0000950152-95-001890.txt : 19950824 0000950152-95-001890.hdr.sgml : 19950824 ACCESSION NUMBER: 0000950152-95-001890 CONFORMED SUBMISSION TYPE: 497 CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950823 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEPARATE ACCOUNT TWO OF MANUFACTURERS LIFE INS CO OF AMERI CENTRAL INDEX KEY: 0000814501 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-14499 FILM NUMBER: 00000000 BUSINESS ADDRESS: STREET 1: 200 BLOOR STREET EAST NT 10 STREET 2: TORONTO M4W 1E5 CITY: ONTARIO CANADA STATE: A6 BUSINESS PHONE: 416-926-6302 MAIL ADDRESS: STREET 1: P O BOX 600 CITY: BUFFALO STATE: NY ZIP: 14201-0600 497 1 VARIABLE ANNUITY-SEPARATE ACCT. 2 1 LIFESTYLE FROM MANULIFE FINANCIAL PROSPECTUS FOR MULTI-ACCOUNT FLEXIBLE PAYMENT VARIABLE ANNUITY ISSUED BY THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA AND FOR MANULIFE SERIES FUND, INC. 2 (This Page Intentionally Left Blank) 3 LIFESTYLE FROM MANULIFE FINANCIAL MULTI-ACCOUNT FLEXIBLE PAYMENT VARIABLE ANNUITY This prospectus describes Multi-Account Flexible Payment Variable Annuity Policies ("Policies" or "Policy") issued by The Manufacturers Life Insurance Company of America ("Manufacturers Life of America"). The Policies are designed for use in connection with retirement plans that may or may not be entitled to special income tax treatment. The Policies will be offered on both an individual basis and in connection with group or sponsored arrangements. During the Accumulation Period, the Policies provide for the accumulation of value on a fixed, variable, or fixed and variable basis. Annuity payments are available on a fixed basis only. Policy Value accumulated on a variable basis will be held in one or more of the sub-accounts of Manufacturers Life of America's Separate Account Two. The assets of each sub-account will be used to purchase shares of a particular portfolio ("Fund") of Manulife Series Fund, Inc. (the "Series Fund"). The accompanying prospectus for the Series Fund describes the investment objectives of the Funds in which purchase payments may be invested: the Emerging Growth Equity Fund, the Common Stock Fund, the Real Estate Securities Fund, the Balanced Assets Fund, the Capital Growth Bond Fund, the Money-Market Fund, the International Fund, and the Pacific Rim Emerging Markets Fund. Other subaccounts and Funds may be added in the future. In some jurisdictions the Policyowner may allocate Policy Value to various Fixed Accounts during the Accumulation Period. Policy Value so allocated will earn a fixed rate of interest for a specified period of time (the "Guarantee Period"); however, the Policy Value so allocated and the interest earned thereon is guaranteed only if the allocation is maintained to the Maturity Date. If the allocation is not maintained to the Maturity Date, the value thereof may be increased or decreased by the Market Value Adjustment. Fixed Account Value may be held either in Manufacturers Life of America's Separate Account A or, if applicable state law permits, in Manufacturers Life of America's General Account. The Policyowner may also allocate Policy Value to the Guaranteed Interest Account during the Accumulation Period. Policy Value so allocated will earn a rate of interest guaranteed not to be less than 3% per annum and may, at Manufacturers Life of America's discretion, exceed that rate. Prior to the Annuity Commencement Date, Manufacturers Life of America will furnish to each Policyowner at least annually a report showing certain account information including unit values, current rates, current purchase payment allocations and cash surrender value. In addition, reports that include financial statements of the Series Fund and information about the investment holdings of the various Funds will be sent to the Policyowner semi-annually. This prospectus contains a detailed discussion of the information a prospective purchaser ought to know before making a purchase. Please read this prospectus carefully and keep it for future reference. It is valid only when accompanied by a current prospectus for Manulife Series Fund, Inc. 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 N. Woodward Avenue Bloomfield Hills, Michigan 48304 Service Office: 200 Bloor Street East Toronto, Ontario, Canada M4W 1E5 Telephone: 1-800-827-4546 (1-800-VARILIN[E]) THE DATE OF THIS PROSPECTUS IS MAY 1, 1995. 1 4 PROSPECTUS CONTENTS

PAGE PAGE ---- ---- DEFINITIONS . . . . . . . . . . . . . . . . . . . 2 Annual Statements . . . . . . . . . . . . . . . 28 SUMMARY OF POLICIES . . . . . . . . . . . . . . . 5 Rights of Ownership . . . . . . . . . . . . . . 28 POLICYOWNER INQUIRIES . . . . . . . . . . . . . . 6 Beneficiary . . . . . . . . . . . . . . . . . . 29 EXPENSE TABLE . . . . . . . . . . . . . . . . . . 7 Modification . . . . . . . . . . . . . . . . . 30 CONDENSED FINANCIAL INFORMATION . . . . . . . . . 9 FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . 30 GENERAL INFORMATION ABOUT MANUFACTURERS LIFE OF Taxation of Manufacturers Life of America . . . . 30 AMERICA . . . . . . . . . . . . . . . . . . . . 11 Tax Treatment Of The Policies . . . . . . . . . . 30 Manufacturers Life of America And Purchase of Policies by Qualified Plans . . . . . 31 Manufacturers Life . . . . . . . . . . . . . 11 ADDITIONAL INFORMATION ABOUT MANUFACTURERS General Information about Manufacturers Life of LIFE OF AMERICA . . . . . . . . . . . . . . . . . 32 America's Separate Accounts . . . . . . . . . 11 Description of Business . . . . . . . . . . . . 32 Manufacturers Life of America's Separate Responsibilities Assumed By Manufacturers Life . 32 Account Two: The Variable Accounts . . . . . 11 Selected Financial Data . . . . . . . . . . . . 33 GENERAL INFORMATION ABOUT MANULIFE SERIES FUND, Management Discussion and Analysis of INC. . . . . . . . . . . . . . . . . . . . . . . 11 Financial Condition and Results of Investment Objectives And Risks Of The Funds . . 12 Operation . . . . . . . . . . . . . . . . . . . 34 Selection of Sub-account(s) . . . . . . . . . . 14 Executive Officers and Directors . . . . . . . . 39 DESCRIPTION OF THE POLICIES . . . . . . . . . . . 15 Executive Compensation . . . . . . . . . . . . . 40 Purchasing A Policy . . . . . . . . . . . . . . 15 Legal Proceedings . . . . . . . . . . . . . . . 41 "Free Look" Right . . . . . . . . . . . . . . . 16 State Regulations . . . . . . . . . . . . . . . 41 Restrictions Applicable To Purchase Payments . . 16 OTHER MATTERS . . . . . . . . . . . . . . . . . . . 42 Policy Value . . . . . . . . . . . . . . . . . . 16 Special Provisions For Group Or Sponsored The Fixed Accounts . . . . . . . . . . . . . . 16 Arrangements . . . . . . . . . . . . . . . . . 42 The Guaranteed Interest Account . . . . . . . 17 Sale of the Policies . . . . . . . . . . . . . . 42 The Variable Accounts . . . . . . . . . . . . 17 Voting Rights . . . . . . . . . . . . . . . . . . 42 Annuity Value Guarantee . . . . . . . . . . . . 18 Further Information . . . . . . . . . . . . . . . 43 Transfers of Policy Value . . . . . . . . . . . 19 Legal Matters . . . . . . . . . . . . . . . . . . 43 Dollar Cost Averaging . . . . . . . . . . . . 19 Experts . . . . . . . . . . . . . . . . . . . . . 43 Asset Allocation Balancer . . . . . . . . . . 20 Performance and Other Comparative Information . . 43 Surrender Or Withdrawal Rights . . . . . . . . . 20 Advertising Performance of Variable Accounts . . 43 Special Policy Access . . . . . . . . . . . . . 20 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . 47 Provisions on Death . . . . . . . . . . . . . . 21 APPENDIX A . . . . . . . . . . . . . . . . . . . . 71 Survivor Benefit Amount . . . . . . . . . . . 22 Annuity Options . . . . . . . . . . . . . . . . . 71 Death of the Policyowner . . . . . . . . . . . 22 APPENDIX B . . . . . . . . . . . . . . . . . . . . 72 Death of the Annuitant . . . . . . . . . . . . 23 Sample Calculations Of Market Value Commencement of Annuity Payments . . . . . . . . 24 Adjustments And Withdrawal Charges . . . . . . 72 Substitution of Fund Shares . . . . . . . . . . 24 Policy Charges . . . . . . . . . . . . . . . . . 24 Withdrawal Charge . . . . . . . . . . . . . . 24 Record-Keeping Charge . . . . . . . . . . . . 25 Transfer Charge . . . . . . . . . . . . . . . 26 Dollar Cost Averaging Charge . . . . . . . . . 26 Asset Allocation Balancer Charge . . . . . . . 26 Special Policy Access Charge . . . . . . . . . 26 Premium Tax Deduction . . . . . . . . . . . . 26 THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN Mortality And Expense Risks Charges . . . . . 26 ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT Administration Charge . . . . . . . . . . . . 27 LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE Market Value Adjustment . . . . . . . . . . . . 27 ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING Other General Policy Provisions . . . . . . . . 28 OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. Deferral of Payments . . . . . . . . . . . . . 28

