Financial Statements December 31, 1998 1. ORGANIZATION Separate Account Four of The Manufacturers Life Insurance Company of America (the "Separate Account") is a unit investment trust registered under the Investment Company Act of 1940, as amended. The Separate Account is comprised of investment sub-accounts available for allocation of net premiums under variable universal life insurance policies (the "Policies") issued by The Manufacturers Life Insurance Company of America ("Manufacturers Life of America"). The Separate Account was established by Manufacturers Life of America, a life insurance company organized in 1983 under Michigan law. Manufacturers Life of America is an indirect, wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manulife Financial"), a Canadian mutual life insurance company. Each investment sub-account invests solely in shares of a particular Manufacturers Investment Trust. Manufacturers Investment Trust is registered under the Investment Company Act of 1940 as open-end management investment company. The Equity Index Fund, Equity, Value Equity, Growth and Income, U.S. Government Securities, Conservative Asset Allocation, Moderate Asset Allocation, and Aggressive Asset Allocation Trusts, were added to the Separate Account on February 14, 1996 as investment options for policy holders of Manufacturers Life of America. The International Small Cap and Blue Chip Growth Trusts were added to the Separate Account on January 1, 1997 as investment options for variable universal life policy holders of Manufacturers Life of America. The Science & Technology, Pilgrim Baxter Growth, Small/Mid Cap, Worldwide Growth, Global Equity, Growth, Value, International Growth and Income, High Yield, Strategic Bond, Global Government Bond, Investment Quality Bond, Lifestyle Aggressive 1000, Lifestyle Growth 820, Lifestyle Balanced 640 and Lifestyle Moderate 460 Trusts were added to the Separate Account on May 1, 1997 as investment options for variable universal life policy holders of Manufacturers Life of America. The Lifestyle Conservative 280 and Small Company Value Trust were added to the Separate Account on May 1, 1998. 86 87 1. ORGANIZATION (CONTINUED) Manufacturers Life of America is the legal owner of the Separate Account. Manufacturers Life of America is required to maintain assets in the Separate Account with a total market value at least equal to the reserves and other liabilities relating to the variable benefits under all policies participating in the Separate Account. These assets may not be charged with liabilities which arise from any other business Manufacturers Life of America conducts. However, all obligations under the variable policies are general corporate obligations of Manufacturers Life of America. Additional assets are held in Manufacturers Life of America's general account to cover the contingency that the guaranteed minimum death benefit might exceed the death benefit which would have been payable in the absence of such guarantee. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Separate Account in preparation of its financial statements: a. Valuation of Investments - Investments are made among thirty-six Trusts of Manufacturers Investment Trust and are valued at the reported net asset values of these Trusts. Transactions are recorded on the trade date. Net investment income and net realized gains on investments in Manufacturers Investment Trust are reinvested. b. Realized gains and losses on the sale of investments are computed on the first-in, first-out basis. c. Dividend income is recorded on the ex-dividend date. d. Federal Income Taxes - Manufacturers Life of America, the Separate Account's sponsor, is taxed as a "life insurance company" under the Internal Revenue Code. Under these provisions of the Code, the operations of the Separate Account form part of the sponsor's total operations and are not taxed separately. 87 88 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The current year's operations of the Separate Account are not expected to affect the sponsor's tax liabilities and, accordingly, no charges were made against the Separate Account for federal, state and local taxes. However, in the future, should the sponsor incur significant tax liabilities related to the Separate Account's operations, it intends to make a charge or establish a provision within the Separate Account for such taxes. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. MORTALITY AND EXPENSE RISKS CHARGE Manufacturers Life of America deducts from the assets of the Separate Account a daily charge equivalent to an annual rate of 0.65% of the average net value of the Separate 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. 5. PURCHASES AND SALES OF MANUFACTURERS INVESTMENT TRUST SHARES Purchases and sales of the shares of common stock of Manufacturers Investment Trust for the year ended December 31, 1998 were $138,546,366 and $70,107,964, respectively, and for the year ended December 31, 1997 were $82,099,182 and $43,206,372, respectively. 88 89 6. RELATED PARTY TRANSACTIONS ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary of Manulife Financial, acts as the principal underwriter of the Policies pursuant to a Distribution Agreement with Manufacturers Life of America. Registered representatives of either ManEquity, Inc. or other broker-dealers having distribution agreements with ManEquity, Inc. who are also authorized as variable life insurance agents under applicable state insurance laws, sell the Policies. Registered representatives are compensated on a commission basis. Manufacturers Life of America has a formal service agreement with its affiliates, Manulife Financial and The Manufacturers Life Insurance Company (U.S.A.), which can be terminated by either party upon two months notice. Under this Agreement, Manufacturers Life of America pays for legal, actuarial, investment and certain other administrative services. 89 90 CONSOLIDATED FINANCIAL STATEMENTS THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 WITH REPORT OF INDEPENDENT AUDITORS CONTENTS Report of Independent Auditors.................................................. Audited Consolidated Financial Statements....................................... Consolidated Balance Sheets................................................ Consolidated Statements of Income.......................................... Consolidated Statements of Changes in Capital And Surplus.................. Consolidated Statements of Cash Flows...................................... Notes to Consolidated Financial Statements......................................
