-----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, J6EDftBOB6Je4F9roktxxO/kQcs6yChVyxOapEg6OThdw3DFrlkRF81P+dTtCs4R 3Q6U9y9VQuWzeh110LxZng== 0000950150-97-000009.txt : 19970103 0000950150-97-000009.hdr.sgml : 19970103 ACCESSION NUMBER: 0000950150-97-000009 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19970102 SROS: NONE 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: 1933 Act SEC FILE NUMBER: 033-13774 FILM NUMBER: 97500351 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 PROSPECTUS 1 Prospectus for VUL Variable Universal Life A Flexible Premium Variable Insurance Policy Prospectus for Flexible Premium Variable Life Insurance Issued by The Manufacturers Life Insurance Company of America 2 Prospectus The Manufacturers Life Insurance Company of America Separate Account Four Flexible Premium Variable Life Insurance Policy This prospectus describes the flexible premium variable life insurance policy (the "Policy") issued by The Manufacturers Life Insurance Company of America ("Manufacturers Life of America" or the "Company"), a stock life insurance company that is an indirect wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manufacturers Life"). The Policies are 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. This flexibility allows the policyowner to pay premiums and adjust insurance coverage in light of his or her current financial circumstances and insurance needs. The Policies provide for: (1) a Net Cash Surrender Value that can be obtained by surrendering the Policy; (2) policy loans; and (3) an insurance benefit payable at the life insured's death. As long as a Policy remains in force, the death benefit will not be less than the current face amount of the Policy. Policy Value may be accumulated on a fixed basis or vary with the investment performance of the sub-accounts of Manufacturers Life of America's Separate Account Four (the "Separate Account") to which the policyowner allocates net premiums. The assets of each sub-account will be used to purchase shares of a particular investment portfolio ( a "Portfolio") of NASL Series Trust. The accompanying prospectus for NASL Series Trust, and the corresponding statement of additional information, describe the investment objectives of the Portfolios in which net premiums may be invested. The Portfolios available for allocation of net premiums are the following: the Emerging Growth Trust, the Balanced Trust, the Capital Growth Bond Trust, the Money Market Trust, the Quantitative Equity Trust (formerly, the Common Stock Fund), the Real Estate Securities Trust, the International Trust, the Pacific Rim Emerging Markets Trust, the Equity Index Trust, the Equity-Income Trust, the U.S. Government Securities Trust, the Growth and Income Trust, the Equity Trust, the Conservative Asset Allocation Trust, the Moderate Asset Allocation Trust, the Aggressive Asset Allocation Trust, the Blue Chip Growth Trust and the International Small Cap Trust. Other sub-accounts and Portfolios may be added in the future. Prospective purchasers should note that it may not be advisable to purchase a Policy as a replacement for existing insurance. Because of the substantial nature of the surrender charges, the Policy is not suitable for short-term investment purposes. A policyowner contemplating surrender of a Policy should pay special attention to the refund rights described in this prospectus, which are available only during the first two years following issuance of the Policy or following an increase in face amount. Also, (i) 3 policyowners should note that their Policy could be a modified endowment contract under federal tax law and any policy loan or surrender may result in adverse tax consequences and a penalty. PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR NASL SERIES TRUST. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Manufacturers Life Insurance Company of America 500 North Woodward Avenue, Bloomfield Hills, Michigan 48304 Service Office: 200 Bloor Street East Toronto, Ontario, Canada M4W 1E5 TELEPHONE: 1 (800) 827-4546 1 (800) VARILIN(E) The date of this Prospectus is December 31, 1996. (ii) 4 Prospectus Contents Page Definitions....................................................................1 Introduction To Policies.......................................................2 General Information About Manufacturers Life of America, Separate Account Four, and NASL Series Trust..................................................12 Who Are Manufacturers Life of America And Manufacturers Life?.................12 What Is Manufacturers Life of America's Separate Account Four?................13 What Is NASL Series Trust?....................................................13 What Are The Investment Objectives and Certain Policies Of The Portfolios?....15 Detailed Information About The Policies.......................................17 PREMIUM PROVISIONS............................................................17 What Are The Requirements And Procedures For Issuance Of A Policy?............17 What Limitations Apply To Premium Amounts?....................................18 Is There A Death Benefit Guarantee?...........................................18 When Does A Policy Go Into Default?...........................................19 How Can A Terminated Policy Be Reinstated?....................................20 How May Net Premiums Be Invested?.............................................20 Is There A Short-Term Cancellation Right, Or "Free Look"?.....................20 What Are The Conversion Privileges Of The Policy?.............................21 INSURANCE BENEFIT.............................................................21 What Is The Insurance Benefit?................................................21 What Death Benefit Options Are Available?.....................................21 Can The Death Benefit Option Be Changed?......................................23 Can The Face Amount Of A Policy Be Changed?...................................24 POLICY VALUES.................................................................25 What Is The Policy Value And How Is It Determined?............................25 Transfers Of Policy Value.....................................................27 What Are The Provisions Governing Policy Loans?...............................28 How May A Policyowner Obtain The Net Cash Surrender Value?....................32 CHARGES.......................................................................33 What Deductions Are Made From Premiums?.......................................33 What Are The Surrender Charges?...............................................34 What Are The Monthly Deductions?..............................................38 Are There Special Provisions For Group Or Sponsored Arrangements?.............39 Are There Special Provisions For Exchanges?...................................40 What Are The Risk Charges Assessed Against Separate Account Assets?...........41 Are There Other Relevant Charges?.............................................41 THE GENERAL ACCOUNT...........................................................42 What Is The General Account?..................................................43 OTHER PROVISIONS..............................................................43 What Supplementary Benefits Are Available?....................................43 Under What Circumstances May Portfolio Shares Be Substituted?.................44 What Are The Other General Policy Provisions?.................................44 When Are Proceeds Paid?.......................................................45 What Reports Will Be Sent To Policyowners?....................................45 Other Matters.................................................................46 What Is The Federal Tax Treatment Of The Policies?............................46 Tax Status Of The Policy......................................................46 (iii) 5 Page What Is The Tax Treatment Of Policy Benefits?.................................48 What Are The Company's Tax Considerations?....................................50 Who Sells The Policies And What Are The Sales Commissions?....................50 What Responsibilities Has Manufacturers Life Assumed?.........................51 What Are The Voting Rights?...................................................51 Who Are The Directors And Officers Of Manufacturers Life of America?..........52 What State Regulations Apply?.................................................54 Is There Any Litigation Pending?..............................................54 Where Can Further Information Be Found?.......................................54 Legal Considerations..........................................................54 Legal Matters.................................................................55 Experts.......................................................................55 Financial Statements..........................................................56 Appendix......................................................................86 What Are Some Illustrations Of Policy Values, Cash Surrender Values And Death Benefits?..............................................................86 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 MANULIFE SERIES FUND OR NASL SERIES TRUST, OR THE STATEMENT OF ADDITIONAL INFORMATION OF NASL SERIES TRUST. You are urged to examine this prospectus carefully. The INTRODUCTION TO POLICIES will briefly describe the Flexible Premium Variable Life Insurance Policy. More detailed information will be found further in the prospectus. (iv) 6 Definitions Business Day-any day that the net asset value of the underlying shares of a sub-account of the Separate Account is determined. Cash Surrender Value-the Policy Value less the deferred sales charge, the deferred underwriting charge and any outstanding monthly deductions due. Guaranteed Interest Account-that part of the Policy Value which reflects the value the policyowner has in the general account of Manufacturers Life of America. Investment Account-that part of the Policy Value which reflects the value the policyowner has in one of the sub-accounts of the Separate Account. Loan Account-that part of the Policy Value which reflects policy loans and interest credited to the Policy Value in connection with such loans. Modified Policy Debt-as of any date the Policy Debt plus the amount of interest to be charged to the next policy anniversary, all discounted from the next policy anniversary to such date at an annual rate of 4%. Net Cash Surrender Value-the Cash Surrender Value less the value in the Loan Account. Net Policy Value-the Policy Value less the value in the Loan Account. Policy Debt-as of any date the aggregate amount of policy loans, including borrowed interest, less any loan repayments. Policy Value-the sum of the values in the Loan Account, the Guaranteed Interest Account and the Investment Accounts. Service Office-the office we designate to service the Policies, which is shown on the cover page of this prospectus. Target Premium-a premium amount used to measure the maximum deferred sales charge under a Policy. The Target Premium for the initial face amount is set forth in the Policy. The policyowner will be advised of the Target Premium for any increase in face amount. Withdrawal Tier Amount-as of any date the product of the Net Cash Surrender Value at the previous policy anniversary multiplied by 10%. 1 7 Introduction To Policies The following summary is intended to provide a general description of the most important features of the Policy. It is not comprehensive and is qualified in its entirety by the more detailed information contained in this prospectus. Unless otherwise indicated or required by the context, the discussion throughout this prospectus assumes that the Policy has not gone into default, there is no outstanding Policy Debt and the death benefit is not determined by the corridor percentage test. General. The Policy provides a death benefit in the event of the death of the life insured. There are two death benefit options. The policyowner may change death benefit options and may increase or decrease the face amount of the Policy. Premium payments may be made at any time and in any amount, subject to certain limitations. After certain deductions, premiums will be allocated, according to the policyowner's instructions, to one or more of the general account and the sub-accounts of Manufacturers Life of America's Separate Account Four. Assets of the sub-accounts of Separate Account Four are invested in shares of a particular Portfolio of NASL Series Trust. Allocation instructions may be changed at any time and transfers among the accounts may be made. The Portfolios currently offered are the: Emerging Growth Trust, Quantitative Equity Trust (formerly, the Common Stock Fund), Real Estate Securities Trust, Balanced Assets Trust, Capital Growth Bond Trust, Money Market Trust, International Stock Trust, Pacific Rim Emerging Markets Trust, Equity Index Trust, Equity-Income Trust, U.S. Government Securities Trust, Growth and Income Trust, Equity Trust, Conservative Asset Allocation Trust, Moderate Asset Allocation Trust, Aggressive Asset Allocation Trust, Blue Chip Growth Trust, and International Small Cap Trust. 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 policyowner has allocated premiums. The policyowner may obtain a portion of the Policy Value by taking a policy loan or a partial withdrawal, or by full surrender of the Policy. Death Benefit. Death Benefit Options. The policyowner elects to have the Policy's death benefit determined under one of two options: - - a death benefit equal to the face amount of the Policy, and - - a death benefit equal to the face amount of the Policy plus the Policy Value. Under either option, the death benefit may be increased to a multiple of the Policy Value to satisfy the corridor percentage test under the definition of life insurance in the Internal Revenue Code. (See Detailed Information About The 2 8 Policies: Insurance Benefit "What Is The Insurance Benefit?" and "What Death Benefit Options Are Available?") The Policyowner May Change The Death Benefit Option. A change in the death benefit option may be requested after the Policy has been in force for two years. A change in death benefit option will be effective on a policy anniversary. (See Detailed Information About The Policies; Insurance Benefit "Can The Death Benefit Option Be Changed?") The Policyowner May Increase The Face Amount. After the Policy has been in force for one year, an increase in the face amount of the Policy may be requested once per policy year. An increase in the face amount is subject to satisfactory evidence of insurability and will usually result in the Policy's being subject to new surrender charges. (See Detailed Information About The Policies; Insurance Benefit "Can The Face Amount Of A Policy Be Changed?") The Policyowner May Decrease The Face Amount. A decrease in the face amount may be requested after the Policy has been in force for one year, except during the one-year period following any increase in face amount. In addition, during the two-year period following an increase in face amount, the policyowner may elect at any time to cancel the increase and have the deferred sales charge for the increase reduced by the refund of any excess sales load attributable to the increase. A decrease in face amount will be effective only on a policy anniversary and may result in certain surrender charges being deducted from the Policy Value. (See Detailed Information About The Policies; Insurance Benefit "Can The Face Amount Of A Policy Be Changed?") Premium Payments Are Flexible. The policyowner may pay premiums at any time and in any amount, subject to certain limitations. (See Detailed Information About The Policies; Premium Provisions "What Are The Requirements And Procedures For Issuance Of A Policy?" and "What Limitations Apply To Premium Amounts?") In the first two policy years the policyowner must pay a minimum premium to keep the Policy in force. (See Detailed Information About The Policies; Premium Provisions "What Limitations Apply To Premium Amounts?" and "Is There A Death Benefit Guarantee?") After the second policy year there is no minimum premium required; however, by complying with the minimum premium schedule for the Policy, the policyowner can ensure the Policy will not go into default prior to the life insured's reaching age 70. (See Detailed Information About The Policies; Premium Provisions "Is There A Death Benefit Guarantee?") Certain maximum premium limitations apply to the Policy, ensuring the Policy qualifies as life insurance under rules defined in the Internal Revenue Code. (See Detailed Information About The Policies; Premium Provisions "What Limitations Apply To Premium Amounts?") 3 9 Summary of Charges And Deductions. Charges under the Policy are assessed as: (1) deductions from premiums - 3% sales charge - 2% state premium tax (2) surrender charges upon surrender, partial withdrawal, decrease in face amount or lapse - deferred underwriting charge of $2-$6 for each $1,000 of face amount - deferred sales charge of up to 47% of two Target Premiums (3) monthly deductions - administration charge of $6 - cost of insurance charge (including $1 per $1,000 of face amount for policies less than $25,000) - supplementary benefits charge (4) Certain transfers - a Dollar Cost Averaging transfer charge of $5 when Policy Value does not exceed $15,000 - a charge of $25 per transfer for each transfer in excess of 12 in a policy year (5) Separate Account charges - mortality and expense risk charge of .65% per annum assessed daily against the value of the Separate Account assets (6) Other Charges Investment management fees paid by NASL Series Trust range from .25% to 1.10% of the assets of the Portfolios. Expenses range from .15% to .75% of the assets of the Portfolios. 4 10 For a complete discussion of charges and deductions see the heading Charges And Deductions in this Introduction and the references therein. Investment Options. After deductions for sales charges of 3% and state premium taxes of 2%, net premiums will be allocated, according to the policyowner's instructions, to any combination of the general account or one or more of the sub-accounts of Manufacturers Life of America's Separate Account Four. Each of the sub-accounts of Separate Account Four invests its assets in the shares of one of the following: - - Emerging Growth Trust - - Balanced Trust - - Capital Growth Bond Trust - - Money Market Trust - - Quantitative Equity Trust (formerly, the Common Stock Fund) - - Real Estate Securities Trust - - International Stock Trust - - Pacific Rim Emerging Markets Trust - - Equity Index Trust - - Equity-Income Trust - - U.S. Government Securities Trust - - Growth and Income Trust - - Equity Trust - - Conservative Asset Allocation Trust - - Moderate Asset Allocation Trust - - Aggressive Asset Allocation Trust - - Blue Chip Growth Trust - - International Small Cap Trust The policyowner may change the allocation of net premiums among the general account and the sub-accounts at any time. (See General Information About 5 11 Manufacturers Life of America, Separate Account Four, And NASL Series Trust and Detailed Information About The Policies; Premium Provisions "How May Net Premiums Be Invested?" and Policy Values "What Is The Policy Value And How Is It Determined?") The Policy Value. The Policy has a Policy Value which reflects the following: premium payments made; deduction of charges described under "Charges And Deductions" below; investment performance of the sub-accounts to which amounts have been allocated; and interest credited by the Company to amounts allocated to the general account. The Policy Value is the sum of the values in the Investment Accounts, the Guaranteed Interest Account and the Loan Account. Investment Account. An Investment Account is established under the Policy for each sub-account of the Separate Account to which net premiums or transfer amounts have been allocated. An Investment Account measures the interest of the Policy in the corresponding sub-account. The value of each Investment Account under the Policy varies each Business Day and reflects the investment performance of the Portfolio shares held in the corresponding sub-account. (See Detailed Information About The Policies; Policy Values "What Is The Policy Value And How Is It Determined?") Guaranteed Interest Account. The Guaranteed Interest Account consists of that portion of the Policy Value based on net premiums allocated to and amounts transferred to the general account of the Company. Manufacturers Life of America credits interest on amounts in the Guaranteed Interest Account at an effective annual rate guaranteed to be at least 4%. (See Detailed Information About The Policies; The General Account "What Is The General Account?") Loan Account. When a policy loan is made, Manufacturers Life of America will establish a Loan Account under the Policy and will transfer an amount from the Investment Accounts and the Guaranteed Interest Account to the Loan Account. The Company will credit interest to amounts in the Loan Account at an effective annual rate of at least 4%. The actual rate credited will be the rate charged on policy loans less an interest rate differential, which is currently 1.25%. Under certain conditions the Company will credit interest to a portion of the amounts in the Loan Account at an effective annual rate equal to the rate charged on policy loans less 0.50%. (See Detailed Information About The Policies; Policy Values "What Are The Provisions Governing Policy Loans?") Transfers Are Permitted. A policyowner may change the extent to which the Policy Value is based upon any specific sub-account of Separate Account Four or the Company's general account by requesting a transfer of a portion or all amounts 6 12 in one account to another account. Twelve transfers per policy year may be made. Excess transfers will be permitted at a cost of $25 per transfer. All transfer requests received at the same time are treated as a single transfer request. In addition transfers may be effected through the Dollar Cost Averaging or Asset Allocation Balancer transfer programs. Certain restrictions may apply to transfer requests. (See Detailed Information About The Policies; Policy Values "What Is The Policy Value And How Is It Determined?" (Transfer of Policy Value)) Using The Policy Value. Borrowing Against The Policy Value. After the first policy anniversary, the policyowner may borrow against the Policy Value. The minimum loan amount is $500. Loan interest will be charged either on a fixed basis or on a variable basis. Interest on a fixed basis will be at an effective annual rate of 8%. Interest on a variable basis will be at an effective annual rate equal to the greater of 6% or the Moody's Corporate Bond Yield Average Monthly Average Corporates. (See Detailed Information About The Policies; Policy Values "What Are The Provisions Governing Policy Loans?") A Policyowner May Make A Partial Withdrawal Of The Policy Value. After a Policy has been in force for two years the policyowner may make a partial withdrawal of the Policy Value. The minimum withdrawal amount is $500. The policyowner may specify that the withdrawal is to be made from a specific Investment Account or the Guaranteed Interest Account. A partial withdrawal may result in a reduction in the face amount of the Policy. A partial withdrawal may also result in the assessment of a portion of the surrender charges to which the Policy is subject. (See Detailed Information About The Policies; Policy Values "How May A Policyowner Obtain The Net Cash Surrender Value?" and Charges "What Are The Surrender Charges?") The Policy May Be Surrendered For Its Net Cash Surrender Value. 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 value of the Loan Account. Surrender of a Policy within 15 years after policy issue or following an increase in the face amount will usually result in assessment of surrender charges. (See Detailed Information About The Policies; Policy Values "How May A Policyowner Obtain The Net Cash Surrender Value?" and Charges "What Are The Surrender Charges?") 7 13 Charges And Deductions. Charges Made From Premium Payments. Two deductions are made when premiums are paid: - - a sales charge of 3% of premium, and - - a charge of 2% for state premium taxes. The 3% sales charge and the deferred sales charge described below compensate the Company for some of the expenses of selling and distributing the Policies. (See Detailed Information About The Policies; Charges "What Deductions Are Made From Premiums?") A portion of the sales charge and the deferred sales charge may be subject to refund under certain circumstances. (See Detailed Information About The Policies; Charges "What Are The Surrender Charges?"; Refund Of Excess Sales Charges) Charges On Surrender. Manufacturers Life of America will usually deduct a deferred underwriting charge and a deferred sales charge if, during the 15 years following Policy issue or an increase in the face amount: - - the Policy is surrendered for its Net Cash Surrender Value, - - a partial withdrawal is made in excess of the Withdrawal Tier Amount, - - a decrease in face amount is requested, or - - the Policy lapses. The deferred underwriting charge ranges from $2.00 to $6.00 for each $1,000 of face amount depending on the age of the life insured. The charge is guaranteed not to exceed $1,000 for each level of coverage. The maximum deferred sales charge is 47% of premiums paid up to two Target Premiums. The full amount of charges will be in effect for up to five years following issue of the Policy. Beginning no later than the sixth year these charges grade downward each month over a 10-year period. In the event of a face amount increase, the charges applicable to the increase, which will be at the same rates that would apply if a Policy were issued to the life insured at his or her then attained age, will be in effect for up to five years following such increase and thereafter grade downward over a 10-year period. (See Detailed Information About The Policies; Charges "What Are The Surrender Charges?") Sales Charge Refund. If the Policy is surrendered at any time during the first two years following issuance or following an increase in face amount or if the increase is cancelled during the two-year period following the increase or face amount decreased during the second year after issuance or after increase in face amount, Manufacturers Life of America will refund the difference, if any, between total sales charges deducted and the maximum sales charge allowable with respect to the Policy or the increase, as applicable. (See Detailed Information About The 8 14 Policies; Charges "What Are The Surrender Charges?") If the Policy is surrendered after such two- year period, no refund will be available and the full amount of the surrender charge will apply. Monthly Charges. At the beginning of each month Manufacturers Life of America deducts from the Policy Value: - - an administration charge of $6, - - a charge for the cost of insurance (plus, if applicable, $1 per $1,000 of face amount for policies with a face amount of less than $25,000), and - - a charge for any supplementary benefits added to the Policy. The cost of insurance charge varies based on the net amount at risk under the Policy and the applicable cost of insurance rate. Cost of insurance rates vary according to age, amount of coverage, duration of coverage, and sex and risk class of the life insured. The maximum cost of insurance rate that can be charged is guaranteed not to exceed the 1980 Commissioners Standard Ordinary Smoker/ Nonsmoker Mortality Tables. Currently, the cost of insurance rates assessed under the Policies are less than the maximum rates that can be charged. The cost of insurance charge will reflect any extra charges for additional ratings as indicated in the Policy. (See Detailed Information About The Policies; Charges "What Are The Monthly Deductions?") Charges For Certain Transfers. Charges will be imposed on certain transfers of Policy Values, including a $25 charge for each transfer in excess of twelve in a policy year, and a $5 charge for each Dollar Cost Averaging transfer when Policy Value does not exceed $15,000. See Policy Values "Transfers of Policy Value." Charges Assessed Against Assets Of The Separate Account. Manufacturers Life of America makes a daily charge to the Separate Account at an annual rate of .65% of the value of the Separate Account assets for the mortality and expense risks it assumes under the Policies. (See Detailed Information About The Policies; Charges "What Are The Risk Charges Assessed Against Separate Account Assets?") Other Charges. Manufacturers Life of America reserves the right to charge or establish a provision for any federal, state or local taxes that may be attributable to the Separate Account or the operations of the Company with respect to the Policies. No such charge is currently made. Certain expenses are, or will be, assessed against the assets of Portfolios, as follows: Investment Management Fees - investment management fee of 1.05% assessed against the assets of the Emerging Growth Trust - investment management fee of .70% assessed against the assets of the Quantitative Equity Trust (formerly, the Common Stock Fund)* - investment management fee of .70% assessed against the assets of the Real Estate Securities Trust* - investment management fee of .80% assessed against the assets of the Balanced Trust - investment management fee of .65% assessed against the assets of the Capital Growth Bond Trust* - investment management fee of .50% assessed against the assets of the Money Market Trust - investment management fee of 1.05% assessed against the assets of the International Stock Trust - investment management fee of .85% assessed against the assets of the Pacific Rim Emerging Markets Trust - investment management fee of .25% assessed against the assets of the Equity Index Trust - investment management fee of .925% assessed against the assets of the Blue Chip Growth Trust - investment management fee of 1.10% assessed against the assets of the International Small Cap Trust 9 15 - investment management fee of .80% assessed against the assets of the Equity-Income Trust - investment management fee of .65% assessed against the assets of the U.S. Government Securities Trust - investment management fee of .75% assessed against the assets of the Growth and Income Trust - investment management fee of .75% assessed against the assets of the Equity Trust - investment management fee of .75% assessed against the assets of the Conservative Asset Allocation Trust - investment management fee of .75% assessed against the assets of the Moderate Asset Allocation Trust - investment management fee of .75% assessed against the assets of the Conservative Asset Allocation Trust Expenses - expenses of up to .75% assessed against the assets of the Pacific Rim Emerging Markets Trust and International Stock Trust - expenses of up to .15% assessed against the assets of the Equity Index Trust - expenses of up to .50% assessed against the assets of all other Trusts* *NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year beginning the effective date of this prospectus to the extent necessary to prevent the total of advisory fees and expenses for the Common Stock Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. Supplementary Benefits. A policyowner may choose to include certain supplementary benefits to the Policy. These supplementary benefits include life insurance for additional insured persons and a change of life insured option (corporate-owned Policies only) for Policies purchased before October 1, 1996 and a change of life insured option and flexible term insurance option for Policies purchased on or after October 1, 1996 and, if permitted by applicable state law, an accelerated death benefit. The cost of any supplementary benefits will be deducted from the Policy Value monthly. (See Detailed Information About The Policies; Other Provisions "What Supplementary Benefits Are Available?") Default. The Policy will go into default (a) during the first two policy years, if the policyowner does not pay the required minimum premiums, or (b) after the second policy anniversary, if at the beginning of any policy month the Policy's Net Cash Surrender Value would go below zero after deducting the monthly charges then due. The Company will notify the policyowner in the event the Policy goes into default, and will allow a grace period in which the policyowner may make a premium payment sufficient to bring the Policy out of default. If the required premium is not paid during the grace period the Policy will terminate. (See Detailed Information About The Policies; Premium Provisions "When Does A Policy Go Into Default?") 