2 5 DEFINITIONS "ACCUMULATION PERIOD" is the period from the date Manufacturers Life of America receives the first purchase payment to the Elected Annuity Date. "ANNUITANT" means a person upon whose life annuity payments are based. An Annuitant has no rights under the Policy. "ANNUITY COMMENCEMENT DATE" means the date on which the first annuity payment is made. "BUSINESS DAY" is any day that the New York Stock Exchange is open for trading and trading is not restricted. The net asset value of the underlying shares of a Variable Account will be determined on each Business Day. "CHARITABLE REMAINDER TRUST" means a trust established pursuant to Section 664 of the Internal Revenue Code of 1986, as amended. "CUMULATIVE NET EARNINGS" means the greater of (i) zero and (ii) the Policy Value less the sum of Net Premiums remaining after adjustments for any prior withdrawals. "ELECTED ANNUITY DATE" means the date selected by the Policyowner on which the first annuity payment is due. "FIXED ACCOUNT" or "FIXED ACCOUNTS" are the various accounts in which allocations are credited with a Guaranteed Rate for a set period of time if the allocations are maintained until the Maturity Date. "FIXED ACCOUNT VALUE" is the sum of the values of a Policy's interest in the Fixed Accounts prior to application of any Market Value Adjustment calculated as set forth in Description of the Policies -- "Policy Value" (the Fixed Accounts). "GENERAL ACCOUNT" is all assets of Manufacturers Life of America except those allocated to Separate Account Two, Separate Account A, or other separate accounts of Manufacturers Life of America. "GROSS WITHDRAWAL AMOUNT" is the amount of any full surrender or partial withdrawal prior to (i) the deduction of any applicable charges or withholding taxes and (ii) any adjustment for applicable Market Value Adjustments. "GUARANTEE PERIOD" is a period during which a Guaranteed Rate will be paid on an allocation to a Fixed Account. "GUARANTEED INTEREST ACCOUNT" is the account in which allocations earn interest at a rate guaranteed not to fall below 3% per annum and which can be reset daily. "GUARANTEED INTEREST ACCOUNT VALUE" is the value of a Policy's interest in the Guaranteed Interest Account. "GUARANTEED RATE" is the rate of interest credited by Manufacturers Life of America on a Fixed Account for a given Guarantee Period. "MARKET VALUE ADJUSTMENT" is an adjustment to any portion of the Fixed Account Value which is surrendered, withdrawn, annuitized or transferred prior to the Maturity Date. "MATURITY DATE" is the last day of a Guarantee Period. "NET PREMIUMS" are gross premiums less deductions for applicable premium taxes. "PAYEE" is a person designated by the Policyowner to receive the annuity payments due and payable on and after the Annuity Commencement Date. "POLICY VALUE" means the value during the Accumulation Period of amounts accumulated under the Policy. The Policy Value is the sum of the Variable Policy Value, the Guaranteed Interest Account Value and the Fixed Account Value. 3 6 "POLICY YEARS", "POLICY ANNIVERSARIES" and "POLICY MONTHS" are determined from the date the initial purchase payment is allocated. The first Policy Anniversary will be the first day of the same month one year later. "PURCHASE PAYMENT" is an amount paid under the Policy. "QUALIFIED POLICY" means a Policy used in connection with a retirement plan which receives favorable federal income tax treatment under sections 401 or 408 of the Internal Revenue Code of 1986, as amended ("Code"). "SERVICE OFFICE" is the office designated by Manufacturers Life of America to service the Policy. "SURVIVOR BENEFIT AMOUNT" is the amount to which the Policy Value may be set on the death of the original Policyowner. "UNIT" is an index used to measure the value of a Policy's interest in a Variable Account. "VARIABLE ACCOUNT" or "VARIABLE ACCOUNTS" are any one or more of the various sub-accounts of Separate Account Two. "VARIABLE POLICY VALUE" is the sum of the value of a Policy's interest in each of the Variable Accounts calculated as set forth in Description of the Policies -- "Policy Value" (The Variable Accounts). 4 7 SUMMARY OF POLICIES ELIGIBLE PURCHASERS. The Policies described in this prospectus are designed to provide a flexible investment program for the accumulation of amounts for retirement purposes under plans which receive favorable federal income tax treatment pursuant to sections 401 or 408 of the Code ("Qualified Policies"), or under plans and trusts not entitled to any special tax treatment ("Nonqualified Policies"). The Policies, which will generally be issued to persons up to age 75, will be offered both on an individual basis and in connection with group or sponsored arrangements. (See Description of the Policies -- "Purchasing A Policy".) FUNDING ARRANGEMENTS. The Policies are designed to provide flexibility as to the timing and amount of purchase payments and the available funding media. Purchase payments may be allocated among three types of accounts -- the Variable Accounts, the Guaranteed Interest Account and, in some jurisdictions, the Fixed Accounts. The Variable Accounts are sub-accounts of Separate Account Two, each sub-account investing in a corresponding Fund of the Series Fund. The Guaranteed Interest Account is an account in which allocated purchase payments earn interest at a rate which can be reset daily but is guaranteed not to be less than 3% per annum. The Fixed Accounts are accounts which earn a fixed rate of interest only if held to maturity. PURCHASE PAYMENTS. The minimum initial purchase payment is $5,000 ($2,000 for Qualified Plans). Subsequent purchase payments must be at least $500. Manufacturers Life of America reserves the right to alter these minimum payment amounts on 90 days written notice to the Policyowner and it further reserves the right to institute a pre-authorized payment plan which provides for automatic monthly deductions and which may permit smaller payments. Purchase payments may be allocated among the Variable Accounts, Fixed Accounts and Guaranteed Interest Account in any manner the Policyowner wishes. A Policyowner should specify how each purchase payment is to be allocated. Allocations among the Variable Accounts, Fixed Accounts and Guaranteed Interest Account are made as a percentage of Net Premiums. The percentage allocation to any account may be any whole number between 0 and 100, provided the total percentage allocations equal 100. A Policyowner may change the way in which Net Premiums are allocated at any time without charge. If no allocation is specified, a purchase payment will be allocated as set forth in the Policyowner's previous allocation request. (See Description of the Policies -- "Restrictions Applicable To Purchase Payments".) CHARGES AND DEDUCTIONS. There is no deduction from purchase payments for sales expenses. However, full surrender of a Policy or a partial withdrawal thereunder may be subject to a withdrawal charge (contingent deferred sales charge), which is a percentage of the Gross Withdrawal Amount subject to the withdrawal charge. The applicable percentage will depend upon when the purchase payment to which such amount is deemed attributable was made. The maximum withdrawal charge is 8% of the Gross Withdrawal Amount, decreasing over time until, beginning in the seventh year after the purchase payment was made, it is 0%. However, in no event may the charge exceed 8% of the total purchase payments made. The Gross Withdrawal Amount will also be adjusted by any applicable Market Value Adjustment and reduced by any applicable record-keeping charges or withholding taxes. When amounts allocated to a Fixed Account are not maintained until the applicable Maturity Date, whether as a result of a surrender, partial withdrawal, transfer or the Annuity Commencement Date, the Market Value Adjustment may cause a deduction from, or an addition to, the amounts surrendered, withdrawn, transferred or annuitized. In an investment environment of rapidly increasing interest rates, the Market Value Adjustment could cause the amount available from a Fixed Account prior to the Maturity Date of that Fixed Account upon surrender, withdrawal, transfer or on the Annuity Commencement Date to be substantially less than the amount allocated to that Fixed Account. A record-keeping charge equal to 2% of the Policy Value up to a maximum of $30 will be deducted on the last day of each Policy Year or on the date of a full surrender made prior to the end of a Policy Year. Deductions are made for (i) mortality and expense risks charges, and (ii) an administration charge. Mortality and expense risks charges are deducted daily at an annual rate of .80% of assets of Separate Account Two, and monthly, at the beginning of each Policy Month, at an annual rate of .45% of the Variable Policy Value and Fixed Account Value. The administration charge is deducted daily at an annual rate of .20% of the assets of Separate Account Two. A deduction may be made for any applicable premium taxes attributable to the Policies (currently such taxes range from 0% to 3%). 5 8 There is no charge for the first transfer between accounts in any Policy Month. However, there is a charge of $35 for a second transfer in a Policy Month. For this purpose, all transfer requests received by Manufacturers Life of America on the same Business Day are treated as a single transfer and transfers pursuant to the Dollar Cost Averaging and Asset Allocation Balancer provisions are ignored. There is no charge for Dollar Cost Averaging transfers if Policy Value exceeds $15,000; otherwise there is a charge of $5 per transfer. There is a charge of $15 for each Asset Allocation Balancer transfer. (See Description of the Policies -- "Policy Charges".) ANNUITY PAYMENTS. Annuity payments will begin on the Elected Annuity Date and will be on a fixed basis only. The Policyowner may change the Elected Annuity Date to any date so long as payments will commence by the end of the year in which the Annuitant reaches age 85. The date the first annuity payment is made is the Annuity Commencement Date. Under some Qualified Policies, annuity payments must commence no later than April 1 following the year the Annuitant attains the age of 70. If application of the Policy Value would result in annuity payments of less than $20 monthly, $60 quarterly, $100 semi-annually or $200 annually, the Policy Value will be paid to the Policyowner in a single sum. (See Description of the Policies -- "Commencement of Annuity Payments".) SURRENDERS OR WITHDRAWALS. At any time prior to the Annuity Commencement Date, a Policyowner may fully surrender the Policy for, or make a cash withdrawal in an amount not exceeding, its Policy Value, reduced by any applicable withdrawal charge and record-keeping charge, and adjusted for any Market Value Adjustment. A full surrender or cash withdrawal may be subject to a tax penalty. (See "Tax Treatment Of The Policies".) The minimum cash withdrawal that may be requested at any one time is $500. Some Qualified Policies must contain restrictions on withdrawal rights. (See Description of the Policies -- "Surrender Or Withdrawal Rights".) TRANSFERS. Subject to certain limitations, transfers may be made at any time among the Guaranteed Interest Account, the Variable Accounts and the Fixed Accounts (subject, in the case of transfers from Fixed Accounts, to any applicable Market Value Adjustment). Transfers into the accounts may be made in any amount. Transfers from any account of less than the entire account value must be at least $500, including transfers under the Dollar Cost Averaging program. Transfers from the Guaranteed Interest Account are limited in any one Policy Year to the greater of $500 or 15% of the Guaranteed Interest Account Value at the previous Policy Anniversary. (See Description of the Policies -- "Transfers of Policy Value".) FREE LOOK RIGHT. Within ten days after receiving a Policy, the Policyowner may return it for cancellation by mailing it to the Service Office. Within seven days after receipt, except where state insurance law requires return of any purchase payments, Manufacturers Life of America will refund the Policy Value plus or minus any applicable Market Value Adjustment. * * * The above summary is qualified in its entirety by the detailed information appearing elsewhere in this prospectus and the accompanying prospectus of the Series Fund to which reference should be made. POLICYOWNER INQUIRIES All communications or inquiries relating to a Policy should be addressed to the Manufacturers Life of America Service Office at 200 Bloor Street East, Toronto, Ontario, Canada, M4W 1E5. All notices and elections under a Policy must be received at that Service Office to be effective. 6 9 EXPENSE TABLE

NUMBER OF COMPLETE POLICY YEARS SINCE PURCHASE PAYMENT WITHDRAWAL WAS MADE CHARGE -------- ------ 1. POLICY AND TRANSACTION CHARGES: 0-2.99 8.00% (a) Withdrawal Charge (contingent deferred sales charge) 3 6.00% (as a percentage of the lesser of amount surrendered 4 4.00% or purchase payments)1: 5 2.00% 6 or more None (b) Record-Keeping Charge $30 (c) Transfer Charge (if applicable)3 $35 (d) Dollar Cost Averaging Charge (if selected and applicable)4 $5 (e) Asset Allocation Balancer Charge (if selected)5 $15 ANNUAL RATE ----------- 2. MORTALITY AND EXPENSE RISKS CHARGE (a) Variable (Separate) Accounts # Charged daily as a percentage of average Variable Account Values6 0.80% # Charged monthly as a percentage of the policy month-start Fixed Account Assets6 0.45% -------- 1.25% (b) Fixed Accounts 0.45% # Charged monthly as a percentage of the policy month-start Fixed Account Assets 0.00% (c) Guaranteed Interest Account 3. OTHER SEPARATE ACCOUNT EXPENSES Charge for administration charged daily as a percentage of average 0.20% Variable Account Values ------ TOTAL SEPARATE ACCOUNT AND OTHER ASSET BASED CHARGES 1.45%

1 The withdrawal charge decreases over time depending on the number of complete Policy Years elapsed since the purchase to which the withdrawal is deemed attributable was made. A withdrawal other than one made pursuant to the free withdrawal provision is deemed to be a liquidation of a purchase payment. The free withdrawal provision allows the Policyowner to withdraw in any Policy Year after the first up to 10% of the Policy Value as of the most recent Policy Anniversary free of the withdrawal charge. In addition, a Market Value Adjustment may cause a deduction from or addition to amounts withdrawn from the Fixed Accounts.[QL] 2 A record-keeping charge of 2% of the Policy Value up to a maximum of $30 is deducted during the Accumulation Period on the last day of a Policy Year. The charge is also deducted upon full surrender of a Policy on a date other than the last day of a Policy Year. 3 There is no charge for the first transfer in any Policy Month. One additional transfer is allowed each Policy Month subject to a charge of $35. In addition, a Market Value Adjustment may cause a deduction from or addition to amounts transferred from or among the Fixed Accounts. Transfers made pursuant to the Dollar Cost Averaging or Asset Allocation Balancer Programs do not count as transfers for purposes of determining the availability of free transfers or of transfers subject to the $35 charge. 4 Transfers pursuant to the optional Dollar Cost Averaging program are free if Policy Value exceeds $15,000 at the time of the transfer, but otherwise incur a $5 charge. 5 The Asset Allocation Balancer Program is optional. If elected, there is a charge of $15 for transfers under the program. 6 A mortality and expense risks charge of .80% per annum is deducted daily from Separate Account Two assets, and a mortality and expense risks charge of .45% per annum is deducted monthly from Variable Policy Values and Fixed Account Values. 7 10

ANNUAL RATE ----------- 4. MANULIFE SERIES FUND, INC. EXPENSES: Charged daily as a percentage of average values International Fund Management Fees .85%7 Other Expenses .50% Pacific Rim Emerging Markets Fund Management Fees .85%7 Other Expenses .65% All Other Funds Management Fees .50% Total Manulife Series Fund Annual Expense International Fund 1.35% Pacific Rim Emerging Markets Fund 1.50% All Other Funds .50%

1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Example8 If you surrender your Policy at the end of the applicable time period: You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on assets: INTERNATIONAL FUND $109 $147 $172 $320 PACIFIC RIM EMERGING MARKETS FUND $111 $151 $179 $334 ALL OTHER FUNDS $101 $123 $129 $235 If you do NOT surrender your Policy or if you annuitize at the end of the applicable time period: You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on assets: INTERNATIONAL FUND $ 29 $ 89 $152 $320 PACIFIC RIM EMERGING MARKETS FUND $ 31 $ 93 $159 $334 ALL OTHER FUNDS $ 64 $109 $235

The purpose of the above table is to assist a Policyowner in understanding the various costs and expenses that he or she will bear directly or indirectly. The table reflects expenses of Separate Account Two, the Fixed Accounts and Manulife Series Fund, Inc., but it does not reflect any deduction made to cover any premium taxes attributable to a Policy. Such taxes may be as much as 3% depending on the law of the applicable state or local jurisdiction. In addition, although the table does not reflect any charge for the Special Policy Access feature, Manufacturers Life of America reserves the right to charge an administrative fee not to exceed $150 for withdrawal under this provision. However, currently no charge is imposed. The example included in the above table should not be considered a representation of past or future expenses, and actual expenses may be greater or less than those shown. Information concerning charges assessed under the Policies is set forth below. See Description of the Policies -- "Policy Charges". Information concerning the management fee paid by Manulife Series Fund, Inc. is provided under the caption "Investment Management Arrangements" in the Fund prospectus attached hereto. 7 The management fee will drop to .70% on assets over $100 million. 8 In the examples above, the $30 annual record-keeping charge has been reflected in the calculation of annual expenses by converting it to a percentage charge. In converting the charge to a percentage an average account size of $40,000 was used. The 10% free withdrawal has been incorporated where applicable. 8 11 CONDENSED FINANCIAL INFORMATION SCHEDULE OF ACCUMULATION UNIT VALUES AND ACCUMULATION UNITS OUTSTANDING The accumulation unit values set forth in the following table are accounting data that do not reflect the impact of the following charges (which are not deducted as part of the calculation of accumulation unit values): withdrawal charges, record-keeping charges, the portion of the mortality and expense risk charges deducted monthly, deductions for premium taxes (if any) or charges (if any) for second transfers in a policy month, Dollar Cost Averaging and Asset Allocation Balancer transfers or Special Policy Access transactions. Accordingly, the change in accumulation unit values over time should not be viewed as an accurate measure of the investment performance of Separate Account Two. FOR THE PERIOD NOVEMBER 3, 1987 THROUGH DECEMBER 31, 1994 SUB-ACCOUNTS