90 91 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, 1998 and 1997, 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, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Manufacturers Life Insurance Company of America at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Philadelphia, Pennsylvania March 15, 1999 Ernst & Young LLP 91 92 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA CONSOLIDATED BALANCE SHEETS As at December 31 ($ thousands)
ASSETS 1998 1997 ------------ ------------ INVESTMENTS: Securities available-for-sale, at fair value: (note 3) Fixed maturity (amortized cost: 1998 $45,248; 1997 $66,565) $ 49,254 $ 67,893 Equity (cost: 1998 $ 19,219; 1997 $20,153) 20,524 19,460 Short-term investments 459 2,130 Policy loans 19,320 14,673 TOTAL INVESTMENTS $ 89,557 $ 104,156 Cash and cash equivalents $ 23,789 $ 19,882 Deferred acquisition costs (note 5) 163,506 130,355 Income taxes recoverable 2,665 5,679 Other assets 9,062 9,495 Separate account assets 1,075,231 897,044 ------------ ------------ TOTAL ASSETS $ 1,363,810 $ 1,166,611 ------------ ------------ LIABILITIES, CAPITAL AND SURPLUS 1998 1997 ------------ ------------ LIABILITIES: Policyholder liabilities and accruals $ 60,830 $ 94,477 Notes payable (note 7) -- 41,500 Due to affiliates 5,133 13,943 Deferred income taxes (note 6) 763 1,174 Other liabilities 18,656 11,704 Separate account liabilities 1,075,231 897,044 TOTAL LIABILITIES $ 1,160,613 $ 1,059,842 ------------ ------------ CAPITAL AND SURPLUS: Common shares (note 8) $ 4,502 $ 4,502 Preferred shares (note 8) 10,500 10,500 Contributed surplus 193,096 98,569 Retained earnings (deficit) (2,664) (1,910) Accumulated other comprehensive income (loss) (2,237) (4,892) TOTAL CAPITAL AND SURPLUS $ 203,197 $ 106,769 TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 1,363,810 $ 1,166,611 ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. 92 93 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 -------- -------- -------- REVENUE: Premiums $ 9,290 $ 8,607 $ 12,898 Consideration paid on reinsurance terminated (note 10) (40,975) -- -- Fee income 54,547 38,682 40,434 Net investment income (note 3) 6,128 8,275 19,651 Realized investment gains (losses) (206) 118 (119) Other 1,082 544 668 -------- -------- -------- TOTAL REVENUE $ 29,866 $ 56,226 $ 73,532 -------- -------- -------- BENEFITS AND EXPENSES: Policyholder benefits and claims $ 16,541 $ 6,733 $ 14,473 Reduction of reserves on reinsurance terminated (note 10) (40,975) -- -- Operating costs and expenses 41,676 41,742 34,581 Commissions 2,561 2,838 10,431 Amortization of deferred acquisition costs (note 5) 9,266 4,860 13,240 Interest expense 1,722 2,750 12,251 Policyholder dividends 221 1,416 872 -------- -------- -------- TOTAL BENEFITS AND EXPENSES 31,012 60,339 85,848 -------- -------- -------- LOSS BEFORE INCOME TAXES (1,146) (4,113) (12,316) -------- -------- -------- INCOME TAX BENEFIT (NOTE 6) 392 477 3,909 -------- -------- -------- NET LOSS $ (754) $ (3,636) $ (8,407) -------- -------- --------
The accompanying notes are an integral part of these consolidated financial statements. 93 94 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
ACCUMULATED RETAINED OTHER TOTAL FOR THE YEARS ENDED DECEMBER 31 CAPITAL CONTRIBUTED EARNINGS COMPREHENSIVE CAPITAL AND ($ thousands) STOCK SURPLUS (DEFICIT) INCOME (LOSS) SURPLUS ------- ---------- --------- ------------- ----------- Balance at January 1, 1996 $15,002 $ 83,569 $ 10,133 $ 1,816 $ 110,520 Issuance of shares -- 15,000 -- -- 15,000 Comprehensive income (loss) (note 2) -- -- (8,407) (483) (8,890) ------- -------- -------- ------- --------- BALANCE, DECEMBER 31, 1996 $15,002 $ 98,569 $ 1,726 $ 1,333 $ 116,630 Comprehensive income (loss) (note 2) -- -- (3,636) (6,225) (9,861) ------- -------- -------- ------- --------- BALANCE, DECEMBER 31, 1997 $15,002 $ 98,569 $ (1,910) $(4,892) $ 106,769 Capital contribution (note 8) -- 94,527 -- -- 94,527 Comprehensive income (loss) (note 2) -- -- (754) 2,655 1,901 ------- -------- -------- ------- --------- BALANCE, DECEMBER 31, 1998 $15,002 $193,096 $ (2,664) $(2,237) $ 203,197 ======= ======== ======== ======= =========