10 16 Death Benefit Guarantee. As long as the premiums paid by the policyowner at least equal the minimum premiums for the Policy, the Company guarantees that the Policy will not go into default prior to the life insured's age 70, regardless of the investment performance of the Funds underlying the Policy Value. (See Detailed Information About The Policies; Premium Provisions "Is There A Death Benefit Guarantee?") Reinstatement. A terminated policy may be reinstated by the policyowner within the five-year period following the date of termination, providing certain conditions are met. (See Detailed Information About The Policies; Premium Provisions "How Can A Terminated Policy Be Reinstated?") Free Look. A Policy may be returned for a full refund within the later of: - - 10 days after it is received - - 45 days after the application for the Policy is signed - - 10 days after Manufacturers Life of America mails or delivers a notice of this right of withdrawal. If a policyowner requests an increase in face amount which results in new surrender charges, these rights to cancel the increase will also apply. (See Detailed Information About The Policies; Premium Provisions "Is There A Short-Term Cancellation Right, Or `Free Look'?") Conversion. At any time, the policyowner may convert the Policy to a fixed benefit Policy with a Policy Value, other values based on the Policy Value and a death benefit which is determinable and guaranteed. The conversion is effected by transferring the Policy Value in all of the Investment Accounts to the Guaranteed Interest Account. (See Detailed Information About The Policies; Premium Provisions "What Are The Conversion Privileges Of The Policy?") Federal Tax Matters. Manufacturers Life of America believes that a Policy issued on a standard risk class basis should meet the definition of a life insurance contract as set forth in Section 7702 of the Internal Revenue Code of 1986. With respect to a Policy issued on a substandard basis, there is less guidance available to determine if such a Policy would satisfy the Section 7702 definition of a life insurance contract, particularly if the policyowner pays the full amount of premiums permitted under such a Policy. Assuming that a Policy qualifies as a life insurance contract for federal income tax payments, a policyowner should not be deemed to be in constructive receipt of Policy Value under a Policy until there is a distribution from the Policy. Moreover, death benefits payable under a 11 17 Policy should be completely excludable from the gross income of the beneficiary. As a result, the beneficiary generally should not be taxed on these proceeds. See Other Matters "What Is The Federal Tax Treatment Of The Policies?" (Tax Status Of The Policy). Under certain circumstances, a Policy may be treated as a "Modified Endowment Contract." If the Policy is a Modified Endowment Contract, then all pre-death distributions, including Policy loans, will be treated first as a distribution of taxable income and then as a return of investment in the Policy. In addition, prior to age 59 1/2 any such distributions generally will be subject to a 10% (Please type or print) penalty tax. See Other Matters "What Is The Tax Treatment Of Policy Benefits?" (Tax Treatment Of Policy Benefits). If the Policy is not a Modified Endowment Contract, distributions generally will be treated first as a return of investment in the Policy and then a disbursement of taxable income. Moreover, loans will not be treated as distributions. A policyowner considering the use of systematic policy loans as one element of a comprehensive retirement income plan should consult his or her personal tax adviser regarding the potential tax consequences if such loans were to so reduce Policy Value that the Policy would lapse, absent additional payments. The premium payment necessary to avert lapse would increase with the age of the insured. Finally, neither distributions nor loans under a Policy that is not a Modified Endowment Contract are subject to the 10% penalty tax. See Other Matters "What Is The Tax Treatment Of Policy Benefits?" (Distributions From Policies Not Classified As Modified Endowment Contracts). The United States Congress has in the past considered, and in the future may consider legislation that, if enacted, could change the tax treatment of life insurance policies. In addition, the Treasury Department may amend existing regulations, or adopt new interpretations of existing laws, state tax laws or, if the policyowner is not a United States resident, foreign tax laws, which may affect the tax consequences to him or her, the lives insured or the beneficiary. These laws may change from time to time without notice and, as a result, the tax consequences may be altered. There is no way of predicting whether, when or in what form any such change would be adopted. Any such change could have a retroactive effect regardless of the date of enactment. The Company suggests that a tax adviser be consulted. Estate and Generation-Skipping Taxes The proceeds of this life insurance policy may be taxable under Estate and Generation-Skipping Tax provisions of the Internal Revenue Code. The policyowner should consult his or her tax adviser regarding these taxes. General Information About Manufacturers Life of America, Separate Account Four, And NASL Series Trust Who Are Manufacturers Life of America And Manufacturers Life? Manufacturers Life of America, a wholly-owned subsidiary of The Manufacturers Life Insurance Company (U.S.A.) ("Manufacturers USA"), is a stock life insurance company organized under the laws of Pennsylvania on April 11, 1977 and redomesticated under the laws of Michigan on December 9, 1992. It is a licensed life insurance company in the District of Columbia and all states of the United States except New York. Manufacturers USA, a life insurance company organized in 1955 under the laws of Maine and redomesticated under the laws of Michigan on December 30, 1992, is a wholly-owned subsidiary of Manulife Reinsurance Corporation (U.S.A.), a life insurance company organized in 1983 under the laws of Michigan which in turn is a wholly-owned subsidiary of 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 ranks among the 60 largest life insurers in the world as measured by assets. Manufacturers Life and Manufacturers Life of America have received the following ratings from independent rating agencies: Standard and Poor's Insurance Rating Service -- AA+ (for claims paying ability), A.M. Best Company -- A++ (for financial strength), Duff & Phelps Credit Rating Co. -- AAA (for claims paying ability), and Moody's Investors Service, Inc. -- Aa3 (for financial strength). However, neither Manufacturers Life of America nor Manufacturers Life guarantees the investment performance of the Separate Account. 12 18 What Is Manufacturers Life of America's 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. Manufacturers Life of America is the legal owner of the assets in the Separate Account. The income, gains and losses of the Separate Account, whether or not realized, are, in accordance with applicable contracts, credited to or charged against the Account without regard to the other income, gains or losses of Manufacturers Life of America. Manufacturers Life of America will at all times maintain assets in the Separate Account with a total market value at least equal to the reserves and other liabilities relating to variable benefits under all policies participating in the 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. 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. What is NASL Series Trust? Each sub-account of the Separate Account will purchase shares only of a particular NASL Trust. NASL Series Trust is registered under the 1940 Act as an open-end management investment company. The Separate Account will purchase and redeem shares of the NASL Trusts 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 policyowners, and for other purposes not inconsistent 13 19 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. NASL Series 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 NASL Series Trust prospectus. NASL Series Trust receives investment advisory services from NASL Financial Services, Inc. NASL Financial Services, Inc. is a registered investment adviser under the Investment Advisers Act of 1940. NASL Series Trust also employs subadvisers. The following subadvisers provide investment subadvisory services to the indicated portfolios:
Portfolio SUBADVISER Aggressive Growth Portfolios Pacific Rim Emerging Markets Trust Manufacturers Adviser Corporation* International Small Cap Trust Founders Asset Management, Inc. Emerging Growth Trust Warburg, Pincus Counsellors, Inc. International Stock Trust Rowe Price-Fleming International, Inc. Equity Portfolios Equity Trust Fidelity Management Trust Company Quantitative Equity Trust (formerly Common Stock Fund) Manufacturers Adviser Corporation* Equity Index Trust Manufacturers Adviser Corporation* Blue Chip Growth Trust T. Rowe Price Associates, Inc. Growth and Income Trust Wellington Management Company Equity Income Trust T. Rowe Price Associates, Inc. Real Estate Securities Trust Manufacturers Adviser Corporation* Balanced Portfolios Balanced Trust Founders Asset Management, Inc. Aggressive Asset Allocation Trust Fidelity Management Trust Company Moderate Asset Allocation Trust Fidelity Management Trust Company Conservative Asset Allocation Trust Fidelity Management Trust Company Bond Portfolios Capital Growth Bond Trust Manufacturers Adviser Corporation* U.S. Government Securities Trust Salomon Brothers Asset Management Inc Money Market Portfolio Money Market Trust Manufacturers Adviser Corporation*
*Manufacturers Adviser Corporation is an indirect wholly-owned subsidiary of Manufacturers Life. 14 20 What Are The Investment Objectives and Certain Policies Of The Portfolios? The investment objectives and certain policies of the Portfolios currently available to policyowners through corresponding sub-accounts are set forth below. There is, of course, no assurance that these objectives will be met. AGGRESSIVE GROWTH PORTFOLIOS Pacific Rim Emerging Markets Trust. The investment objective of the Pacific Rim Emerging Markets Trust is to achieve long-term growth of capital. Manufacturers Adviser Corporation manages the Pacific Rim Emerging Markets Trust and seeks to achieve this investment objective by investing in a diversified portfolio that is comprised primarily of common stocks and equity-related securities of corporations domiciled in countries of the Pacific Rim region. International Small Cap Trust. The investment objective of the International Small Cap Trust is to seek long term capital appreciation. Founders Asset Management, Inc. manages the International Small Cap Trust and will pursue this objective by investing primarily in securities issued by foreign companies which have total market capitalizations or annual revenues of $1 billion or less. These securities may represent companies in both established and emerging economies throughout the world. Emerging Growth Trust. The investment objective of the Emerging Growth Trust is maximum capital appreciation. Warburg, Pincus Counsellors, Inc. manages the Emerging Growth Trust and will pursue this objective by investing primarily in a portfolio or equity securities of domestic companies. The Emerging Growth Trust ordinarily will invest at least 65% of its total assets in common stocks or warrants of emerging growth companies that represent attractive opportunities for maximum capital appreciation. International Stock Trust. The investment objective of the International Stock Trust is to achieve long-term growth of capital. Rowe Price-Fleming International, Inc. manages the International Stock Trust and seeks to obtain this objective by investing primarily in common stocks of established, non-U.S. companies. EQUITY PORTFOLIOS Equity Trust. The principal investment objective of the Equity Trust is growth of capital. Current income is a secondary consideration although growth of income may accompany growth of capital. Fidelity Management Trust Company manages the Equity Trust and seeks to attain the foregoing objective by investing primarily in common stocks of United States issuers or securities convertible into or which carry the right to buy common stocks. Quantitative Equity Trust (formerly Common Stock Fund). The investment objective of the Quantitative Equity Trust is to achieve intermediate and long-term growth through capital appreciation and current income by investing in common stocks and other equity securities of well established companies with promising prospects for providing an above-average rate of return. Manufacturers Adviser Corporation manages the Quantitative Equity Trust. Equity Index Trust. The Investment objective of the Equity Index trust is to achieve investment results which approximate the total return of publicly traded common stocks in the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. Manufacturers Adviser Corporation manages the Equity Index Trust. Blue Chip Growth Trust. The primary investment objective of the Blue Chip Growth Trust is to provide long-term growth of capital. Current income is a secondary objective, and many of the stocks in the Portfolio are expected to pay dividends. T. Rowe Price Associates, Inc. manages the Blue Chip Growth Trust. Growth and Income Trust. The investment objective of the Growth and Income Trust is to provide long-term growth of capital and income consistent with prudent investment risk. Wellington Management Company manages the Growth and Income Trust and seeks to achieve the Trust's objective by investing primarily in a diversified portfolio of common stocks of U.S. issuers which Wellington Management Company believes are of high quality. 15 21 Equity-Income Trust. The investment objective of the Equity-Income Trust (prior to December 31, 1996, the "Value Equity Trust") is to provide substantial dividend income and also long term capital appreciation. T. Rowe Price Associates, Inc. manages the Equity-Income Trust and seeks to attain this objective by investing primarily in dividend-paying common stocks, particularly of established companies with favorable prospects for both increasing dividends and capital appreciation. Real Estate Securities Trust. The investment objective of the Real Estate Securities Trust is to achieve a combination of long-term capital appreciation and satisfactory current income by investing in real estate related equity and debt securities. Manufacturers Adviser Corporation manages the Real Estate Securities Trust. BALANCED PORTFOLIOS Balanced Trust. The investment objective of the Balanced Trust is current income and capital appreciation. Founders Asset Management, Inc. is the manager of the Balanced Trust and seeks to attain this objective by investing in a balanced portfolio of common stocks, U.S. and foreign government obligations and a variety of corporate fixed-income securities. Automatic Asset Allocation Trusts (Aggressive, Moderate and Conservative). The investment objective of each of the Automatic Asset Allocation Trusts is to realize the highest potential total return consistent with a specified level of risk tolerance -- conservative, moderate or aggressive. The amount of each Portfolio's assets invested in each category of securities -- debt, equity, and money markets -- is dependent upon the judgment of Fidelity Management Trust Company as to what percentages of each Portfolio's assets in each category will contribute to the limitation of risk and the achievement of its investment objective. BOND PORTFOLIOS Capital Growth Bond Trust. The investment objective of the Capital Growth Bond Trust is to achieve growth of capital by investing in medium-grade or better debt securities, with income as a secondary consideration. Manufacturers Adviser Corporation manages the Capital Growth Bond Trust. The Capital Growth Bond Trust differs from most "bond" funds in that its primary objective is capital appreciation, not income. U.S. Government Securities Trust. The investment objective of the U.S. Government Securities Trust is to obtain a high level of current income consistent with preservation of capital and maintenance of liquidity. Salomon Brothers Asset Management Inc manages the U.S. Government Securities Trust and seeks to attain its objective by investing a substantial portion of its assets 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. MONEY MARKET PORTFOLIO Money Market Trust. The investment objective of the Money Market Trust is to obtain maximum current income consistent with preservation of principal and liquidity. Manufacturers Adviser Corporation manages the Money Market Trust and seeks to achieve this objective by investing in high quality, U.S. dollar denominated money market instruments. A full description of the NASL Series Trust, its investment objectives, policies and restrictions, the risks associated therewith, its expenses, and other aspects of its operation is contained in the accompanying NASL Series Trust prospectus, which should be read together with this prospectus. 16 22 Detailed Information About The Policies Premium Provisions What Are The Requirements And Procedures For Issuance Of A Policy? To purchase a Policy, an applicant must submit a completed application. Manufacturers Life of America will issue a Policy only if it has a face amount of at least $25,000, except for Policies issued under group or sponsored arrangements in which case the minimum face amount is $10,000. A Policy will generally be issued to persons between ages 00 and 80 prior to October 1, 1996 and between ages 20 and 80 on and after October 1, 1996. In certain circumstances the Company may at its sole discretion issue a Policy to persons above age 80. Before issuing a Policy, Manufacturers Life of America will require evidence of insurability satisfactory to it. A life insured meeting standard underwriting rules will have a risk class of either "standard" or "nonsmoker." Persons failing to meet standard underwriting requirements may be eligible for a Policy with an additional rating assigned to it. Acceptance of an application is subject to the Company's insurance underwriting rules. Each Policy is issued with a policy date from which policy years, policy months and policy anniversaries are all determined. Each Policy also has an effective date which is the date the Company becomes obligated under the Policy and when the first monthly deductions are taken. If an application is accompanied by a check for all or a portion of the initial premium and the application is accepted, the policy date will be the date the application and check were received at the Manufacturers Life of America Service Office and the effective date will be the date Manufacturers Life of America's underwriters approve issuance of the Policy. If an application is accompanied by a check for all or a portion of the initial premium, the life insured may be covered under the terms of a conditional insurance agreement until the effective date. If an application accepted by the Company is not accompanied by a check for the initial premium, the Policy will be issued with a policy date which is seven days after issuance of the Policy and with an effective date which is the date the Service Office receives at least the initial planned premium. In certain situations a different policy date may be used. The initial planned 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. Under certain circumstances a Policy may be issued with a backdated policy date. A Policy will not be backdated more than six months before the date of the application for the Policy. Monthly deductions will be made for the period the policy date is backdated. All premiums received prior to the effective date of a Policy will be credited 17 23 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 premiums paid plus interest credited, net of deductions for federal, state and local taxes, will be allocated among the Investment Accounts or the Guaranteed Interest Account in accordance with the policyowner's instructions. All 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 Manufacturers Life of America 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. What Limitations Apply To Premium Amounts? 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 and the minimum premium requirement described below. Premiums after the first must be paid to the Manufacturers Life of America Service Office. Unlike traditional insurance, premiums are not payable at specified intervals and in specified amounts. A Policy will be issued with a planned premium, which is based on the amount of premium the policyowner wishes to pay. The planned premium during the first two policy years must be such that the minimum premium requirement will be met. Manufacturers Life of America will send notices to the policyowner setting forth the planned premium at the payment interval selected by the policyowner, unless payment is being made pursuant to a pre-authorized payment plan. However, the policyowner is under no obligation to make the indicated payment. Manufacturers Life of America will not accept any premium payment which is less than $50, unless the premium is payable pursuant to a pre-authorized payment plan. In that case the Company will accept a payment of as little as $10. Manufacturers Life of America may change these minimums on 90 days' written notice. The Policies also limit the sum of the premiums that may be paid at any time so as to preserve the qualification of the Policies as life insurance for federal tax purposes. These limitations are set forth in each Policy. Manufacturers Life of America reserves the right to refuse or refund any premium payments that may cause the Policy to fail to qualify as life insurance under applicable tax law. Minimum Premium Requirement. The Policy provides for a minimum premium requirement. The minimum premium requirement is met if at the beginning of each policy month the sum of all premiums paid less any partial withdrawals and any Policy Debt is at least equal to the sum of the minimum monthly premiums since the policy date. The minimum premium as an annualized amount is set forth in the Policy. It is subject to change if the face amount of the Policy or the death benefit option is changed (see Insurance Benefit "Can The Death Benefit Option Be Changed?" and "Can The Face Amount Of A Policy Be Changed?") or if there is any change in the supplementary benefits added to the Policy or in the rate classification of the life insured. Is There A Death Benefit Guarantee? 18 24 If the minimum premium requirement is met, Manufacturers Life of America will guarantee that the Policy will not go into default even if a combination of policy loans, adverse investment experience or other factors should cause the Policy's Net Cash Surrender Value to be insufficient to meet the monthly deduction due at the beginning of a policy month. If the guarantee is in effect, Manufacturers Life of America will not allow the Net Policy Value to go below zero, although it will continue to assess a monthly deduction at the beginning of each policy month until the Net Policy Value should fall to zero. The guarantee provides assurance to the policyowner that the Policy will remain in force regardless of the investment performance of the sub-accounts selected by the policyowner, provided the policyowner has satisfied the minimum premium requirement. The death benefit guarantee will expire on the policy anniversary on which the life insured is 70 years old, or two years after the policy date if later. While the guarantee is in effect, Manufacturers Life of America will determine at the beginning of each policy month whether the minimum premium requirement has been met. If it has not been met, the Company will notify the policyowner of that fact and allow a 61-day grace period in which the policyowner may make a premium payment sufficient to keep the death benefit guarantee in effect. The required payment will be equal to the minimum premium due at the date the minimum premium requirement was not met plus the minimum premium due for the next two policy months. If the required payment is not received by the end of the grace period, the death benefit guarantee will terminate. Once it is terminated, it cannot be reinstated. When Does A Policy Go Into Default? Default Prior To Second Policy Anniversary. If the minimum premium requirement should not be met at the beginning of any policy month during the first two policy years, the Policy will go into default. Manufacturers Life of America will notify the policyowner of the default and allow a 61-day grace period in which the policyowner may make a premium payment sufficient to bring the Policy out of default. The required premium will be equal to the minimum premium due at the date of default plus the minimum premium due for the next two policy months. If the required payment is not received by the end of the grace period, the Policy will terminate and the Net Cash Surrender Value as of the date of default less the monthly deduction then due will be paid to the policyowner together with any refund of excess sales loading to which the policyowner is entitled. See Charges "What Are The Surrender Charges?" Default After Second Policy Anniversary. If the death benefit guarantee is no longer in effect, a Policy will go into default after the second policy anniversary 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. As with a default during the first two policy years, Manufacturers Life of America will notify the policyowner of the default and will allow a 61-day grace period in which the policyowner 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 at 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. If the 19 25 required payment is not received by the end of the grace period, the Policy will terminate and the Net Cash Surrender Value as of the date of default less the monthly deduction then due will be paid to the policyowner together with any refund of excess sales loading to which the policyowner is entitled. See Charges "What Are The Surrender Charges?" If the life insured should die during the grace period following a Policy's going into default, 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 payable will be reduced by any outstanding monthly deductions due at the time of death. How Can A Terminated Policy Be Reinstated? A policyowner 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 it; (c) A premium equal to the payment required during the grace period following default to keep the Policy in force is paid to Manufacturers Life of America; and (d) An amount equal to any amounts paid by Manufacturers Life of America in connection with the termination of the Policy is repaid to Manufacturers Life of America. If the reinstatement is approved, the date of reinstatement will be the later of the date of the policyowner's written request or the date the required payment is received at the Manufacturers Life of America Service Office. How May Net Premiums Be Invested? Net premiums (gross premiums less the premium tax deduction and sales charge) 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 net premium. The percentage allocation to any account may be any whole number between zero and 100, provided the total percentage allocations equal 100. A policyowner may change the way in which net premiums are allocated at any time without charge. The change will take effect on the date a written or telephonic request for change satisfactory to the Company is received at the Manufacturers Life of America Service Office. Is There A Short-Term Cancellation Right, Or "Free Look"? A Policy may be returned for a full refund within 10 days after it is received, within 45 days after the application for the Policy is signed, or within 10 days 20 26 after Manufacturers Life of America mails or delivers a notice of right of withdrawal, whichever is latest. The Policy can be mailed or delivered to the Manufacturers Life of America agent who sold it or to the Manufacturers Life of America 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, Manufacturers Life of America will refund any premium paid. Manufacturers Life of America reserves the right to delay the refund of any premium paid by check until the check has cleared. If a policyowner 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 policyowner 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. What Are The Conversion Privileges Of The Policy? The policyowner may effectively convert his or her Policy to a fixed benefit policy by transferring the Policy Value in all of the Investment Accounts to the Guaranteed Interest Account and by changing his or her allocation of net premiums entirely to the Guaranteed Interest Account. As long as the entire Policy Value is allocated to the Guaranteed Interest Account, the Policy Value, other values based thereon and the death benefit will be determinable and guaranteed. The Investment Account values to be transferred to the Guaranteed Interest Account will be determined as of the Business Day on which Manufacturers Life of America receives the request for conversion. There will be no change in the issue age, risk class of the life insured or face amount as a result of the conversion. A transfer of any or all of the Policy Value to the Guaranteed Interest Account can be made at any time, even if a prior transfer has been made during the policy month. Insurance Benefit What Is The Insurance Benefit? If the Policy is in force at the time of the life insured's death, Manufacturers Life of America will pay an insurance benefit based on the death benefit option selected by the policyowner upon receipt of due proof of death. The amount payable will be the death benefit under the selected option, plus any amounts payable under any supplementary benefits added to the Policy, less the value of the Loan Account at the date of death. The insurance benefit will be paid in one 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, Manufacturers Life of America 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 Manufacturers Life of America will pay only the Net Cash Surrender Value. What Death Benefit Options Are Available? 21 27 The Policies permit the policyowner to select one of two death benefit options Option 1 and Option 2. Under Option 1 the death benefit is the face amount of the Policy at the date of death or, if greater, the Policy Value at the date of death multiplied by the applicable percentage in the table set forth below. Under Option 2 the death benefit is the face amount of the Policy plus the Policy Value at the date of death or, if greater, the Policy Value at the date of death multiplied by the applicable percentage in the following table:
Attained Corridor Age Percentage 40 & below 250% 41 243 42 236 43 229 44 222 45 215 46 209 47 203 48 197 49 191 50 185 51 178 52 171 53 164 54 157 55 150 56 146 57 142 58 138 59 134 60 130 61 128 62 126 63 124 64 122 65 120 66 119
22 28
Attained Corridor Age Percentage 67 118 68 117 69 116 70 115 71 113 72 111 73 109 74 107 75-90 105 91 104 92 103 93 102 94 101 95 & above 100