EMERGING GROWTH EQUITY ---------------------- 1987 1988 1989 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- ---- ---- ---- November 3 (Commencement) $10.00 January 1 value $10.87 $12.58 $17.72 $14.93 $25.33 $30.55 $37.47 December 31 value $10.87 $12.58 $17.72 $14.93 $25.33 $30.55 $37.47 $35.58 December 31 units 329 11,285 22,539 41,687 76,705 288,277 874,970 1,454,901 BALANCED ASSETS --------------- 1987 1988 1989 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- ---- ---- ---- November 3 (Commencement) $10.00 January 1 value $10.20 $10.87 $13.06 $13.13 $16.04 $16.87 $18.70 December 31 value $10.20 $10.87 $13.06 $13.13 $16.04 $16.87 $18.70 $17.75 December 31 units 1,645 21,509 47,074 118,664 201,901 515,812 1,293,922 2,001,928 CAPITAL GROWTH BOND ------------------- 1987 1988 1989 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- ---- ---- ---- November 3 (Commencement) $10.00 January 1 value $10.15 $10.77 $12.14 $12.81 $14.76 $15.47 $16.94 December 31 value $10.15 $10.77 $12.14 $12.81 $14.76 $15.47 $16.94 $16.02 December 31 units 1,039 17,737 36,191 51,268 69,024 168,747 499,877 672,365 MONEY-MARKET ------------ 1987 1988 1989 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- ---- ---- ---- November 3 (Commencement) $10.00 January 1 value $10.07 $10.68 $11.51 $12.28 $12.84 $13.15 $13.37 December 31 value $10.07 $10.68 $11.51 $12.28 $12.84 $13.15 $13.37 $13.75 December 31 units 7,161 23,091 32,907 160,484 122,681 176,160 328,922 918,869

9 12

COMMON STOCK ------------ 1987 1988 1989 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- ---- ---- ---- November 3 (Commencement) $10.00 January 1 value $10.43 $11.35 $14.68 $13.94 $17.97 $18.88 $21.19 December 31 value $10.43 $11.35 $14.68 $13.94 $17.97 $18.88 $21.19 $20.10 December 31 units 709 7,257 20,202 43,044 78,327 194,079 485,195 803,568 REAL ESTATE SECURITIES ---------------------- 1987 1988 1989 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- ---- ---- ---- November 3 (Commencement) $10.00 January 1 value $ 9.99 $11.05 $11.95 $11.30 $15.78 $18.96 $23.01 December 31 value $ 9.99 $11.05 $11.95 $11.30 $15.78 $18.96 $23.01 $22.16 December 31 units 1,642 12,733 17,676 17,834 24,956 134,707 711,630 1,205,880

INTERNATIONAL ------------- 1994 ---- October 4 (Commencement) $10.00 December 31 value $ 9.72 December 31 units 89,180

PACIFIC RIM EMERGING MARKETS ------- 1994 ---- October 4 (Commencement) $10.00 December 31 value $ 9.41 December 31 units 67,272