The accompanying notes are an integral part of these consolidated financial statements. 94 95 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 - --------------------------------------------------------------------------- -------- --------- --------- OPERATING ACTIVITIES: Net Loss $ (754) $ (3,636) $ (8,407) Adjustments to reconcile net loss to net cash used in operating activities: Additions (deductions) to policy liabilities and accruals (36,217) (2,147) 3,287 Deferred acquisition costs (43,065) (33,544) (36,024) Amortization of deferred acquisition costs 9,266 4,860 13,240 Realized (gains) losses on investments 206 (118) 119 Decreases (increases) to deferred income taxes (1,796) 2,730 777 Other 3,067 7,144 6,540 -------- --------- --------- Net cash used in operating activities $(69,293) $ (24,711) $ (20,468) -------- --------- --------- INVESTING ACTIVITIES: Fixed maturity securities sold $ 27,852 $ 73,772 $ 120,234 Fixed maturity securities purchased (6,429) (89,763) (108,401) Equity securities sold 8,555 10,586 25,505 Equity securities purchased (8,082) (11,289) (22,203) Mortgage loans repaid -- 514 6,669 Net change in short-term investments 1,671 4,558 (2,992) Net policy loans advanced (4,647) (4,851) (2,867) Guaranteed annuity contracts -- 171,691 (16,356) -------- --------- --------- Cash provided by investing activities $ 18,920 $ 155,218 $ 2,581 -------- --------- --------- FINANCING ACTIVITIES: Receipts from variable life and annuity policies credited to policyholder account balances $ 7,981 $ 7,582 $ 5,493 Withdrawals of policyholder account balances on variable life and annuity policies (5,410) (3,252) (2,994) Bonds payable repaid -- (158,760) -- Issuance of shares -- -- 15,000 Issuance of promissory note -- 33,000 -- Capital Contribution 51,709 -- -- -------- --------- --------- Cash provided by (used in) financing activities $ 54,280 $(121,430) $ 17,499 -------- --------- --------- CASH AND CASH EQUIVALENTS: Increase (decrease) during the year 3,907 9,077 (3,380) Balance, beginning of year 19,882 10,805 14,185 -------- --------- --------- BALANCE, END OF YEAR $ 23,789 $ 19,882 $ 10,805 ======== ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 95 96 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 (IN THOUSANDS OF DOLLARS) 1. ORGANIZATION The Manufacturers Life Insurance Company of America (the "Company") is a wholly-owned subsidiary of The Manufacturers Life Insurance Company (U.S.A.) ("ManUSA"), which is in turn an indirectly wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manulife Financial"), a Canadian-based mutual life insurance company. The Company markets variable annuity and variable life products in the United States and traditional insurance products in Taiwan. On December 31, 1996, ManUSA transferred to the Company all of the common and preferred shares of Manulife Holding Corporation ("Holdco"), an investment holding company. The Company then transferred all the common and preferred shares of Manufacturers Adviser Corporation ("MAC") to Holdco for two shares of $1 common stock of Holdco. Holdco has primarily three wholly-owned subsidiaries, ManEquity Inc., a registered broker/dealer, MAC, an investment fund management company, and Manulife Capital Corporation ("MCC"), an investment holding company. In October 