Regardless of which death benefit option is in effect, the relationship of Policy Value to death benefit will change whenever the "corridor percentages" are used to determine the amount of the death benefit, in other words, whenever multiplying the Policy Value by the applicable percentage set forth in the above table results in a greater death benefit than would otherwise apply under the selected option. For example, assume the life insured under a Policy with a face amount of $100,000 has an attained age of 40. If Option 1 is in effect, the corridor percentage will produce a greater death benefit whenever the Policy Value exceeds $40,000 (250% X $40,000 = $100,000). If the Policy Value is less than $40,000, an incremental change in Policy Value, up or down, will have no effect on the death benefit. If the Policy Value is greater than $40,000, an incremental change in Policy Value will result in a change in the death benefit by a factor of 2.5. Thus, if the Policy Value were to increase to $40,010, the death benefit would be increased to $100,025 (250% X $40,010 = $100,025). If Option 2 were in effect in the above example, the corridor percentage would produce a greater death benefit whenever the Policy Value exceeded $66,667. At that point the death benefit produced by multiplying the Policy Value by 250% would result in a greater amount than adding the Policy Value to the face amount of the Policy. If the Policy Value is less than $66,667, an incremental change in Policy Value will have a dollar-for-dollar effect on the death benefit. If the Policy Value is greater than $66,667, an incremental change in Policy Value will result in a change in the death benefit by a factor of 2.5 in the same manner as would be the case under Option 1 when the corridor percentage determined the death benefit. Can The Death Benefit Option Be Changed? The death benefit option is selected initially by the policyowner in the 23 29 application. After the Policy has been in force for two years the death benefit option may be changed effective with a policy anniversary. Written request for a change must be received by Manufacturers Life of America at least 30 days prior to a policy anniversary in order to become effective on that date. The Company reserves the right to limit a request for change if the change would cause the Policy to fail to qualify as life insurance for tax purposes. A change in 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. If the change in death benefit is 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 effective date of the change. If the change in death benefit is 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 effective date of the change. The increase in face amount resulting from a change to Option 1 will not affect the amount of surrender charges to which a Policy may be subject. A change to Option 2 will be subject to satisfactory evidence of insurability and will not be allowed if it would cause the face amount of the Policy to go below the minimum face amount of $25,000. Policyowners who wish to have level insurance coverage should generally select Option 1. Under Option 1, increases in Policy Value usually will reduce the net amount of risk under a Policy which will reduce cost of insurance charges. This means that favorable investment performance should result in a faster increase in Policy Value than would occur under an identical Policy with Option 2 in effect. However, the larger Policy Value which may result under Option 1 will not affect the amount of the death benefit unless the corridor percentages are used to determine the death benefit. Policyowners who want to have the Policy Value reflected in the death benefit so that any increases in Policy Value will increase the death benefit should generally select Option 2. Under Option 2 the net amount at risk will remain level unless the corridor percentages are used to determine death benefit, in which case increases in Policy Value will increase the net amount at risk. Can The Face Amount Of A Policy Be Changed? Subject to certain limitations, a policyowner may, upon written request, increase or decrease the face amount of the Policy. A change in face amount will usually affect the minimum premium requirement, the monthly deduction and surrender charges (see "Charges"). Currently, a change in face amount must be at least $10,000, except in the case of group or sponsored arrangements where the minimum change is $5,000. Manufacturers Life of America reserves the right to increase or decrease the minimum face amount change on 90 days' written notice to the policyowner. The Company also 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. Increases. Increases in face amount are subject to satisfactory evidence of insurability. Increases may be made only once per policy year and only after the first policy year. An increase will become effective at the beginning of the policy month following the date Manufacturers Life of America approves the 24 30 requested increase. The Company reserves the right to refuse a requested increase if the life insured's age at the effective date of the increase would be greater than the maximum issue age for new Policies at that time. An increase in face amount will usually 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 deferred sales charge, a portion of the Policy Value at the time of the increase, and a portion of the premiums paid on or subsequent to the increase, will be deemed to be premiums attributable to the increase. See Charges "What Are The Surrender Charges?" Any increase in face amount to a level less than the highest face amount previously in effect will have no effect on the surrender charges to which the Policy is subject, since surrender charges, if applicable, will have been assessed in connection with the prior decrease in face amount. As with the purchase of a Policy, a policyowner will have free look and refund rights with respect to any increase resulting in new surrender charges. No additional premium is required for a face amount increase. However, a premium payment may be necessary to avoid the Policy's going into default, since new surrender charges resulting from an increase would automatically reduce the Net Cash Surrender Value of the Policy. Moreover, a new minimum premium will be determined for purposes of the death benefit guarantee. The insurance coverage eliminated by the decrease of the oldest face amount will be deemed to be restored first. Decreases. A decrease in the face amount may be requested after the Policy has been in force for one year, except during the one-year period following any increase in face amount. In addition, during the two-year period following an increase in face amount, the policyowner may elect at any time to cancel the increase and have the deferred sales charge for the increase reduced by the refund of any excess sales load attributable to the increase. A decrease in face amount will be effective only on a policy anniversary. Written request for a decrease must be received by Manufacturers Life of America at least 30 days prior to a policy anniversary in order to become effective on that date. A decrease will not be allowed if it would cause the face amount to go below the minimum face amount of $25,000, or $10,000 in the case of group or sponsored arrangements. A decrease in face amount during the 15-year period following issuance of the Policy or any increase in face amount will usually result in surrender charges being deducted from the Policy Value. See Charges "What Are The Surrender Charges?" For purposes of determining surrender and cost of insurance charges, a decrease will reduce face amount in the following order: (a) the face amount provided by the most recent increase, then (b) the face amounts provided by the next most recent increases successively, and finally (c) the initial face amount. Policy Values What Is The Policy Value And How Is It Determined? A Policy has a Policy Value, a portion of which is available to the policyowner by making a policy loan or partial withdrawal or upon surrender of the Policy. 25 31 See "What Are The Provisions Governing Policy Loans?" and "How May A Policyowner Obtain The Net Cash Surrender Value?" below. The Policy Value may also affect the amount of the death benefit (see Insurance Benefit "What Death Benefit Options Are Available?"). 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. The following discussion relates only to the Investment Accounts. Policy loans are discussed under "What Are The Provisions Governing Policy Loans?" and the Guaranteed Interest Account is discussed under "The General Account." The portion of the Policy Value based on the Investment Accounts is not guaranteed and will vary each Business Day with the investment performance of the underlying Portfolios. 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. 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 Manufacturers Life of America Service Office or other office or entity so designated by Manufacturers Life of America, except for any premiums received before the policy date as to which the applicable unit values will be the values determined on such date. Units are valued at the end of each Business Day, which is any day that the net asset value of the Fund shares held by the applicable sub-account is determined. A Business Day is deemed to end at the time of such determination. When an order involving the crediting or cancelling of units is received after the end of a Business Day or on a day which is not a Business Day, the order will be processed on the basis of unit values determined on the next Business Day. Similarly, any determination of Policy Value, 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. The value of a unit of each sub-account was initially fixed at $10.00. For each subsequent Business Day the unit value is determined by taking the value of the adjusted net assets of the particular sub-account at the end of the Business Day divided by the total number of units. The value of a unit may increase, decrease or remain the same, depending on the investment performance of a sub-account from one Business Day to the next. The unit value for a sub-account for any Business Day is equal to (a) minus (b), divided by (c), where: (a) is the net asset value of the sub-account at the end of such Business Day; (b) is a charge not exceeding 0.000017866 for each calendar day since the 26 32 preceding Business Day, multiplied by the net assets of the sub-account as of the end of such Business Day, corresponding to a charge not exceeding 0.65% per year for mortality and expense risks; and (c) is the total number of units of the sub-account. Manufacturers Life of America reserves the right to adjust the above formula for any taxes determined by it to be attributable to the operations of the sub-account. Transfers Of Policy Value. Under the Policies a policyowner may change the extent to which his or her Policy Value is based upon any specific sub-account of the Separate Account or the Company's general account. Such changes are made by transferring amounts from one or more Investment Accounts or the Company's general account to other Investment Accounts or the Company's general account. A policyowner is permitted to make 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. For this purpose all transfer requests received by Manufacturers Life of America on the same Business Day are treated as a single transfer request. 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. Transfer requests must be in a format satisfactory to Manufacturers Life of America and in writing, or by telephone if a currently valid telephone transfer authorization form is on file. Although failure to follow reasonable procedures may result in Manufacturers Life of America's liability for any losses resulting from unauthorized or fraudulent telephone transfers, Manufacturers Life of America will not be liable for following instructions communicated by telephone that it reasonably believes to be genuine. Manufacturers Life of America will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Such procedures shall consist of confirming a valid telephone authorization form is on file, tape recording all telephone transactions and providing written confirmation thereof. The policyowner may effectively convert his or her Policy to a fixed benefit policy by transferring the Policy Value in all of the Investment Accounts to the Guaranteed Interest Account and by changing his or her allocation of net premiums entirely to the Guaranteed Interest Account. As long as the entire Policy Value is allocated to the Guaranteed Interest Account, the Policy Value, other values based thereon and the death benefit will be determinable and guaranteed. The Investment Account values to be transferred to the Guaranteed Interest Account will be determined as of the Business Day on which Manufacturers Life of America receives the request for conversion. There will be no change in the issue age, risk class of the life insured or face amount as a result of the conversion. A transfer of any or all of the Policy Value to the Guaranteed Interest Account can 27 33 be made at any time, even if a prior transfer has been made during the policy month. Dollar Cost Averaging. Manufacturers Life of America will offer policyowners a Dollar Cost Averaging program. Under this program amounts will be automatically transferred at predetermined intervals from one Investment Account to any other Investment Account(s) or the Guaranteed Interest Account. Under the Dollar Cost Averaging program the policyowner will designate an amount to be transferred each month from one Investment Account into any other Investment Account(s) or the Guaranteed Interest Account. Each transfer under the Dollar Cost Averaging program must be of a minimum amount as set by Manufacturers Life of America. Once set, this minimum may be changed at any time at the discretion of Manufacturers Life of America. Currently, no charge will be made for this program if the Policy Value exceeds $15,000 on the date of transfer. Otherwise, there will be a charge of $5 for each transfer under this program. The charge will be deducted from the value of the Investment Account out of which the transfer occurs. If insufficient funds exist to effect a Dollar Cost Averaging transfer, including the charge, if applicable, the transfer will not be effected and the policyowner will be so notified. Manufacturers Life of America reserves the right to cease to offer this program on 90 days' written notice to the policyowner. Asset Allocation Balancer Transfers. Manufacturers Life of America will also offer policyowners the ability to have amounts automatically transferred among stipulated Investment Accounts to maintain an allocated percentage in each stipulated Investment Account. Under the Asset Allocation Balancer program the policyowner will designate an allocation of Policy Value among Investment Accounts. At six month intervals, beginning six months after the policy date, Manufacturers Life of America will move amounts among the Investment Accounts as necessary to maintain the policyowner's chosen allocation. A change to the policyowner's premium allocation instructions will automatically result in a change in Asset Allocation Balancer instructions so that the two are identical unless the policyowner instructs Manufacturers Life of America otherwise or a dollar cost averaging request is in effect. Currently there is no charge for this program; however, Manufacturers Life of America reserves the right to institute a charge on 90 days' written notice to the policyowner. Manufacturers Life of America reserves the right to cease to offer this program on 90 days' written notice to the policyowner. What Are The Provisions Governing Policy Loans? On or after the first policy anniversary, while the Policy is in force, the policyowner may borrow against the Policy Value of his or her Policy. The one-year waiting period for borrowing against the Policy Value is waived in the case of policies which are exchanged for Manufacturers Life of America Policies and a policy loan will be permitted in an amount equal to the lesser of (a) the 28 34 amount rolled over into the Manufacturers Life of America Policy and (b) the loan value of the Policy. The Policy serves as the only security for the loan. The amount of any loan must be at least $500 and cannot exceed the amount which would cause the Modified Policy Debt to equal the loan value of the Policy on the date of the loan. The loan value is the Policy's Cash Surrender Value less the monthly deductions due to the next policy anniversary. The Modified Policy Debt as of any date is the Policy Debt (the aggregate amount of policy loans, including borrowed interest, less any loan repayments) plus the amount of interest to be charged to the next policy anniversary, all discounted from the next policy anniversary to such date at an annual rate of 4%. An amount equal to the Modified Policy Debt is transferred to the Loan Account to ensure that a sufficient amount will be available to pay interest on the Policy Debt at the next policy anniversary. For example, assume a Policy with a loan value of $5,000, no outstanding policy loans and a loan interest rate of 8%. The maximum amount that can be borrowed is an amount that will cause the Modified Policy Debt to equal $5,000. If the loan is made on a policy anniversary, the maximum loan will be $4,815. This amount at 8% interest will equal $5,200 one year later; $5,200 discounted to the date of the loan at 4% (the Modified Policy Debt) equals $5,000. Because the minimum rate of interest credited to the Loan Account is 4%, $5,000 must be transferred to the Loan Account to ensure that $5,200 will be available at the next policy anniversary to cover the interest accrued on the Policy Debt. When a loan is made, Manufacturers Life of America will deduct from the Investment Accounts or the Guaranteed Interest Account, and transfer to the Loan Account, an amount which will result in the Loan Account value being equal to the Modified Policy Debt. The policyowner 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. A policy loan may result in a Policy's failing to satisfy the minimum premium requirement, since the Policy Debt is subtracted from the sum of the premiums Paid in determining whether the minimum premium requirement is met. See Premium Provisions "What Limitations Apply To Premium Amounts?; Minimum Premium Requirement." As a result, the Policy may go into default if the minimum premium requirement is not met during the first two policy years, or the death benefit guarantee may terminate if the minimum premium requirement is not met either before or after the second policy anniversary. See Premium Provisions "Is There A Death Benefit Guarantee?" and "When Does A Policy Go Into Default?" Moreover, if the death benefit guarantee is not in force, 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 Premium Provisions "When Does A Policy Go Into Default?" A policy loan will also 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 29 35 of the underlying Funds selected by the policyowner or increasing in value at the rate of interest credited for amounts allocated to the Guaranteed Interest Account. Finally, a policy loan will affect the amount payable on the death of the life insured, since the death benefit is reduced by the value of the Loan Account 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 either on a fixed basis or a variable basis as selected by the policyowner in the application. The policyowner may change the interest basis on any policy anniversary provided a written request for change is received by the Company at least 60 days before the anniversary on which such change is to be effective. If the policyowner elects to have interest charged on a fixed basis, interest will be at an effective annual rate of 8%. If the policyowner elects to have interest charged on a variable basis, the rate will be determined by Manufacturers Life of America at the beginning of each policy year, and the rate so determined will be effective until the next policy anniversary at which time it will be recalculated. Except as described below, the variable rate will not exceed the greater of 6% per year or the Moody's Corporate Bond Yield Average Monthly Average Corporates for the calendar month ending two months before the beginning of the month in which the policy anniversary falls. On each policy anniversary, the annual rate of interest may be adjusted up or down, but no adjustment will be made unless the Moody's Average for the month ending two months before the date of determination is at least one-half of one percent greater or less than the rate in effect for the year then ending. If the interest due on a policy anniversary is not paid by the policyowner, the interest will be borrowed against the policy. Interest Credited To The Loan Account. Manufacturers Life of America will credit interest to any amount in the Loan Account at an effective annual rate of at least 4%. The actual rate credited is: - - the rate of interest charged on the policy loan less .50% on amounts up to the Policy's "loan tier amount"; and - - the rate of interest charged on the policy loan less an interest rate differential (currently 1.25%) on amounts in excess of the "loan tier amount." Manufacturers Life of America may change the interest rate differential on 90 days' written notice to the policyowner. The loan tier amount at any time is equal to 25% of (a) minus (b) where (a) is the Policy's Cash Surrender Value at the previous policy anniversary and (b) is the sum of the minimum monthly premiums since issuance of the Policy to that date (see Premium Provisions "What Limitations Apply To Premium Amounts?"). The loan tier amount cannot be a negative number. To illustrate the application of the loan tier amount, assume a Policy with a Cash Surrender Value at the previous policy anniversary of $10,000, the sum of the minimum monthly premiums since issuance to the previous policy anniversary of $6,000 and a Loan Account value of $8,000. The loan tier amount is $1,000 [25% 30 36 X ($10,000 - $6,000)]. If loan interest is being charged at the fixed rate of 8%, $1,000 of the Loan Account value will accrue interest at 7.5% and the remaining $7,000 will accrue interest at 6.75%. Loan Account Adjustments. When a loan is first taken out, and at specified events thereafter, the value of the Loan Account is adjusted. Whenever the Loan account is adjusted, the difference between (i) the Loan Account before any adjustment and (ii) the Modified Policy Debt at the time of adjustment, is transferred between the Loan Account and the Investment Accounts or the Guaranteed Interest Account. The amount transferred to or from the Loan Account will be such that the value of the Loan Account is equal to the Modified Policy Debt after the adjustment. The specified events which cause an adjustment to the Loan Account are (i) a policy anniversary, (ii) a partial or full loan repayment, (iii) a new loan being taken out, or (iv) when an amount is needed to meet a monthly deduction. A loan repayment may be implicit in that policy debt is effectively repaid upon termination, that is upon death of the life insured, surrender or lapse of the policy. In each of these instances, the Loan Account will be adjusted with any excess of the Loan Account over the Modified Policy Debt after the repayment being included in the termination proceeds. Except as noted below in the Loan Repayments section, 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 the corresponding "loan sub-account" bears to the value of the Loan Account. A "loan sub-account" exists for each Investment Account and for the Guaranteed Interest Account. Amounts transferred to the Loan Account are allocated to the appropriate loan sub-account to reflect the account from which the transfer was made. Loan Account Illustration. The operation of the Loan Account may be illustrated by consideration of the Policy previously described with a loan value of $5,000, a loan interest rate of 8%, and a maximum loan amount on a policy anniversary of $4,815. For purposes of the illustration, assume that the loan tier amount is zero. If a loan in the maximum amount of $4,815 is made, an amount equal to the Modified Policy Debt, $5,000, is transferred to the Loan Account. At the next policy anniversary the value of the Loan Account will have increased to $5,337.50 ($5,000 X 1.0675) reflecting interest credited at an effective annual rate of 6.75%. At that time the loan will have accrued interest charges of $385 ($4,815 X .08) bringing the Policy Debt to $5,200. If the accrued interest charges are paid on the policy anniversary, the Policy Debt will continue to be $4,815, and the Modified Policy Debt, reflecting interest for the next policy year and discounting the Policy Debt and such interest at 4%, will be $5,000. An amount will be transferred from the Loan Account to the Guaranteed Interest Account or the Investment Accounts so that the Loan Account value will equal the Modified Policy Debt. Since the Loan Account value was $5,337.50, a transfer of $337.50 will be required ($5,337.50 - $5,000). If, however, the accrued interest charges of $385 are borrowed, an amount will 31 37 be transferred from the Investment Accounts and the Guaranteed Interest Account so that the Loan Account value will equal the Modified Policy Debt recomputed at the policy anniversary. The new Modified Policy Debt is the Policy Debt, $5,200, plus loan interest to be charged to the next policy anniversary, $416 ($5,200 X .08), discounted at 4%, which results in a figure of $5,400. Since the value of the Loan Account was $5,337.50, a transfer of $62.50 will be required. This amount is equivalent to the 1.25% interest rate differential on the $5,000 transferred to the Loan Account on the previous policy anniversary. Loan Repayments. Policy Debt may be repaid in whole or in part at any time prior to the death of the life insured provided the Policy is in force. When a repayment is made, the amount is credited to the Loan Account and a transfer is made to the Guaranteed Interest Account or the Investment Accounts so that the Loan Account at that time equals the Modified Policy Debt. Loan repayments will first be allocated to the Guaranteed Interest Account until the associated loan sub-account is reduced to zero. Any other amounts transferred from the Loan Account will be allocated to the Guaranteed Interest Account and each Investment Account in the same proportion as the value in the corresponding loan sub-account bears to the value of the Loan Account. Amounts paid to the Company not specifically designated in writing as loan repayments will be treated as premiums. How May A Policyowner Obtain The Net Cash Surrender Value? 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 value of the Loan Account. 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. Surrender of a Policy within 15 years of issuance or an increase in face amount will usually result in the assessment by Manufacturers Life of America of surrender charges. (See Charges "What Are The Surrender Charges?") After a Policy has been in force for two policy years, the policyowner may make a partial withdrawal of the Net Cash Surrender Value. The minimum amount that may be withdrawn is $500. The policyowner should 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. No more than one partial withdrawal may be made in any one policy month. Like surrender of a Policy, a partial withdrawal made within 15 years following issuance of the Policy or a face amount increase will result in the assessment of a portion of the surrender charges to which the Policy is subject if the withdrawal is in excess of the Withdrawal Tier Amount. The Withdrawal Tier Amount is equal to 10% of the Net Cash Surrender Value determined as of the previous policy anniversary. In determining what, if any, portion of a partial Net Cash Surrender Value withdrawal is in excess of the Withdrawal Tier Amount, all 32 38 previous partial Net Cash Surrender Value withdrawals that have occurred in the current policy year are included. The portion of the surrender charges assessed will be based on the ratio of the amount of the withdrawal which exceeds the Withdrawal Tier Amount to the Net Cash Surrender Value of the Policy immediately prior to the withdrawal. The surrender charges will be deducted from each Investment Account and the Guaranteed Interest Account in the same proportion as the amount of the withdrawal taken from such account bears to the total amount of the withdrawal (see Charges "What Are The Surrender Charges?"). If the amount in the account is not sufficient to pay the portion of the surrender charges allocated to that account, then the portion of the withdrawal allocated to that account will be reduced so that the withdrawal plus the portion of the surrender charges allocated to that account equal the value of that account. Units equal to the amount of the partial withdrawal taken, and surrender charges deducted, from each Investment Account will be cancelled based on the value of such units determined at the end of the Business Day on which Manufacturers Life of America receives a written request for withdrawal at its Service Office. If the Option 1 death benefit is in effect under a Policy from which a partial withdrawal is made, the face amount of the Policy will be reduced. If the death benefit is equal to the face amount at the time of withdrawal, the face amount will be reduced by the amount of the withdrawal plus the portion of the surrender charges assessed. If the death benefit is based upon the Policy Value times the applicable percentage set forth under Insurance Benefit "What Death Benefit Options Are Available?" above, the face amount will be reduced only to the extent that the amount of the withdrawal plus the portion of the surrender charges assessed exceeds the difference between the death benefit and the face amount. Reductions in face amount resulting from partial withdrawals will not incur any surrender charges above the surrender charges applicable to the withdrawal. 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. Charges Charges under the Policies are assessed as (i) deductions from premiums when made, (ii) surrender charges upon surrender, partial withdrawals, decreases in face amount or termination following default, (iii) monthly deductions from the Policy Value, and (iv) risk charges assessed against Separate Account assets. These charges are described below. What Deductions Are Made From Premiums? Manufacturers Life of America deducts a sales charge of 3% of each premium payment. A deferred sales charge in the maximum amount of 47% of premiums paid up to two Target Premiums is deducted from the Policy Value upon certain transactions. See "What Are The Surrender Charges?" below. These charges compensate the Company for some of the expenses of selling and distributing the Policies, including agents' commissions, advertising, agent training and the printing of prospectuses and sales literature. 33 39 The sales charges deducted in any policy year are not specifically related to sales expenses incurred in that year. Instead, the Company expects that the major portion of the sales expenses attributable to a Policy will be incurred during the first policy year, although the sales charge deducted from premiums and any deferred sales charge may be spread out over the period the Policy is in force. Manufacturers Life of America anticipates that the aggregate amounts received under the Policies for sales loading will be insufficient to cover aggregate sales expenses. To the extent that sales expenses exceed sales charges, Manufacturers Life of America will pay the excess from its other assets or surplus, including amounts derived from the mortality and expense risks charge described below. A portion of the sales charge and the deferred sales charge may be subject to refund if the Policy is surrendered for its Net Cash Surrender Value at any time during the first two years following issuance or following an increase in face amount or if the increase is cancelled during the two-year period following the increase. See "What Are The Surrender Charges?" (Refund Of Excess Sales Charges). Manufacturers Life of America deducts a premium tax charge of 2% of each premium payment. State and local premium taxes differ from state to state. The 2% rate, which cannot be changed, is expected to be sufficient, on average, to pay premium taxes where required. What Are The Surrender Charges? Manufacturers Life of America will assess surrender charges upon surrender or lapse of a Policy, a partial withdrawal of Policy Value in excess of the Withdrawal Tier Amount or a requested decrease in face amount. The charges will be assessed if any of the above transactions occurs within 15 years after issuance of the Policy or any increase in face amount unless the charges have been previously deducted. There are two surrender charges a deferred underwriting charge and a deferred sales charge. Deferred Underwriting Charge. The deferred underwriting charge is a dollar amount for each $1,000 of face amount of insurance in accordance with the following schedule: Age: 0-20 21-40 41-50 51-60 61 & above Charge Per $1,000: $2.00 $3.00 $4.00 $5.00 $6.00
The charge per $1,000 will be determined on the basis of the age of the life insured at issue or upon increase of the face amount, as applicable. The deferred underwriting charge applicable to each level of insurance coverage cannot exceed $1,000. The amount of the charge remains level for five years. Following the fifth year after issuance of the Policy or a face amount increase, the charge applicable to the initial face amount or increase will decrease each month by .83%, or 10% per year. After the monthly deduction is taken for the last policy month preceding the end of the fifteenth year after issuance or face amount increase, the charge will have decreased to zero. The applicable percentage of the surrender charges to which the Policy would otherwise be subject is 34 40 illustrated on an annual basis by the following table:
Transaction Occurs After Monthly Deduction Taken for Last Month Percent of Preceding End of Year Surrender Charges 5 & below 100% 6 90% 7 80% 8 70% 9 60% 10 50% 11 40% 12 30% 13 20% 14 10% 15 & above 0%
The surrender charges begin to grade downward before the beginning of the sixth year for issue ages above 69. For issue ages 70, 71, 72, 73, and issue ages 74 to 80, the surrender charges begin to grade downward at the beginning of the fifth, fourth, third, second, and first years, respectively. The deferred underwriting charge is designed to cover the administrative expenses associated with underwriting and policy issue, including the costs of processing applications, conducting medical examinations, determining the life insured's risk class and establishing policy records. Manufacturers Life of America does not expect to recover from the deferred underwriting charge any amount in excess of its expenses associated with underwriting and policy issue. Deferred Sales Charge. The maximum deferred sales charge is equal to 47% of the premiums paid under the Policy up to two Target Premiums described below. For life insureds over age 69 at issue or face amount increase, the applicable percentage of premiums will be reduced in accordance with the following table:
Applicable Age Percentage of Premiums 70 45% 71 43% 72 41% 73 39% 74 37% 75 35% 76 34% 77 33% 78 32% 79 31% 80 30%