10 13 GENERAL INFORMATION ABOUT MANUFACTURERS LIFE OF AMERICA MANUFACTURERS LIFE OF AMERICA AND MANUFACTURERS LIFE Manufacturers Life of America, a wholly-owned subsidiary of The Manufacturers Life Insurance Company of Michigan, 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 authorized to do business in the District of Columbia and all states of the United States except New York. The Manufacturers Life Insurance Company of Michigan is a life insurance company organized in 1983 under the laws of Michigan and is a wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manufacturers Life"), a mutual life insurance company based in Toronto, Canada. Manufacturers Life of America was acquired by Manufacturers Life in 1982. Manufacturers Life and its subsidiaries, together, constitute one of the largest life insurance companies in North America as measured by assets. (See Additional Information about Manufacturers Life of America -- "Management Discussion and Analysis of Financial Condition and Results of Operation".) GENERAL INFORMATION ABOUT MANUFACTURERS LIFE OF AMERICA'S SEPARATE ACCOUNTS Manufacturers Life of America is the legal owner of the assets in its separate accounts. The income, gains and losses of the separate accounts, whether or not realized, are, in accordance with applicable contracts, credited to or charged against the accounts without regard to the other income, gains or losses of Manufacturers Life of America. Manufacturers Life of America will at all times maintain assets in the accounts with a total market value at least equal to the reserves and other liabilities relating to Variable Account or Fixed Account benefits under all Policies participating in the accounts. While the assets of Separate Account Two may not be charged with liabilities which arise from any other business Manufacturers Life of America conducts, the assets of Separate Account A may be so charged. However, all obligations under the Policies are general corporate obligations of Manufacturers Life of America. The investments made by the separate accounts are subject to the requirements of applicable state laws. These investment requirements may differ between those for separate accounts supporting variable obligations and those for separate accounts supporting fixed obligations. MANUFACTURERS LIFE OF AMERICA'S SEPARATE ACCOUNT TWO: THE VARIABLE ACCOUNTS Manufacturers Life of America established its Separate Account Two on May 25, 1983 as a separate account under Pennsylvania law. Since December 9, 1992 the Separate Account has been operated under Michigan law. This account holds assets that are segregated from all of Manufacturers Life of America's other assets. Separate Account Two is currently used only to support the Variable Account obligations under variable annuity contracts. Separate Account Two is registered with the Securities and Exchange Commission ("S.E.C.") under the Investment Company Act of 1940 ("1940 Act") as a unit investment trust. A unit investment trust is a type of investment company which invests its assets in specified securities, such as the shares of one or more investment companies, rather than in a portfolio of unspecified securities. Registration under the 1940 Act does not involve any supervision by the S.E.C. of the management or investment policies or practices of Separate Account Two. For state law purposes Separate Account Two is treated as a part or division of Manufacturers Life of America. GENERAL INFORMATION ABOUT MANULIFE SERIES FUND, INC. Each sub-account of Separate Account Two will purchase shares only of a particular Fund of the Series Fund. The Series Fund is registered under the 1940 Act as an open-end diversified management investment company. Separate Account Two will purchase and redeem shares of the Series Fund at net asset value. Shares will be redeemed to the extent necessary for Manufacturers Life of America to provide benefits under the Policies, to transfer assets from one sub-account to another or to the General Account or Separate Account A as requested by Policyowners, and for other purposes consistent with the Policies. Any dividend or capital gain 11 14 distribution received from a Fund will be reinvested immediately at net asset value in shares of that Fund and retained as assets of the corresponding sub-account. Series Fund shares are issued to fund benefits under both variable annuity contracts and variable life insurance policies issued by Manufacturers Life of America. For a description of the procedures for handling potential conflicts of interest arising from the funding of such benefits, see "Purchases and Redemptions of Shares" in the attached Series Fund prospectus. The Series Fund receives investment management services from Manufacturers Adviser Corporation. Manufacturers Adviser Corporation is a registered investment adviser under the Investment Advisers Act of 1940. Certain expenses are assessed against the assets of the Series Fund. These are: (1)an investment management fee of (a).50% of the average daily value of the aggregate net assets of the Emerging Growth Equity Fund, Common Stock Fund, Real Estate Securities Fund, Balanced Assets Fund, Capital Growth Bond Fund and Money-Market Fund, and (b).85% of the average daily value of the first $100million of net assets and .70% of the average daily value of the net assets over $100million of each of the International Fund and the Pacific Rim Emerging Markets Fund, and (2)expenses of up to .50% and .65% per annum assessed against the assets of the International Fund and Pacific Rim Emerging Markets Fund, respectively. INVESTMENT OBJECTIVES AND RISKS OF THE FUNDS The Funds are subject to varying degrees of financial and market risk. Financial risk refers to the ability of an issuer of a debt security to pay principal and interest on such security and to the earnings stability and overall financial soundness of an issuer of an equity security; market risk refers to the volatility of the reaction of the price of a security to changes in conditions in the securities markets in general and, with particular reference to debt securities, changes in the overall level of interest rates. The investment objectives of the Funds currently available to Policyowners through corresponding sub-accounts are set forth below. There is, of course, no assurance that these objectives will be met. EMERGING GROWTH EQUITY FUND The investment objective of the Emerging Growth Equity Fund is to achieve growth of capital by investing primarily in equity securities of companies believed to offer growth potential over both the intermediate and the long term. Current income is not a significant consideration. In selecting investments, emphasis will be placed on securities of progressive companies with aggressive and competent managements. A substantial portion of the Fund's assets may be invested in emerging growth companies, which at the time of the Fund's investment may be paying no dividends to their shareholders. Emerging growth companies may have limited product lines, market or financial resources, or they may be dependent upon a small management group. An investment in the Emerging Growth Equity Fund may therefore involve greater financial risk than is customarily associated with less aggressive companies. In addition, the Fund may be subject to relatively high levels of market risk. The securities of aggressive growth companies may be subject to more abrupt or erratic market movements than other companies or the market averages in general. Because shares of the Emerging Growth Equity Fund may experience above average fluctuations in net asset value, they should be considered as long-term investments. COMMON STOCK FUND The investment objective of the Common Stock Fund 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. In selecting investments, emphasis will be placed on companies with good financial resources, strong balance sheet, satisfactory rate of return on capital, good industry position, superior management skills and earnings that tend to grow consistently. The Fund's investments are not limited to any particular type or size of company, but high quality growth stocks are emphasized. Investment in shares of the Common Stock Fund should involve less financial and market risk than the Emerging Growth Equity Fund, but the Fund may occasionally experience above-average fluctuations in net asset value, and therefore should be considered as a long-term investment. REAL ESTATE SECURITIES FUND The investment objective of the Real Estate Securities Fund is to achieve a combination of long-term capital appreciation and satisfactory current income by investing in real estate related equity and debt securities. In pursuit of its objective, the Real Estate Securities Fund will invest principally in real estate investment trust equity and debt securities and other securities issued by companies which invest in real estate or interests therein. The Fund may also purchase the common stocks, preferred stocks, 12 15 convertible securities and bonds of companies operating in industry groups relating to the real estate industry. This would include companies engaged in the development of real estate, building and construction, and other market segments related to real estate. The Fund will not invest directly in real property nor will it purchase mortgage notes directly. Under normal circumstances, at least 65% of the value of the Fund's total assets will be invested in real estate related equity and debt securities. Because the Fund considers current income in its investment objectives, an investment in the Real Estate Securities Fund should involve less financial and market risk than the Emerging Growth Equity Fund. However, the Fund's share value may experience above-average fluctuation in periods of changing interest rates and therefore the shares should be considered as long-term investments. BALANCED ASSETS FUND The investment objective of the Balanced Assets Fund is to achieve intermediate and long-term growth through capital appreciation and income by investing in both debt and equity securities. The Fund will maintain at all times a balance between debt securities or preferred stocks, on the one hand, and common stocks, on the other. At least 25% of the Fund's assets will be invested in each of the two basic categories. Investment in shares of the Balanced Assets Fund should involve less financial and market risk than an investment in the Emerging Growth Equity Fund. CAPITAL GROWTH BOND FUND The investment objective of the Capital Growth Bond Fund is to achieve growth of capital by investing in medium grade or better debt securities with income as a secondary consideration. The Capital Growth Bond Fund differs from most "bond" funds in that its primary objective is capital appreciation, not income. The Fund will be carefully positioned in relation to the term of debt obligations and the anticipated movement of interest rates. Because of the Fund's emphasis on medium grade or better instruments, an investment in the Capital Growth Bond Fund should result in less financial risk than an investment in the Emerging Growth Equity Fund, Common Stock Fund, Real Estate Securities Fund or Balanced Assets Fund. However, the Capital Growth Bond Fund will be subject to substantial market risk arising from changes in the level of prevailing interest rates and the Fund's active management in anticipation of such changes. MONEY-MARKET FUND The investment objective of the Money-Market Fund is to provide maximum current income consistent with capital preservation and liquidity by investing in a portfolio of high quality money market instruments. Investment in shares of the Money-Market Fund should involve less market or financial risk than an investment in any other Fund. However, the Fund's performance will vary with changes in short-term interest rates. INTERNATIONAL FUND The investment objective of the International Fund is to achieve long-term growth of capital by investing in a diversified portfolio that is comprised primarily of common stocks and equity related securities of companies domiciled in countries other than the United States and Canada. It invests primarily in the securities markets of Western European countries, Australia, the Far East, Mexico and South America. The Fund will under normal conditions, invest at least 65% of its net assets in common stocks and equity related securities of established larger capitalization companies that have attractive long-term prospects for growth of capital. Investments of this type involve risks of political and economic instability in the country of the issuer, the possibility of imposition of foreign exchange controls, confiscatory taxation, and the restriction of capital repatriation. Such securities may be subject to greater fluctuations in price than domestic securities and, under certain market conditions, foreign securities may be less liquid than domestic securities. The risk of currency fluctuations is present since it is anticipated that, in general, the majority of securities in the Fund will not be denominated in United States currency. Accordingly, investment in the shares of the International Fund should involve more financial and market risk than any of the domestic Funds. Because the shares of the International Fund may experience above-average fluctuations in the net asset value, they should be considered as long-term investments. PACIFIC RIM EMERGING MARKETS FUND The investment objective of the Pacific Rim Emerging Markets Fund is to achieve long-term growth of capital by investing in a diversified portfolio that is comprised primarily of common stocks and equity related securities of companies domiciled in the countries of the Pacific Rim region. The Fund, under normal conditions, invests at least 65% of its net assets in common stocks and equity related securities of established larger capitalization companies that have attractive long-term prospects for growth of capital. Investments of this type involve risks of political and economic instability in the country of the issuer, the possibility of imposition of foreign exchange controls, confiscatory taxation, and the restriction of capital repatriation. Such securities may be subject to 13 16 greater fluctuations in price than domestic securities and, under certain market conditions, foreign securities may be less liquid than domestic securities. The risk of currency fluctuations is present since it is anticipated that, in general, the majority of securities in the Fund will not be denominated in United States currency. Accordingly, investment in the shares of the Pacific Rim Emerging Markets Fund should involve more financial and market risk than any of the domestic Funds. Because the shares of the Pacific Rim Emerging Markets Fund may experience above-average fluctuations in net asset value, they should be considered as long-term investments. A full description of the Series Fund, its investment objectives, policies and restrictions, its expenses, the risks associated therewith, and other aspects of its operation is contained in the attached Series Fund prospectus, which should be read together with this prospectus. SELECTION OF SUB-ACCOUNT(S) The basic purpose of the variable portion of the Policies is to accumulate policy values through favorable investment results of the Funds selected by the Policyowner. The final decision on Fund(s) selection must be made by the Policyowner. Outlined below are a few points for consideration. MARKET RISK The previous section discussed the investment objective of each Fund and its associated market risk. Before selecting a Fund or combination of Funds the Policyowner should determine his or her comfort level with market volatility, recognizing that the Policy is designed as a long-term contract. FINANCIAL RISK Each Fund differs with respect to financial risk of principal. This variation also brings with it a divergent level of opportunity for investment gain or loss. The Policyowner should determine the financial risk he or she is willing to accept in relation to the potential for investment gain or loss. HISTORICAL PERSPECTIVE OF FUND OBJECTIVES The above risks should be considered in conjunction with past general trends. Historically, if investments were held over relatively long periods, the investment performance of equities has generally been superior to that of long or short-term debt securities, even though equities have been subject to more dramatic changes in value over periods of time. Emerging growth equities have also tended to have better long-term investment performance when compared to the larger, more mature equities, even though emerging growth equities, in turn, have been subject to more dramatic fluctuations in value. Accordingly, the Emerging Growth Equity Fund may be the more desirable option for Policyowners who are focused on the longer term and are willing to accept such short-term risks. 14 17 Over the past few decades to the present, certain foreign economies have grown faster than the United States economy, and the return on equity investments in these markets has often been superior to similar investments in the United States. The securities markets in different regions and countries have at times in the past, moved relatively independently of one another due to different economic, political and financial factors. To the extent the various markets move independently, total portfolio volatility tends to be reduced when securities from the various markets are combined into a single portfolio. A low correlation between movement in one market and the Fund's total assets may, however, reduce the gains the Fund might otherwise derive from movements in that market. Currency exchange rates frequently move independently of securities markets in a particular country. As a result, gains or losses in a particular securities market may be affected by changes in currency exchange rates. Some Policyowners may prefer somewhat greater protection against financial and market risk than an investment in the Emerging Growth Equity Fund, International Fund or Pacific Rim Emerging Markets Fund provides. These Policyowners may prefer the Common Stock Fund or, if more comfortable with the long-term value of real estate, the Real Estate Securities Fund. Other Policyowners, being even more risk averse, may prefer the Balanced Assets Fund, which maintains at all times a balance between debt securities or preferred stocks, on the one hand, and common stocks, on the other. Other Policyowners may prefer less financial risk than that which comes with an investment in either the Emerging Growth Equity Fund, the Common Stock Fund, the Real Estate Securities Fund, the Balanced Assets Fund, International Fund or Pacific Rim Emerging Markets Fund. This is made possible by the Capital Growth Bond Fund's emphasis on investment in debt instruments. However, the Capital Growth Bond Fund will be subject to substantial market risk arising from changes in the level of prevailing interest rates and the Fund's active management in anticipation of such changes. Those who desire the least market or financial risk of all the Funds may prefer the Money-Market Fund, recognizing that the performance of this Fund will vary with changes in short-term interest rates. Some Policyowners may wish to divide their Net Premiums among two or more of the sub-accounts. Each Policyowner must make his or her own choice that takes into account how willing he or she is to accept investment risks, the manner in which his or her other assets are invested and his or her own predictions about what investment results are likely to be in the future. DESCRIPTION OF THE POLICIES PURCHASING A POLICY The Policies are designed for use in connection with retirement plans entitled to special tax treatment under Sections 401 or 408 of the Code and retirement plans and trusts not entitled to any special tax treatment. The Policies are appropriate for group or sponsored plans with individual accounts or for purchase directly by individuals. (See Other Matters -- "Special Provisions for Group or Sponsored Arrangements".) A Policy will generally be issued to persons up to age 75. In certain circumstances Manufacturers Life of America may, in its sole discretion, issue a Policy to persons above age 75. Except where application information and the initial purchase payment are supplied by electronic transmission, persons seeking to purchase Policies must submit an application and a check for