1997, the Manufacturers Life Mortgage Securities Corporation ("MLMSC"), a subsidiary of Holdco, was absorbed into Holdco subsequent to the maturity and repayment of the mortgage-backed US dollar bonds. All assets and liabilities of MLMSC were transferred to Holdco at their respective book values. These transfers have been accounted for using the pooling-of-interests method of accounting. Under this method, the assets, liabilities, capital and surplus, revenues and expenses of each separate entity are combined retroactively at their historical carrying values to form the financial statements of the Company for all periods presented to give effect to the reorganization as if the structure in place at December 31, 1996 had been in place as of the earliest period presented in these consolidated financial statements. The accounts of all subsidiary companies are therefore combined and all significant intercompany balances and transactions are eliminated on combination. In addition, the capital and surplus of the Company has been restated retroactively to reflect the capital structure in place at December 31, 1996. 96 97 The revenues and net income reported by the separate entities and the combined amounts presented in the accompanying consolidated financial statements are as follows:
FOR THE YEAR ENDED DECEMBER 31 ($ thousands) 1996 -------- Revenue: ManAmerica $ 54,404 Holdco 15,543 MAC 3,585 -------- TOTAL REVENUE $ 73,532 -------- Net Income (loss): ManAmerica $ (8,676) Holdco (670) MAC 939 -------- TOTAL NET LOSS $ (8,407) ========
2. SIGNIFICANT ACCOUNTING POLICIES A) BASIS OF PRESENTATION The accompanying consolidated financial statements of the Company have been prepared in conformity with generally accepted accounting principles ("GAAP"). 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 1997 and 1996 financial information to conform to the 1998 presentation. B) RECENT ACCOUNTING STANDARDS i) During 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose annual financial statements. Comprehensive income includes all changes in shareholder's equity during a period except those resulting from investments by and distributions to shareholders. The adoption of SFAS No. 130 resulted in revised and additional disclosures but had no effect on the financial position, results of operations, or liquidity of the Company. 97 98 Total comprehensive income was as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 -------- -------- -------- NET INCOME (LOSS) $ (754) $ (3,636) $ (8,407) -------- -------- -------- OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: Unrealized holding gains (losses) arising during the period 2,435 (1,030) (560) Foreign currency translation 86 (5,272) -- Reclassification adjustment for realized gains (losses) included in net income (134) 77 (77) -------- -------- -------- Other comprehensive income (loss) 2,655 (6,225) (483) -------- -------- -------- COMPREHENSIVE INCOME (LOSS) $ 1,901 $ (9,861) $ (8,890) ======== ======== ========
Other comprehensive income (loss) is reported net of tax expense (benefit) of $1,430, $(513), and $260 for 1998, 1997, and 1996, respectively. Accumulated other comprehensive income is comprised of the following:
AS AT DECEMBER 31 ($ thousands) 1998 1997 -------- -------- UNREALIZED GAINS (LOSSES): Beginning balance $ 380 $ 1,333 Current period change 2,569 (953) -------- -------- Ending balance $ 2,949 $ 380 -------- -------- FOREIGN CURRENCY: Beginning balance $ (5,272) $ -- Current period change 86 (5,272) -------- -------- Ending balance $ (5,186) $ (5,272) -------- -------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) $ (2,237) $ (4,892) ======== ========