Like the deferred underwriting charge, the percentage deferred sales charge 35 41 applicable to the initial face amount or face amount increase will remain level for five years (or less for issue ages above 69) and following such period will decrease .83% per month, or 10% per year, from the charge that would otherwise apply. See chart under "Deferred Underwriting Charge" above. As noted above, the deferred sales charge may not exceed 47% of two Target Premiums. The Target Premium for the initial face amount is set forth in the Policy. A Target Premium will be computed for each increase in face amount above the highest face amount of coverage previously in effect, and the policyowner will be advised of such Target Premium. Target Premiums are determined on the basis of a target premium rate and the face amount of insurance provided at issue or by the increase. The applicable rate varies with the issue age and sex (unless unisex rates are required by law) of the life insured and, in the case of certain Policies issued in group or sponsored arrangements providing for reduction in cost of insurance charges (see "Are There Special Provisions For Group Or Sponsored Arrangements?"), the amount of insurance coverage. In order to determine the deferred sales charge applicable to a face amount increase, Manufacturers Life of America will treat a portion of the Policy Value on the date of increase as a premium attributable to the increase. In addition, a portion of each premium paid subsequent to the increase will be attributed to the increase. In each case, the portion attributable to the increase will be the ratio of the guideline annual premium (described below) for the increase to the sum of the guideline annual premiums for the initial face amount and all increases including the requested increase. Refund Of Excess Sales Charges. If a Policy is surrendered for its Net Cash Surrender Value at any time during the first two years following issuance or following an increase in face amount or the face amount decreased during the second year after issuance or after increase in face amount, Manufacturers Life of America will refund that part of the total sales charges deducted (the sum of the deferred sales charge and the sales charge deducted from premiums) with respect to "premiums" paid for the initial face amount or such increase (including premiums allocated to the increase as described in the preceding paragraph), whichever is applicable, which is in excess of (i) the sum of 30% of the "premiums" paid up to one guideline annual premium plus 10% of the "premiums" paid in excess of one guideline annual premium up to two guideline annual premiums and (ii) up to 9% of the "premiums" paid in excess of two guideline annual premiums. Since Target Premiums are always less than guideline annual premiums, with the deferred sales charge structure described above, there will be no refund with respect to "premiums" paid in excess of two guideline annual premiums and these excess "premiums" will not reduce the refund applicable to "premiums" paid up to two guideline annual premiums. A policyowner may also elect to cancel an increase in face amount during the first two years following the increase and have the deferred sales charge for the increase reduced by the refund of any excess sales load attributable to the increase. The guideline annual premium, which is set forth in the Policy, is the level annual premium that would be payable for the life of the Policy for a specific amount of coverage if premiums were fixed as to both timing and amount and based on the 1980 Commissioners Standard Ordinary Smoker/Nonsmoker Mortality Tables, net investment earnings at an effective annual rate of 5% and fees and charges as set forth in the Policy. In determining the maximum sales charge 36 42 allowable, "premiums" will be attributed to the initial face amount and each increase in the same manner as used in determining the deferred sales charge applicable to the face amount and each increase, and the guideline annual premium will be determined separately for the initial face amount and each increase. The operation of the maximum sales charge allowable is illustrated by the following example. Assume that the policyowner has paid $3,000 in premiums under a Policy with a guideline annual premium of $2,000 and a Target Premium of $1,500 and decides to surrender his or her Policy during the second policy year. In the absence of the refund right, the deferred sales charge would be $1,410 (47% of $3,000). However, under the formula described above, the maximum sales charge allowable is the sum of $600 (30% of $2,000) and $100 (10% of $1,000), or $700. Since a sales load of $90 (3% of $3,000) was deducted from the premiums when received, and therefore only $610 ($700 - $90) of the deferred sales charge may be retained by the Company, a refund of $800 ($1,410 - $610) will be payable to the policyowner. Since a deferred sales charge is deducted in the event a Policy terminates for failure to make the required payment following the Policy's going into default, the refund right will apply if such termination occurs during the two-year period following issuance of the Policy or any increase in face amount. If the Policy terminates during the two years after a face amount increase, the refund will relate only to the sales charges assessed against premiums attributable to the increase. Charges On Partial Withdrawals. As noted above, both the deferred sales charge and the deferred underwriting charge are applicable in the event of a partial withdrawal of the Net Cash Surrender Value in excess of the Withdrawal Tier Amount. A portion of the surrender charges applicable to the initial face amount and to each increase in face amount will be deducted as a result of the withdrawal. The portion to be deducted will be the same as the ratio of the amount of the withdrawal to the Net Cash Surrender Value prior to the withdrawal. The charges will be deducted from the Policy Value, and the amount so deducted will be allocated among the Investment Accounts and the Guaranteed Interest Account in the same proportion that the withdrawal is allocated among such accounts. 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 by the amount of the charges taken. The surrender charges not assessed as a result of the 10% free withdrawal provision remain in effect under the Policy and may be assessed upon surrender or lapse, other partial withdrawals or a requested decrease in face amount. Charges On Decreases In Face Amount. As with partial withdrawals, a portion of a Policy's surrender charges will be deducted upon a decrease in or cancellation of face amount requested by the policyowner. Since surrender charges are determined separately for the initial face amount and each face amount increase and since a decrease in face amount will have a different impact on each level of insurance coverage, the portion of the surrender charges to be deducted with respect to each level of insurance coverage will be determined separately. Such portion will be the same as the ratio of the amount of the reduction in such coverage to the amount of such coverage prior to the reduction. As noted under 37 43 Insurance Benefit "Can The Face Amount Of A Policy Be Changed?" decreases are applied to the most recent increase first and thereafter to the next most recent increases successively. The charges will be deducted from the Policy Value, and the amount so deducted 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 is deducted as a result of a decrease in face amount, the Policy's remaining surrender charges will be reduced by the amount of the charges taken. What Are The Monthly Deductions? 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. 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, and (iii) a monthly charge for any supplementary benefits added to the Policy (see Other Provisions "What Supplementary Benefits Are Available?"). 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. The monthly administration charge is $6.00. The charge is designed to cover certain administrative expenses associated with the Policy, including maintaining policy records, collecting premiums and processing death claims, surrender and withdrawal requests and various changes permitted under a Policy. Manufacturers Life of America does not expect to recover from the monthly administration charge any amount in excess of its accumulated administrative expenses relating to the Policies and the Separate Account. Even though administrative expenses may increase, the Company guarantees that it will not increase the amount of the monthly administration 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 charge for the cost of insurance will reflect any extra charges for additional ratings indicated in the Policy. The cost of insurance rate is based on the life insured's age, sex (unless unisex rates are required by law), risk class, the duration of the insurance coverage and, in the case of certain Policies issued in group or sponsored arrangements providing for reduction in cost of insurance charges (see "Are There Special Provisions For Group Or Sponsored Arrangements?"), the face amount of the Policy. See Other Matters Legal Considerations. The rate is determined separately for the initial face amount and for each increase in face amount. Cost of insurance rates will generally increase with the life insured's age. The cost of insurance rates used by Manufacturers Life of America reflect its 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 or if simplified underwriting is granted in a group or sponsored arrangement (see "Are 38 44 There Special Provisions For Group Or Sponsored Arrangements?"). The guaranteed rates are based on the 1980 Commissioners Standard Ordinary Smoker/Nonsmoker Mortality Tables. The net amount at risk to which the cost of insurance rate is applied is the difference between the death benefit, divided by 1.0032737 (a factor which reduces the net amount at risk for cost of insurance charge purposes by taking into account assumed monthly earnings at an annual rate of 4%), and the Policy Value. Because different cost of insurance rates may apply to different levels of insurance coverage, the net amount at risk will be calculated separately for each level of insurance coverage. When the Option 1 death benefit is in effect, for purposes of determining the net amount at risk applicable to each level of insurance coverage, the Policy Value is attributed first to the initial face amount and then, if the Policy Value is greater than the initial face amount, to each increase in face amount in the order made. Because the calculation of the net amount at risk is different under the death benefit options when more than one level of insurance coverage is in effect, a change in the death benefit option may result in a different net amount at risk for each level of insurance coverage than would have occurred had the death benefit option not been changed. Since the cost of insurance is calculated separately for each level of insurance coverage, any change in the net amount at risk for a level of insurance coverage resulting from a change in the death benefit option may affect the amount of the charge for the cost of insurance. Partial withdrawals and decreases in face amount will also affect the manner in which the net amount at risk for each level of insurance coverage is calculated. In group or sponsored arrangements where Manufacturers Life of America issues Policies with a face amount of less than $25,000 but not less than $10,000, Policies issued with a face amount of less than $25,000 may be subject to an additional premium deduction equal to $1.00 per $1,000 face amount. This amount is added to the cost of insurance and deducted monthly. The amount so added will not cause the cost of insurance deducted to exceed the guaranteed rates set forth in the Policy. Are There Special Provisions For Group Or Sponsored Arrangements? Where permitted by state insurance laws, Policies may be purchased under group or sponsored arrangements, as well as on an individual basis. As noted previously, the minimum face amount and minimum change in face amount are reduced to $10,000 and $5,000, respectively, for Policies issued pursuant to such arrangements. A "group arrangement" includes a program under which a trustee, employer or similar entity purchases Policies covering a group of individuals on a group basis. In California all participants of group arrangements will be individually underwritten. A "sponsored arrangement" includes a program under which an employer permits group solicitation of its employees or an association permits group solicitation of its members for the purchase of Policies on an individual basis. The sales charge, monthly deductions, surrender charges, and other charges described above may be reduced for Policies issued in connection with group or sponsored arrangements. Such arrangements may include sales without withdrawal 39 45 charges and deductions to employees, officers, directors, agents, immediate family members of the foregoing, and employees of agents of Manufacturers Life and its subsidiaries. In addition, pursuant to an exemptive order granted by the SEC on April 10, 1996, Manufacturers Life of America may issue Policies in group or sponsored arrangements which Policies have a surrender charge structure which increases over the life of the Policy. Manufacturers Life of America will issue these Policies in accordance with its rules in effect as of the date an application for a Policy is approved. To qualify for such a reduction, a group or sponsored arrangement must satisfy certain criteria as to, for example, size of the group, expected number of participants and anticipated premium payments from the group. Generally, the sales contacts and effort, administrative costs and mortality cost per Policy vary based on such factors as the size of the group or sponsored arrangements, the purposes for which Policies are purchased and certain characteristics of its members. The amount of reduction and the criteria for qualification will reflect the reduced sales effort and administrative costs resulting from, and the different mortality experience expected as a result of, sales to qualifying groups and sponsored arrangements. Manufacturers Life of America may modify from time to time, on a uniform basis, both the amounts of reductions and the criteria for qualification. Reductions in these charges will not be unfairly discriminatory against any person, including the affected policyowners and all other policyowners funded by the Separate Account. In addition, groups or persons purchasing under a sponsored arrangement may apply for simplified underwriting. If simplified underwriting is granted, the cost of insurance charge may increase as a result of higher anticipated mortality experience. In addition, groups or persons purchasing under a sponsored arrangement may request changes in death benefit option and increases and decreases in face amount at any time after issue and decreases in face amount at any time after an increase in face amount. Increases in face amount requested by groups or persons purchasing under a sponsored arrangement are not subject to a minimum amount and will be issued utilizing the flexible term insurance option rider. Decreases in face amount may involve imposition of a surrender charge. Are There Special Provisions For Exchanges? Manufacturers Life of America will permit owners of certain fixed benefit life insurance policies issued either by the Company or Manufacturers Life to exchange their policies for the Policies described in this prospectus. A portion of the cash values transferred from such policies will be credited to the Policies without deduction of the 3% sales charge. Moreover, surrender charges under the policies being exchanged or the Policies issued in exchange therefor may be reduced or eliminated. Policy loans made under policies being exchanged may be carried over to the new Policies without repayment at the time of exchange. Policyowners considering an exchange should consult their tax advisers as to the tax consequences of an exchange. Manufacturers Life of America has obtained an order from the Securities and Exchange Commission dated November 28, 1990 pursuant to which holders of Manufacturers Life of America's scheduled premium variable life ("Director 2000") insurance policies may elect to exchange those policies for the Policies 40 46 described in this prospectus (the "Exchange Offer"). The terms and conditions under which Director 2000 policyowners may exchange their policies for the Policies differ from the terms and conditions set forth in this prospectus and are available only to Director 2000 policyowners who accept the Exchange Offer. Those Director 2000 policyowners who accept the Exchange Offer will be able to exchange their existing policies for Policies of like face amount without any new evidence of insurability. No direct or deferred sales charge will be imposed on the cash values rolled over into the Policy. No deferred sales charges or underwriting charges will be imposed on surrenders of Policies acquired through this Exchange Offer except in connection with premium payments attributable to an increase in face amount. Increases in the face amount of a Policy issued pursuant to the Exchange Offer will be permitted one month after issuance. In addition, a Policy may be issued with a face amount less than $25,000 if issued pursuant to the Exchange Offer. What Are The Risk Charges Assessed Against Separate Account Assets? Manufacturers Life of America makes a daily charge to the Separate Account for the mortality and expense risks it assumes under the Policies. This charge is made each Business Day at an annual rate of .65% of the value of the Separate Account's assets. 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 Policies will be greater than the Company estimated. Manufacturers Life of America will realize a gain from this charge to the extent it is not needed to provide benefits and pay expenses under the Policies. Are There Other Relevant Charges? Currently, Manufacturers Life of America makes no charge against the Separate Account for federal, state or local taxes that may be attributable to the Separate Account or to the operations of the Company with respect to the Policies. However, if Manufacturers Life of America incurs any such taxes, it may make a charge or establish a provision for those taxes. Charges will be imposed on certain transfers of Policy Values, including a $25 charge for each transfer in excess of twelve in a policy year and a $5 charge for each Dollar Cost Averaging transfer when Policy Value does not exceed $15,000. See Policy Values "Transfers Of Policy Value." The Separate Account purchases shares of the Portfolios at net asset value. The net asset value of those shares reflects: (i) an investment management fee of 1.05% assessed against the assets of the Emerging Growth Trust (ii) an investment management fee of .70% assessed against the assets of the Quantitative Equity Trust (formerly, the Common Stock Fund)* (iii) an investment management fee of .70% assessed against the assets of the Real Estate Securities Trust* (iv) an investment management fee of .80% assessed against the assets of the Balanced Trust (v) an investment management fee of .65% assessed against the assets of the Capital Growth Bond Trust* (vi) an investment management fee of .50% assessed against the assets of the Money Market Trust (vii) an investment management fee of 1.05% assessed against the assets of the International Stock Trust (viii) an investment management fee of .85% assessed against the assets of the Pacific Rim Emerging Markets Trust (ix) an investment management fee of .25% assessed against the assets of the Equity Index Trust (x) an investment management fee of .925% assessed against the assets of the Blue Chip Growth Trust (xi) an investment management fee of 1.10% assessed against the assets of the International Small Cap Trust 41 47 (xii) investment management fee equivalent to an annual rate of .80% of the value of the average daily net assets of the Equity-Income Trust; (xiii) investment management fee equivalent to an annual rate of .65% of the value of the average daily net assets of the U.S. Government Securities Trust; (xiv) investment management fee equivalent to an annual rate of .75% of the value of the average daily net assets of the Growth and Income Trust; (xv) investment management fee equivalent to an annual rate of .75% of the value of the average daily net assets of the Equity Trust; (xvi) investment management fee equivalent to an annual rate of .75% of the average daily net assets of the Conservative Asset Allocation Trust; (xvii) investment management fee equivalent to an annual rate of .75% of the average daily net assets of the Moderate Asset Allocation Trust; (xviii)investment management fee equivalent to an annual rate of .75% of the average daily net assets of the Conservative Asset Allocation Trust; (xix) expenses of up to .75% assessed against the assets of the Pacific Rim Emerging Markets Trust and International Stock Trust (xx) expenses of up to .15% assessed against the assets of the Equity Index Trust (xxi) expenses of up to .50% assessed against the assets of all other Trusts* (xxii) other expenses already deducted from the assets of the NASL Trusts *NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year beginning the effective date of this prospectus to the extent necessary to prevent the total of advisory fees and expenses for the Common Stock Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. Detailed information concerning such fees and expenses is set forth under the caption "Management of The Trust" in the Prospectus for the NASL Series Trust that accompanies this Prospectus. The General Account 42 48 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 Securities and Exchange Commission 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. What Is 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. A policyowner 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. However, an allocation of Policy Value to the Guaranteed Interest Account does not entitle the policyowner 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 policyowner 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 his or her death benefit will be determinable and guaranteed. Transfers from the Guaranteed Interest Account to the Investment Accounts are subject to restrictions (see Policy Values "What Is The Policy Value And How Is It Determined?"). The Policy Value in the Guaranteed Interest Account is equal to the portion of the net premiums allocated to it, plus any amounts transferred to it and interest credited to it minus any charges deducted from it or partial withdrawals or amounts transferred from it. Manufacturers Life of America guarantees that the interest credited to the Policy Value in the Guaranteed Interest Account will not be less than an effective annual rate of 4%. The Company may, at its sole discretion, credit a higher rate of interest, although it is not obligated to do so. The policyowner assumes the risk that interest credited may not exceed the guaranteed minimum rate of 4% per year. Other Provisions What Supplementary Benefits Are Available? Subject to certain requirements, one or more supplementary benefits may be added to a Policy, including those providing term insurance for various persons 43 49 and, in the case of corporate-owned Policies, permitting a change of the life insured for Policies purchased before October 1, 1996 and a change of life insured option and flexible term insurance option for Policies purchased on or after October 1, 1996 and, if permitted by the applicable state, an accelerated death benefit. 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. See Charges "What Are The Monthly Deductions?" Under What Circumstances May Portfolio Shares Be Substituted? Although Manufacturers Life of America believes it to be highly unlikely, it is possible that in the judgment of its management, one or more of the Trusts may become unsuitable for investment by the Separate Account because of a change in investment policy or a change in the applicable laws or regulations, 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 Trust or of an entirely different mutual fund. Before this can be done, the approval of the S.E.C. and one or more state insurance departments may be required. Manufacturers Life of America also reserves the right to combine other separate accounts with the Separate Account, to establish additional sub-accounts within the Separate Account, 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. The investment objective of the Separate Account will not be changed materially without first filing the change with the Insurance Commissioner of the State of Michigan. Policyowners will be advised of any such change at the time it is made. What Are The Other General Policy Provisions? Beneficiary. One or more beneficiaries of the Policy may be appointed by the policyowner by naming them in the application. Beneficiaries may be appointed in three classes primary, secondary and final. There after the beneficiary may be changed by the policyowner during the life insured's lifetime by giving written notice to Manufacturers Life of America in a form satisfactory to it unless an irrevocable designation has been elected. If the life insured dies and there is no surviving beneficiary, the policyowner, or the policyowner's estate if the policyowner 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. 44 50 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 policy date. It will not contest the validity of an increase in face amount or the addition of a supplementary benefit after such increase or addition has been in force during the life insured's lifetime for two years. If a Policy has been reinstated and been in force for less than two years from the reinstatement date, the Company can contest any misrepresentation of a fact material to the reinstatement. Misstatement Of Age Or Sex. If the life insured's stated age or sex or both in the Policy are incorrect, Manufacturers Life of America will change the face amount of insurance so that the death benefit will be that which the most recent monthly charge for the cost of insurance would have bought for the correct age and sex. Suicide Exclusion. If the life insured, whether sane or insane, dies by suicide within one year from the policy date, Manufacturers Life of America will pay only the premiums paid less any partial withdrawals of the Net Cash Surrender Value and any amount in the Loan Account. If the life insured should die by suicide within one year after a face amount increase, the death benefit for the increase will be limited to the monthly deduction for the increase. Assignment. Manufacturers Life of America will not be bound by an assignment until it receives a copy of it at its Service Office. Manufacturers Life of America assumes no responsibility for the validity or effects of any assignment. When Are Proceeds Paid? As long as the Policy is in force, Manufacturers Life of America will ordinarily pay any policy loans, partial withdrawals, Net Cash Surrender Value or any insurance benefit within seven days after receipt at the Manufacturers Life of America Service Office of all the documents required for such a payment. The Company may delay the payment of any policy loans, partial withdrawals, Net Cash Surrender Value or the portion of any insurance benefit that depends on Investment Account values for up to six months if such payments are based on values which do not depend on the investment performance of the sub-accounts; otherwise for any period during which the New York Stock Exchange is closed for trading (except for normal holiday closings) or when the Securities and Exchange Commission has determined that a state of emergency exists which may make such payment impracticable. What Reports Will Be Sent To Policyowners? Within 30 days after each policy anniversary, Manufacturers Life of America will send the policyowner a statement showing, among other things, the amount of the death benefit, the Policy Value and its allocation among the Investment Accounts, the Guaranteed Interest Account and the Loan Account, the value of the units in each Investment Account to which the Policy Value is allocated, any Loan Account balance and any interest charged since the last report, the premiums paid and policy transactions made during the period since the last statement and any other information required by law. 45 51 Each policyowner will also be sent an annual and a semi-annual report for NASL Series Trust which will include a list of the securities held in each Portfolio as required by the 1940 Act. Other Matters What Is The Federal Tax Treatment Of Policies? 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. WE DO 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 continuance 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 tax consequences, is contemplated, a qualified tax adviser should be consulted for advice on the tax attributes of the particular arrangement. Tax Status Of The Policy Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code") sets forth a definition of a life insurance contract for federal tax purposes. The Secretary of 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 Policy would not provide the tax advantages normally provided by a life insurance policy. With respect to a Policy 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 premium 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 46 52 definition of a life insurance contract. Thus, it is not clear whether or not such a Policy would satisfy Section 7702, particularly if the policyowner pays the full amount of premiums permitted under the 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. 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 NASL Series Trust, intends to comply with the diversification requirements prescribed in Treas. Reg. Sec.1.817-5, which affect how NASL Series 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. 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 policyowner's gross income. The IRS has stated in published rulings that a variable policyowner will be considered the owner of separate account assets if the policyowner possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. The Treasury Department has also announced, in connection with the issuance of regulations concerning diversification, that those regulations "do not provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor (i.e., the policyowner), rather than the insurance company, to be treated as the owner of the assets in the account." This announcement also stated that guidance would be issued by way of regulations or rulings on the "extent to which policyowners may direct their investments to particular subaccounts without being treated as owners of the underlying assets." The ownership rights under the Policy are similar to, but different in certain respects from, those described by the IRS in rulings in which it was determined that policyowners were not owners of separate account assets. For example, the owner 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. The following discussion assumes that the Policy will qualify as a life insurance 47 53 contract for federal income tax purposes. What Is The Tax Treatment Of Policy Benefits? In General. 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. Thus, the death benefit under the Policy should be excludable from the gross income of the beneficiary under Section 101(a)(1) of the Code. Depending on the circumstances, the exchange of a Policy, a change in the Policy's death benefit option, a Policy loan, a partial withdrawal, a surrender, a change in ownership, a change of insured, 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 policyowner or beneficiary. Generally, the policyowner will not be deemed to be in constructive receipt of the Policy Value, including increments thereof, until there is a distribution. 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." 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 indebtedness exceeds the total investment in the Policy, the excess will generally be treated as ordinary income subject to tax, regardless of whether the Policy is or is not a Modified Endowment Contract. 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. Because of the Policy's flexibility, classification as a Modified Endowment Contract will depend on the individual circumstances of each Policy. 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 sum of the net level premiums which would have been paid on or before such time if the Policy provided for paid-up future benefits after the payment of seven level annual premiums. The determination of whether a Policy will be a Modified Endowment Contract after a material change generally depends upon the relationship of the death benefit and Policy Value at the time of such change and the additional premiums paid in the seven years following the material change. If a premium is received which would cause the Policy to become a Modified Endowment Contract (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 policyowner 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 policyowner 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 policyowner. The portion of the premium which is not excess will be applied as of the date received. The policyowner 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. If, in connection with the application or issue of the Policy, the policyowner acknowledges that the Policy is or will become a MEC, excess premiums that would cause MEC status will be credited as of the date received. Further, if a transaction occurs which reduces the face amount of the Policy, the Policy will be retested, retroactive to the date of purchase, to determine compliance with the seven-pay test based on the lower face amount. Failure to 48 54 comply would result in classification as a Modified Endowment Contract regardless of any efforts by the Company to provide a payment schedule that will not violate the seven-pay test. The rules relating to whether a Policy will be treated as a Modified Endowment Contract are extremely complex and cannot be adequately described in the limited confines of this summary. Therefore, a current or prospective policyowner should consult with a competent adviser to determine whether a transaction will cause the Policy to be treated as a Modified Endowment Contract. Distributions From Policies Classified As Modified Endowment Contracts. Policies classified as Modified Endowment Contracts will be subject to the following tax rules: 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 (described below) at such time. 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. Third, a 10% additional income tax is imposed on the portion of any distribution (including distributions upon surrender) from, or loan taken from or secured by, such a Policy that is included in income except where the distribution or loan is made on or after the policyowner attains age 59 1/2, is attributable to the policyowner's becoming disabled, or is part of a series of substantially equal periodic payments for the life (or life expectancy) of the policyowner or the joint lives (or joint life expectancies) of the policyowner and the policyowner's beneficiary. Distributions From Policies Not Classified As Modified Endowment Contracts. A distribution from a Policy that is not a Modified Endowment Contract is generally treated as a tax-free recovery by the policyowner of the investment in the Policy (described below) 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. 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 policyowner in order for the Policy to continue complying 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. Loans from, or secured by, a Policy that is not a Modified Endowment Contract are not treated as distributions. Instead, such loans are treated as indebtedness of the policyowner. Select Loans may, however, be treated as a distribution. Finally, neither distributions (including distributions upon surrender) nor loans from, or secured by, a Policy that is not a Modified Endowment Contract are subject to the 10% additional tax. Policy Loan Interest. Generally, personal interest paid on any loan under a Policy which is owned by an individual is not deductible. In addition, interest on any loan under a Policy owned by a taxpayer and covering the life of any 49 55 individual who is an officer or employee of or is financially interested in the business carried on by that taxpayer will not be tax deductible to the extent the aggregate amount of such loans with respect to contracts covering such individual exceeds $50,000. The deduction of interest on Policy loans may also be subject to other restrictions under Section 264 of the Code. Investment In The Policy. Investment in the Policy means (i) the aggregate amount of any premiums or other consideration paid for a Policy, minus (ii) the aggregate amount received under the Policy which has been excluded from gross income of the policyowner (except that the amount of any loan from, or secured by, a Policy that is a Modified Endowment Contract, to the extent such amount has been excluded from gross income, will be disregarded), plus (iii) the amount of any loan from, or secured by, a Policy that is a Modified Endowment Contract to the extent that such amount has been included in the gross income of the policyowner. Multiple Policies. All Modified Endowment Contracts that are issued by the Company (or its affiliates) to the same policyowner during any calendar year are treated as one Modified Endowment Contract for purposes of determining the amount includible in the gross income under Section 72(e) of the Code. What Are The Company's Tax Considerations? As a result of the Omnibus Budget Reconciliation Act of 1990, insurance companies are generally required to capitalize and amortize certain policy acquisition expenses over a 10-year period rather than currently deducting such expenses. This treatment applies to the deferred acquisition expenses of a Policy and results in a significantly higher corporate income tax liability for the Company. 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. Who Sells The Policies And What Are The Sales Commissions? ManEquity, Inc., an indirect wholly-owned subsidiary of Manufacturers Life, will act as the principal underwriter of, and continuously offer, the Policies pursuant to a Distribution Agreement with Manufacturers Life of America. ManEquity, Inc. is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers. The Policies will be sold by registered representatives of either ManEquity, Inc. or other broker-dealers having distribution agreements with ManEquity, Inc. who are also authorized by state insurance departments to do so. A registered representative will receive first-year commissions not to exceed 50% of premiums paid up to the "target commissionable premium," commissions of 5% of premiums in excess thereof (3% prior to October 1, 1996) and, on and after the third anniversary, 0.15% of the Policy Value per annum. In addition, representatives may be eligible for bonuses of up to 90% of first-year commissions. Representatives who meet certain productivity standards with regard to the sale of the Policies and certain other policies 50 56 issued by Manufacturers Life of America or Manufacturers Life will be eligible for additional compensation. What Responsibilities Has Manufacturers Life Assumed? 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 reinsures all aggregate claims in excess of 110% of the expected claims for all Flexible Premium Variable Life Insurance Policies. 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. What Are The Voting Rights? As stated above, all of the assets held in the sub-accounts of the Separate Account will be invested in shares of a particular Portfolio of NASL Series Trust. Manufacturers Life of America is the legal owner of those shares and as such has the right to vote upon certain matters that are required by the 1940 Act to be approved or ratified by the shareholders of a mutual fund and to vote upon any other matters that may be voted upon at a shareholders' meeting. However, Manufacturers Life of America will vote shares held in the sub-accounts in accordance with instructions received from policyowners having an interest in such sub-accounts. Shares held in each sub-account for which no timely instructions from policyowners are received, including shares not attributable to Policies, will be voted by Manufacturers Life of America in the same proportion as those shares in that 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. 51 57 The number of shares in each sub-account for which instructions may be given by a policyowner 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 NASL Trust. The number will be determined as of a date chosen by Manufacturers Life of America, but not more than 90 days before the shareholders' meeting. Fractional votes are counted. Voting instructions will be solicited in writing at least 14 days prior to the meeting. Manufacturers Life of America may, if required by state insurance 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, Manufacturers Life of America 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 policyowners of that action and its reasons for such action in the next communication to policyowners. Who Are The Directors And Officers Of Manufacturers Life of America? The directors and executive officers of Manufacturers Life of America, together with their principal occupations during the past five years, are as follows:
Position With Manufacturers Life Name of America Principal Occupation Sandra M. Cotter Director Attorney 1989-present, Dykema (34) Gossett James D. Gallagher Director, Secretary, Vice President, Legal Services (42) and General Counsel --January 1996-present, The Manufacturers Life Insurance Company; Vice President, Secretary and General Counsel-- 1994-present, North American Security Life; Vice President and Associate General Counsel-- 1991-1994, The Prudential Insurance Company of America
52 58
Position With Manufacturers Life Name of America Principal Occupation Bruce Gordon Director Vice President, U.S. Operations (53) - Pensions -- 1990-present, The Manufacturers Life Insurance Company Donald A. Guloien Director and President Senior Vice President, Business (39) Development 1994-present, The Manufacturers Life Insurance Company; Vice President, U.S. Individual Business -- 1990-1994, The Manufacturers Life Insurance Company Theodore Kilkuskie, Jr. Director Vice President, U.S. Individual (41) Insurance -- June 1995-present, The Manufacturers Life Insurance Company; Executive Vice President, Mutual Funds -- January 1995-May 1995, State Street Research; Vice President, Mutual Funds -- 1987-1994, Metropolitan Life Insurance Company Joseph J. Pietroski Director Senior Vice President, General (58) Counsel and Corporate Secretary -- 1988-present, The Manufacturers Life Insurance Company John D. Richardson Chairman and Director Senior Vice President and General (58) Manager, U.S. Operations 1995-present, The Manufacturers Life Insurance Company; Senior Vice President and General Manager, Canadian Operations 1992-1994, The Manufacturers Life Insurance Company; Senior Vice President, Financial Services 1992, The Manufacturers Life Insurance Company; Executive Vice Chairman and CFO -- 1989-1991, Canada Trust John R. Ostler Vice President, Chief Financial Vice President -- 1992- (43) Actuary and Treasurer present, The Manufacturers Life Insurance Company; Vice President, Insurance Products -- 1990-1992, The Manufacturers Life Insurance Company
53 59
Position With Manufacturers Life Name of America Principal Occupation Douglas H. Myers Vice President, Assistant Vice President and (42) Finance and Compliance Controller, U.S. Operations -- Controller 1988-present, The Manufacturers Life Insurance Company Hugh McHaffie Vice President Vice President & Product Actuary -- (37) June 1990-present, North American Security Life
What State Regulations Apply? Manufacturers Life of America is subject to regulation and supervision by the Michigan Department of Insurance, which periodically examines its financial condition and operations. It is also subject to the insurance laws and 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. Is There Any Litigation Pending? No litigation is pending that would have a material effect upon the Separate Account or NASL Series Trust. Where Can Further Information Be Found? 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. For further information you may also contact Manufacturers Life of America's Service Office, the address and telephone number of which are on the first page of this prospectus. Legal Considerations 54 60 On July 6, 1983, the Supreme Court of The United States held in Arizona Governing Committee v. Norris that certain annuity benefits provided by employers' retirement and fringe benefit programs may not, under Title VII of the Civil Rights Act of 1964, vary between men and women. Unless requested by the applicant, the Policy which will be issued by Manufacturers Life of America will be based on actuarial tables which distinguish between men and women and thus provide different benefits to men and women of the same age. Accordingly, employers and employee organizations should consider, in consultation with legal counsel, the effect of Norris or any other applicable law on any employment-related insurance benefit program before purchasing a Policy. If requested by the applicant, Manufacturers Life of America may offer the Policy with provisions based on actuarial tables that do not differentiate on the basis of sex to such prospective purchasers in states where the unisex version of the Policy has been approved. The State of Montana currently prohibits the use of actuarial tables that distinguish between men and women in determining premiums and policy benefits for policies issued on the life of any of its residents. Consequently, a Policy will be issued pursuant to the offer contained in this prospectus to a Montana resident having premiums and benefits which are based on actuarial tables that do not differentiate on the basis of sex. Legal Matters The legal validity of the policies has been passed on by James D. Gallagher, Esq., Secretary and General Counsel of Manufacturers Life of America. Jones & Blouch L.L.P., Washington D.C., has passed on certain matters relating to the federal securities laws. Experts The financial statements of The Manufacturers Life Insurance Company of America and of Separate Account Four of The Manufacturers Life Insurance Company of America appearing in this prospectus for the periods ending December 31, 1995 have been audited by Ernst & Young LLP, independent auditors to the extent indicated in their reports thereon also appearing elsewhere herein. Such financial statements have been included herein in reliance upon such reports given upon the authority of such firm as experts in auditing and accounting. 55 61 FINANCIAL STATEMENTS The financial statements of Manufacturers Life of America included herein should be distinguished from the financial statements of the Account and should be considered only as bearing upon the ability of Manufacturers Life of America to meet its obligations under the Policies. 56 62 THE FOLLOWING FINANCIAL STATEMENTS OF SEPARATE ACCOUNT FOUR OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA AND THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA FOR THE PERIOD ENDED SEPTEMBER 30, 1996 ARE UNAUDITED. 57 63 SEPARATE ACCOUNT FOUR OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1996 (Unaudited)
MANULIFE SERIES FUND INC ------------------------------------------------------------------------------------- EMERGING GROWTH REAL ESTATE BALANCED CAPITAL GROWTH EQUITY COMMON STOCK SECURITIES ASSETS BOND MONEY-MARKET SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------- ------------ ----------- ----------- -------------- ------------ ASSETS Investment in Manulife Series Fund, Inc. at market value Emerging Growth Equity Fund, $56,270,997 2,676,245 shares (cost $54,210,236) Common Stock Fund, $24,453,102 1,282,893 shares (cost $19,477,003) Real Estate Securities Fund, $15,766,596 985,277 shares (cost $14,215,387) Balanced Assets Fund, $43,128,170 2,468,360 shares (cost $38,093,133) Capital Growth Bond Fund, $13,687,569 1,219,002 shares (cost $13,635,635) Money Market Fund, $5,815,549 536,792 shares (cost $5,820,247) International Fund, 295,165 shares (cost $3,118,465) Pacific Rim Emerging Markets Fund, 312,184 shares (cost $3,327,027) Equity Index Fund, 88,799 shares (cost $893,672) Investment in NASL Series Trust at market value Equity Trust 140,692 shares (cost $2,922,478) Value Equity Trust 106,076 shares (cost $1,477,382) Growth and Income Trust 65,186 shares (cost $1,107,121) U.S. Government Securities Trust 8,778 shares (cost $112,399) Conservative Asset Allocation Trust 13,096 shares (cost $142,464) Moderate Asset Allocation Trust 41,839 shares (cost $486,537) Aggressive Asset Allocation Trust 18,973 shares (cost $236,371) ----------- ----------- ----------- ----------- ----------- ----------- 56,270,997 24,453,102 15,766,596 43,128,170 13,687,569 5,815,549 Receivable for Policy-related Transactions 18,552 (3,757) 25,144 14,527 523 (3,055) ----------- ----------- ----------- ----------- ----------- ----------- NET ASSETS $56,289,549 $24,449,345 $15,791,740 $43,142,697 $13,688,092 $ 5,812,494 =========== =========== =========== =========== =========== =========== Units Outstanding 1,075,908 806,433 531,081 1,775,529 704,558 382,069 =========== =========== =========== =========== =========== =========== Net asset value per unit $52.32 $30.32 $29.74 $24.30 $19.43 $15.21 =========== =========== =========== =========== =========== =========== MANULIFE SERIES FUND INC NASL SERIES TRUST -------------------------------------------- ------------------------------------- PACIFIC RIM *VALUE *GROWTH INTERNATIONAL EMERGING MARKETS *EQUITY INDEX *EQUITY EQUITY AND INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------- ---------------- ------------- ----------- ----------- ----------- ASSETS Investment in Manulife Series Fund, Inc. at market value Emerging Growth Equity Fund, 2,676,245 shares (cost $54,210,236) Common Stock Fund, 1,282,893 shares (cost $19,477,003) Real Estate Securities Fund, 985,277 shares (cost $14,215,387) Balanced Assets Fund, 2,468,360 shares (cost $38,093,133) Capital Growth Bond Fund, 1,219,002 shares (cost $13,635,635) Money Market Fund, 536,792 shares (cost $5,820,247) International Fund, $3,327,803 295,165 shares (cost $3,118,465) Pacific Rim Emerging Markets Fund, $3,496,711 312,184 shares (cost $3,327,027) Equity Index Fund, $944,332 88,799 shares (cost $893,672) Investment in NASL Series Trust at market value Equity Trust $3,002,153 140,692 shares (cost $2,922,478) Value Equity Trust $1,536,780 106,076 shares (cost $1,477,382) Growth and Income Trust $1,164,199 65,186 shares (cost $1,107,121) U.S. Government Securities Trust 8,778 shares (cost $112,399) Conservative Asset Allocation Trust 13,096 shares (cost $142,464) Moderate Asset Allocation Trust 41,839 shares (cost $486,537) Aggressive Asset Allocation Trust 18,973 shares (cost $236,371) ---------- ---------- ---------- ---------- ---------- ---------- 3,327,803 3,496,711 944,332 3,002,153 1,536,780 1,164,199 Receivable for Policy-related Transactions 1,723 1,098 1,404 4,437 1,323 18 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSETS $3,329,526 $3,497,809 $ 945,736 $3,006,590 $1,538,103 $1,164,217 ========== ========== ========== ========== ========== ========== Units Outstanding 293,637 311,293 89,305 281,069 144,478 107,994 ========== ========== ========== ========== ========== ========== Net asset value per unit $11.34 $11.24 $10.59 $10.70 $10.65 $10.78 ========== ========== ========== ========== ========== ========== NASL SERIES TRUST ------------------------------------------------------------------------- *U.S. GOVERNMENT *CONSERVATIVE *MODERATE *AGGRESSIVE SECURITIES ASSET ALLOCATION ASSET ALLOCATION ASSET ALLOCATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL ---------------- ---------------- ---------------- ---------------- ----------- ASSETS Investment in Manulife Series Fund, Inc. at market value Emerging Growth Equity Fund, $56,270,997 2,676,245 shares (cost $54,210,236) Common Stock Fund, 24,453,102 1,282,893 shares (cost $19,477,003) Real Estate Securities Fund, 15,766,596 985,277 shares (cost $14,215,387) Balanced Assets Fund, 43,128,170 2,468,360 shares (cost $38,093,133) Capital Growth Bond Fund, 13,687,569 1,219,002 shares (cost $13,635,635) Money Market Fund, 5,815,549 536,792 shares (cost $5,820,247) International Fund, 3,327,803 295,165 shares (cost $3,118,465) Pacific Rim Emerging Markets Fund, 3,496,711 312,184 shares (cost $3,327,027) Equity Index Fund, 944,332 88,799 shares (cost $893,672) Investment in NASL Series Trust at market value Equity Trust 3,002,153 140,692 shares (cost $2,922,478) Value Equity Trust 1,536,780 106,076 shares (cost $1,477,382) Growth and Income Trust 1,164,199 65,186 shares (cost $1,107,121) U.S. Government Securities Trust $113,939 113,939 8,778 shares (cost $112,399) Conservative Asset Allocation Trust $147,459 147,459 13,096 shares (cost $142,464) Moderate Asset Allocation Trust $501,649 501,649 41,839 shares (cost $486,537) Aggressive Asset Allocation Trust $243,080 243,080 18,973 shares (cost $236,371) ---------- -------- -------- -------- ------------ 113,939 147,459 501,649 243,080 173,600,888 Receivable for Policy-related Transactions 0 0 0 (37) 61,900 ---------- -------- -------- -------- ------------ NET ASSETS $ 113,939 $147,459 $501,649 $243,043 $173,661,988 ========== ======== ======== ======== ============ Units Outstanding 11,464 14,547 49,025 23,454 ========== ======== ======== ======== Net asset value per unit $9.94 $10.14 $10.23 $10.36 ========== ======== ======== ========
* Reflects the period from commencement of operations February 14, 1996 through September 30, 1996 58 64 SEPARATE ACCOUNT FOUR OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF CHANGES IN NET ASSETS PERIOD ENDED SEPTEMBER 30, 1996 and DECEMBER 31, 1995 (Unaudited)
MANULIFE SERIES FUND INC ------------------------------------------------------------------------------ EMERGING GROWTH COMMON STOCK EQUITY SUB-ACCOUNT SUB-ACCOUNT ---------------------------------- ---------------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/96 DEC. 31/95 SEPT. 30/96 DEC. 31/95 ------------ ----------- ------------ ----------- FROM OPERATIONS Net investment income (loss) $ 5,377,784 $ 954,799 $ 143,583 $ (105,143) Net realized gain (loss) 1,589,569 625,908 503,665 209,069 Unrealized appreciation (depreciation) of investments during the period Increase (decrease) in net assets derived from operations (6,327,489) 8,277,189 1,725,396 4,034,771 ----------- ----------- ----------- ----------- 639,864 9,857,896 2,372,644 4,138,697 ----------- ----------- ----------- ----------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 11,513,815 15,756,405 3,970,044 5,345,309 Transfer of terminations (4,144,600) (4,775,355) (1,489,342) (2,397,088) Transfer of policy loans (370,065) (383,960) (86,072) (139,168) Net interfund transfers (3,613,700) 808,068 (604,239) 601,941 ----------- ----------- ----------- ----------- 3,385,450 11,405,158 1,790,391 3,410,994 ----------- ----------- ----------- ----------- Net increase in net assets 4,025,314 21,263,054 4,163,035 7,549,691 NET ASSETS Beginning of Year 52,264,235 31,001,181 20,286,310 12,736,619 ----------- ----------- ----------- ----------- End of Period $56,289,549 $52,264,235 $24,449,345 $20,286,310 =========== =========== =========== =========== MANULIFE SERIES FUND INC ------------------------------------------------------------------------------ REAL ESTATE SECURITIES BALANCED ASSETS SUB-ACCOUNT SUB-ACCOUNT ---------------------------------- ---------------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/96 DEC. 31/95 SEPT. 30/96 DEC. 31/95 ------------ ----------- ------------ ----------- FROM OPERATIONS Net investment income (loss) $ 784,287 $ 148,117 $ 1,420,614 $ (165,971) Net realized gain (loss) 101,008 168,151 494,987 191,394 Unrealized appreciation (depreciation) of investments during the period Increase (decrease) in net assets derived from operations 721,817 1,396,739 278,327 7,012,384 ----------- ----------- ----------- ----------- 1,607,112 1,713,007 2,193,928 7,037,807 ----------- ----------- ----------- ----------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 2,191,345 4,283,407 7,095,718 10,932,103 Transfer of terminations (1,151,118) (1,478,397) (2,977,772) (3,544,462) Transfer of policy loans (22,573) (43,920) (146,139) (305,026) Net interfund transfers (714,776) (1,220,289) (2,250,571) (1,831,364) ----------- ----------- ----------- ----------- 302,878 1,540,801 1,721,236 5,251,251 ----------- ----------- ----------- ----------- Net increase in net assets 1,909,990 3,253,808 3,915,164 12,289,058 NET ASSETS Beginning of Year 13,881,750 10,627,942 39,227,533 26,938,475 ----------- ----------- ----------- ----------- End of Period $15,791,740 $13,881,750 $43,142,697 $39,227,533 =========== =========== =========== =========== MANULIFE SERIES FUND INC ------------------------------------------------------------------------------ CAPITAL GROWTH MONEY-MARKET BOND SUB-ACCOUNT SUB-ACCOUNT ---------------------------------- ---------------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/96 DEC. 31/95 SEPT. 30/96 DEC. 31/95 ------------ ----------- ------------ ----------- FROM OPERATIONS Net investment income (loss) $ (62,422) $ 818,203 $ 195,380 $ (36,158) Net realized gain (loss) (89,111) (18,323) 162,381 109,650 Unrealized appreciation (depreciation) of investments during the period Increase (decrease) in net assets derived from operations 22,183 1,042,903 (170,530) 197,256 ----------- ----------- ----------- ----------- (129,350) 1,842,783 187,231 270,748 ----------- ----------- ----------- ----------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 2,314,915 3,119,374 1,410,213 2,577,889 Transfer of terminations (711,703) (1,316,692) (686,249) (782,380) Transfer of policy loans (39,378) (67,747) (5,929) (36,007) Net interfund transfers (506,424) 730,548 (1,057,964) (642,476) ----------- ----------- ----------- ----------- 1,057,410 2,465,483 (339,929) 1,117,026 ----------- ----------- ----------- ----------- Net increase in net assets 928,060 4,308,266 (152,698) 1,387,774 NET ASSETS Beginning of Year 12,760,032 8,451,766 5,965,192 4,577,418 ----------- ----------- ----------- ----------- End of Period $13,688,092 $12,760,032 $ 5,812,494 $ 5,965,192 =========== =========== =========== =========== MANULIFE SERIES FUND INC ---------------------------------------------------------------------------------------- PACIFIC RIM INTERNATIONAL EMERGING MARKETS *EQUITY INDEX SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------- ------------------------------- ------------- PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED SEPT. 30/96 DEC. 31/95 SEPT. 30/96 DEC. 31/95 SEPT. 30/96 ------------ ------------ ------------ ----------- ------------- FROM OPERATIONS Net investment income (loss) $ (4,910) $ 35,276 $ (8,333) $ 10,988 $ (2,276) Net realized gain (loss) 31,615 2,338 93,512 (788) 758 Unrealized appreciation (depreciation) of investments during the period Increase (decrease) in net assets derived from operations 98,914 111,348 55,366 119,803 50,660 ----------- ----------- ----------- ----------- ----------- 125,619 148,962 140,545 130,003 49,142 ----------- ----------- ----------- ----------- ----------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 614,885 468,861 476,591 339,577 226,774 Transfer of terminations (145,220) (114,292) (132,960) (84,460) (23,225) Transfer of policy loans (25,271) (8,567) (18,266) (7,956) (2,045) Net interfund transfers 948,096 1,045,046 1,640,178 839,514 695,090 ----------- ----------- ----------- ----------- ----------- 1,392,490 1,391,048 1,965,543 1,086,675 896,594 ----------- ----------- ----------- ----------- ----------- Net increase in net assets 1,518,109 1,540,010 2,106,088 1,216,678 945,736 NET ASSETS Beginning of Year 1,811,417 271,407 1,391,721 175,043 0 ----------- ----------- ----------- ----------- ----------- End of Period $ 3,329,526 $ 1,811,417 $ 3,497,809 $ 1,391,721 $ 945,736 =========== =========== =========== =========== =========== NASL SERIES TRUST -------------------------------------------------------------------------------- *VALUE *GROWTH *U.S. GOVERNMENT *EQUITY EQUITY AND INCOME SECURITIES SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ ------------ ------------ ---------------- PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED SEPT. 30/96 SEPT. 30/96 SEPT. 30/96 SEPT. 30/96 ------------ ------------ ------------ ---------------- FROM OPERATIONS Net investment income (loss) $ 31,483 $ 11,593 $ (1,279) $ (690) Net realized gain (loss) (683) (791) (55) 4,202 Unrealized appreciation (depreciation) of investments during the period Increase (decrease) in net assets derived from operations 79,675 59,398 57,078 1,540 ----------- ----------- ----------- ----------- 110,475 70,200 55,744 5,052 ----------- ----------- ----------- ----------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 686,090 230,649 234,874 10,877 Transfer of terminations (38,959) (19,858) (10,990) (294,362) Transfer of policy loans (440) (4,251) 0 0 Net interfund transfers 2,249,424 1,261,363 884,589 392,372 ----------- ----------- ----------- ----------- 2,896,115 1,467,903 1,108,473 108,887 ----------- ----------- ----------- ----------- Net increase in net assets 3,006,590 1,538,103 1,164,217 113,939 NET ASSETS Beginning of Year 0 0 0 0 ----------- ----------- ----------- ----------- End of Period $ 3,006,590 $ 1,538,103 $ 1,164,217 $ 113,939 =========== =========== =========== =========== NASL SERIES TRUST ----------------------------------------------------------- *CONSERVATIVE *MODERATE *AGGRESSIVE ASSET ALLOCATION ASSET ALLOCATION ASSET ALLOCATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------- ---------------- ---------------- PERIOD ENDED PERIOD ENDED PERIOD ENDED SEPT. 30/96 SEPT. 30/96 SEPT. 30/96 ---------------- --------------- ---------------- FROM OPERATIONS Net investment income (loss) $ (643) $ (1,131) $ 1,434 Net realized gain (loss) 392 311 603 Unrealized appreciation (depreciation) of investments during the period Increase (decrease) in net assets derived from operations 4,995 15,112 6,709 ----------- ----------- ----------- 4,744 14,292 8,746 ----------- ----------- ----------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 32,535 81,952 50,493 Transfer of terminations (3,931) (10,944) (4,594) Transfer of policy loans 0 0 0 Net interfund transfers 114,111 416,349 188,398 ----------- ----------- ----------- 142,715 487,357 234,297 ----------- ----------- ----------- Net increase in net assets 147,459 501,649 243,043 NET ASSETS Beginning of Year 0 0 0 ----------- ----------- ----------- End of Period $ 147,459 $ 501,649 $ 243,043 =========== =========== =========== TOTAL ---------------------------------- PERIOD ENDED YEAR ENDED SEPT. 30/95 DEC. 31/95 ------------ ----------- FROM OPERATIONS Net investment income (loss) $ 7,884,474 $ 1,660,111 Net realized gain (loss) $ 2,892,363 1,287,399 Unrealized appreciation (depreciation) of investments during the period Increase (decrease) in net assets derived from operations $ (3,320,849) 22,192,393 ------------- ------------ $ 7,455,988 25,139,903 ------------- ------------ FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums $ 31,141,770 42,822,925 Transfer of terminations $ (11,845,827) (14,493,126) Transfer of policy loans $ (720,429) (992,351) Net interfund transfers $ 42,296 330,988 ------------- ------------ $ 18,617,810 27,668,436 ------------- ------------ Net increase in net assets $ 26,073,798 52,808,339 NET ASSETS Beginning of Year $ 147,588,190 94,779,851 ------------- ------------ End of Period $ 173,661,988 $147,588,190 ============= ============
* Reflects the period from commencement of operations February 14, 1996 through September 30, 1996 See accompanying notes. 59 65 SEPARATE ACCOUNT FOUR OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF OPERATIONS PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED)
MANULIFE SERIES FUND INC ------------------------------------------------------------------------- EMERGING REAL ESTATE GROWTH EQUITY COMMON STOCK SECURITIES BALANCED ASSETS SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------- ------------- ------------ --------------- Investment Income: $ 5,649,052 $ 251,477 $ 852,904 $ 1,617,985 Dividend Income Expenses Mortality and expense risk charge 271,268 107,894 68,617 197,371 ----------- ----------- ----------- ----------- Net investment income (loss) 5,377,784 143,583 784,287 1,420,614 ----------- ----------- ----------- ----------- Realized and unrealized gain (loss) from security transactions: Proceeds from sales 4,933,208 1,883,983 1,260,693 3,048,926 Cost of securities sold 3,343,639 1,380,318 1,159,685 2,553,939 ----------- ----------- ----------- ----------- Net realized gain (loss) 1,589,569 503,665 101,008 494,987 ----------- ----------- ----------- ----------- Unrealized appreciation (depreciation) of Investments Beginning of Year 8,388,250 3,250,703 829,392 4,756,710 End of Period 2,060,761 4,976,099 1,551,209 5,035,037 ----------- ----------- ----------- ----------- Net unrealized depreciation during the period (6,327,489) 1,725,396 721,817 278,327 ----------- ----------- ----------- ----------- Net realized and unrealized gain (loss) on investments (4,737,920) 2,229,061 822,825 773,314 ----------- ----------- ----------- ----------- Net increase (decrease) in net assets derived from operations $ 639,864 $ 2,372,644 $ 1,607,112 $ 2,193,928 =========== =========== =========== =========== CAPITAL PACIFIC RIM GROWTH BOND MONEY-MARKET INTERNATIONAL EMERGING MARKETS *EQUITY INDEX SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------- ------------- ------------- ---------------- -------------- Investment Income: $ 506 $ 223,396 $ 7,599 $ 3,918 $ 0 Dividend Income Expenses Mortality and expense risk charge 62,928 28,016 12,509 12,251 2,276 ----------- ----------- ----------- ----------- --------- Net investment income (loss) (62,422) 195,380 (4,910) (8,333) (2,276) ----------- ----------- ----------- ----------- --------- Realized and unrealized gain (loss) from security transactions: Proceeds from sales 1,760,235 3,085,905 278,623 554,614 22,040 Cost of securities sold 1,849,346 2,923,524 247,008 461,102 21,282 ----------- ----------- ----------- ----------- --------- Net realized gain (loss) (89,111) 162,381 31,615 93,512 758 ----------- ----------- ----------- ----------- --------- Unrealized appreciation (depreciation) of Investments Beginning of Year 29,751 165,832 110,424 114,318 0 End of Period 51,934 (4,698) 209,338 169,684 50,660 ----------- ----------- ----------- ----------- --------- Net unrealized depreciation during the period 22,183 (170,530) 98,914 55,366 50,660 ----------- ----------- ----------- ----------- --------- Net realized and unrealized gain (loss) on investments (66,928) (8,149) 130,529 148,878 51,418 ----------- ----------- ----------- ----------- --------- Net increase (decrease) in net assets derived from operations $ (129,350) $ 187,231 $ 125,619 $ 140,545 $ 49,142 =========== =========== =========== =========== ========= NASL SERIES TRUST ------------------------------------------------------------------------- *VALUE *GROWTH *U.S. GOVERNMENT *EQUITY EQUITY AND INCOME SECURITIES SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------- ------------- ------------ --------------- Investment Income: $ 37,137 $ 14,881 $ 461 $ 0 Dividend Income Expenses Mortality and expense risk charge 5,654 3,288 1,740 690 ----------- ----------- ----------- ----------- Net investment income (loss) 31,483 11,593 (1,279) (690) ----------- ----------- ----------- ----------- Realized and unrealized gain (loss) from security transactions: Proceeds from sales 28,872 26,995 15,466 297,478 Cost of securities sold 29,555 27,786 15,521 293,276 ----------- ----------- ----------- ----------- Net realized gain (loss) (683) (791) (55) 4,202 ----------- ----------- ----------- ----------- Unrealized appreciation (depreciation) of Investments Beginning of Year 0 0 0 0 End of Period 79,675 59,398 57,078 1,540 ----------- ----------- ----------- ----------- Net unrealized depreciation during the period 79,675 59,398 57,078 1,540 ----------- ----------- ----------- ----------- Net realized and unrealized gain (loss) on investments 78,992 58,607 57,023 5,742 ----------- ----------- ----------- ----------- Net increase (decrease) in net assets derived from operations $ 110,475 $ 70,200 $ 55,744 $ 5,052 =========== =========== =========== =========== *CONSERVATIVE *MODERATE *AGGRESSIVE ASSET ALLOCATION ASSET ALLOCATION ASSET ALLOCATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL ---------------- ---------------- ---------------- --------------- Investment Income: $ 0 $ 0 $ 2,110 $ 8,661,426 Dividend Income Expenses Mortality and expense risk charge 643 1,131 676 776,952 ----------- ----------- ----------- ----------- Net investment income (loss) (643) (1,131) 1,434 7,884,474 ----------- ----------- ----------- ----------- Realized and unrealized gain (loss) from security transactions: Proceeds from sales 1,701 10,543 3,803 17,213,085 Cost of securities sold 1,309 10,232 3,200 14,320,722 ----------- ----------- ----------- ----------- Net realized gain (loss) 392 311 603 2,892,363 ----------- ----------- ----------- ----------- Unrealized appreciation (depreciation) of Investments Beginning of Year 0 0 0 17,645,380 End of Period 4,995 15,112 6,709 14,324,531 ----------- ----------- ----------- ----------- Net unrealized depreciation during the period 4,995 15,112 6,709 (3,320,849) ----------- ----------- ----------- ----------- Net realized and unrealized gain (loss) on investments 5,387 15,423 7,312 (428,486) ----------- ----------- ----------- ----------- Net increase (decrease) in net assets derived from operations $ 4,744 $ 14,292 $ 8,746 $ 7,455,988 =========== =========== =========== ===========