the initial purchase payment. The application, whether written, or via electronic transmission, is subject to underwriting standards adopted by Manufacturers Life of America and Manufacturers Life of America reserves the right to reject any application. A properly completed application that is accompanied by the initial purchase payment and all information necessary for the processing of the application will normally be accepted within two business days. An incomplete application which is subsequently made complete will normally be accepted within two business days of completion; however, if an application is not completed properly or necessary information is not obtained within 5 working days, Manufacturers Life of America will offer to return the purchase payment. Special provisions for electronic transmission of application information and purchase payments. In jurisdictions where it is not prohibited, Manufacturers Life of America will accept transmittal of initial and subsequent purchase payments by electronic transfer to the Service Office provided the transmission is (i) initiated by a broker-dealer from whom Manufacturers Life of America has agreed to accept such transfers and (ii) accompanied by the information necessary to issue a Policy and/or allocate the premium payments. Initial purchase payments made via electronic transfer and accompanied by the information necessary to issue a Policy will normally be accepted within two business days. If the accompanying information is incomplete but is subsequently made complete, it will normally be accepted within two business days; however, if the requested information cannot be obtained within five business days, 15 18 Manufacturers Life of America will inform the broker-dealer, on the applicant's behalf, of the reasons for the delay and offer to return the purchase payment. Based on the information provided by the electronic transmission, Manufacturers Life of America will generate an application and Policy to be forwarded to the applicant for signature. "FREE LOOK" RIGHT Within ten days after receiving a Policy, the Policyowner may return it for cancellation by mailing it to the Service Office. Within seven days after receipt, except where state insurance law requires return of any purchase payments made, Manufacturers Life of America will refund the Policy Value plus or minus any applicable Market Value Adjustment. RESTRICTIONS APPLICABLE TO PURCHASE PAYMENTS Purchase payments are made directly by the Policyowner. They may be made at any time until the Annuity Commencement Date or until the Policy is fully surrendered. If the Policyowner is an individual, purchase payments will not be permitted after the Policyowner's death unless the beneficiary is the Policyowner's spouse. If the Policyowner is not an individual, purchase payments will not be permitted after the Annuitant's death, unless the Policyowner is the trustee of a trust which is part of a qualified retirement plan described in section 401(a) of the Code. See Description of the Policies -- "Provisions on Death" (Death of the Policyowner and Death of the Annuitant). Purchase payments must be made to the Manufacturers Life of America Service Office. The minimum initial purchase payment is $5,000 ($2,000 for Qualified Plans). This can be allocated to the Variable Accounts, the Guaranteed Interest Account or the Fixed Accounts. Subsequent purchase payments must be at least $500. If an additional purchase payment would cause the Policy Value to exceed $1,000,000, or if the Policy Value should already exceed $1,000,000, the prior approval of Manufacturers Life of America will be required for an additional purchase payment. If, for any reason, the Policy Value should fall to zero, the Policy and all rights of the Policyowner and any other person under the Policy, will terminate and no further purchase payments may be made. Manufacturers Life of America reserves the right to alter the minimum payment amounts on 90 days written notice to the Policyowner and it further reserves the right to institute a pre-authorized payment plan which will provide for automatic monthly deductions and which may permit smaller payments. A Policyowner should specify how each purchase payment is to be allocated. The percentage allocation to any account may be any whole number between 0 and 100, provided the total percentage allocations equal 100. A Policyowner may change the way in which Net Premiums are allocated at any time without charge. The change will take effect on the date a written or telephonic request for change satisfactory to Manufacturers Life of America is received at its Service Office. If no allocation is specified, a purchase payment will be allocated using the same percentages as specified in the last allocation request received from the Policyowner. Such allocation will be made at the end of the Business Day in which the purchase payment is received at the Manufacturers Life of America Service Office. Manufacturers Life of America will send a confirmation of its receipt of each purchase payment. POLICY VALUE The Policy Value at any time is equal to the sum of the Variable Policy Value, the Fixed Account Value and the Guaranteed Interest Account Value. The Policy Value is available to the Policyowner through a partial withdrawal or a full surrender. See "Surrender or Withdrawal Rights" below. The portion of the Policy Value based on the Variable Policy Value is not guaranteed and will vary each Business Day with the investment performance of the underlying Funds. Reserves for Policy Values allocated to the Guaranteed Interest Account will be held in the General Account of Manufacturers Life of America. Reserves for Policy Values allocated to the Fixed Accounts will either be held in Separate Account A or in the General Account of Manufacturers Life of America, depending upon the requirements of the jurisdiction in which a Policy is purchased. THE FIXED ACCOUNTS Manufacturers Life of America established its Separate Account A on December 1, 1992 as a separate account under Michigan law. It is not a registered investment company. This account holds assets that are segregated from all of Manufacturers Life of America's other assets. Separate Account A is currently used only to support the Fixed Account obligations under variable annuity contracts. These Fixed Account obligations are based on interest rates credited to Fixed Accounts and do not depend on the investment performance of Separate Account A. Any gain or loss in Separate Account A accrues solely to Manufacturers Life of America and 16 19 Manufacturers Life of America assumes any risk associated with the possibility that the value of the assets in Separate Account A might fall below the reserves and other liabilities that must be maintained. Should the value of the assets in Separate Account A fall below reserve and other liabilities, Manufacturers Life of America will transfer assets from its General Account to Separate Account A to make up the shortfall. Manufacturers Life of America reserves the right to transfer to its General Account any assets of Separate Account A in excess of such reserves and other liabilities and to maintain assets in Separate Account A which support any number of annuities which Manufacturers Life of America offers or may offer. The assets of Separate Account A are not insulated from the claims of Manufacturers Life of America's creditors and may be charged with liabilities which arise from other business conducted by Manufacturers Life of America. Thus Manufacturers Life of America may, at its discretion if permitted by applicable state law, transfer existing Fixed Account assets to, or place future Fixed Account allocations in, its General Account for purposes of administration. The assets of Separate Account A will be invested in those assets chosen by Manufacturers Life of America and permitted by applicable state laws for separate account investments. The Policyowner may allocate Net Premiums directly to the Fixed Accounts or transfer Policy Values to the Fixed Accounts provided such allocations are permitted by the Policyowner's jurisdiction. Each allocation to a Fixed Account is accounted for separately and earns a fixed rate of interest for a set period of time called a "Guarantee Period". Currently, Guarantee Periods ranging from 1 to 10 years are offered under the Policies. To the extent permitted by law, Manufacturers Life of America reserves the right at any time to offer Guarantee Periods with durations that differ from those available at the date of this prospectus. Manufacturers Life of America also reserves the right at any time to stop accepting new allocations, transfers or renewals for a particular Guarantee Period. These actions may be taken upon 60 days written notice to the Policyowner. If the Policyowner surrenders, withdraws or transfers any Policy Value attributable to the Fixed Accounts prior to the end of the applicable Guarantee Period, a Market Value Adjustment will apply. (See Description of the Policies -- "Policy Charges" -- Market Value Adjustment). If Manufacturers Life of America does not receive written notice at least 7 days prior to the end of the Guarantee Period of a Fixed Account indicating what action to take with respect to funds in the Fixed Account upon maturity thereof, the funds will be allocated to a new Fixed Account for the same Guarantee Period as the matured Fixed Account. If the same Guarantee Period is no longer available, we will use the next shortest available Guarantee Period; provided that Manufacturers Life of America will not allocate funds to a Guarantee period that extends beyond the Elected Annuity Date. If the required Guarantee Period is not available, funds will be transferred to the Guaranteed Interest Account. FIXED ACCOUNT VALUE. The value of a Policyowner's interest in a Fixed Account reflects all interest credited to or accrued to date on the Fixed Account, all purchase payments or transfers allocated to the Fixed Account, any withdrawals or transfers from the Fixed Account, any applicable withdrawal or other charges deducted from the account, and any applicable Market Value Adjustments previously made. THE GUARANTEED INTEREST ACCOUNT As noted above, Policyowners may accumulate value on a variable basis, by allocating purchase payments to one or more sub-accounts of Separate Account Two, or on a fixed basis by allocating purchase payments either to one or more of the Fixed Accounts, or, if permitted by the Policyowner's jurisdiction, to the Guaranteed Interest Account. Amounts allocated to the Guaranteed Interest Account will earn a minimum interest rate of 3% per annum. Manufacturers Life of America may credit interest at a rate in excess of 3% per annum; however, it is not obligated to do so. The rate of interest credited is subject to change daily. No specific formula governs the determination of the rate to be credited in excess of 3% per annum. GUARANTEED INTEREST ACCOUNT VALUE. The value of a Policyowner's interest in the Guaranteed Interest Account reflects all interest credited to or accrued to date on the account, all purchase payments or transfers allocated to the Guaranteed Interest Account, any withdrawals or transfers from the Guaranteed Interest Account and any applicable withdrawal and other charges deducted from the Guaranteed Interest Account. 17 20 THE VARIABLE ACCOUNTS VARIABLE POLICY VALUE. Upon receipt of a purchase payment at its Service Office, Manufacturers Life of America credits the Policy with a number of units for each Variable Account based upon the portion of the purchase payment allocated to the Variable Account. Units are also credited to reflect any transfers to a Variable Account. Units are cancelled whenever amounts are deducted, transferred or withdrawn from a Variable Account, any charge or deduction is assessed against a Variable Account, on the Annuity Commencement Date, or on payment of proceeds payable on death. The number of units credited or cancelled for a specific transaction is based on the dollar amount of the transaction divided by the value of the unit on the Business Day on which the transaction occurs. The number of units credited with respect to an initial payment submitted with a completed purchase application will be based on the applicable unit values for either the Business Day on which the payment is received at the Manufacturers Life of America's Service Office or the following Business Day, depending on when the application is accepted. Units will be credited with respect to any subsequent purchase payments allocated to, or transfers into, a Variable Account based on the applicable unit values of the Business Day on which the payment or transfer request is so received. The number of units cancelled in connection with partial withdrawals, transfers out of a Variable Account or deduction of charges from a Variable Account will also be based on the applicable unit values of the Business Day on which the requests for a partial withdrawal or transfer are so received, or on which deductions are made. Units are valued at the end of each Business Day. A Business Day is deemed to end at the time of the determination of the net asset value of the Fund shares. When an order involving the crediting or cancelling of units is received at the Manufacturers Life of America Service Office after the end of a Business Day or on a day which is not a Business Day, the order will be processed on the basis of unit values determined on the next Business Day. Similarly, any determination of Policy Value or Variable Account Value to be made on a day which is not a Business Day will be made on the next Business Day. The value of a unit of each Variable Account was initially fixed at $10.00. For each subsequent Business Day the unit value of a particular Variable Account is the value of the adjusted net assets of that account at the end of the Business Day divided by the total number of units. The value of a unit may increase, decrease or remain the same, depending on the investment performance of a Variable Account from one Business Day to the next. The unit value for any Variable Account for any Business Day is the result of (a) minus (b) divided by (c), where: (a) is the net assets of the Variable Account as of the end of such Business Day; (b) is a charge not exceeding .000027397 for each calendar day since the preceding Business Day, multiplied by the net assets of the Variable Account as of the end of such Business Day, corresponding to a charge of 0.80% per annum for mortality and expense risks, and 0.20% per annum for the administration charge; and (c) is the total number of units of the Variable Account. Manufacturers Life of America reserves the right to adjust the above formula to provide for any taxes determined by it to be attributable to the operations of Separate Account Two. ANNUITY VALUE GUARANTEE The Annuity Value Guarantee guarantees that, in those jurisdictions where permitted, under certain conditions the Policy Value available at the Annuity Commencement Date will be the greater of the Policy Value or an amount reflecting the purchase payments and withdrawals made by the Policyowner. Such amount is calculated as follows: (1) when the Policy is issued, the amount is set equal to the initial purchase payment; (2) each time a purchase payment is made the amount is increased by the amount of the purchase payment; and (3) each time a withdrawal is made, the amount is reduced by the same percentage as the Gross Withdrawal Amount bears to the Policy Value. This Guarantee will be effective only for Policies owned individually or jointly with another individual and only if the Annuity Commencement Date is a date within 30 days of the later of the tenth Policy Anniversary or the first Policy Anniversary after the original policyowner (or the older of two original joint Policyowners) is age 65. If the Annuity Commencement Date does not fall within this time frame, the Policy may still be eligible for this Guarantee. Thereafter eligibility will re-occur every fifth anniversary, provided the Annuity Commencement Date is within 30 days thereof. 18 21 The Policyowner will cease to be eligible for the Annuity Value Guarantee if, at any time, (i) the Policyowner makes a withdrawal or transfers money out of a Fixed Account prior to that account's Maturity Date or (ii) the Annuity Commencement Date is prior to the Maturity Date of any Fixed Account to which the Policyowner has allocated values. TRANSFERS OF POLICY VALUE Subject to the restrictions described below, transfers may be made among any of the accounts at any time during the Policy Year. A Policyowner may direct one transfer per Policy Month free of charge. One additional transfer in a Policy Month will be permitted at a cost of $35.00. For this purpose all transfer requests received by Manufacturers Life of America on the same Business Day are treated as a single transfer and transfers pursuant to the Asset Allocation Balancer and Dollar Cost Averaging provisions are ignored. Transfer requests must be satisfactory to Manufacturers Life of America and in writing, or by telephone if a currently valid telephone transfer authorization form is on file. The minimum amount that may be transferred from an account, except for Asset Allocation Balancer transfers, is the lesser of $500 or the entire account value. The maximum amount that may be transferred from the Guaranteed Interest Account in any one Policy Year is the greater of $500 or 15% of the Guaranteed Interest Account Value at the previous Policy anniversary. Any transfer which involves a transfer out of the Guaranteed Interest Account may not involve a transfer to the Variable Accounts' Money-Market Fund. Transfer requests must be satisfactory to Manufacturers Life of America and in writing, or by telephone if a currently valid telephone transfer authorization form is on file. Although failure to follow reasonable procedures may result in Manufacturers Life of America's liability for any losses due to unauthorized or fraudulent telephone transfers, Manufacturers Life of America will not be liable for following instructions communicated by telephone that it reasonably believes to be genuine. Manufacturers Life of America will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Such procedures shall consist of confirming a valid telephone authorization form is on file, tape recording all telephone transactions and providing written confirmation thereof. LIMITATIONS. To the extent that surrenders, partial withdrawals and transfers out of a Variable Account exceed net premium allocations and transfers into that Variable Account, portfolio securities of the underlying Fund may have to be sold. Excessive sales of the Fund's portfolio securities in such a situation could be detrimental to that Fund and to Policyowners with Policy Values allocated to Variable Accounts investing in that Fund. To protect the interests of all Policyowners, the Policy's transfer privilege is limited as described below. So long as effecting all requested transfers out of a Variable Account in a particular Business Day would not reduce the number of shares of the underlying Fund outstanding at the close of the prior Business Day by more than 5%, all such requests will be effected. However, net transfers out of a Variable Account greater than 5% would be permitted only if, and to the extent that, in the judgment of Manufacturers Adviser Corporation, they would not result in detriment to the underlying Fund or to the interests of Policyowners or others with assets allocated to that Fund. If and when transfers must be limited to avoid such detriment, some requests will not be effected. In determining which requests will be effected, transfers pursuant to the Dollar Cost Averaging program will be effected first, followed by Asset Allocation Balancer transfers, written requests next and telephone requests last. Within each such group, requests will be processed in the order received, to the extent possible. Policyowners whose transfer requests are not effected will be so notified. Current S.E.C. rules preclude Manufacturers Life of America from processing at a later date those requests that were not effected. Accordingly, a new transfer request would have to be submitted in order to effect a transfer that was not effected because of the limitations described in this paragraph. Manufacturers Life of America may be permitted to limit transfers in certain other circumstances. (See Description