ii) During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 establishes standards for the disclosure of information about the Company's operating segments, including disclosures about products and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not affect results of operations or financial position, nor did it affect the manner in which the Company defines its operating segments. The Company reports two business segments: Traditional Life Insurance sold in Taiwan and Variable Life and Annuities sold in the U.S. Refer to Note 12 for additional segment information. 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. 98 99 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 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 life contracts, reserves equal the policyholder account value. Account values are increased for deposits received and interest credited and are reduced by withdrawals, mortality charges and administrative expenses charged to the policyholders. Policy charges which compensate the Company for future services are deferred and recognized in income over the period earned, using the same assumptions used to amortize DAC. Policyholder liabilities for traditional life insurance policies sold in Taiwan are computed using the net level premium method and are based upon estimates as to future mortality, persistency, maintenance expense and interest rate yields that were established in the year of issue. g) SEPARATE ACCOUNTS Separate account assets and liabilities represent funds that are separately administered, principally for variable annuity and variable life contracts, and for which the contract holder, rather than the Company, bears the investment risk Separate account 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 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. i) EXPENSES Expenses for variable annuity and variable life insurance policies include interest credited to policy account balances and benefit claims incurred during the period in excess of policy account balances. 99 100 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, co-insurance and modified co-insurance. 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. 100 101 3. INVESTMENTS AND INVESTMENT INCOME a) FIXED MATURITY AND EQUITY SECURITIES At December 31, 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 GAINS UNREALIZED LOSSES FAIR VALUE AS AT DECEMBER 31, ------------------- ----------------- -------------------- ------------------- ($ thousands) 1998 1997 1998 1997 1998 1997 1998 1997 ------- ------- ------ ------ ------- ------- ------- ------- FIXED MATURITY SECURITIES: U.S. government $27,349 $51,694 $2,578 $ 937 $ -- $ (135) $29,927 $52,496 Foreign governments 9,353 6,922 709 203 -- (14) 10,062 7,111 Corporate 8,546 7,949 719 415 -- (78) 9,265 8,286 ------- ------- ------ ------ ------- ------- ------- ------- Total fixed maturity securities $45,248 $66,565 $4,006 $1,555 $ -- $ (227) $49,254 $67,893 Equity securities $19,219 $20,153 $3,217 $1,496 $(1,912) $(2,189) $20,524 $19,460 ======= ======= ====== ====== ======= ======= ======= =======
Proceeds from sales of fixed maturity securities during 1998 were $27,852 (1997 $73,772; 1996 $120,234). Gross gains of $362 and gross losses of $107 were realized on those sales (1997 $955 and $837; 1996 $1,858 and $1,837 respectively). Proceeds from sale of equity securities during 1998 were $8,555 (1997 $10,586; 1996 $25,505). Gross gains of $16 and gross losses of $477 were realized on those sales (1997 $NIL and $NIL; 1996 $NIL and $140 respectively). The contractual maturities of fixed maturity securities at December 31, 1998 are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. Corporate requirements and investment strategies may result in the sale of investments before maturity.