* Reflects the period from commencement of operations February 14, 1996 through September 30, 1996 60 66 Separate Account Four of The Manufacturers Life Insurance Company of America Notes to Financial Statements September 30, 1996 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 currently comprised of sixteen investment sub-accounts, nine investment sub-accounts for Manulife Series Fund, Inc., and seven investment sub-accounts for NASL Series Trust, 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 wholly-owned subsidiary of Manulife Reinsurance Corporation (U.S.A.)(the Parent), (formerly The Manufacturers Life Insurance Company of Michigan), as a separate investment account on March 17, 1987. The Parent is a wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manulife Financial"), a mutual life insurance company based in Toronto, Canada. The assets of the Separate Account are the property of The Manufacturers Life of America. The portion of the Separate Account's assets applicable to the Policies will not be chargeable with liabilities arising out of any other business The Manufacturers Life of America may conduct. The net assets may not be less than the amount required under state insurance law to provide for death (without regard to the minimum death benefit guarantee) and other Policy benefits. Additional assets are held in Manufacturers Life of America's general account to cover the contingency that the guaranteed minimum death benefit might exceed the death benefit which would have been payable in the absence of such guarantee. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Separate Account in preparation of its financial statements: a. Valuation of Investments - Investments are made among the nine Funds of Manulife Series Fund, Inc. and among the seven Funds of the NASL Series Trust and are valued at the reported net asset values of these Funds. Transactions are recorded on the trade date. Net investment income and net realized and unrealized gain (loss) on investments in Manulife Series Fund, Inc. 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. 61 67 Separate Account Four of The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The current year's operations of the Separate Account are not expected to affect the sponsor's tax liabilities and, accordingly, no charges were made against the Separate Account for federal, state and local taxes. However, in the future, should the sponsor incur significant tax liabilities related to Separate Account 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 a sales charge of 3% and a charge of 2% to cover state premium taxes from the gross single premium and any additional premiums before placing the remaining net premiums in the sub-accounts. 5. PURCHASES AND SALES OF MANULIFE SERIES FUND, INC. SHARES Purchases and sales of the shares of common stock of Manulife Series Fund, Inc. for the period ended September 30, 1996 were $43,759,605 and $17,213,085 respectively, and for the year ended December 31, 1995 were $43,364,307 and $13,876,105 respectively. 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, 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. 62 68 THE FOLLOWING FINANCIAL STATEMENTS OF SEPARATE ACCOUNT FOUR OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA FOR THE PERIOD ENDED DECEMBER 31, 1995 ARE AUDITED. 63 69 Report of Independent Auditors To the Board of Directors The Manufacturers Life Insurance Company of America We have audited the accompanying statement of assets and liabilities of Separate Account Four of The Manufacturers Life Insurance Company of America (comprising, respectively, the Emerging Growth Equity Sub-Account, Common Stock Sub-Account, Real Estate Securities Sub-Account, Balanced Assets Sub-Account, Capital Growth Bond Sub-Account, Money Market Sub-Account, International Sub-Account, and Pacific Rim Emerging Markets Sub-Account) as of December 31, 1995 and the related statement of operations for the year then ended, and the statements of changes in net assets for each of the periods presented herein. These financial statements are the responsibility of The Manufacturers Life Insurance Company of America's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Separate Account Four of The Manufacturers Life Insurance Company of America at December 31, 1995, and the results of its operations for the year then ended and changes in its net assets for each of the periods presented herein, in conformity with generally accepted accounting principles. Ernst & Young LLP Philadelphia, Pennsylvania February 2, 1996 64 70 Separate Account Four of The Manufacturers Life Insurance Company of America Statement of Assets and Liabilities December 31, 1995
EMERGING COMMON REAL ESTATE GROWTH EQUITY STOCK SECURITIES SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------------------------------------- ASSETS Investment in Manulife Series Fund, Inc.-- at market value: Emerging Growth Equity Fund, 2,259,310 shares (cost $43,821,087) $52,209,337 Common Stock Fund, 1,174,532 shares (cost $17,032,473) $20,283,176 Real Estate Securities Fund, 919,394 shares (cost $13,056,459) $13,885,851 Balanced Assets Fund, 2,284,961 shares (cost $34,437,481) Capital Growth Bond Fund, 1,128,394 shares (cost $12,717,152) Money Market Fund, 550,064 shares (cost $5,796,572) International Fund, 169,513 shares (cost $1,698,017) Pacific Rim Emerging Markets Fund, 134,397 shares (cost $1,277,433) ---------------------------------------------- 52,209,337 20,283,176 13,885,851 Receivable (payable) for policy-related transactions 54,898 3,134 (4,101) ============================================== Net assets $52,264,235 $20,286,310 $13,881,750 ============================================== Units outstanding 1,007,406 742,544 520,501 ============================================== Net asset value per unit $ 51.88 $ 27.32 $ 26.67 ==============================================
See accompanying notes. 65 71
BALANCED CAPITAL ASSETS GROWTH BOND MONEY MARKET INTERNATIONAL SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------------------------------------------------------- ASSETS Investment in Manulife Series Fund, Inc.-- at market value: Emerging Growth Equity Fund, 2,259,310 shares (cost $43,821,087) Common Stock Fund, 1,174,532 shares (cost $17,032,473) Real Estate Securities Fund, 919,394 shares (cost $13,056,459) Balanced Assets Fund, 2,284,961 shares (cost $34,437,481) $39,194,191 Capital Growth Bond Fund, 1,128,394 shares (cost $12,717,152) $12,746,903 Money Market Fund, 550,064 shares (cost $5,796,572) $5,962,404 International Fund, 169,513 shares (cost $1,698,017) $1,808,441 Pacific Rim Emerging Markets Fund, 134,397 shares (cost $1,277,433) --------------------------------------------------------------- 39,194,191 12,746,903 5,962,404 1,808,441 Receivable (payable) for policy-related transactions 33,342 13,129 2,788 2,976 =============================================================== Net assets $39,227,533 $12,760,032 $5,965,192 $1,811,417 =============================================================== Units outstanding 1,700,370 649,696 404,694 168,347 =============================================================== Net asset value per unit $ 23.07 $ 19.64 $ 14.74 $ 10.76 ===============================================================
PACIFIC RIM EMERGING MARKETS SUB-ACCOUNT TOTAL ----------------------------------- ASSETS Investment in Manulife Series Fund, Inc.-- at market value: Emerging Growth Equity Fund, 2,259,310 shares (cost $43,821,087) $ 52,209,337 Common Stock Fund, 1,174,532 shares (cost $17,032,473) 20,283,176 Real Estate Securities Fund, 919,394 shares (cost $13,056,459) 13,885,851 Balanced Assets Fund, 2,284,961 shares (cost $34,437,481) 39,194,191 Capital Growth Bond Fund, 1,128,394 shares (cost $12,717,152) 12,746,903 Money Market Fund, 550,064 shares (cost $5,796,572) 5,962,404 International Fund, 169,513 shares (cost $1,698,017) 1,808,441 Pacific Rim Emerging Markets Fund, 134,397 shares (cost $1,277,433) $1,391,751 1,391,751 ----------------------------------- 1,391,751 147,482,054 Receivable (payable) for policy-related transactions (30) 106,136 =================================== Net assets $ 1,391,721 $147,588,190 =================================== Units outstanding 133,434 ============ Net asset value per unit $ 10.43 ============
66 72 Separate Account Four of The Manufacturers Life Insurance Company of America Statement of Operations Year ended December 31, 1995
EMERGING REAL ESTATE GROWTH EQUITY COMMON STOCK SECURITIES SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------------------------------------- Investment income: Dividend income $1,225,634 $ - $ 226,773 Expenses: Mortality and expense risks charge 270,835 105,143 78,656 -------------------------------------------- Net investment income (loss) 954,799 (105,143) 148,117 -------------------------------------------- Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 2,832,896 1,361,365 1,615,880 Cost of securities sold 2,206,988 1,152,296 1,447,729 -------------------------------------------- Net realized gain (loss) 625,908 209,069 168,151 -------------------------------------------- Unrealized appreciation (depreciation) of investments: Beginning of year 111,061 (784,068) (567,347) End of year 8,388,250 3,250,703 829,392 -------------------------------------------- Net unrealized appreciation during the year 8,277,189 4,034,771 1,396,739 -------------------------------------------- Net realized and unrealized gain on investments 8,903,097 4,243,840 1,564,890 -------------------------------------------- Net increase in net assets derived from operations $9,857,896 $4,138,697 $1,713,007 ============================================
See accompanying notes. 67 73
BALANCED CAPITAL PACIFIC RIM ASSETS GROWTH BOND MONEY MARKET INTERNATIONAL EMERGING MARKETS SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL ---------------------------------------------------------------------------------------- Investment income: Dividend income $ 46,122 $ 886,880 $ 268 $ 42,811 $ 16,639 $ 2,445,127 Expenses: Mortality and expense risks charge 212,093 68,677 36,426 7,535 5,651 785,016 ---------------------------------------------------------------------------------------- Net investment income (loss) (165,971) 818,203 (36,158) 35,276 10,988 1,660,111 ---------------------------------------------------------------------------------------- Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 3,475,264 933,993 3,529,055 71,517 56,135 13,876,105 Cost of securities sold 3,283,870 952,316 3,419,405 69,179 56,923 12,588,706 ---------------------------------------------------------------------------------------- Net realized gain (loss) 191,394 (18,323) 109,650 2,338 (788) 1,287,399 ---------------------------------------------------------------------------------------- Unrealized appreciation (depreciation) of investments: Beginning of year (2,255,674) (1,013,152) (31,424) (924) (5,485) (4,547,013) End of year 4,756,710 29,751 165,832 110,424 114,318 17,645,380 ---------------------------------------------------------------------------------------- Net unrealized appreciation during the year 7,012,384 1,042,903 197,256 111,348 119,803 22,192,393 ---------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 7,203,778 1,024,580 306,906 113,686 119,015 23,479,792 ---------------------------------------------------------------------------------------- Net increase in net assets derived from operations $ 7,037,807 $ 1,842,783 $ 270,748 $148,962 $130,003 $25,139,903 ========================================================================================
68 74 Separate Account Four of The Manufacturers Life Insurance Company of America Statements of Changes in Net Assets Years ended December 31, 1995 and 1994
EMERGING GROWTH COMMON STOCK REAL ESTATE SECURITIES EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94 -------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss) $ 954,799 $ (53,653) $ (105,143) $ 554,517 $ 148,117 $ 177,093 Net realized gain (loss) 625,908 259,712 209,069 92,981 168,151 108,207 Unrealized appreciation (depreciation) of investments during the period 8,277,189 (1,227,841) 4,034,771 (1,183,509) 1,396,739 (691,776) -------------------------------------------------------------------------------------------- Increase (decrease) in net assets derived from operations 9,857,896 (1,021,782) 4,138,697 (536,011) 1,713,007 (406,476) -------------------------------------------------------------------------------------------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 15,756,405 14,531,343 5,345,309 5,946,303 4,283,407 4,968,671 Transfer of terminations (4,775,355) (2,706,223) (2,397,088) (1,073,532) (1,478,397) (931,394) Transfer of policy loans (383,960) (308,656) (139,168) (97,701) (43,920) (85,424) Net interfund transfers 808,068 322,712 601,941 (252,248) (1,220,289) 267,605 -------------------------------------------------------------------------------------------- 11,405,158 11,839,176 3,410,994 4,522,822 1,540,801 4,219,458 -------------------------------------------------------------------------------------------- Net increase in net assets 21,263,054 10,817,394 7,549,691 3,986,811 3,253,808 3,812,982 NET ASSETS Beginning of year 31,001,181 20,183,787 12,736,619 8,749,808 10,627,942 6,814,960 -------------------------------------------------------------------------------------------- End of year $ 52,264,235 $ 31,001,181 $ 20,286,310 $ 12,736,619 $ 13,881,750 $ 10,627,942 ============================================================================================
See accompanying notes. 69 75
BALANCED ASSETS CAPITAL GROWTH MONEY MARKET SUB-ACCOUNT BOND SUB-ACCOUNT SUB-ACCOUNT --------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94 --------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss) $ (165,971) $ 1,257,677 $ 818,203 $ 492,509 $ (36,158) $ 120,825 Net realized gain (loss) 191,394 72,510 (18,323) (29,791) 109,650 11,641 Unrealized appreciation (depreciation) of investments during the period 7,012,384 (2,560,365) 1,042,903 (822,528) 197,256 (19,907) --------------------------------------------------------------------------------------- Increase (decrease) in net assets derived from operations 7,037,807 (1,230,178) 1,842,783 (359,810) 270,748 112,559 --------------------------------------------------------------------------------------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 10,932,103 11,014,712 3,119,374 3,088,112 2,577,889 2,895,838 Transfer of terminations (3,544,462) (3,111,863) (1,316,692) (628,592) (782,380) (1,071,814) Transfer of policy loans (305,026) (287,843) (67,747) (55,847) (36,007) (42,089) Net interfund transfers (1,831,364) (396,171) 730,548 (86,125) (642,476) (234,848) --------------------------------------------------------------------------------------- 5,251,251 7,218,835 2,465,483 2,317,548 1,117,026 1,547,087 --------------------------------------------------------------------------------------- Net increase in net assets 12,289,058 5,988,657 4,308,266 1,957,738 1,387,774 1,659,646 NET ASSETS Beginning of year 26,938,475 20,949,818 8,451,766 6,494,028 4,577,418 2,917,772 --------------------------------------------------------------------------------------- End of year $ 39,227,533 $ 26,938,475 $ 12,760,032 $ 8,451,766 $ 5,965,192 $ 4,577,418 =======================================================================================
70 76 Separate Account Four of The Manufacturers Life Insurance Company of America Statements of Changes in Net Assets (continued) Years ended December 31, 1995 and 1994
INTERNATIONAL PACIFIC RIM EMERGING SUB-ACCOUNT MARKETS SUB-ACCOUNT TOTAL ------------------------------------------------------------------------------------------- YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED YEAR ENDED DEC. 31/95 DEC. 31/94 DEC 31//95 DEC. 31/94 DEC. 31/95 DEC. 31/94 ------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss) $ 35,276 $ 533 $ 10,988 $ 572 $ 1,660,111 $ 2,550,073 Net realized gain (loss) 2,338 (215) (788) (31) 1,287,399 515,014 Unrealized appreciation (depreciation) of investments during the period 111,348 (924) 119,803 (5,485) 22,192,393 (6,512,335) ------------------------------------------------------------------------------------------- Increase (decrease) in net assets derived from operations 148,962 (606) 130,003 (4,944) 25,139,903 (3,447,248) ------------------------------------------------------------------------------------------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 468,861 36,857 339,577 37,942 42,822,925 42,519,778 Transfer of terminations (114,292) (2,007) (84,460) (1,460) (14,493,126) (9,526,885) Transfer of policy loans (8,567) - (7,956) - (992,351) (877,560) Net interfund transfers 1,045,046 237,163 839,514 143,505 330,988 1,593 ------------------------------------------------------------------------------------------- 1,391,048 272,013 1,086,675 179,987 27,668,436 32,116,926 ------------------------------------------------------------------------------------------- Net increase in net assets 1,540,010 271,407 1,216,678 175,043 52,808,339 28,669,678 NET ASSETS Beginning of year 271,407 - 175,043 - 94,779,851 66,110,173 ------------------------------------------------------------------------------------------- End of year $ 1,811,417 $ 271,407 $ 1,391,721 $ 175,043 $ 147,588,190 $ 94,779,851 ===========================================================================================
*Reflects the period from commencement of operations October 4, 1994 through December 31, 1994. See accompanying notes. 71 77 Separate Account Four of The Manufacturers Life Insurance Company of America Notes to Financial Statements December 31, 1995 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 currently comprised of eight investment sub-accounts, one for each series of shares of Manulife Series Fund, Inc., 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 wholly-owned subsidiary of Manulife Reinsurance Corporation (U.S.A.) ("MRC"), as a separate investment account on March 17, 1987. MRC is a life insurance holding company organized in 1983 under Michigan law and a wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manulife Financial"), a mutual life insurance company based in Toronto, Canada. The assets of the Separate Account are the property of Manufacturers Life of America. The portion of the Separate Account's assets applicable to the Policies will not be charged with liabilities arising out of any other business Manufacturers Life of America may conduct. The net assets may not be less than the amount required under state insurance law to provide for death (without regard to the minimum death benefit guarantee) and other Policy benefits. Additional assets are held in Manufacturers Life of America's general account to cover the contingency that the guaranteed minimum death benefit might exceed the death benefit which would have been payable in the absence of such guarantee. 72 78 Separate Account Four of The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Separate Account in preparation of its financial statements. a. Valuation of Investments - Investments are made among the eight Funds of Manulife Series Fund, Inc. and are valued at the reported net asset values of these Funds. Transactions are recorded on the trade date. Net investment income and net realized and unrealized gain (loss) on investments in Manulife Series Fund, Inc. are reinvested. b. Realized gains and losses on the sale of investments are computed on the first-in, first-out basis. c. Dividend income is recorded on the ex-dividend date. d. Federal Income Taxes - Manufacturers Life of America, the Separate Account's sponsor, is taxed as a "life insurance company" under the Internal Revenue Code. Under these provisions of the Code, the operations of the Separate Account form part of the sponsor's total operations and are not taxed separately. The current year's operations of the Separate Account are not expected to affect the sponsor's tax liabilities and, accordingly, no charges were made against the Separate Account for federal, state and local taxes. However, in the future, should the sponsor incur significant tax liabilities related to Separate Account 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 state 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. 73 79 Separate Account Four of The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 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 a sales charge of 3% and a charge of 2% to cover state premium taxes from the gross single premium and any additional premiums before placing the remaining net premiums in the sub-accounts. 5. PURCHASES AND SALES OF MANULIFE SERIES FUND, INC. SHARES Purchases and sales of the shares of common stock of Manulife Series Fund, Inc. for the year ended December 31, 1995 were $43,364,307 and $13,876,105, respectively, and for the year ended December 31, 1994 were $41,461,367 and $7,038,820, respectively. 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 affiliate, Manulife Financial, which can be terminated by either party upon two months' notice. Under this Agreement, Manufacturers Life of America pays for legal, actuarial, investment and certain other administrative services. 74 80 The following financial statements of The Manufacturers Life Insurance Company of America for the period ended September 30, 1996 are unaudited. 81 The Manufacturers Life Insurance Company of America Balance Sheet
September 30 December 31 1996 1995 ------------ ------------ (Unaudited) Assets Bonds, at amortized cost (market $58,250,725 --1996 and $66,046,733- - 1995) $57,763,786 $62,757,202 Stocks 19,658,787 22,584,259 Short-term investments 1,666,000 0 Policy loans 8,633,442 6,955,292 ------------ ------------ Total investments 87,722,015 92,296,753 Cash on hand and on deposit 7,118,793 9,674,362 Insurance premiums deferred and uncollected 1,329,534 504,818 Accrued investment income 1,050,518 1,059,536 Separate account assets 603,572,134 480,404,450 Funds receivable on reinsurance ceded 74,035 73,300 Receivable for undelivered securities 1,864,999 146,328 Taxes recoverable 8,926,316 3,308,316 Investment in subsidiary 1,590,846 1,080,184 Other assets 199,392 193,715 ------------ ------------ $713,448,582 $588,741,762 ============ ============ Liabilities, capital and surplus Aggregate policy reserves $69,370,778 $63,426,096 Contract deposit funds 6,044,164 6,462,516 Amounts due from separate accounts (52,800,170) (39,799,129) Interest maintenance and asset valuation reserves 5,503,906 4,742,400 Policy and contract claims 294,457 582,853 Provision for policyholder dividends payable 1,792,087 2,346,258 Amounts due to affiliates 11,529,256 9,049,217 Accrued liabilities 5,361,074 5,147,865 Amounts payable for undelivered securities 1,666,000 80,821 Separate account liabilities 603,572,134 480,404,450 ------------ ------------ Total liabilities 652,333,686 532,443,347 Capital and surplus: Common shares, par value $1.00; authorized, 5,000,000 shares; issued and outstanding shares (4,501,858 -- 1996, 4,501,857 -- 1995) 4,501,858 4,501,857 Preferred shared, par value $100; authorized, 5,000,000 shares; issued and outstanding shares (105,000 -- 1996 and 1995) 10,500,000 10,500,000 Surplus note 8,500,000 8,500,000 Capital paid in excess of par value 78,500,179 63,500,180 Surplus (40,887,141) (30,703,622) ------------ ------------ Total capital and surplus 61,114,896 56,298,415 ------------ ------------ Total liabilities, capital, and surplus $713,448,582 $588,741,762 ============ ============
75 82 The Manufacturers Life Insurance Company of America Statement of Operations (Unaudited)
Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 ----------- ----------- ------------ ----------- Revenues: Life premiums $37,441,887 $26,917,056 $115,841,149 $82,246,124 Annuity deposits 9,109,896 9,176,744 27,904,066 29,606,973 Life premiums, reinsurance assumed (831,831) (372,238) 1,101,533 5,540,618 Investment income, net of investment expenses 1,437,890 1,197,939 4,188,644 3,854,192 Amortization of interest maintenance reserve 6,169 8,353 23,309 14,172 Commission and expense allowances on reinsurance ceded 43,397 0 147,093 Foreign exchange gain (loss) (1,451) (329,945) 40,625 (329,662) Other revenue (19,985) 37,106 68,843 92,821 ----------- ----------- ------------ ----------- Total revenues 47,185,972 36,635,015 149,315,262 121,025,238 Benefits paid or provided: Increase (decrease) in aggregate policy reserves (2,507,208) 412,750 5,944,682 10,575,029 Increase (decrease) in liability for deposit funds 531,581 (381,781) (418,352) (223,494) Transfers to separate accounts, net 26,345,507 19,094,364 83,952,586 65,495,626 Death benefits (68,162) 694,831 2,782,394 2,163,196 Annuity benefits 66,181 (506,892) 401,929 30,802 Disability benefits 46,294 0 151,750 Surrender benefits 8,169,058 6,683,913 17,953,597 12,938,150 ----------- ----------- ------------ ----------- 32,583,251 25,997,185 110,768,586 90,979,309 Insurance expenses: Management fee 6,587,000 5,289,000 16,820,000 16,764,000 Commissions 6,896,707 4,471,643 20,718,353 13,449,277 General expenses 3,908,813 4,665,024 15,695,580 9,470,575 Commission and expense allowances on reinsurance assumed 55,942 13,329 386,701 942,979 Interest expense 142,375 0 427,125 0 ----------- ----------- ------------ ----------- 17,590,837 14,438,996 54,047,759 40,626,831 ----------- ----------- ------------ ----------- Loss before policyholder's dividends and federal income tax (2,988,116) (3,801,166) (15,501,083) (10,580,902) Dividends to policyholders 45,402 263,345 569,900 2,172,621 ----------- ----------- ------------ ----------- Loss before federal income tax (3,033,518) (4,064,511) (16,070,983) (12,753,523) Federal income tax benefit (1,009,802) 0 (5,388,798) 0 ----------- ----------- ------------ ----------- Net loss from operations after policyholders' dividends and federal income tax (2,023,716) (4,064,511) (10,682,185) (12,753,523) Net realized capital loss 48,859 38,348 (90,480) 630,788 ----------- ----------- ------------ ----------- Net loss from operations ($1,974,857) ($4,026,163) ($10,772,665) ($12,122,735) =========== =========== ============ ===========
76 83 The Manufacturers Life Insurance Company of America Statement of Changes in Capital and Surplus (Unaudited)
Capital Paid in Excess of Capital Par Value Surplus Total ----------- ----------- ------------ ----------- Balance, December 31, 1995 $23,501,857 $63,500,180 ($30,703,622) $56,298,415 Net loss from operations (10,772,665) (10,772,665) Issuance of common shares 1 14,999,999 15,000,000 Increase in asset valuation reserve (1,118,541) (1,118,541) Increase in nonadmitted assets 58,854 58,854 Change in net unrealized capital gains 1,754,077 1,754,077 Change in liability for reinsurance in unauthorized companies (105,244) (105,244) ----------- ----------- ------------ ----------- Balance, September 30, 1996 $23,501,858 $78,500,179 ($40,887,141) $61,114,896 =========== =========== ============ ===========
77 84 The Manufacturers Life Insurance Company of America Statement of Cash Flows (Unaudited)
Nine Months Ended September 30 1996 1995 ------------ ------------ Operating activities: Premiums collected, net $144,041,813 $117,159,968 Policy benefits paid, net (21,547,307) (15,137,221) Commissions and other expenses paid (51,399,430) (43,854,220) Net investment income 4,116,058 3,569,190 Other income and expenses (2,402,311) (1,351,829) Transfers to separate accounts, net (96,953,627) (72,596,690) ------------ ------------ Net cash (used in) provided by operating activities (24,144,804) (12,210,802) Investing activities Sale, maturity, or repayment of investments 85,756,967 62,744,420 Purchase of investments (77,501,732) (67,892,880) ------------ ------------ Net cash used in investing activities 8,255,235 (5,148,460) Financing activities Issuance of stock 15,000,000 5,150,000 ------------ ------------ Net cash provided by financing activities 15,000,000 5,150,000 ------------ ------------ Net increase in cash and short-term investments (889,569) (12,209,262) Cash and short-term investments at beginning of year 9,674,362 15,983,758 ------------ ------------ Cash and short-term investments at end of year $ 8,784,793 $ 3,774,496 ============ ============
78 85 The Manufacturers Life Insurance Company of America Notes to Financial Statements September 30, 1996 1. ORGANIZATION ORGANIZATION The Manufacturers Life Insurance Company of America (Manufacturers Life of America or the Company) is a wholly-owned subsidiary of Manulife Reinsurance Corporation (USA) (The Parent), (formerly Manufacturers Life Insurance Company of Michigan), which is in turn a wholly-owned subsidiary of The Manufacturers Life Insurance Company (Manulife Financial), a Canadian-based mutual life insurance company (Notes 4 and 5). The Company issues and sells variable universal life and variable annuity products in the United States. The Company also has a branch operation in Taiwan to develop and market traditional insurance for the Taiwanese market. At September 30, 1996 the Company had assets of $16,056,539 and liabilities of $10,333,710 in the Taiwan branch. During the nine months ended September 30, 1996, the Company received a capital contribution of $15,000,000 from the Parent in return for one share of common stock (par value $1). 2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited financial statements of The Manufacturers Life Insurance Company of America have been prepared in accordance with accounting practices for interim financial information and with the instructions to Form 10-Q and Article 10 of regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the financial statements and footnotes thereto included in the Annual Report on Form 10-K of the Company the year ended December 31, 1995. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial statements for these interim periods have been included. The results of interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. 79 86 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) BASIS OF PRESENTATION (CONTINUED) In April 1993, the Financial Accounting Standard Board issued Interpretation 40, "Applicability of Generally Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises." The Interpretation as amended is effective for 1996 annual financial statements and thereafter, will no longer allow statutory financial statements to be described as being prepared in conformity with generally accepted accounting principles (GAAP). Upon the effective date of the Interpretation, in order for financial statements to be described as being prepared in accordance with GAAP, life insurance companies will be required to adopt all applicable standards promulgated by the FASB in any general purpose financial statements such companies may issue. While GAAP standards have recently been developed for mutual life insurance companies, the Company has not yet completed the complex and extensive historical calculations and thus is unable to quantify the effects of the Interpretation on its financial statements. Thus the accompanying financial statements are presented in accordance with statutory accounting practices prescribed by the Insurance Department of the State of Michigan. All amounts presented are expressed in U.S. Dollars. STOCKS Stocks are carried at market value. BONDS Bonds not backed by other loans are carried at amortized cost as computed using the interest method. Loan backed bonds and other structured securities are valued at amortized cost using the interest method including anticipated prepayments. Prepayment assumptions are updated periodically and are accounted for using the prospective method. Gains and losses on sales of bonds are calculated on the specific identification method and recognized into income based on NAIC prescribed formulas. Short-term investments include investments with maturities of less than one year at the date of acquisition. Market values disclosed are based on NAIC quoted values. POLICY LOANS Policy loans are reported at unpaid principal balances which approximate fair value. ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE The Asset Valuation Reserve and Interest Maintenance Reserve were determined by NAIC prescribed formulas and are reported as liabilities rather than as valuation allowances or appropriations of surplus. POLICY AND CONTRACT CLAIMS Policy and contract claims are determined on an individual case basis for reported losses. Estimates of incurred but not reported losses are developed on the basis of past experience. 80 87 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SEPARATE ACCOUNTS Separate account assets and liabilities reported in the accompanying financial statements represent funds that are separately administered, principally for variable annuity and variable life contracts. For the majority of these contracts the contractholder, 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. REVENUE RECOGNITION Both premium and investment income are recorded when due. REINSURANCE Reinsurance premiums and claims are accounted for on a basis consistent with that used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums and claims are reported net of reinsured amounts. POLICY RESERVES Certain policy reserves are calculated based on statutorily required interest and mortality assumptions. 3. INVESTMENTS AND INVESTMENT INCOME The amortized cost and market value of investments in fixed maturities (bonds) as of September 30, 1996 is summarized as follows:
QUOTED OR GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZE MARKET COST GAINS LOSSES VALUE ----------- ----------- ----------- ----------- U.S. Government $23,574,727 $432,425 $(199,428) $23,807,724 Foreign Government 9,258,320 75,039 (43,707) 9,289,652 Corporate 24,930,739 558,435 (335,825) 25,153,349 ----------- ---------- ---------- ----------- $57,763,786 $1,065,899 $(578,960) $58,250,725 =========== ========== ========== ===========
81 88 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED) Proceeds from sales of investments in debt securities during 1996 were $81,149,600. Gross gains of $1,101,200 and gross losses of $1,615,209 were realized on those sales. The amortized cost and market value of investments in fixed maturities (bonds) as of December 31, 1995 is summarized as follows:
QUOTED OR GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- United States Government $15,145,033 $ 681,032 $(57,916) $15,768,149 Foreign Government 6,071,376 157,635 -- 6,229,011 Corporate 31,046,219 2,508,780 -- 33,554,999 Mortgage-backed securities: U.S. Government agencies 9,522,771 -- -- 9,522,771 Corporate 971,803 -- -- 971,803 ----------- ---------- -------- ----------- $62,757,202 $3,347,447 $(57,916) $66,046,733 =========== ========== ======== ===========
The amortized cost and market value of fixed maturities at September 30, 1996 by contractual maturities, 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.