($ thousands) AMORTIZED COST FAIR VALUE - ------------- -------------- ---------- Fixed maturity securities One year or less $ 1,174 $ 1,179 Greater than 1; up to 5 years 7,792 8,081 Greater than 5; up to 10 years 24,422 26,395 Due after 10 years 11,860 13,599 ------- ------- TOTAL FIXED MATURITY SECURITIES $45,248 $49,254 ======= =======
101 102 b) INVESTMENT INCOME Income by type of investment was as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 - -------------------------------------------------------- ------ ------ -------- Fixed maturity securities $4,675 $4,545 $ 4,447 Equity securities 227 331 671 Guaranteed annuity contracts -- 2,796 13,196 Other investments 1,485 772 1,697 ------ ------ -------- Gross investment income 6,387 8,444 20,011 ------ ------ -------- Investment expenses 259 169 360 ------ ------ -------- NET INVESTMENT INCOME $6,128 $8,275 $ 19,651 ====== ====== ========
4. GUARANTEED ANNUITY CONTRACTS AND BONDS PAYABLE The Company's wholly-owned subsidiary, Manufacturers Life Mortgage Securities Corporation, has historically invested amounts received as repayments of mortgage loans in annuities issued by ManUSA. These annuities were collateral for the 8 1/4 % mortgage-backed bonds payable. On March 1, 1997 the annuities matured and the proceeds were used to repay the bonds payable. In October 1997, MLMSC was absorbed into Manulife Holding Corporation. 5. DEFERRED ACQUISITION COSTS The components of the change in DAC were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 - --------------------------------------- ---------- ---------- ---------- Balance at January 1, $ 130,355 $ 102,610 $ 78,829 Capitalization 43,065 33,544 36,024 Accretion of interest 11,417 9,357 6,344 Amortization (20,683) (14,217) (19,583) Effect of net unrealized gains (losses) on securities available for sale (784) 1,268 996 Currency 136 (2,207) -- ---------- ---------- ---------- BALANCE AT DECEMBER 31 $ 163,506 $ 130,355 $ 102,610 ========== ========== ==========
6. INCOME TAXES Components of income tax expense (benefit) were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 - -------------------------------------------- -------- -------- -------- Current expense (benefit) $ 1,404 $ (3,207) $ (4,686) Deferred expense (benefit) (1,796) 2,730 777 -------- -------- -------- TOTAL EXPENSE (BENEFIT) $ (392) $ (477) $ (3,909) ======== ======== ========
102 103 The Company's deferred income tax liability, which results from tax effecting the differences between financial statement values and tax values of assets and liabilities at each balance sheet date, relates to the following:
AS AT DECEMBER 31 ($ thousands) 1998 1997 - ------------------------------------------------ -------- -------- DEFERRED TAX ASSETS: Differences in computing policy reserves $ 38,888 $ 34,291 Policyholder dividends payable -- 240 Investments 708 793 Other deferred tax assets 333 -- -------- -------- Deferred tax assets $ 39,929 $ 35,324 -------- -------- DEFERRED TAX LIABILITIES: Deferred acquisition costs $ 38,778 $ 30,682 Investments 1,859 166 Policyholder dividends payable 55 -- Other deferred tax liabilities -- 5,650 -------- -------- Deferred tax liabilities $ 40,692 $ 36,498 -------- -------- NET DEFERRED TAX LIABILITIES $ (763) $ (1,174) ======== ========
At December 31, 1998, 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. NOTES PAYABLE a) On June 15, 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. b) On December 31, 1998, the surplus debenture in the amount of $8,500 plus interest at 6.7% issued on December 31, 1995 to ManUSA was discharged and the amount due of $8,500 was recorded as a capital contribution. 8. CAPITAL AND SURPLUS The Company has two classes of capital stock, as follows:
AS AT DECEMBER 31: ($ thousands, except per share amounts) 1998 1997 - --------------------------------------------- ------- ------- 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 ======= =======
During 1996, the Company issued two common shares to its Parent Company in return for a capital contribution of $15,000. 103 104 In 1998, the outstanding promissory note payable referred to in note 7(a) above, totaling $34,318, was discharged and 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 referred to in note 7(b) above. 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, 1998 was $121,799 (1997 $56,598). The aggregate statutory net loss of the Company for the year ended 1998 was $23,491 (1997 $2,550; 1996 $5,961). State regulatory authorities prescribe statutory accounting practices that differ in certain respects from generally accepted accounting principles followed by stock life insurance companies. The significant differences relate to investments, deferred acquisition costs, deferred income taxes, non-admitted asset balances and reserve calculation assumptions. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values and the estimated fair values of certain of the Company's financial instruments at December 31, 1998 were as follows:
CARRYING ESTIMATED ($ thousands) VALUE FAIR VALUE - --------------------------------------- -------- --------- ASSETS: Fixed maturity and equity securities $ 69,778 $ 69,778 Short-term investments 459 459 Policy loans 19,320 19,320 Cash and cash equivalents 23,789 23,789 -------- --------