YEARS TO MATURITY AMORTIZED COST MARKET VALUE ----------------- -------------- ------------ One year or less $ 3,370,562 $ 3,370,561 Greater than 1; up to 5 years 3,177,517 3,207,447 Greater than 5; up to 10 years 27,522,948 27,717,746 Due after 10 years 23,692,759 23,954,971 ----------- ----------- $57,763,786 $58,250,725 =========== ===========
At September 30, 1996, $10,644,347 of bonds at amortized cost were on deposit with government insurance departments to satisfy regulatory regulations. 82 89 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED) Major categories of net investment income for the first nine months were as follows:
NET INVESTMENT INCOME 1996 1995 --------- ---------- Gross investment income: Bond Income $3,285,074 $3,190,652 Policy Loans 434,845 296,205 Short-term investments 645,903 624,593 Dividend Income 95,983 7,848 ---------- ---------- 4,461,805 4.119,298 Investment Expenses (273,161) (265,106) ---------- ---------- Net investment income $4,188,644 $3,854,192 ========== ==========
4. RELATED PARTY TRANSACTIONS Manufacturers Life of America has a formal service agreement with Manulife Financial which can be terminated by either party upon two months' notice. Under the Agreement, Manufacturers Life of America will pay direct operating expenses incurred each year by Manulife Financial on behalf of Manufacturers Life of America. Services provided under the Agreement include legal, actuarial, investment, data processing and certain other administrative services. Costs incurred under this Agreement were $17,090,426 in the first nine months of 1996, and $17,029,106 in 1995. In addition, there was $4,916,476 agents' bonuses in 1996 and $3,697,487 in 1995 which were allocated to the Company and are included in commissions. In addition, the Company has several reinsurance agreements with Manulife Financial which may be terminated upon the specified notice by either party. These agreements are summarized as follows: (a) The Company assumes two blocks of insurance from Manulife Financial under coinsurance treaties. The Company's risk is limited to $100,000 of initial face amount per claim plus a pro-rata share of any increase in face amount. (b) The Company cedes the risk in excess of $25,000 per life to Manulife Financial 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 Manulife Financial under the terms of a stop loss reinsurance agreement. 83 90 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 4. RELATED PARTY TRANSACTIONS (CONTINUED) (d) Under the terms of an automatic coinsurance agreement, the Company cedes its risk on structured settlements to Manulife Financial. Selected amounts relating to the above treaties reflected in the financial statements are as follows:
1996 1995 __________ __________ Life and annuity premiums assumed $ 1,101,533 $ 5,540,618 Other life and annuity consideration ceded (371,518) (431,357) Commissions and expense allowances on reinsurance assumed (386,701) (942,979) Policy reserves assumed 45,019,396 47,386,235 Policy reserves ceded 3,853,375 3,833,247
5. FEDERAL INCOME TAX The Company joins the Parent, The Manufacturers Life Insurance Co. (USA) and Manulife Reinsurance Limited 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 dated December 29, 1983, the Company's income tax provision (or benefit) is computed as if the Company filed a separate income tax return. The Company receives no surtax exemption. 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. Taxes recoverable in the financial statements represent tax-related amounts receivable from affiliates. 84 91 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 6. STATUTORY RESTRICTIONS ON DIVIDENDS The Company is subject to statutory limitations on the payment of dividends to its Parent. The Company cannot pay dividends during 1996 without the prior approval of insurance regulatory authorities. 7. INVESTMENT IN SEPARATE ACCOUNTS The Company markets variable life insurance and variable annuity products through Separate Accounts which use Manulife Series Fund, Inc. as an investment vehicle. Common stock in the amount of $19,658,787 represents the Company's seed money investment in Manulife Series Fund, Inc.. 85 92 THE FOLLOWING FINANCIAL STATEMENTS OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA FOR THE PERIOD ENDED DECEMBER 31, 1995 ARE AUDITED. 86 93 Report of Independent Auditors The Board of Directors The Manufacturers Life Insurance Company of America We have audited the accompanying balance sheets of The Manufacturers Life Insurance Company of America as of December 31, 1995 and 1994, and the related statements of operations, changes in capital and surplus, and cash flows for each of the three years in the period ended December 31, 1995. 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 financial position of The Manufacturers Life Insurance Company of America at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles and with reporting practices prescribed or permitted by the Insurance Department of the State of Michigan. Philadelphia, Pennsylvania ERNST & YOUNG LLP February 2, 1996 87 94 The Manufacturers Life Insurance Company of America Balance Sheets DECEMBER 31 1995 1994 ----------------------------- ASSETS Bonds, at amortized cost (market $66,046,733-- 1995 and $51,082,395--1994) $ 62,757,202 $ 52,149,080 Stocks 22,584,259 25,629,580 Short-term investments -- 10,914,561 Policy loans 6,955,292 4,494,390 ------------ ------------ Total investments 92,296,753 93,187,611 Cash 9,674,362 5,069,197 Life insurance premiums deferred and uncollected 504,818 13,646 Accrued investment income 1,059,536 796,333 Separate account assets 480,404,450 302,736,198 Funds receivable on reinsurance assumed -- 880,284 Receivable for undelivered securities 146,328 69,003 Taxes recoverable 3,308,316 -- Investment in subsidiary 1,080,184 -- Other assets 267,015 333,651 ------------ ------------ Total assets $588,741,762 $403,085,923 ============ ============ LIABILITIES, CAPITAL AND SURPLUS Aggregate policy reserves $26,683,090 $29,761,174 Other contract deposits 1,238,943 3,938,425 Interest maintenance and asset valuation reserves 4,742,400 111,566 Policy and contract claims 582,853 94,346 Provision for policyholder dividends payable 2,346,258 1,385,409 Amounts due to affiliates 9,049,217 7,377,108 Payable for undelivered securities 80,821 3,512,459 Accrued liabilities 7,315,315 4,773,565 Separate account liabilities 480,404,450 302,736,198 ------------ ------------ Total liabilities 532,443,347 353,690,250 Capital and surplus: Common shares, par value $1.00; authorized, 5,000,000 shares; issued and outstanding 4,501,857 shares (4,501,855 shares in 1994) 4,501,857 4,501,855 Preferred shares, par value $100; authorized 5,000,000 shares; issued and outstanding 105,000 shares 10,500,000 10,500,000 Surplus note 8,500,000 -- Capital paid in excess of par value 63,500,180 49,849,998 Deficit (30,703,622) (15,456,180) ------------ ------------ Total capital and surplus 56,298,415 49,395,673 ------------ ------------ Total liabilities, capital and surplus $588,741,762 $403,085,923 ============ ============
See accompanying notes. 88 95 The Manufacturers Life Insurance Company of America Statements of Operations
YEAR ENDED DECEMBER 31 1995 1994 1993 ----------------------------------------------- Revenues: Life and annuity premiums, principally reinsurance assumed $5,956,997 $25,385,628 $12,745,981 Other life and annuity considerations 153,859,957 168,075,003 113,332,974 Investment income, net of investment expenses 5,840,560 3,588,629 3,323,962 Amortization of interest maintenance reserve 23,975 19,527 32,866 Commission and expense allowance on reinsurance ceded 147,109 187,694 -- Foreign exchange (loss) gain (284,127) 114,728 (197,971) Other revenue 211,191 54,763 33,935 ------------ ------------ ------------ Total revenues 165,755,662 197,425,972 129,271,747 Benefits paid or provided: (Decrease) increase in aggregate policy reserves (3,078,084) 16,741,569 5,168,484 (Decrease) increase in liability for deposit funds (2,699,482) 654,214 2,820,520 Transfers to separate accounts, net 99,807,392 136,896,150 98,601,141 Death benefits 3,981,377 640,875 582,534 Disability benefits 123,786 -- -- Maturity benefits 207,719 580,615 79,253 Surrender benefits 22,028,224 3,701,591 2,319,926 ------------ ------------ ------------ 120,370,932 159,215,014 109,571,858 Insurance expenses: Management fee 22,864,000 21,222,310 12,378,288 Commissions 21,411,198 23,416,110 14,742,130 General expenses 15,475,621 8,260,467 5,108,104 Commissions and expense allowances on reinsurance assumed 1,014,163 810,252 329,634 ------------ ------------ ------------ 60,764,982 53,709,139 32,558,156 ------------ ------------ ------------ Loss before policyholders' dividends and federal income tax (15,380,252) (15,498,181) (12,858,267) Dividends to policyholders 2,367,002 1,149,719 837,454 ------------ ------------ ------------ Loss before federal income tax (17,747,254) (16,647,900) (13,695,721) Federal income tax benefit (4,115,770) -- (324,643) ------------ ------------ ------------ Net loss from operations after policyholders' dividends and federal income tax (13,631,484) (16,647,900) (13,371,078) Net realized capital gains (net of capital gains tax of $807,453 in 1995; $0 in 1994, and $236,415 in 1993, and $1,567,770 in 1995, $(554,000) in 1994, and $347,292 in 1993 transferred (from) to the interest maintenance reserve) (73,343) (3,012,485) 93,618 ------------ ------------ ------------ Net loss from operations $(13,704,827) $(19,660,385) $(13,277,460) ============ ============ ============
See accompanying notes. 89 96 The Manufacturers Life Insurance Company of America Statements of Changes in Capital and Surplus
CAPITAL PAID IN EXCESS OF SURPLUS CAPITAL PAR VALUE (DEFICIT) TOTAL -------------------------------------------------------------------- Balance, December 31, 1992 $35,001,853 $4,000,000 $16,542,195 $55,544,048 Net loss from operations (13,277,460) (13,277,460) Issuance of preferred shares 1 5,849,999 5,850,000 Increase in asset valuation reserve (13,076) (13,076) Increase in nonadmitted assets (133,575) (133,575) Change in net unrealized capital losses (1,592,242) (1,592,242) Change in liability for reinsurance in unauthorized companies (29,905) (29,905) Company's share of increase in separate account assets, net 4,308,148 4,308,148 ----------- ----------- ------------ ----------- Balance, December 31, 1993 35,001,854 9,849,999 5,804,085 50,655,938 Net loss from operations (19,660,385) (19,660,385) Issuance of common stocks 1 19,999,999 20,000,000 Capital restructuring of preference shares (20,000,000) 20,000,000 -- Increase in asset valuation reserve (55,286) (55,286) Increase in nonadmitted assets (1,021,357) (1,021,357) Change in net unrealized capital losses (425,082) (425,082) Change in liability for reinsurance in unauthorized companies (98,155) (98,155) ----------- ----------- ------------ ----------- Balance, December 31, 1994 15,001,855 49,849,998 (15,456,180) 49,395,673 Net loss from operations (13,704,827) (13,704,827) Issuance of common shares 2 12,569,998 12,570,000 Issuance of surplus note 8,500,000 8,500,000 Contribution of Manufacturers Adviser Corporation 1,080,184 1,080,184 Increase in asset valuation reserve (3,285,208) (3,285,208) Increase in nonadmitted assets (1,053,124) (1,053,124) Change in net unrealized capital losses 2,921,742 2,921,742 Change in liability for reinsurance in unauthorized companies (126,025) (126,025) ----------- ----------- ------------ ----------- Balance, December 31, 1995 $23,501,857 $63,500,180 $(30,703,622) $56,298,415 =========== =========== ============ ===========
See accompanying notes. 90 97 The Manufacturers Life Insurance Company of America Statements of Cash Flows
YEAR ENDED DECEMBER 31 1995 1994 1993 ------------------------------------------------- OPERATING ACTIVITIES Premiums collected, net $159,337,079 $193,478,637 $126,075,035 Policy benefits paid, net (25,827,767) (4,982,444) (2,829,812) Commissions and other expenses paid (62,302,890) (48,141,400) (35,203,997) Net investment income 5,570,951 3,343,515 3,197,892 Other income and expenses (3,607,415) (1,946,063) (1,592,957) Transfers to separate accounts, net (98,031,353) (136,950,482) (98,220,292) Net cash (used in) provided by ------------ ------------ ------------ operating activities (24,861,395) 4,801,763 (8,574,131) INVESTING ACTIVITIES Sale, maturity, or repayment of investments 74,009,501 73,187,733 28,248,633 Purchase of investments (77,607,686) (91,063,874) (73,688,735) ------------ ------------ ------------ Net cash used in investing activities (3,598,185) (17,876,141) (45,440,102) FINANCING ACTIVITIES Issuance of shares 12,570,000 20,000,000 5,850,000 Contribution of Manufacturers Adviser Corporation 1,080,184 -- -- Issuance of surplus notes 8,500,000 -- -- Surplus withdrawn from separate account -- -- 48,701,076 ------------ ------------ ------------ Net cash provided by financing activities 22,150,184 20,000,000 54,551,076 ------------ ------------ ------------ Net (decrease) increase in cash and short-term investments (6,309,396) 6,925,622 536,843 Cash and short-term investments at beginning of year 15,983,758 9,058,136 8,521,293 ------------ ----------- ------------ Cash and short-term investments at end of year $ 9,674,362 $15,983,758 $ 9,058,136 ============ =========== ============
See accompanying notes. 91 98 The Manufacturers Life Insurance Company of America Notes to Financial Statements December 31, 1995 1. ORGANIZATION ORGANIZATION The Manufacturers Life Insurance Company of America (Manufacturers Life of America or the Company) is a wholly-owned subsidiary of Manulife Reinsurance Corporation (U.S.A.) (the Parent), (formerly Manufacturers Life Insurance Company of Michigan), which is in turn a wholly-owned subsidiary of The Manufacturers Life Insurance Company (Manulife Financial), a Canadian-based mutual life insurance company (Notes 4 and 5). The Company issues and sells variable universal life and variable annuity products in the United States. The Company also has a branch operation in Taiwan to develop and market traditional insurance for the Taiwanese market. At December 31, 1995 the Company had assets of $11,234,000 and liabilities of $5,696,000 in the Taiwan branch. During 1995, the Company's parent contributed $12,570,000 of capital in return for 2 shares of the Company's common stock par value $1 with the remaining $12,569,998 being recorded as contributed surplus. During 1995, the Company's parent transferred 100% of the outstanding stock of Manufacturers Adviser Corporation to the Company which was recorded at book values as contributed surplus. During 1995, the Company's parent also contributed $8,500,000 in return for a 10-year surplus note bearing interest at 6.625%. Subsequent to the year end, the Parent contributed $15,000,000 capital in return for 1 share of the Company's common stock par value $1 with the remaining $14,999,999 being recorded as contributed surplus. During 1994, the Company's parent contributed $20,000,000 of capital in return for 1 share of the Company's common stock par value $1 with the remaining $19,999,999 being recorded as contributed surplus. During 1994, the Company restructured its capital by exchanging 230,000 shares of preferred stock with a par value of $23,000,000 for 3,000,000 shares of common stock par value $3,000,000 with the remaining $20,000,000 being recorded as contributed surplus. The Parent contributed $5,850,000 in capital in return for 1 share of common stock during 1993. 92 99 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial statements of Manufacturers Life of America have been prepared in accordance with accounting practices prescribed or permitted by the Insurance Department of Michigan, which are considered generally accepted accounting principles for mutual life insurance companies and their wholly-owned direct and indirect subsidiaries. Such practices differ in certain respects from generally accepted accounting principles followed by stock life insurance companies in determining financial position and results of operations. In general, the differences are: (1) commissions and other costs of acquiring and writing policies are charged to expense in the year incurred rather than being amortized over the related policy term; (2) certain non-admitted assets are excluded from the balance sheet; (3) deferred income taxes are not provided for timing differences in recording certain items for financial statement and tax purposes; (4) certain transactions are reflected directly to surplus rather than reflected in net income from operations (for example, certain transactions related to the separate accounts); and (5) debt securities are carried at amortized cost. In April 1993, the Financial Accounting Standards Board issued Interpretation No. 40, "Applicability of Generally Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises." The Interpretation as amended is effective for 1996 annual financial statements and thereafter, and will no longer allow statutory financial statements to be described as being prepared in conformity with generally accepted accounting principles (GAAP). Upon the effective date of the Interpretation, in order for financial statements to be described as being prepared in accordance with GAAP, life insurance companies will be required to adopt all applicable standards promulgated by the FASB in any general purpose financial statements such companies may issue. While GAAP standards have recently been developed for mutual life insurance companies, the Company has not yet completed the complex and extensive historical calculations and thus is unable to quantify the effects of the Interpretation on its financial statements. The preparation of financial statements of insurance companies requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. All amounts presented are expressed in U.S. Dollars. Certain amounts from prior periods have been reclassified to conform with current-period presentation. 93 100 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCKS Stocks are carried at market value. BONDS Bonds not backed by other loans are carried at amortized cost as computed using the interest method. Loan backed bonds and other structured securities are valued at amortized cost using the interest method including anticipated prepayments. Prepayment assumptions are updated periodically and are accounted for using the prospective method. Gains and losses on sales of bonds are calculated on the specific identification method and recognized into income based on NAIC prescribed formulas. Short-term investments include investments with maturities of less than one year at the date of acquisition. Market values disclosed are based on NAIC quoted values. POLICY LOANS Policy loans are reported at unpaid principal balances which approximate fair value. ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE The Asset Valuation Reserve and Interest Maintenance Reserve were determined by NAIC prescribed formulas and are reported as liabilities rather than as valuation allowances or appropriations of surplus. POLICY AND CONTRACT CLAIMS Policy and contract claims are determined on an individual case basis for reported losses. Estimates of incurred but not reported losses are developed on the basis of past experience. 94 101 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SEPARATE ACCOUNTS Separate account assets and liabilities reported in the accompanying financial statements represent funds that are separately administered, principally for variable annuity and variable life contracts. For the majority of these contracts the contractholder, 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. REVENUE RECOGNITION Both premium and investment income are recorded when due. INVESTMENT IN SUBSIDIARIES The investment in Manufacturers Adviser Corporation ("MAC") is carried at net equity of MAC as computed under generally accepted accounting principles. Undistributed income and loss is treated as a component of unrealized gains and losses and applies directly to capital and surplus. REINSURANCE Reinsurance premiums and claims are accounted for on a basis consistent with that used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums and claims are reported net of reinsured amounts. POLICY RESERVES Certain policy reserves are calculated based on statutorily required interest and mortality assumptions. 95 102 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 3. INVESTMENTS AND INVESTMENT INCOME The amortized cost and market value of investments in fixed maturities (bonds) as of December 31, 1995 is summarized as follows:
QUOTED OR GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET NAME OF PERSON COST GAINS LOSSES VALUE - -------------- --------- ---------- ---------- --------- United States Government $15,145,033 $681,032 $ (57,916) $15,768,149 Foreign governments 6,071,376 157,635 -- 6,229,011 Corporate 31,046,219 2,508,780 -- 33,554,999 Mortgage-backed securities: U.S. Government agencies 9,522,771 -- -- 9,522,771 Corporate 971,803 -- -- 971,803 ----------- ---------- ---------- ----------- $62,757,202 $3,347,447 $ (57,916) $66,046,733 =========== ========== ========== ===========
Proceeds from sales of investments in debt securities during 1995 were $67,506,660. Gross gains of $2,630,790 and gross losses of $218,778 were realized on those sales. The amortized cost and market value of investments in fixed maturities (bonds) as of December 31, 1994 is summarized as follows:
QUOTED OR GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET NAME OF PERSON COST GAINS LOSSES VALUE - -------------- --------- ---------- ---------- --------- United States Government $31,784,581 $ 243,971 $(441,592) $31,586,960 Foreign governments 7,388,458 -- (294,385) 7,094,073 Corporate 9,986,244 2,457 (577,136) 9,411,565 Mortgage-backed securities: U.S. Government agencies 2,480,571 -- -- 2,480,571 Corporate 509,226 -- -- 509,226 ----------- --------- ----------- ----------- $52,149,080 $ 246,428 $(1,313,113) $51,082,395 =========== ========= =========== ===========
Proceeds from sales of investments in debt securities during 1994 were $43,175,845. Gross gains of $167,738 and gross losses of $1,006,702 were realized on those sales. 96 103 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED) The amortized cost and market value of fixed maturities at December 31, 1995 by contractual maturities, 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.
YEARS TO MATURITY AMORTIZED COST MARKET VALUE - ------------------------------ -------------- ------------ One year or less $564,857 $564,857 Greater than 1; up to 5 years 4,079,679 4,181,361 Greater than 5; up to 10 years 14,786,283 15,858,075 Due after 10 years 32,831,809 34,947,866 Mortgage-backed securities 10,494,574 10,494,574 ----------- ----------- $62,757,202 $66,046,733 =========== ===========
At December 31, 1995, $6,617,749 of bonds at amortized cost were on deposit with government insurance departments to satisfy regulatory regulations. Major categories of net investment income for each year were as follows:
NET INVESTMENT INCOME 1995 1994 1993 ---- ---- ---- Gross investment income: Dividends; Manulife Series Fund, Inc. (Note 9) $645,908 $1,244,794 $1,440,392 Bond income 4,430,236 1,712,294 1,422,064 Policy loans 360,406 236,972 166,514 Short-term investments 754,346 501,477 384,178 ---------- ---------- ---------- 6,190,896 3,695,537 3,413,148 Investment expenses (350,336) (106,908) (89,186) ---------- ---------- ---------- Net investment income $5,840,560 $3,588,629 $3,323,962 ========== ========== ==========
97 104 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 4. RELATED PARTY TRANSACTIONS Manufacturers Life of America has a formal service agreement with Manulife Financial which can be terminated by either party upon two months' notice. Under the Agreement, Manufacturers Life of America will pay direct operating expenses incurred each year by Manulife Financial on behalf of Manufacturers Life of America. Services provided under the Agreement include legal, actuarial, investment, data processing and certain other administrative services. Costs incurred under this Agreement were $23,211,484 in 1995, $21,326,446 in 1994, and $12,467,474 in 1993. In addition, there were $5,052,062 agents' bonuses in 1995, $7,795,184 in 1994, and $5,363,558 in 1993 which were allocated to the Company and are included in commissions. In addition, the Company has several reinsurance agreements with Manulife Financial which may be terminated upon the specified notice by either party. These agreements are summarized as follows: (a) The Company assumes two blocks of insurance from Manulife Financial under coinsurance treaties. The Company's risk is limited to $100,000 of initial face amount per claim plus a pro-rata share of any increase in face amount. (b) The Company cedes the risk in excess of $25,000 per life to Manulife Financial 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 Manulife Financial under the terms of a stop loss reinsurance agreement. (d) Under the terms of an automatic coinsurance agreement, the Company cedes its risk on structured settlements to Manulife Financial. 98 105 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 4. RELATED PARTY TRANSACTIONS (CONTINUED) Selected amounts relating to the above treaties reflected in the financial statements are as follows:
1995 1994 1993 ---- ---- ---- Life and annuity premiums assumed $5,956,997 $25,385,628 $12,745,981 Other life and annuity considerations ceded (598,330) (437,650) (201,685) Commissions and expense allowances on reinsurance assumed (1,014,163) (810,252) (329,634) Policy reserves assumed 48,714,791 47,672,591 23,070,952 Policy reserves ceded 3,833,247 3,786,647 3,782,156
During 1993, the Company assumed the first $50,000 of initial face amount on two blocks of business. This resulted in transfers of $10,837,000 to establish the initial reserves. In 1994 the treaties were amended to assume the first $100,000 of initial face amount for the same blocks of business. This resulted in a transfer of $21,477,000 to establish the additional reserve. Commissions equal to 17% are charged for all renewed premiums related to these contracts. During 1994, the Company terminated another treaty resulting in a premium to Manulife Financial to transfer the reserve of $799,874. Manulife Financial provides a claims paying guarantee to all U.S. policyholders. 5. FEDERAL INCOME TAX The Company joins the Parent, The Manufacturers Life Insurance Co. (U.S.A.) and Manufacturers Reinsurance Limited 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 dated December 29, 1983, the Company's income tax provision (or benefit) is computed as if the Company filed a separate income tax return. The Company receives no surtax exemption. 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. Taxes recoverable in the financial statements represent tax-related amounts receivable from affiliates. 99 106 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 5. FEDERAL INCOME TAX The Company, Parent and The Manufacturers Life Insurance Co. (U.S.A.) have available consolidated net operating losses of approximately $51,400,000 which will expire in the year 2009 and capital loss carryforwards of approximately $102,800,000 which will expire in 1999. The losses of the Company, Parent and the Manufacturers Life Insurance Co. (U.S.A.) may be used to offset the ordinary and capital gain income of Manufacturers Reinsurance Limited. 6. STATUTORY RESTRICTIONS ON DIVIDENDS The Company is subject to statutory limitations on the payment of dividends to its Parent. The Company cannot pay dividends during 1995 without the prior approval of insurance regulatory authorities. 7. REINSURANCE The Company cedes reinsurance as a party to several reinsurance treaties with major unrelated insurance companies. The Company remains obligated for amounts ceded in the event reinsurers do not meet their obligations. Summary financial information related to these reinsurance activities is as follows:
1995 1994 1993 ---- ---- ---- Life insurance premiums ceded $275,145 $218,767 $130,913
100 107 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 8. RESERVES Aggregate policy reserves for life policies including variable life, are based on statutory mortality tables and interest assumptions using either the net level or commissioners' reserve valuation method. The composition of the aggregate policy reserves at December 31, 1995 and 1994 is as follows:
MORTALITY INTEREST AGGREGATE RESERVES TABLE RATES ------------------ ----- -------- 1995 1994 ---- ---- $25,561,456 $28,553,885 1980 CSO 4% (173,768) (189,080) Reinsurance ceded 1,295,402 1,396,369 Miscellaneous - ----------- ----------- $26,683,090 $29,761,174 =========== ===========
At December 31, 1995 the Company's annuity reserves and deposit fund liabilities are comprised as follows:
AMOUNT PERCENT ------ ------- (in 000's) Subject to discretionary withdrawal: With market value adjustment $222,994 97.8% At book value less current surrender charge 1,239 .5% Not subject to discretionary withdrawal 3,863 1.7% -------- ----- Total gross annuity actuarial reserves and deposit fund liabilities $228,096 100% ======== =====
9. INVESTMENT IN SEPARATE ACCOUNTS During 1984, the Company initiated plans to market variable life insurance products through Separate Account One of The Manufacturers Life Insurance Company of America ("Separate Account One") using Manulife Series Fund, Inc. as its investment vehicle. Initial capitalization was $15,000,000. Through 1988, the Company provided an additional capitalization of $6,000,000. 101 108 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 9. INVESTMENT IN SEPARATE ACCOUNTS (CONTINUED) In December 1993, the Company transferred all of its shares, related to seed money, in Manulife Series Fund, Inc. out of Separate Account One to the General Account. At December 31, 1995, the $22,584,259 common stock represents the Company's seed money investment in Manulife Series Fund, Inc. During 1995, 1994, and 1993, the following dividends were received from Manulife Series Fund, Inc.:
1995 1994 1993 ---- ---- ---- Separate Account One $24,041 $38,732 $1,610,693 Separate Account Two 3,520,461 4,574,620 7,377,861 Separate Account Three 1,693,796 1,490,374 666,141 Separate Account Four 2,445,127 3,072,376 4,966,559 General Account 645,908 1,244,794 1,440,392
Dividends have been reinvested by the Company in Manulife Series Fund, Inc. During 1993, the Company withdrew $8,000,000 of its seed money and accumulated earnings from Separate Account One and the Manulife Series Fund, Inc. and utilized these funds to pay down its intercompany debt. During 1994, the Company withdrew $13,011,137 of its seed money and accumulated earnings from the Manulife Series Fund, Inc. and utilized these funds to pay down its intercompany debt. During 1995, the Company withdrew $6,500,000 of its seed money and accumulated earnings from the Manulife Series Fund, Inc. and utilized these funds to pay down its intercompany debt. 102 109 APPENDIX What Are Some Illustrations Of Policy Values, Cash Surrender Values And Death Benefits? The following tables have been prepared to help show how values under the Policy change with investment performance. The tables include both Policy Values and Cash Surrender Values as well as Death Benefits. The Policy Value is the sum of the values in the Investment Accounts, as the tables assume no values in the Guaranteed Interest Account or Loan Account. The Cash Surrender Value is the Policy Value less the deferred sales charge and deferred underwriting charge. The tables illustrate how Policy Values and Cash Surrender Values, which reflect the deduction of all applicable charges including the premium tax charge and the sales charge, and death benefits of the Policy on an insured of a given age would vary over time if the return on the assets of the Portfolios was a uniform, gross, after-tax, annual rate of 0%, 6% or 12%. The Policy Values, death benefits and Cash Surrender Values would be different from those shown if the returns averaged 0%, 6% or 12%, but fluctuated over and under those averages throughout the years. The amounts shown for the Policy Value, death benefit and Cash Surrender Value as of each policy year reflect the fact that the net investment return on the assets held in the sub-accounts is lower than the gross, after-tax return. This is because the daily charge to the Separate Account for assuming mortality and expense risks (0.65% on an annual basis) and the expenses and fees borne by NASL Series Trust are deducted from the gross return. The illustrations reflect an average of those Portfolios' expenses, which is approximately 0.90% per annum (for current charges) and 1.27% per annum (for guaranteed charges). The gross annual rates of return of 0%, 6% and 12% correspond to approximate net annual rates of return of -1.54%, 4.37%, and 10.28% (for current charges) and -1.91%, 3.98% and 9.86% (for guaranteed charges). The tables assume that no premiums have been allocated to the Guaranteed Interest Account, that planned premiums are paid on the policy anniversary and that no transfers, partial withdrawals, policy loans, changes in death benefit options or changes in face amount have been made. The tables reflect the fact that no charges for federal, state or local taxes are currently made against the Separate Account. If such a charge is made in the future, it will take a higher gross rate of return to produce after-tax returns of 0%, 6% and 12% than it does now. There are two tables shown for each combination of age and death benefit option for male nonsmokers, one based on current cost of insurance charges assessed by the Company and the other based on the maximum cost of insurance charges based on the 1980 Commissioners Standard Ordinary Smoker/ Nonsmoker Mortality Tables. Current cost of insurance charges are not guaranteed and may be changed. Upon request, Manufacturers Life of America will furnish a comparable illustration based on the proposed life insured's age, sex and risk class, any additional ratings and the death benefit option, face amount and planned premium requested. Illustrations for smokers would show less favorable results than the illustrations shown below. 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 103 110 cash surrender values and death benefit figures computed 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 December 7, 1987. 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. 104 111 The following illustrations of Policy Values, Cash Surrender Values and Death Benefits are applicable to Policies purchased on or after October 1, 1996. 105 112 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Nonsmoker Issue Age 25 $100,000 Face Amount Death Benefit Option 1 $575 Annual Planned Premium ASSUMING CURRENT CHARGES 0% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $604 $320 $0 $100,000 2 1,238 639 0 100,000 3 1,903 956 189 100,000 4 2,602 1,270 503 100,000 5 3,336 1,579 812 100,000 6 4,107 1,884 1,194 100,000 7 4,916 2,182 1,569 100,000 8 5,765 2,474 1,937 100,000 9 6,657 2,757 2,297 100,000 10 7,594 3,031 2,647 100,000 15 13,028 4,254 4,254 100,000 20 19,964 5,100 5,100 100,000 25 28,815 5,680 5,680 100,000 30 40,112 5,504 5,504 100,000
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 106 113 6% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $604 $345 $0 $100,000 2 1,238 710 0 100,000 3 1,903 1,093 326 100,000 4 2,602 1,495 728 100,000 5 3,336 1,915 1,148 100,000 6 4,107 2,354 1,664 100,000 7 4,916 2,811 2,197 100,000 8 5,765 3,286 2,749 100,000 9 6,657 3,777 3,317 100,000 10 7,594 4,285 3,902 100,000 15 13,028 7,098 7,098 100,000 20 19,964 10,284 10,284 100,000 25 28,815 14,054 14,054 100,000 30 40,112 18,053 18,053 100,000
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 107 114 12% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $604 $371 $0 $100,000 2 1,238 784 17 100,000 3 1,903 1,243 475 100,000 4 2,602 1,750 983 100,000 5 3,336 2,311 1,544 100,000 6 4,107 2,931 2,240 100,000 7 4,916 3,612 2,998 100,000 8 5,765 4,362 3,825 100,000 9 6,657 5,186 4,726 100,000 10 7,594 6,090 5,706 100,000 15 13,028 12,141 12,141 100,000 20 19,964 21,751 21,751 100,000 25 28,815 37,409 37,409 100,000 30 40,112 62,799 62,799 102,945
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 108 115 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Nonsmoker Issue Age 25 $100,000 Face Amount Death Benefit Option 1 $575 Annual Planned Premium ASSUMING GUARANTEED CHARGES 0% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $604 $318 $0 $100,000 2 1,238 632 0 100,000 3 1,903 942 175 100,000 4 2,602 1,249 482 100,000 5 3,336 1,550 783 100,000 6 4,107 1,846 1,155 100,000 7 4,916 2,134 1,520 100,000 8 5,765 2,413 1,876 100,000 9 6,657 2,683 2,223 100,000 10 7,594 2,943 2,560 100,000 15 13,028 4,042 4,042 100,000 20 19,964 4,698 4,698 100,000 25 28,815 4,738 4,738 100,000 30 40,112 3,847 3,847 100,000
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 109 116 6% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $604 $344 0 $100,000 2 1,238 702 0 100,000 3 1,903 1,078 311 100,000 4 2,602 1,471 704 100,000 5 3,336 1,880 1,113 100,000 6 4,107 2,306 1,616 100,000 7 4,916 2,747 2,133 100,000 8 5,765 3,203 2,666 100,000 9 6,657 3,673 3,213 100,000 10 7,594 4,157 3,774 100,000 15 13,028 6,750 6,750 100,000 20 19,964 9,544 9,544 100,000 25 28,815 12,382 12,382 100,000 30 40,112 14,941 14,941 100,000
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 110 117 12% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $604 $369 $0 $100,000 2 1,238 776 9 100,000 3 1,903 1,226 458 100,000 4 2,602 1,722 955 100,000 5 3,336 2,269 1,502 100,000 6 4,107 2,870 2,180 100,000 7 4,916 3,529 2,915 100,000 8 5,765 4,251 3,714 100,000 9 6,657 5,040 4,580 100,000 10 7,594 5,903 5,519 100,000 15 13,028 11,549 11,549 100,000 20 19,964 20,266 20,266 100,000 25 28,815 33,835 33,835 100,000 30 40,112 55,272 55,272 100,000
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 111 118 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Nonsmoker Issue Age 25 $100,000 Face Amount Death Benefit Option 2 $575 Annual Planned Premium ASSUMING CURRENT CHARGES 0% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $604 $319 $0 $100,319 2 1,238 637 0 100,637 3 1,903 953 186 100,953 4 2,602 1,265 497 101,265 5 3,336 1,572 804 101,572 6 4,107 1,874 1,183 101,874 7 4,916 2,169 1,555 102,169 8 5,765 2,458 1,920 102,458 9 6,657 2,737 2,276 102,737 10 7,594 3,006 2,622 103,006 15 13,028 4,197 4,197 104,197 20 19,964 4,989 4,989 104,989 25 28,815 5,498 5,498 105,498 30 40,112 5,209 5,209 105,209
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE 112 119 DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 113 120 6% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $604 $345 $0 $100,345 2 1,238 708 0 100,708 3 1,903 1,090 322 100,090 4 2,602 1,489 722 101,489 5 3,336 1,906 1,139 101,906 6 4,107 2,341 1,651 102,341 7 4,916 2,793 2,179 102,793 8 5,765 3,262 2,725 103,262 9 6,657 3,747 3,287 103,747 10 7,594 4,247 3,863 104,247 15 13,028 6,992 6,992 106,992 20 19,964 10,033 10,003 110,003 25 28,815 13,545 13,545 113,545 30 40,112 17,020 17,020 117,020
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 114 121 12% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $604 $370 $0 $100,370 2 1,238 782 15 100,782 3 1,903 1,238 471 101,238 4 2,602 1,743 976 101,743 5 3,336 2,300 1,523 102,300 6 4,107 2,914 2,223 102,914 7 4,916 3,588 2,974 103,588 8 5,765 4,329 3,792 104,329 9 6,657 5,142 4,681 105,142 10 7,594 6,031 5,648 106,031 15 13,028 11,943 11,943 111,943 20 19,964 21,173 21,173 121,173 25 28,815 35,936 35,936 135,936 30 40,112 59,009 59,009 159,009
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 115 122 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Nonsmoker Issue Age 25 $100,000 Face Amount Death Benefit Option 2 $575 Annual Planned Premium ASSUMING GUARANTEED CHARGES 0% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $604 318 $0 $100,318 2 1,238 630 0 100,630 3 1,903 939 172 100,939 4 2,602 1,244 477 101,244 5 3,336 1,543 775 101,543 6 4,107 1,836 1,145 101,836 7 4,916 2,120 1,507 102,120 8 5,765 2,397 1,860 102,397 9 6,657 2,663 2,203 102,663 10 7,594 2,918 2,534 102,918 15 13,028 3,985 3,985 103,985 20 19,964 4,586 4,586 104,586 25 28,815 4,543 4,543 104,543 30 40,112 3,539 3,539 103,539
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 116 123 6% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $604 $343 $0 $100,343 2 1,238 700 0 100,700 3 1,903 1,074 307 101,074 4 2,602 1,465 698 101,465 5 3,336 1,871 1,104 101,871 6 4,107 2,293 1,603 102,293 7 4,916 2,730 2,116 102,730 8 5,765 3,180 2,643 103,180 9 6,657 3,643 3,183 103,643 10 7,594 4,119 3,735 104,119 15 13,028 6,644 6,644 106,644 20 19,964 9,292 9,292 109,292 25 28,815 11,834 11,834 111,834 30 40,112 13,819 13,819 113,819
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 117 124 12% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $604 $368 $0 $100,368 2 1,238 774 7 100,774 3 1,903 1,221 454 101,221 4 2,602 1,715 948 101,715 5 3,336 2,258 1,490 102,258 6 4,107 2,854 2,163 102,854 7 4,916 3,305 2,892 103,505 8 5,765 4,218 3,681 104,218 9 6,657 4,996 4,536 104,996 10 7,594 5,845 5,461 105,845 15 13,028 11,353 11,353 111,353 20 19,964 19,686 19,686 119,686 25 28,815 32,251 32,251 132,251 30 40,112 51,101 51,101 151,101
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 118 125 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Nonsmoker Issue Age 45 $100,000 Face Amount Death Benefit Option 1 $1,325 Annual Planned Premium ASSUMING CURRENT CHARGES 0% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $1,391 $997 $0 $100,000 2 2,852 1,903 343 100,000 3 4,386 2,729 1,169 100,000 4 5,996 3,503 1,943 100,000 5 7,688 4,239 2,679 100,000 6 9,463 4,902 3,498 100,000 7 11,328 5,535 4,287 100,000 8 13,285 6,146 5,054 100,000 9 15,341 6,706 5,770 100,000 10 17,499 7,212 6,432 100,000 15 30,021 8,838 8,838 100,000 20 46,003 8,144 8,144 100,000 25 66,400 4,724 4,724 100,000 30 92,433 0(5) 0(5) 0(5)
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. (5) In the absence of additional premium payments, the Policy will lapse. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 119 126 6% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $1,391 $1,063 $41 $100,000 2 2,852 2,096 536 100,000 3 4,386 3,105 1,545 100,000 4 5,996 4,120 2,560 100,000 5 7,688 5,153 3,593 100,000 6 9,463 6,169 4,765 100,000 7 11,328 7,212 5,964 100,000 8 13,285 8,290 7,198 100,000 9 15,341 9,376 8,440 100,000 10 17,499 10,467 9,687 100,000 15 30,021 15,945 15,945 100,000 20 46,003 20,661 20,661 100,000 25 66,400 24,320 24,320 100,000 30 92,433 23,591 23,591 100,000
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 120 127 12% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $1,391 $1,130 $107 $100,000 2 2,852 2,297 737 100,000 3 4,386 3,514 1,954 100,000 4 5,996 4,817 3,257 100,000 5 7,688 6,229 4,669 100,000 6 9,463 7,725 6,321 100,000 7 11,328 9,360 8,112 100,000 8 13,285 11,156 10,064 100,000 9 15,341 13,101 12,165 100,000 10 17,499 15,211 14,431 100,000 15 30,021 28,947 28,947 100,000 20 46,003 50,203 50,203 100,000 25 66,400 85,970 85,970 100,000 30 92,433 145,806 145,806 156,012
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 121 128 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Non-Smoker Issue Age 45 $100,000 Face Amount Death Benefit Option 1 $1,325 Annual Planned Premium ASSUMING GUARANTEED CHARGES 0% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $1,391 $993 $0 $100,000 2 2,852 1,790 230 100,000 3 4,386 2,548 988 100,000 4 5,996 3,264 1,704 100,000 5 7,688 3,937 2,377 100,000 6 9,463 4,565 3,161 100,000 7 11,328 5,142 3,894 100,000 8 13,285 5,665 4,573 100,000 9 15,341 6,128 5,192 100,000 10 17,499 6,524 5,744 100,000 15 30,021 7,321 7,321 100,000 20 46,003 5,333 5,333 100,000 25 66,400 0(4) 0(4) 100,000(4) 30 92,433 0(5) 0(5) 0(5)
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. (4) Provided the Minimum Premium Requirement has been met, the death benefit guarantee will have kept the Policy in force until this point, i.e. the policy anniversary on which the life insured is 70 years old, at which time the death benefit guarantee will expire and in the absence of additional premium payments the Policy will lapse. (5) In the absence of additional premium payments, the Policy will lapse. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 122 129 6% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $1,391 $1,059 $36 $100,000 2 2,852 1,979 419 100,000 3 4,386 2,910 1,350 100,000 4 5,996 3,852 2,292 100,000 5 7,688 4,801 3,241 100,000 6 9,463 5,758 4,354 100,000 7 11,328 6,715 5,467 100,000 8 13,285 7,668 6,576 100,000 9 15,341 8,611 7,675 100,000 10 17,499 9,537 8,757 100,000 15 30,021 13,698 13,698 100,000 20 46,003 16,145 16,145 100,000 25 66,400 14,382 14,382 100,000 30 92,433 2,946 2,946 100,000
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 123 130 12% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $1,391 $1,126 $103 $100,000 2 2,852 2,176 616 100,000 3 4,386 3,304 1,744 100,000 4 5,996 4,518 2,956 100,000 5 7,688 5,822 4,262 100,000 6 9,463 7,225 5,821 100,000 7 11,328 8,732 7,484 100,000 8 13,285 10,349 9,257 100,000 9 15,341 12,082 11,146 100,000 10 17,499 13,939 13,159 100,000 15 30,021 25,468 25,468 100,000 20 46,003 42,260 42,260 100,000 25 66,400 68,220 68,220 100,000 30 92,433 113,056 113,056 120,969
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 124 131 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Nonsmoker Issue Age 45 $100,000 Face Amount Death Benefit Option 2 $1,325 Annual Planned Premium ASSUMING CURRENT CHARGES 0% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $1,391 $995 $0 $100,995 2 2,852 1,896 336 101,896 3 4,386 2,712 1,152 102,712 4 5,996 3,473 1,913 103,473 5 7,688 4,191 2,631 104,191 6 9,463 4,831 3,427 104,831 7 11,328 5,437 4,189 105,437 8 13,285 6,017 4,925 106,017 9 15,341 6,540 5,604 106,540 10 17,499 7,002 6,222 107,002 15 30,021 8,302 8,302 108,302 20 46,003 7,067 7,067 107,067 25 66,400 3,067 3,067 103,067 30 92,433 0(5) 0(5) 0(5)
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. (5) In the absence of additional premium payments, the Policy will lapse. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE 125 132 THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 126 133 6% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $1,391 $1,061 $39 $101,061 2 2,852 2,088 528 102,088 3 4,386 3,086 1,526 103,086 4 5,996 4,084 2,524 104,084 5 7,688 5,094 3,534 105,094 6 9,463 6,078 4,674 106,078 7 11,328 7,080 5,832 107,080 8 13,285 8,109 7,017 108,109 9 15,341 9,133 8,197 109,133 10 17,499 10,147 9,367 110,147 15 30,021 14,931 14,931 114,931 20 46,003 18,030 18,030 118,030 25 66,400 18,610 18,610 118,610 30 92,433 12,079 12,079 112,079
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 127 134 12% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $1,391 $1,128 $105 $101,128 2 2,852 2,289 729 102,289 3 4,386 3,493 1,933 103,493 4 5,996 4,775 3,215 104,775 5 7,688 6,157 4,597 106,157 6 9,463 7,608 6,204 107,608 7 11,328 9,183 7,935 109,183 8 13,285 10,903 9,811 110,903 9 15,341 12,747 11,811 112,747 10 17,499 14,726 13,946 114,726 15 30,021 27,033 27,033 127,033 20 46,003 43,832 43,832 143,832 25 66,400 67,520 67,520 167,520 30 92,433 97,842 97,842 197,842
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 128 135 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Nonsmoker Issue Age 45 $100,000 Face Amount Death Benefit Option 2 $1,325 Annual Planned Premium ASSUMING GUARANTEED CHARGES 0% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $1,391 $991 $0 $100,991 2 2,852 1,781 221 101,781 3 4,386 2,528 968 102,528 4 5,996 3,230 1,670 103,230 5 7,688 3,885 2,325 103,885 6 9,463 4,490 3,086 104,490 7 11,328 5,040 3,792 105,040 8 13,285 5,530 4,438 105,530 9 15,341 5,954 5,018 105,954 10 17,499 6,305 5,525 106,305 15 30,021 6,769 6,769 106,769 20 46,003 4,301 4,301 104,301 25 66,400 0(4) 0(4) 100,000(4) 30 92,433 0(5) 0(5) 0(5)
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. (4) Provided the Minimum Premium Requirement has been met, the death benefit guarantee will have kept the Policy in force until this point, i.e. the policy anniversary on which the life insured is 70 years old, at which time the death benefit guarantee will expire and in the absence of additional premium payments the Policy will lapse. (5) In the absence of additional premium payments, the Policy will lapse. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 129 136 6% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $1,391 $1,057 $34 $101,057 2 2,852 1,969 409 101,969 3 4,386 2,888 1,328 102,888 4 5,996 3,812 2,252 103,812 5 7,688 4,736 3,177 104,736 6 9,463 5,661 4,257 105,661 7 11,328 6,577 5,329 106,577 8 13,285 7,477 6,385 107,477 9 15,341 8,356 7,420 108,356 10 17,499 9,202 8,422 109,202 15 30,021 12,641 12,641 112,641 20 46,003 13,510 13,510 113,510 25 66,400 8,860 8,860 108,860 30 92,433 0(4) 0(4) 0(4)
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. (4) In the absence of additional premium payments, the Policy will lapse. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 130 137 12% Hypothetical Gross Investment Return
End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $1,391 $1,123 $101 $101,123 2 2,852 2,165 605 102,165 3 4,386 3,279 1,719 103,279 4 5,996 4,470 2,910 104,470 5 7,688 5,742 4,182 105,742 6 9,463 7,100 5,696 107,100 7 11,328 8,547 7,299 108,547 8 13,285 10,083 8,991 110,083 9 15,341 11,710 10,774 111,710 10 17,499 13,429 12,649 113,429 15 30,021 23,455 23,455 123,455 20 46,003 35,716 35,716 135,716 25 66,400 48,797 48,797 148,797 30 92,433 59,042 59,042 159,042
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 131 138 The following illustrations of Policy Values, Cash Surrender Values and Death Benefits are applicable to Policies purchased prior to October 1, 1996. 132 139 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Nonsmoker Issue Age 25 $100,000 Face Amount Death Benefit Option 1 $575 Annual Planned Premium ASSUMING CURRENT CHARGES
0% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $604 $383 $0 $100,000 2 1,238 754 0 100,000 3 1,903 1,111 344 100,000 4 2,602 1,457 690 100,000 5 3,336 1,790 1,023 100,000 6 4,107 2,111 1,421 100,000 7 4,916 2,419 1,805 100,000 8 5,765 2,717 2,180 100,000 9 6,657 3,005 2,545 100,000 10 7,594 3,280 2,896 100,000 15 13,028 4,444 4,444 100,000 20 19,964 5,199 5,199 100,000 25 28,815 5,363 5,363 100,000 30 40,112 4,731 4,731 100,000
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 133 140
6% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $604 $410 $0 $100,000 2 1,238 832 65 100,000 3 1,903 1,265 497 100,000 4 2,602 1,709 942 100,000 5 3,336 2,167 1,399 100,000 6 4,107 2,636 1,946 100,000 7 4,916 3,119 2,505 100,000 8 5,765 3,617 3,080 100,000 9 6,657 4,132 3,671 100,000 10 7,594 4,661 4,277 100,000 15 13,028 7,521 7,521 100,000 20 19,964 10,729 10,729 100,000 25 28,815 14,177 14,177 100,000 30 40,112 17,723 17,723 100,000
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 134 141
12% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $604 $437 $0 $100,000 2 1,238 914 147 100,000 3 1,903 1,431 664 100,000 4 2,602 1,994 1,227 100,000 5 3,336 2,609 1,842 100,000 6 4,107 3,279 2,589 100,000 7 4,916 4,010 3,397 100,000 8 5,765 4,812 4,275 100,000 9 6,657 5,691 5,231 100,000 10 7,594 6,653 6,269 100,000 15 13,028 13,018 13,018 100,000 20 19,964 23,114 23,114 100,000 25 28,815 39,267 39,267 100,000 30 40,112 65,570 65,570 102,945
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 135 142 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Nonsmoker Issue Age 25 $100,000 Face Amount Death Benefit Option 1 $575 Annual Planned Premium ASSUMING GUARANTEED CHARGES
0% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $604 $381 $0 $100,000 2 1,238 693 0 100,000 3 1,903 1,002 235 100,000 4 2,602 1,308 541 100,000 5 3,336 1,608 841 100,000 6 4,107 1,903 1,212 100,000 7 4,916 2,189 1,576 100,000 8 5,765 2,468 1,931 100,000 9 6,657 2,737 2,277 100,000 10 7,594 2,996 2,612 100,000 15 13,028 4,090 4,090 100,000 20 19,964 4,741 4,741 100,000 25 28,815 4,777 4,777 100,000 30 40,112 3,882 3,882 100,000
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 136 143
6% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $604 $408 0 $100,000 2 1,238 769 2 100,000 3 1,903 1,148 381 100,000 4 2,602 1,544 776 100,000 5 3,336 1,956 1,189 100,000 6 4,107 2,385 1,695 100,000 7 4,916 2,829 2,215 100,000 8 5,765 3,288 2,751 100,000 9 6,657 3,762 3,302 100,000 10 7,594 4,249 3,866 100,000 15 13,028 6,862 6,862 100,000 20 19,964 9,680 9,680 100,000 25 28,815 12,549 12,549 100,000 30 40,112 15,146 15,146 100,000
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 137 144
12% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $604 $435 $0 $100,000 2 1,238 849 82 100,000 3 1,903 1,306 539 100,000 4 2,602 1,811 1,044 100,000 5 3,336 2,366 1,599 100,000 6 4,107 2,977 2,287 100,000 7 4,916 3,647 3,033 100,000 8 5,765 4,380 3,843 100,000 9 6,657 5,182 4,722 100,000 10 7,594 6,059 5,675 100,000 15 13,028 11,799 11,799 100,000 20 19,964 20,668 20,668 100,000 25 28,815 34,485 34,485 100,000 30 40,112 56,333 56,333 100,000
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 138 145 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Nonsmoker Issue Age 25 $100,000 Face Amount Death Benefit Option 2 $575 Annual Planned Premium ASSUMING CURRENT CHARGES
0% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $604 $382 $0 $100,382 2 1,238 753 0 100,753 3 1,903 1,109 342 101,109 4 2,602 1,453 686 101,453 5 3,336 1,784 1,017 101,784 6 4,107 2,102 1,412 102,102 7 4,916 2,407 1,794 102,407 8 5,765 2,702 2,164 102,702 9 6,657 2,985 2,525 102,985 10 7,594 3,255 2,872 103,255 15 13,028 4,384 4,384 104,384 20 19,964 5,079 5,079 105,079 25 28,815 5,151 5,151 105,151 30 40,112 4,393 4,393 104,393
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE 139 146 DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 140 147
6% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $604 $409 $0 $100,409 2 1,238 831 63 100,831 3 1,903 1,262 495 101,262 4 2,602 1,704 937 101,704 5 3,336 2,159 1,392 102,159 6 4,107 2,625 1,935 102,625 7 4,916 3,103 2,489 103,103 8 5,765 3,595 3,058 103,595 9 6,657 4,103 3,643 104,103 10 7,594 4,623 4,240 104,623 15 13,028 7,410 7,410 107,410 20 19,964 10,457 10,457 110,457 25 28,815 13,574 13,574 113,574 30 40,112 16,483 16,483 116,483
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 141 148
12% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $604 $437 $0 $100,437 2 1,238 912 145 100,912 3 1,903 1,428 661 101,428 4 2,602 1,989 1,222 101,989 5 3,336 2,600 1,833 102,600 6 4,107 3,265 2,574 103,265 7 4,916 3,989 3,375 103,989 8 5,765 4,782 4,245 104,782 9 6,657 5,650 5,189 105,650 10 7,594 6,597 6,213 106,597 15 13,028 12,811 12,811 112,811 20 19,964 22,484 22,484 122,484 25 28,815 37,504 37,504 137,504 30 40,112 60,908 60,908 160,908
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 142 149 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Nonsmoker Issue Age 25 $100,000 Face Amount Death Benefit Option 2 $575 Annual Planned Premium ASSUMING GUARANTEED CHARGES
0% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $604 380 $0 $100,381 2 1,238 692 0 100,692 3 1,903 999 232 100,999 4 2,602 1,303 536 101,303 5 3,336 1,601 833 101,601 6 4,107 1,893 1,202 101,893 7 4,916 2,176 1,562 102,176 8 5,765 2,451 1,914 102,451 9 6,657 2,716 2,256 102,716 10 7,594 2,970 2,587 102,970 15 13,028 4,031 4,031 104,031 20 19,964 4,627 4,627 104,627 25 28,815 4,580 4,580 104,580 30 40,112 3,571 3,571 103,571
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 143 150
6% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $604 $408 $0 $100,408 2 1,238 768 1 100,768 3 1,903 1,144 377 101,144 4 2,602 1,537 770 101,537 5 3,336 1,947 1,179 101,947 6 4,107 2,372 1,681 102,372 7 4,916 2,811 2,197 102,811 8 5,765 3,264 2,727 103,264 9 6,657 3,731 3,271 103,731 10 7,594 4,210 3,826 104,210 15 13,028 6,754 6,754 106,754 20 19,964 9,424 9,424 109,424 25 28,815 11,992 11,992 111,992 30 40,112 14,008 14,008 114,008
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 144 151
12% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $604 $435 $0 $100,435 2 1,238 847 80 100,847 3 1,903 1,302 535 101,302 4 2,602 1,803 1,036 101,803 5 3,336 2,355 1,587 102,355 6 4,107 2,960 2,270 102,960 7 4,916 3,622 3,008 103,622 8 5,765 4,346 3,809 104,346 9 6,657 5,137 4,677 105,137 10 7,594 5,999 5,616 105,999 15 13,028 11,597 11,597 111,597 20 19,964 20,074 20,074 120,074 25 28,815 32,866 32,866 132,866 30 40,112 52,077 52,077 152,077
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 145 152 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Nonsmoker Issue Age 45 $100,000 Face Amount Death Benefit Option 1 $1,325 Annual Planned Premium ASSUMING CURRENT CHARGES
0% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $1,391 $895 $0 $100,000 2 2,852 1,758 198 100,000 3 4,386 2,583 1,023 100,000 4 5,996 3,370 1,810 100,000 5 7,688 4,109 2,549 100,000 6 9,463 4,804 3,400 100,000 7 11,328 5,449 4,201 100,000 8 13,285 6,050 4,958 100,000 9 15,341 6,601 5,665 100,000 10 17,499 7,104 6,324 100,000 15 30,021 8,817 8,817 100,000 20 46,003 8,758 8,758 100,000 25 66,400 4,418 4,418 100,000 30 92,433 0(5) 0(5) 0(5)
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. (5) In the absence of additional premium payments, the Policy will lapse. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 146 153
6% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $1,391 $958 $0 $100,000 2 2,852 1,940 380 100,000 3 4,386 2,940 1,380 100,000 4 5,996 3,957 2,397 100,000 5 7,688 4,985 3,425 100,000 6 9,463 6,024 4,620 100,000 7 11,328 7,071 5,823 100,000 8 13,285 8,131 7,039 100,000 9 15,341 9,199 8,263 100,000 10 17,499 10,277 9,497 100,000 15 30,021 15,767 15,767 100,000 20 46,003 21,101 21,101 100,000 25 66,400 24,058 24,058 100,000 30 92,433 21,932 21,932 100,000
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 147 154
12% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $1,391 $1,022 $0 $100,000 2 2,852 2,130 570 100,000 3 4,386 3,327 1,767 100,000 4 5,996 4,621 3,061 100,000 5 7,688 6,015 4,455 100,000 6 9,463 7,520 6,116 100,000 7 11,328 9,143 7,895 100,000 8 13,285 10,904 9,812 100,000 9 15,341 12,812 11,876 100,000 10 17,499 14,887 14,107 100,000 15 30,021 28,440 28,440 100,000 20 46,003 49,939 49,939 100,000 25 66,400 85,104 85,104 100,000 30 92,433 144,224 144,224 154,319
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 148 155 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Non-Smoker Issue Age 45 $100,000 Face Amount Death Benefit Option 1 $1,325 Annual Planned Premium ASSUMING GUARANTEED CHARGES
0% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $1,391 $891 $0 $100,000 2 2,852 1,690 130 100,000 3 4,386 2,449 889 100,000 4 5,996 3,166 1,606 100,000 5 7,688 3,840 2,280 100,000 6 9,463 4,469 3,065 100,000 7 11,328 5,048 3,800 100,000 8 13,285 5,572 4,480 100,000 9 15,341 6,036 5,100 100,000 10 17,499 6,433 5,653 100,000 15 30,021 7,233 7,233 100,000 20 46,003 5,244 5,244 100,000 25 66,400 0(4) 0(4) 100,000(4) 30 92,433 0(5) 0(5) 0(5)
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. (4) Provided the Minimum Premium Requirement has been met, the death benefit guarantee will have kept the Policy in force until this point, i.e. the policy anniversary on which the life insured is 70 years old, at which time the death benefit guarantee will expire and in the absence of additional premium payments the Policy will lapse. (5) In the absence of additional premium payments, the Policy will lapse. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 149 156
6% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $1,391 $954 $0 $100,000 2 2,852 1,869 309 100,000 3 4,386 2,795 1,235 100,000 4 5,996 3,732 2,172 100,000 5 7,688 4,676 3,116 100,000 6 9,463 5,626 4,222 100,000 7 11,328 6,577 5,329 100,000 8 13,285 7,523 6,431 100,000 9 15,341 8,460 7,524 100,000 10 17,499 9,379 8,599 100,000 15 30,021 13,493 13,493 100,000 20 46,003 15,873 15,873 100,000 25 66,400 14,001 14,001 100,000 30 92,433 2,369 2,369 100,000
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 150 157
12% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $1,391 $1,017 $0 $100,000 2 2,852 2,056 496 100,000 3 4,386 3,172 1,612 100,000 4 5,996 4,372 2,812 100,000 5 7,688 5,661 4,101 100,000 6 9,463 7,047 5,643 100,000 7 11,328 8,535 7,287 100,000 8 13,285 10,130 9,038 100,000 9 15,341 11,840 10,904 100,000 10 17,499 13,671 12,891 100,000 15 30,021 25,014 25,014 100,000 20 46,003 41,465 41,465 100,000 25 66,400 66,757 66,757 100,000 30 92,433 110,438 110,438 118,169
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 151 158 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Nonsmoker Issue Age 45 $100,000 Face Amount Death Benefit Option 2 $1,325 Annual Planned Premium ASSUMING CURRENT CHARGES
0% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $1,391 $892 $0 $100,892 2 2,852 1,749 189 101,749 3 4,386 2,566 1,006 102,566 4 5,996 3,340 1,780 103,340 5 7,688 4,062 2,502 104,062 6 9,463 4,736 3,332 104,736 7 11,328 5,355 4,107 105,355 8 13,285 5,924 4,832 105,924 9 15,341 6,438 5,502 106,438 10 17,499 6,897 6,117 106,897 15 30,021 8,298 8,298 108,298 20 46,003 7,738 7,738 107,738 25 66,400 2,729 2,729 102,729 30 92,433 0(5) 0(5) 0(5)
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of net assets. The investment management fees and expenses used to calculate calculatethe policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. (5) In the absence of additional premium payments, the Policy will lapse. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW 152 159 THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 153 160
6% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $1,391 $955 $0 $100,955 2 2,852 1,931 371 101,931 3 4,386 2,920 1,360 102,920 4 5,996 3,921 2,361 103,921 5 7,688 4,926 3,366 104,926 6 9,463 5,936 4,532 105,936 7 11,328 6,944 5,696 106,944 8 13,285 7,955 6,863 107,955 9 15,341 8,961 8,025 108,961 10 17,499 9,963 9,183 109,963 15 30,021 14,787 14,787 114,787 20 46,003 18,648 18,648 118,648 25 66,400 18,294 18,294 118,294 30 92,433 10,150 10,150 110,150
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 154 161
12% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value(3) Value(3,4) Benefit 1 $1,391 $1,018 $0 $101,018 2 2,852 2,120 560 102,102 3 4,386 3,304 1,744 103,304 4 5,996 4,579 3,019 104,579 5 7,688 5,943 4,383 105,943 6 9,463 7,406 6,002 107,406 7 11,328 8,973 7,725 108,973 8 13,285 10,658 9,566 110,658 9 15,341 12,467 11,531 112,467 10 17,499 14,412 13,632 114,412 15 30,021 26,592 26,592 126,593 20 46,003 44,054 44,054 144,054 25 66,400 66,668 66,668 166,668 30 92,433 94,682 94,682 194,682
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to it and/or to reimburse expenses for a period of one year from December 31, 1996 to the extent necessary to prevent the total of advisory fees and expenses for the Quantitative Equity Trust, Real Estate Securities Trust and Capital Growth Bond Trust for such period from exceeding .50% of average net assets. The investment management fees and expenses used to calculate the policy values do not reflect this waiver. If this waiver were reflected in the calculations, Policy Values and Cash Surrender Values would be slightly higher. (4) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 155 162 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Male Nonsmoker Issue Age 45 $100,000 Face Amount Death Benefit Option 2 $1,325 Annual Planned Premium ASSUMING GUARANTEED CHARGES
0% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $1,391 $888 $0 $100,888 2 2,852 1,680 120 101,680 3 4,386 2,429 869 102,429 4 5,996 3,133 1,573 103,133 5 7,688 3,789 2,229 103,789 6 9,463 4,396 2,992 104,396 7 11,328 4,948 3,700 104,948 8 13,285 5,439 4,347 105,439 9 15,341 5,864 4,928 105,864 10 17,499 6,217 5,437 106,127 15 30,021 6,688 6,688 106,688 20 46,003 4,226 4,226 104,226 25 66,400 0(4) 0(4) 100,000(4) 30 92,433 0(5) 0(5) 0(5)
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. (4) Provided the Minimum Premium Requirement has been met, the death benefit guarantee will have kept the Policy in force until this point, i.e. the policy anniversary on which the life insured is 70 years old, at which time the death benefit guarantee will expire and in the absence of additional premium payments the Policy will lapse. (5) In the absence of additional premium payments, the Policy will lapse. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 156 163
6% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $1,391 $951 $0 $100,951 2 2,852 1,858 298 101,858 3 4,386 2,773 1,213 102,773 4 5,996 3,692 2,132 103,692 5 7,688 4,612 3,052 104,612 6 9,463 5,531 4,127 105,531 7 11,328 6,441 5,193 106,441 8 13,285 7,336 6,244 107,336 9 15,341 8,209 7,273 108,209 10 17,499 9,049 8,269 109,049 15 30,021 12,452 12,452 112,452 20 46,003 13,278 13,278 113,278 25 66,400 8,575 8,575 108,575 30 92,433 0(4) 0(4) 0(4)
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. (4) In the absence of additional premium payments, the Policy will lapse. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 157 164
12% Hypothetical Gross Investment Return End of Cash Policy Accumulated Policy Surrender Death Year(1) Premiums(2) Value Value(3) Benefit 1 $1,391 $1,014 $0 $101,014 2 2,852 2,044 484 102,044 3 4,386 3,146 1,586 103,146 4 5,996 4,324 2,764 104,324 5 7,688 5,581 4,021 105,581 6 9,463 6,924 5,520 106,924 7 11,328 8,353 7,105 108,353 8 13,285 9,869 8,777 109,869 9 15,341 11,475 10,539 111,475 10 17,499 13,170 12,390 113,170 15 30,021 23,037 23,037 123,037 20 46,003 35,039 35,039 135,039 25 66,400 47,704 47,704 147,704 30 92,433 57,280 57,280 157,280
(1) All values shown are as of the end of the policy year indicated and assume that (a) premiums paid after the initial premium are received on the policy anniversary, (b) no policy loan has been made, (c) no partial withdrawal of the Cash Surrender Value has been made and (d) no premiums have been allocated to the Guaranteed Interest Account. (2) Assumes net interest of 5% compounded annually. (3) Provided the Minimum Premium Requirement has been and continues to be met, the death benefit guarantee will keep the Policy in force until the policy anniversary on which the life insured is 70 years old. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 158 -----END PRIVACY-ENHANCED MESSAGE-----