The following methods and assumptions were used to estimate the fair values of the above financial instruments: FIXED MATURITY AND EQUITY SECURITIES: Fair values of fixed maturity and equity securities were based on quoted market prices, where available. Fair values were estimated using values obtained from independent pricing services. SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS: Carrying values approximate fair values. POLICY LOANS: Carrying values approximate fair values. 104 105 10. RELATED PARTY TRANSACTIONS The Company has formal service agreements with Manulife Financial 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 Manulife Financial 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 $34,070, $32,733 and $29,384 in 1998, 1997 and 1996 respectively. In addition, there were $12,817, $11,249 and $6,934 of agents bonuses allocated to the Company during 1998, 1997 and 1996, respectively, which are included in deferred acquisition costs. 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) 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 $100,000 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. (b) The Company cedes the risk in excess of $25,000 per life to MRC under the terms of an automatic reinsurance agreement (c) The Company cedes a substantial portion of its risk on its Flexible Premium Variable Life policies to MRC under the terms of a stop loss reinsurance agreement. Selected amounts relating to the above treaties reflected in the financial statements are as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 - --------------------------------- ---- ------- ------- Life and annuity premiums assumed $ 48 $ 509 $ 724 Life and annuity premiums ceded 76 69 99 Policy reserves assumed - 40,975 44,497 Policy reserves ceded 145 130 304 ---- ------- -------
Reinsurance recoveries on ceded reinsurance contracts to affiliates were $NIL, $3,972 and $NIL during 1998, 1997 and 1996 respectively. The Company and Manulife Financial have entered into an agreement whereby Manulife Financial provides a claims paying guarantee to the Company's U.S. policyholders. This claims paying guarantee does not apply to the Company's separate account contract holders 105 106 11. REINSURANCE In the normal course of business, the Company assumes and cedes reinsurance as a party to several reinsurance treaties with major unrelated insurance companies. The Company remains liable for amounts ceded in the event that reinsurers do not meet their obligations. The effects of reinsurance on premiums were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 - ---------------------------------- ------ ------ ------- Direct premiums $9,723 $8,607 $12,949 Reinsurance ceded 405 440 676 ------ ------ ------- TOTAL PREMIUMS $9,318 $8,167 $12,273 ====== ====== =======
Reinsurance recoveries on ceded reinsurance contracts with unrelated insurance companies were $1,362, $909 and $357 during 1998, 1997 and 1996 respectively. 12. SEGMENT DISCLOSURES The Company reports two business segments: Traditional Life Insurance sold in Taiwan and Variable Life and Annuities sold in the U.S. The Company's reportable segments have been determined based on geography, differences in product features, and distribution; the segments are also consistent with the Company's management structure. Segmented information for the Company is as follows:
AS AT DECEMBER 31, ($ thousands) TAIWAN U.S. TOTAL - ----------------------------------------------- -------- -------- -------- 1998 Premiums and fee income $ 9,243 $ 54,594 $ 63,837 Interest expense -- 1,722 1,722 Income taxes (benefit) (1,219) 827 (392) Net income (loss) (2,265) 1,511 (754) Total assets excluding separate account assets $ 30,268 $258,311 $288,579 -------- -------- -------- 1997 Premiums and fee income 8,099 $ 39,190 $ 47,289 Interest expense -- 2,750 2,750 Income taxes (benefit) (1,526) 1,049 (477) Net income (loss) (2,835) (801) (3,636) Total assets excluding separate account assets $ 25,401 $244,166 $269,567 -------- -------- -------- 1996 Premiums and fee income $ 12,200 $ 41,132 $ 53,332 Interest expense -- 12,251 12,251 Income taxes (benefit) (6,125) 2,216 (3,909) Net income (loss) (17,500) 9,093 (8,407) Total assets excluding separate account assets $ 15,268 $379,241 $394,509 ======== ======== ========
The accounting policies for each segment above are the same as those described in the summary of significant accounting policies. The Company has no intersegment revenues and no significant major customers. 106 107 13. 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. 14. UNCERTAINTY DUE TO THE YEAR 2000 RISK (UNAUDITED) The Year 2000 risk is the result of computer programs being written using two digits, rather than four, to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. The effects of the Year 2000 risk may be experienced before, on, or after January 1, 2000 and, if not addressed, could result in systems failures or miscalculations causing disruptions of normal business operations. It is not possible to be certain that the Company's Year 2000 program will fully resolve all aspects of the Year 2000 risk, including those related to third parties. 107 -----END PRIVACY-ENHANCED MESSAGE-----