of the Policies -- "Other General Policy Provisions" -- Deferral of Payments). DOLLAR COST AVERAGING Manufacturers Life of America will offer Policyowners a Dollar Cost Averaging program. Under this program amounts will be automatically transferred at predetermined intervals from one Variable Account to any other Variable Account(s), or a Fixed Account or the Guaranteed Interest Account. Under the Dollar Cost Averaging program the Policyowner will designate a dollar amount of available assets to be transferred at predetermined intervals from one Variable Account into any other Variable Account(s) or a Fixed Account or the Guaranteed Interest Account. Each transfer under the Dollar Cost Averaging program must be at least $500 and Manufacturers Life of America reserves the right to change this minimum at any time upon notice to the Policyowner. Currently, there is no charge for this program if Policy Value exceeds $15,000; otherwise a charge of $5 per transfer or series of transfers occurring on the same transfer date will apply. If insufficient funds exist to effect a Dollar Cost Averaging transfer, including the charge, if applicable, the transfer will not be 19 22 effected and the Policyowner will be so notified. Manufacturers Life of America reserves the right to cease to offer the Dollar Cost Averaging program on 90 days' written notice to the Policyowner. ASSET ALLOCATION BALANCER Manufacturers Life of America will also offer Policyowners the ability to have amounts automatically transferred among stipulated accounts to maintain an allocated percentage in each stipulated account. Under the Asset Allocation Balancer program the Policyowner will designate an allocation of Policy Value among the Variable Accounts. On the Policy Anniversary, and at six month intervals thereafter, Manufacturers Life of America will move amounts out of Variable Accounts and into other Variable Accounts as necessary to maintain the Policyowner's chosen allocation. Currently, the charge for this program is $15 per transfer or series of transfers occurring on the same transfer date. Manufacturers Life of America reserves the right to cease to offer the Asset Allocation Balancer Program on 90 days' written notice to the Policyowner. SURRENDER OR WITHDRAWAL RIGHTS At any time prior to the Elected Annuity Date, a Policyowner may fully surrender the Policy for, or make a partial withdrawal in an amount not exceeding, its Policy Value, reduced by any applicable withdrawal or record-keeping charge and any applicable withholding taxes and reduced or augmented by any applicable Market Value Adjustment. (See Description of the Policies -- "Policy Charges".) For certain Qualified Policies, exercise of the right to surrender may require the consent of the Policyowner's spouse under regulations promulgated by the Treasury or Labor Department. In any Policy Year after the first and before the Elected Annuity Date, up to 10% of the Policy Value as of the most recent Policy Anniversary may be surrendered or withdrawn free of the withdrawal charge. In states where permitted, if the Policyowner is a Charitable Remainder Trust, in any Policy Year after the first and before the Elected Annuity Date, the Policyowner may withdraw, free of the withdrawal charge, the greater of (i) 10% of the Policy Value as of the most recent Policy Anniversary or (ii) Cumulative Net Earnings under the Policy. During the first Policy Year, if the Policyowner is a Charitable Remainder Trust, the Policyowner may withdraw, free of the withdrawal charge, up to 10% of the cumulative Net Premiums as reduced by prior withdrawals. The amount received on withdrawal will be adjusted for any applicable Market Value Adjustment. Amounts surrendered or withdrawn during a Policy Year which exceed the foregoing sums will be subject to a withdrawal charge. In the case of a full surrender of a Policy, Manufacturers Life of America will pay the Policy Value reduced by any applicable withdrawal or record-keeping charges and any applicable withholding taxes, and adjusted by any applicable Market Value Adjustment as of the Business Day on which the request for surrender is received at its Service Office, and the Policy will be cancelled. In the case of a partial withdrawal from the Variable Accounts, Manufacturers Life of America will pay the amount requested and cancel that number of units credited to each Variable Account necessary to equal the amount of the partial withdrawal plus any applicable withdrawal charges and withholding taxes. In the case of a partial withdrawal from the Fixed Account or the Guaranteed Interest Account, Manufacturers Life of America will pay the amount requested. The Fixed Account Value and/or the Guaranteed Interest Account Value will be reduced by the amount withdrawn and any applicable withdrawal charges and withholding taxes, and adjusted by any applicable Market Value Adjustment. In any event, should there not be sufficient funds available in the designated account or accounts equal to the Gross Withdrawal Amount, Manufacturers Life of America will notify the Policyowner and await further instruction before effecting any withdrawal. (For a discussion of withholding taxes see Federal Tax Matters -- "Tax Treatment of the Policies".) For a partial withdrawal, the Policyowner should specify the account(s) from which the withdrawal should be made. If no specification is indicated, the withdrawal will not be made and the Policyowner will be so notified. There is no limit on the frequency of partial withdrawals; however, the requested withdrawal must be at least $500. Any request for a partial withdrawal or a full surrender of a Policy must be in writing and delivered to the Manufacturers Life of America Service Office. If the amount to be withdrawn exceeds $10,000, it must be accompanied by a guarantee of the Policyowner's signature by a commercial bank, trust company, member of the National Association of Securities Dealers, Inc., a notary public, or any other individual or association designated by Manufacturers Life of America. SPECIAL POLICY ACCESS In those states where permitted, if the Policyowner should become terminally ill, he or she will be permitted to make one full surrender or partial withdrawal without imposition of withdrawal charges. If partial withdrawal is chosen, the Survivor Benefit 20 23 Amount and Annuity Value Guarantee, if applicable, will be reduced accordingly. To be eligible, Manufacturers Life of America must receive written evidence acceptable to Manufacturers Life of America, including a written statement from a licensed medical doctor, that the Policyowner is terminally ill and has a life expectancy of one year or less and the consent of any irrevocable beneficiary and any assignee. There is currently no charge associated with this feature. However, Manufacturers Life of America reserves the right to impose an administrative charge not to exceed $150 for a partial withdrawal or full surrender pursuant to this provision. PROVISIONS ON DEATH In the discussions that follow, references to the age, death, life expectancy, or marital status of a Policy owner do not apply to a Policyowner who owns a Policy other than individually or jointly with another person, except the Survivor Benefit amount which will apply upon death of the annuitant if the Policyowner is a charitable remainder trust. In addition, references to the death of the original Policyowner include the first to die of two joint Policyowners. 21 24 SURVIVOR BENEFIT AMOUNT Upon occurrence of the death of the original Policyowner, Manufacturers Life of America will compare the Policy Value to the Survivor Benefit Amount and, if the Policy Value is lower, Manufacturers Life of America will deposit sufficient funds into the Money-Market Variable Account to make the Policy Value equal the Survivor Benefit Amount. Any funds which Manufacturers Life of America deposits into the Money-Market Variable Account will not be deemed a purchase payment for purposes of calculating withdrawal charges. The Survivor Benefit Amount is calculated as follows: (1) when the Policy is issued, the Survivor Benefit Amount is set equal to the initial purchase payment; (2) each time a purchase payment is made, the Survivor Benefit Amount is increased by the amount of the purchase payment; (3) each time a withdrawal is made, the Survivor Benefit Amount is reduced by the same percentage as the Gross Withdrawal Amount bears to the Policy Value; (4) in jurisdictions where it is allowed, on every sixth Policy Anniversary Manufacturers Life of America will set the Survivor Benefit Amount to the greater of its current value or the Policy Value on that Policy Anniversary, provided the original Policyowner is still alive and is not older than age 85. Subsequent to the death of the original Policyowner, the Variable Policy Value will continue to reflect the investment performance of the selected Variable Accounts. JOINT OWNERSHIP If the Policy is owned jointly, the proceeds of the Survivor Benefit Amount will be payable on the first death of a Policyowner. However, if the surviving Policyowner is the spouse of the deceased and elects to continue the Policy, payment of the Survivor Benefit Amount will be deferred. The Survivor Benefit Amount will continue to be calculated as described above if payment is deferred. If the surviving Policyowner is not the spouse of the deceased Policyowner, the proceeds of the Survivor Benefit Amount will be payable as set out in the non-spousal ownership provisions of the section entitled Provisions on Death -- "Death of the Policyowner". DEATH OF THE POLICYOWNER DEATH PRIOR TO ANNUITY COMMENCEMENT DATE. If any Policyowner dies before the Elected Annuity Date, all amounts will remain as allocated by that Policyowner until Manufacturers Life of America receives further instructions from the new Policyowner, or the surviving Policyowner if the Policy was owned jointly. The new or surviving Policyowner can make withdrawals, transfer amounts, assign the policy and name a payee, prior to payment of the Policy Value as described below. If the new or surviving Policyowner is the spouse, he or she can: (a) continue the Policy and may make further purchase payments; or (b) make a full surrender or partial withdrawal of the Policy Value within 60 days after the death without imposition of a Market Value Adjustment or withdrawal charge except with respect to withdrawal of purchase payments received after the death of the Policyowner; or (c) elect to receive payment under a guaranteed annuity option. If the payment is made as an annuity, the Policy Value used to provide the annuity will be determined as of the date Manufacturers Life of America receives written notification of the election at its Service Office. However, if a partial withdrawal or a full surrender of the Policy Value occurs more than 60 days after the death of the Policyowner, the payment will be based on the Policy Value determined as of the date of payment, adjusted for any applicable Market Value Adjustment and withdrawal charge. (See Description of the Policies -- "Market Value Adjustment" and "Policy Charges".) The Policy will continue under option (a) in the absence of a written notification from the surviving spouse to do otherwise. If the new or surviving Policyowner is not the spouse, he or she can: 22 25 (a) continue the Policy. If this option is selected, no further purchase payments can be made, and the Policy must be surrendered within 5 years of the death. Applicable Market Value Adjustments and withdrawal charges will be imposed. (See Description of the Policies -- "Market Value Adjustment" and "Policy Charges".); or (b) make a full surrender or partial withdrawal of the Policy Value within 60 days after the death without imposition of a Market Value Adjustment or withdrawal charge; or (c) elect to receive payment under a guaranteed annuity option. If the payment is made as an annuity, (i) the Policy Value used to provide the annuity will be determined as of the date Manufacturers Life of America receives written notification of the election at its Service Office, (ii) the only Annuity Options available are options 1, 2(b), or 2(c) of the Annuity Options described in Appendix A, (iii) the period selected for payment must not extend beyond the new or surviving Policyowner's life expectancy, and (iv) payments under the Annuity Option selected must begin no later than December 31 of the year following death of the Policyowner. The Policy will continue under option (a) in the absence of written notification to do otherwise. DEATH AFTER ANNUITY COMMENCEMENT DATE. If the Policyowner dies after the Annuity Commencement Date, payments will continue under the annuity option selected if the terms of the annuity so provide. DEATH OF THE ANNUITANT DEATH PRIOR TO ANNUITY COMMENCEMENT DATE. If the Policyowner is an individual who is not the Annuitant, and the Annuitant dies before the Annuity Commencement Date, the Policy will continue and the Policyowner may continue to make purchase payments. If the Policyowner has appointed a contingent Annuitant, he or she will become the new Annuitant. If no such appointment has been made, the Policy owner must appoint a new Annuitant within 60 days of the death of the original Annuitant; otherwise the Policyowner will be deemed to be the new Annuitant. If the Policyowner is not an individual, the Policy is not a Qualified Policy owned by the trustee of a plan described in Section 401 of the Code, and the Annuitant dies before the Annuity Commencement Date, the Policyowner can: (a) continue the Policy. If this option is selected, no further purchase payments can be made, and the Policy must be surrendered for a lump sum within 5 years of the Annuitant's death. Market Value Adjustments and all applicable charges will continue to be imposed. (See Description of the Policies -- "Market Value Adjustment" and "Policy Charges".); or (b) make a full surrender or partial withdrawal of the Policy Value within 60 days after the Annuitant's death without imposition of a Market Value Adjustment or withdrawal charge. The Policy will continue under option (a) in the absence of written notification to do otherwise. If the Policyowner is not an individual, the Policy is a Qualified Policy owned by a trustee of a plan described in Section 401 of the Code, and the Annuitant dies before the Annuity Commencement Date, the Policyowner can: (a) continue the Policy. If this option is selected, a new Annuitant must be appointed and no further purchase payments can be made. Market Value Adjustments and all applicable charges will continue to be imposed. (See Description of the Policies -- "Market Value Adjustment" and "Policy Charges".); or (b) make a full surrender or partial withdrawal of the Policy Value within 60 days after the Annuitant's death without imposition of a Market Value Adjustment or withdrawal charge. The Policy will continue under option (a) in the absence of written notification to do otherwise. DEATH AFTER ANNUITY COMMENCEMENT DATE. If the Policyowner is an individual who is not the Annuitant and the Annuitant dies after the Elected Annuity Date, payments will continue under the annuity option selected if the terms of the annuity so provide. 23 26 COMMENCEMENT OF ANNUITY PAYMENTS The Policyowner elects an annuity date in the application (the "Elected Annuity Date"). The Policyowner may change the Elected Annuity Date to any date prior to the end of the Policy Year in which the Annuitant reaches age 85 except in the case of Qualified Policies and Policies where the owner is a Charitable Remainder Trust. If the Policyowner is a Charitable Remainder Trust there is no required annuitization age. Written request for change of the Elected Annuity Date must be received by the Manufacturers Life of America Service Office at least thirty days prior to the new Elected Annuity Date. Annuity payments will be made by application of the Policy Value to provide an annuity. Annuity payments will be made on a fixed basis only; the Policy Value will no longer reflect the investment performance of the Variable Accounts, the Fixed Accounts or the Guaranteed Interest Account. The annuity options available are described in Appendix A under "Annuity Options". The date on which the first annuity payment is made is the Annuity Commencement Date. There are legal restrictions on the Elected Annuity Date selected for Qualified Policies. In general, the Annuity Commencement Date for Qualified Policies owned by an individual cannot be later than April 1 following the calendar year in which the Policyowner attains age 70 1/2. There are some exceptions to this requirement. If the Policy is owned by the trustee of a trust established pursuant to an employer retirement plan, the Elected Annuity Date is determined by the terms of the trust and plan. Annuity payments may be made monthly, quarterly, semi-annually or annually. If application of the Policy Value would result in annuity payments of less than $20 monthly, $60 quarterly, $100 semi-annually or $200 annually, Manufacturers Life of America will pay the Policy Value to the Policyowner in a single sum in lieu of annuity payments. SUBSTITUTION OF FUND SHARES Although Manufacturers Life of America believes it to be highly unlikely, it is possible that in the judgment of its management, one or more of the Funds may become unsuitable for investment by Separate Account Two because of a change in investment policy or a change in the tax laws, because the shares are no longer available for investment, or for some other reason. In that event, Manufacturers Life of America may seek to substitute the shares of another Fund or of an entirely different mutual fund. Before this can be done, the approval of the S.E.C. and one or more state insurance departments may be required. Manufacturers Life of America also reserves the right to combine other registered separate accounts with Separate Account Two investing in additional Funds of the Series Fund or another investment company, to establish additional sub-accounts within Separate Account Two, to operate Separate Account Two as a management investment company or other form permitted by law, to transfer assets from Separate Account Two to another registered separate account and from another registered separate account to Separate Account Two, and to deregister Separate Account Two under the 1940 Act. Any such change would be made only if permissible under applicable federal and state law. POLICY CHARGES The various charges and deductions applicable to the Policy and the separate accounts are set forth below. WITHDRAWAL CHARGE A withdrawal charge (contingent deferred sales charge) may be imposed on partial withdrawals from, and the full surrender of, a Policy. In any Policy Year after the first and before the Elected Annuity Date, up to 10% of the Policy Value as of the most recent Policy Anniversary may be surrendered or withdrawn free of the withdrawal charge. In states where permitted, if the Policyowner is a Charitable Remainder Trust, in any Policy Year after the first and before the Elected Annuity Date, the Policyowner may withdraw, free of the withdrawal charge, the greater of (i) 10% of the Policy Value as of the most recent Policy Anniversary, or (ii) the Cumulative Net Earnings under the Policy. During the first Policy Year, if the Policyowner is a Charitable Remainder Trust, the Policyowner may withdraw, free of the withdrawal charge, up to 10% of the cumulative Net Premiums as reduced by prior withdrawals. The amount received on withdrawal will be adjusted for any applicable Market Value Adjustment. The withdrawal charge is deducted as a percentage of amounts withdrawn in a Policy Year in excess of the foregoing sums minus any applicable record-keeping charge (imposed on Policy Anniversaries and on full surrenders made on other than a Policy Anniversary) and plus or minus any applicable Market Value Adjustment. The withdrawal charge is designed to partially compensate Manufacturers Life of America for the cost of selling and distributing the Policies. The cost includes agents' commissions, advertising, agent training and the printing of prospectuses and sales literature. 24 27 The withdrawal charge is determined by applying a percentage to the Gross Withdrawal Amount subject to the withdrawal charge. The applicable percentage depends upon when the purchase payments to which the withdrawal or surrender is deemed attributable were made, as indicated in the following schedule:

NUMBER OF COMPLETE POLICY YEARS ELAPSED THE WITHDRAWAL SINCE PURCHASE PAYMENT WAS MADE: CHARGE IS 0-2.99 8% 3 6% 4 4% 5 2% 6 or more None

Where the Gross Withdrawal Amount is deemed attributable to purchase payments made in different Policy Years, different percentages will be applied to the portions of the Gross Withdrawal Amount attributable to such payments. For purposes of determining the withdrawal charge applicable to a full surrender or partial withdrawal, any Gross Withdrawal Amount, other than an amount not subject to a withdrawal charge by reason of the free withdrawal provisions described above, will be deemed to be a liquidation of a purchase payment. The oldest previously unliquidated purchase payment will be deemed to have been liquidated first, then the next oldest and so forth. In addition, all purchase payments made during a Policy Year will be deemed to have been made on the first day of that year. Once all purchase payments have been liquidated, additional amounts surrendered or withdrawn will not be subject to a withdrawal charge. Thus, in no event may aggregate withdrawal charges exceed 8% of the total purchase payments made. No withdrawal charge will be applied: (1) if the Policy Value is applied to an annuity, (2) when a full surrender or partial withdrawal is made within 60 days of the death of the original Policyowner (except that a withdrawal charge will be applied to a Gross Withdrawal Amount consisting of purchase payments made after the date of death of the original Policyowner), (3) when the Policyowner is not an individual and a full surrender or partial withdrawal is made within 60 days of the death of the Annuitant, or (4) upon a full surrender or the first partial withdrawal made after the Policyowner becomes terminally ill. (See Description of the Policies -- "Provisions on Death" and "Special Policy Access".) On a full surrender of the Policy, the Gross Withdrawal Amount is the Policy Value. Upon full surrender, the Policyowner will receive the Gross Withdrawal Amount adjusted by any applicable Market Value Adjustment, less applicable withdrawal charges and withholding taxes, and less the record-keeping charge. On a partial withdrawal, the Policyowner will receive the amount he or she requests. Manufacturers Life of America will calculate the Gross Withdrawal Amount such that after all applicable withdrawal charges, withholding taxes and Market Value Adjustments have been applied, the Policyowner will receive the amount requested. See Appendix B for examples of the application of withdrawal charges. Withdrawal charges on a partial withdrawal will be deducted from the accounts proportionately to the Gross Withdrawal Amount, adjusted by any applicable Market Value Adjustments attributable to the respective accounts. Should there not be sufficient funds available in the designated account or accounts equal to the Gross Withdrawal Amount, Manufacturers Life of America will notify the Policyowner and await further instruction before effecting any withdrawal. Manufacturers Life of America does not expect to recover its total sales expenses through the withdrawal charge. To the extent that the withdrawal charge is insufficient to recover sales expenses, Manufacturers Life of America will pay sales expenses from its other assets or surplus. These assets may include proceeds from the mortality and expense risks charges described below. RECORD-KEEPING CHARGE A record-keeping charge equal to 2% of the Policy Value up to a maximum of $30 will be deducted from Policy Value on the last day of each Policy Year during the Accumulation Period. This charge will also be deducted upon full surrender of a Policy on a date other than the last day of a Policy Year. The charge will be taken before any withdrawal charge is applied and before any applicable Market Value Adjustment. It will be deducted from the Variable Policy Value, the Fixed Account Value and the Guaranteed Interest Account Value in the same proportion that the value in each account bears to the Policy Value. 25 28 The record-keeping charge is paid to Manufacturers Life of America to compensate it for certain costs associated with the Policies and the operations of the separate accounts, including the establishing and maintaining of account and tax records for each Policyowner; communicating with Policyowners by mailing confirmations of transactions, Policy Anniversary statements, annual reports of the Series Fund and annually updated prospectuses for the Series Fund and the Policy and by responding to Policyowner requests to change information contained in his or her records such as names, addresses, allocation percentages, beneficiary or Annuitant designation, participation in the Dollar Cost Averaging or Asset Allocation Balancer programs, certain Fixed Account transactions such as calculations of Market Value Adjustments and transfers solely between Fixed Accounts, and responding to written or oral inquiries by Policyowners regarding the operations of the Policy, the separate accounts or the Series Fund. Although these expenses may rise in the future, Manufacturers Life of America guarantees that it will not increase the amount of the record-keeping charge applicable to outstanding Policies. Moreover, Manufacturers Life of America does not expect to recover from this charge any amount in excess of its accumulated applicable expenses. TRANSFER CHARGE Each Policy Month a Policyowner is allowed to direct one transfer of Policy Value among the accounts free of charge. One additional transfer per Policy Month will be permitted at a cost of $35. For this purpose all transfer requests received by Manufacturers Life of America on the same Business Day are treated as a single transfer and transfers pursuant to the Dollar Cost Averaging or Asset Allocation Balancer provisions are ignored. This charge will be deducted from the first account from which funds are transferred. (See Description of the Policies-- "Transfers of Policy Value".) DOLLAR COST AVERAGING CHARGE Currently, there is no charge for Dollar Cost Averaging transfers if Policy Value exceeds $15,000, otherwise there is a charge of $5.00 per transfer or series of transfers taking place on the same transfer date. This charge will be deducted from the account from which funds are transferred. If insufficient funds exist to effect a Dollar Cost Averaging transfer, including the charge, if applicable, the transfer will not be effected. ASSET ALLOCATION BALANCER CHARGE The current charge for Asset Allocation Balancer transfers is $15 for each transfer or series of transfers taking place on the same transfer date. This charge will be deducted from all accounts affected by the Asset Allocation Balancer transfer in the same proportion that the value in each account bears to the Policy Value immediately after the transfer. SPECIAL POLICY ACCESS CHARGE There is currently no charge associated with this feature. However, Manufacturers Life of America reserves the right to impose an administrative charge not to exceed $150 for a partial withdrawal or full surrender pursuant to the provision. PREMIUM TAX DEDUCTION Manufacturers Life of America will deduct any premium or similar state or local tax attributable to a Policy. Currently, such taxes, if any, range up to 3% depending on applicable law. Although the deduction can be made from purchase payments or from Policy Value, it is anticipated that premium taxes will be deducted from the Policy Value at the time it is applied to provide an annuity unless required otherwise by applicable law. When deducted at the Annuity Commencement Date, the premium tax deduction will be taken from the Variable Policy Value, the Fixed Account Value and the Guaranteed Interest Account Value in the same proportion that the value in each account bears to the Policy Value. Other than the premium taxes above, Manufacturers Life of America makes no charge for federal, state or local taxes that may be attributable to the separate accounts or to the operations of Manufacturers Life of America with respect to the Policies. However, if Manufacturers Life of America incurs any such such taxes, it may make a charge therefor, in addition to the foregoing. MORTALITY AND EXPENSE RISKS CHARGES A charge at an annual rate of .45% is made for mortality and expense risks that Manufacturers Life of America assumes. This charge is deducted monthly at .0375% of assets at the beginning of each Policy Month from the Variable Account Value and the Fixed Account Value. 26 29 A charge at an annual rate of .80% is also made for mortality and expense risks that Manufacturers Life of America assumes. This charge is deducted daily from the assets of Separate Account Two. The mortality risks assumed are (i) the risk that Annuitants may live for longer periods of time than the periods indicated in the mortality tables on which Manufacturers Life of America calculated the annuity tables in the Policies, (ii) the risk that mortality will cause a Policy to terminate before the assumed Annuity Commencement Date and (iii) the risk that mortality will cause Manufacturers Life of America to incur higher costs than anticipated for the Survivor Benefit Amount. The expense risks assumed are that the expenses of administration of and recordkeeping for the Policies will be greater than Manufacturers Life of America estimated. Manufacturers Life of America will realize a gain from these charges to the extent they are not needed to pay expenses under the Policies. Although it is difficult to specify precisely the breakdown between expense and mortality risk elements of the mortality and expense risks charge, Manufacturers of America estimates that approximately .85% is for mortality risks and .40% for expense risks. A little more than half of the mortality risk element is estimated to be attributable to risks taken in connection with the Survivor Benefit Amount (a death benefit guarantee). As both the daily and monthly charges are imposed in connection with the same risks, each charge could be estimated to be divided into mortality risk and expense risk components at the same ratio as for the overall estimate. ADMINISTRATION CHARGE A charge at an annual rate of 0.20% of the Variable Account Value is made for the administration of the Policy. This charge is deducted daily by assessing a charge against the assets of Separate Account Two. The administration charge is paid to Manufacturers Life of America to compensate it for costs associated with administration of the Policies and the separate accounts including those related to allocation of initial and subsequent purchase payments, processing purchase applications, withdrawals, surrenders, unit value calculations, transfers, calculation of proceeds payable on death, payment of proceeds payable on death, cash management prior to Policy issue, and establishing and maintaining computer system support for those or other administrative functions. Manufacturers Life of America reserves the right to increase the amount of the administration charge applicable to outstanding Policies in the future if costs associated with the Policies and the operations of the separate accounts should rise above current levels. Manufacturers Life of America does not expect to recover from this charge any amount in excess of its accumulated administrative expenses. MARKET VALUE ADJUSTMENT A Market Value Adjustment ("MVA") will apply when money is removed from a Fixed Account prior to the Maturity Date for any of the following reasons: full surrender, partial withdrawal, transfer to another account (including another Fixed Account), or to purchase an annuity. However, the MVA will be waived if the amount is removed within the one month period prior to the Maturity Date. The MVA will be applied after any transfer or contract charge is deducted, but before the application of any withdrawal charges. The MVA reflects the difference between the Guaranteed Rate for the applicable Fixed Account, and the current Guaranteed Rate for the time period equal to the remaining Guarantee Period ("Current Rate"). Generally, if the Guaranteed Rate is higher than the Current Rate, the MVA will be positive. If the Guaranteed Rate is lower than the Current Rate, the MVA will be negative. On a full surrender, a positive MVA will increase the amount received by the Policyowner, while a negative MVA will decrease the amount received by the Policyowner. On a transfer, the amount of the requested transfer from a Fixed Account will not reflect any adjustment by the MVA. Any such adjustment will be reflected in the amount transferred to the new account(s). A positive MVA will increase the amount transferred into the new account(s), while a negative MVA will decrease the amount so transferred. On the Annuity Commencement Date, a positive MVA will increase the amount applied to provide an annuity, while a negative MVA will decrease the amount applied to provide an annuity. 27 30 On a partial withdrawal, a positive MVA will decrease the Gross Withdrawal Amount required to provide the requested amount. A negative MVA will increase the Gross Withdrawal Amount so required. The actual MVA is a proportion of the Gross Withdrawal Amount, determined by the following formula: (1+G) N ------- -1 (1+C) where: G is the Guaranteed Rate for the money being subjected to the MVA. C is the Guaranteed Rate offered by Manufacturers Life of America for deposits for a time period equal to the number of years remaining in the Guarantee Period, rounded up to the next full year (the "Current Rate"). If at the time of the MVA calculation, Manufacturers Life of America does not offer a Guarantee Period with the required number of years, then the rate J will be found by linear interpolation of the current rates for available Guarantee Periods. N is the number of full months remaining in the Guarantee Period divided by 12. See Appendix B for examples of MVA calculations. OTHER GENERAL POLICY PROVISIONS DEFERRAL OF PAYMENTS Manufacturers Life of America reserves the right to postpone the transfer or payment of any value or benefit available under a Policy based upon the assets allocated to Separate Account Two for any period during which: (1) the New York Stock Exchange ("Exchange") is closed for trading (other than customary weekend and holiday closings) or trading on the Exchange is otherwise restricted; or (2) an emergency exists as defined by the S.E.C. or the S.E.C. requires that trading be restricted; or (3) the S.E.C., by order, so permits a delay for the protection of security holders. Manufacturers Life of America also reserves the right to delay transfer or payment of assets from the Fixed Accounts or the Guaranteed Interest Account for up to six months and will pay interest at a rate determined by it if there is a delay in payment for more than 30 days. In addition, transfers may be denied under the circumstances previously set forth. (See Description of the Policies -- "Provisions on Transfers".) ANNUAL STATEMENTS Within 30 days after each Policy Anniversary, Manufacturers Life of America will send the Policyowner a statement showing: (1) the summary of each active account up to the most recent Policy Anniversary including the Policy Value up to the Policy Anniversary date; and (2) a description of the transactions affecting each active account during the Policy Year including total units cancelled, amounts deducted from each account for fees, and total units and amounts credited to each account as allocations or interest. RIGHTS OF OWNERSHIP The Policyowner is the person entitled to exercise all rights under a Policy. As such, any Policy rights or privileges may be exercised without the consent of the Annuitant, beneficiary or any other individual, except as provided by the Policyowner. 28 31 Except as discussed below, ownership of the Policy may be changed or the Policy collaterally assigned at any time prior to the Annuity Commencement Date, subject to the rights of any irrevocable beneficiary or other person. Any change of ownership or assignment must be made in writing and will not take effect until received at the Manufacturers Life of America Service Office. Manufacturers Life of America assumes no responsibility for the validity of any assignment. In the case of a Qualified Policy, there may be restrictions on the privileges of ownership. Some plans do not permit the exercise of certain of the Policyowner's rights without the written consent of the Policyowner's spouse. Among the rights limited are the right to choose an optional form of payment; to make withdrawals; or to surrender the Policy. A Qualified Policy which is not owned by a trustee of a trust which qualifies under section 401(a) of the Code, may not be sold, assigned, transferred, discounted or pledged as collateral for a loan or as security for the performance of an obligation or for any other purpose to any person other than to Manufacturers Life of America except as may be provided by applicable state or federal law. Ownership of a Qualified Policy which is owned by a trustee of a Qualified Plan may not be transferred to a participant prior to the Annuity Commencement Date. The transfer of a Qualified Policy to a participant prior to the Annuity Commencement Date would jeopardize the plan's qualified status as the Policy does not contain the restrictions on a participant's rights on withdrawal or on and after the Annuity Commencement Date required for plans under the Employee Retirement Income Security Act. CHANGE OF ANNUITANT. The Policyowner may change the Annuitant prior to the Annuity Commencement Date. Eligible Annuitants are: (i) the Policyowner, (ii) Policyowner's spouse, or (iii) the Policyowner's parent(s), brother(s), sister(s), or child(ren). If the Policyowner is not an individual, the Annuitant(s) may not be changed except with respect to certain Qualified Plans. In any event, the Annuitant(s) may not be changed after the Annuity Commencement Date. CHANGE OF ELECTED ANNUITY DATE. The Elected Annuity Date may be changed from that stated in the application to an earlier or later date. The new date cannot be later than the end of the Policy Year in which the Annuitant reaches age 85. A written request to change the Elected Annuity Date must be received by the Manufacturers Life of America Service Office at least 30 days prior to the new Elected Annuity Date. (See Description of the Policies -- "Annuity Value Guarantee"). SELECTION OF PAYEE. The Policyowner must select a Payee to receive any payments due under the Policy. If the Payee is the Policyowner, any payments remaining on the Policyowner's death will be paid to the beneficiary. If a Payee other than the Policyowner has been selected, any payments remaining on the Policyowner's death will continue to be made to the Payee until Manufacturers Life of America receives written notice from the beneficiary to change the Payee. The Payee for annuity payments should be chosen from the following: (a) The Annuitant; (b) The Annuitant's spouse, parent(s), brother(s), sister(s), child(ren); or (c) The Policyowner, if the Policyowner is an individual. Any other choice of Payee will require the consent of Manufacturers Life of America: CHANGE OF PAYEE. The Policyowner may change the Payee at any time upon 30 days' written notice to Manufacturers Life of America. Such notice must specify the date on which payments to the new Payee should begin. A change in the Payee will not require the Payee's consent. BENEFICIARY Ownership of the Policy will pass to the designated beneficiary on the death of the Policyowner. The beneficiary is the person designated in the application or as subsequently designated. The beneficiary may be changed at any time by written notice to Manufacturers Life of America. Any change will be effective on the date written notice is received at the Manufacturers Life of America Service Office. If no beneficiary survives the Policyowner, ownership will pass to the Policyowner's estate. In the case of Qualified Policies, regulations promulgated by the Departments of Labor and Treasury prescribe certain limitations on the designation of a beneficiary. 29 32 MODIFICATION A Policy may not be modified by Manufacturers Life of America without the consent of the Policyowner, except where required to conform to any applicable law or regulation or any ruling issued by a government agency. FEDERAL TAX MATTERS TAXATION OF MANUFACTURERS LIFE OF AMERICA Manufacturers Life of America is taxed as a life insurance company under Subchapter L of the Code. Since the operations of Separate Account Two are part of, and are taxed with, the operations of Manufacturers Life of America, Separate Account Two is not separately taxed as a "regulated investment company" under Subchapter M of the Code. Under existing federal income tax laws, investment income and capital gains of Separate Account Two are not taxed to the extent they are applied to increase reserves under the Policies. Since, under the Policies, investment income and realized capital gains of Separate Account Two are automatically applied to increase reserves, Manufacturers Life of America does not anticipate that it will incur any federal income tax liability attributable to Separate Account Two, other than a federal income tax based on premiums received which is currently absorbed by Manufacturers Life of America, and therefore Manufacturers Life of America does not intend to make provision for any such taxes. However, if changes in the federal tax laws or interpretations thereof result in Manufacturers Life of America being taxed on such income or gains, or taxes currently absorbed are increased, then Manufacturers Life of America may impose a charge against Separate Account Two in order to make provision for such taxes. TAX TREATMENT OF THE POLICIES The Policies are designed for use in connection with retirement savings plans that may or may not qualify for special income tax treatment under the provisions of the Code. The following discussion of federal income tax aspects of amounts received under a variable annuity contract is not exhaustive, does not purport to cover all situations, and is not intended as tax advice. A qualified tax adviser should always be consulted with regard to the application of law to individual circumstances. Section 72 of the Code governs taxation of annuities in general. Under existing provisions of the Code, except as described below, any increase in the value of a Policy is not taxable to the Policyowner or Annuitant until received, either in the form of annuity payments, as contemplated by the Policy, or in some other form of distribution. However, as a general rule, deferred Policies held by a corporation, trust or other similar entity, as opposed to a natural person, are not treated as annuity contracts for federal tax purposes. The investment income on such Policies is taxed as ordinary income that is received or accrued by the Policyowner during the taxable year. In certain circumstances policies will be treated as held by a natural person if the nominal owner is a non-natural person and the beneficial owner is a natural person, but this special exception will not apply in the case of any employer who is the nominal owner of a Policy providing non-qualified deferred compensation for its employees. Exceptions to the general rule (of immediate taxation) for Policies held by a corporation, trust or similar entity may apply with respect to (1) annuities held by an estate of a decedent, (2) Policies issued in connection with qualified retirement plans, or IRAs, (3) certain annuities purchased by employers upon the termination of a qualified retirement plan, (4) certain annuities used in connection with structured settlement agreements, and (5) annuities purchased with a single premium when the annuity starting date is no later than a year from purchase of the annuity. When annuity payments commence, each payment is taxable under Section 72 of the Code as ordinary income in the year of receipt if the Policyowner has not previously been taxed on any portion of the purchase payments. If any portion of the purchase payments has been included in the taxable income of the Policyowner, this aggregate amount will be considered the "investment in the contract." For fixed annuity payments, there is no tax on the portion of each payment which represents the same ratio that the "investment in the contract" bears to the total expected value of the annuity payments for the term of the annuity; the remainder of each payment is taxable. However, once the total amount of the taxpayer's "investment in the contract" is excluded using this ratio, annuity payments will be fully taxable. If annuity payments cease before the total amount of the taxpayer's "investment in the contract" is recovered, the unrecovered amount will be allowed as a deduction to the Policyowner in his last taxable year. In the case of a withdrawal, amounts received are taxable as ordinary income to the extent that the Policy Value (determined without regard to any withdrawal charges) before the withdrawal exceeds the "investment in the contract." Amounts loaned under an annuity or amounts received pursuant to an assignment or pledge of an annuity are treated as withdrawals. There are special rules for loans to participants from annuities held in connection with qualified retirement plans or IRA's. With respect to contracts issued after April 22, 1987, if an individual transfers an annuity without adequate consideration to a person other than his or her spouse (or to 30 33 his former spouse incident to divorce), he will be taxed on the difference between the value of the annuity minus any withdrawal charges and the "investment in the contract" at the time of transfer. In such case, the transferee's "investment in the contract" will be increased to reflect the increase in the transferor's income. In addition, there is a 10% penalty tax on the taxable amount of any payment unless the payment is: (a) received on or after the date that the Policyowner reaches age 59 1/2; (b) attributable to the Policyowner's becoming disabled as defined in the Code; (c) made to a beneficiary on the death of the Policyowner; (d) made to a beneficiary on the death of the taxpayer if the Policyowner is not a natural person; (e) made as a series of substantially equal periodic payments for the life of the taxpayer (or the joint lives of the taxpayer and beneficiary), subject to certain recapture rules; (f) made under an annuity that is purchased with a single premium whose annuity starting date is no later than a year from purchase of the annuity; (g) attributable to "investment in the contract" before August 14, 1982; or (h) made with respect to certain annuities issued in connection with structured settlement agreements. Special rules may apply to annuities issued in connection with qualified retirement plans. For both withdrawals and annuity payments under some types of plans qualifying for special federal income tax treatment ("qualified plans"), there may be no "investment in the contract" and the total amount received may be taxable. Where the Policy is owned by an individual, Manufacturers Life of America will withhold and remit to the U.S. Government a part of the taxable portion of each distribution made under a Policy unless the distributee notifies Manufacturers Life of America at or before the time of the distribution that he or she elects not to have any amounts withheld. The withholding rates applicable to the taxable portion of periodic annuity payments are the same as the withholding rates generally applicable to payments of wages. The withholding rate applicable to the taxable portion of nonperiodic payments (including withdrawals prior to the annuity commencement date) is 10%. Where the Policy is not owned by an individual as part of a qualified plan, or when the owner is a non-resident alien, special withholding rules may apply. In connection with the issuance of temporary regulations relating to diversification requirements for separate accounts or funds underlying variable life and annuity policies, the Treasury Department has announced that such regulations do not provide guidance concerning the extent to which Policyowners may direct their investments to particular sub-accounts of the Account. Regulations in this regard are expected in the future. It is not clear what these regulations will provide or whether they will be prospective only. It is possible that when regulations are issued, the Policy may need to be modified to comply with such regulations. For purposes of determining a Policyowner's gross income from distributions which are not in the form of an annuity, the Code provides that all deferred annuities issued by the same company to the same Policyowner during any calendar year shall be treated as one annuity. Additional rules may be promulgated under this provision to prevent avoidance of its effect. For further information on current aggregation rules under this and other Code provisions, the Policyowner should consult his or her tax adviser. PURCHASE OF POLICIES BY QUALIFIED PLANS The Policies are available for use with several types of qualified plans. The tax rules applicable to participants in such qualified plans vary according to the type of plan and the terms and conditions of the plan itself. Therefore, no attempt is made to provide more than general information about the use of the Policies with the various types of qualified plans. Policyowners, Annuitants and beneficiaries are cautioned that the rights of any person to any benefits under such qualified plans may be subject to the terms and conditions of the Policy. Following are brief descriptions of the various types of qualified plans in connection with which Manufacturers Life of America will issue a Policy. INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible individuals to contribute to an individual retirement program known as an "Individual Retirement Annuity" or "IRA". These IRAs are subject to limits on the amount that may be contributed, the persons who may be eligible and on the time when distributions may commence. Distributions from certain other types of qualified plans may be "rolled over" on a tax-deferred basis into an IRA. Sales of the Policies for use with IRAs may be subject to special requirements of the Internal Revenue Service. Distributions from these qualified plans are subject to special withholding rules. Consult your plan administrator before taking a distribution which you wish to roll over. A direct rollover from a qualified plan is permitted and is exempt from the special withholding rules. When issued in connection with an IRA, a Policy will be amended as necessary to conform to the requirements of federal laws governing such plans. CORPORATE AND SELF-EMPLOYED (H.R. 10 AND KEOGH) PENSION AND PROFIT SHARING PLANS. Section 401(a) of the Code permits corporate employers to establish various types of tax-favored retirement plans for employees. Self-employed individuals may 31 34 establish plans for themselves and their employees. Such retirement plans may permit the purchase of the Policies in order to provide benefits under the plans. Employers intending to use Policies in connection with such plans should seek competent advice. PURCHASE OF POLICIES BY CHARITABLE REMAINDER TRUSTS The Policies may be purchased by Charitable Remainder Trusts. If a Charitable Remainder Trust is the Policyowner, the character of amounts received by the income beneficiary of the Charitable Remainder Trust depends on the character of the income in the trust. To the extent the trust has any undistributed ordinary income, amounts received by the income beneficiary from the trust are taxed as ordinary income. The Internal Revenue Service has held in at least one private letter ruling that any increase in the value of a Policy will be treated as income to the trust in the year it accrues regardless whether it is actually received by the trust. However, a private letter ruling cannot be relied on as precedent by anyone other than the taxpayer who requests it. ADDITIONAL INFORMATION ABOUT MANUFACTURERS LIFE OF AMERICA DESCRIPTION OF BUSINESS Manufacturers Life of America's primary purpose is to issue and sell variable universal life and variable annuity products in the United States. In 1991 Manufacturers Life of America commenced establishment of branch operations in Taiwan to develop and market traditional insurance for the Taiwanese market. Of approximately 1800 life insurance companies in the United States, fewer than 100 offer variable life products. In an industry where financial strength provides competitive advantage, Manufacturers Life of America is well positioned competitively. RESPONSIBILITIES ASSUMED BY MANUFACTURERS LIFE Manufacturers Life has entered into an agreement with ManEquity, Inc. pursuant to which Manufacturers Life, 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 for all sales commissions paid by Manufacturers Life and will pay Manufacturers Life for its other services under the agreement in such amounts and at such times as agreed to by the parties. Manufacturers Life has also entered into a Service Agreement with Manufacturers Life of America pursuant to which Manufacturers Life will provide to Manufacturers Life of America in Toronto, Ontario, Canada all issue, administrative, general services and record-keeping functions on behalf of Manufacturers Life of America with respect to all of its insurance policies including the Policies. Under this agreement Manufacturers Life of America is obligated to reimburse operating expenses and costs incurred by Manufacturers Life on behalf of Manufacturers Life of America. For 1992, 1993 and 1994, Manufacturers Life of America paid $4,919,667, $12,467,474 and $21,326,446, respectively, to Manufacturers Life pursuant to the agreement. Finally, Manufacturers Life has entered into an excess reinsurance arrangement with Manufacturers Life of America for certain obligations arising under the Survivor Benefit Amount. Except for its obligations to Manufacturers Life of America under this reinsurance agreement, Manufacturers Life has no financial obligation for any Policy benefits. Manufacturers Life of America's ultimate parent company, Manufacturers Life, is a Canadian-based mutual life insurance company with worldwide operations and assets of $40.2 Billion (Canadian Dollars) and surplus of $3.1 Billion (Canadian Dollars) as of December 31, 1994. As in the past, Manufacturers Life of America may look to its ultimate parent company to provide the necessary capital to finance its operations. The vast majority of Manufacturers Life's business in the United States is sold directly through the parent company; however, subsidiary companies are used for certain special purposes. The primary purpose of this subsidiary, Manufacturers Life of America, is to issue and sell variable universal life and variable annuity products. Manufacturers Life of America has no direct employees. Manufacturers Life of America owns no property. 32 35 SELECTED FINANCIAL DATA

FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- (IN THOUSANDS) REVENUES Premiums, Annuity Deposits and Other Revenue $193,649 $125,948 $ 39,885 $14,410 $ 7,958 Investment Income, Net of Investment Expenses 3,589 3,324 1,431 781 743 Commissions and Expense Allowances on Reinsurance Ceded 188 -- -- -- 3,016 -------- -------- -------- -------- ------- 197,426 129,272 41,316 15,191 11,717 -------- -------- -------- ------- ------- BENEFITS AND EXPENSES Policyholder Benefits 159,215 109,571 32,720 9,252 8,050 Other Expenses 52,899 32,229 12,799 4,363 3,988 Commissions and Expense Allowances on Reinsurance Assumed 810 330 269 81 3,042 212,924 142,130 45,788 13,696 15,080 -------- -------- -------- ------- ------- Gain (Loss) Before Policyholder Dividends and Federal Income Tax Provision (Benefit) (15,498) (12,858) (4,472) 1,495 (3,363) Dividends to Policyholders 1,150 837 634 25 20 -------- -------- -------- ------- ------- Gain (Loss) Before Federal Income Tax (Benefit) (16,648) (13,695) (5,106) 1,470 (3,383) Federal Income Tax (Benefit) -- (325) 340 1,351 (23) -------- -------- -------- ------- ------- Net Gain (Loss) from Operations After Policyholders Dividends and Federal Income Tax (16,648) (13,370) (5,446) 119 (3,360) Net Realized Capital Gains (3,012) 93 139 -- -- -------- -------- -------- ------- ------- Net Gain (Loss) from Operations $(19,660) $(13,277) $ (5,307) $ 119 $(3,360) ======== ======== ======== ======= ======= Total Assets $403,086 $253,392 $136,065 $92,501 $65,786 ======== ======== ======== ======= =======

33 36 MANAGEMENT DISCUSSION AND ANALYSIS OVERVIEW Manufacturers Life of America is a wholly-owned subsidiary of The Manufacturers Life Insurance Company of Michigan, (the Parent), which is in turn a wholly-owned subsidiary of Manufacturers Life, a Canadian based mutual life insurance company with world-wide operations and assets of $40.2 billion (Canadian Dollars), and surplus of $3.1 billion (Canadian Dollars). Manufacturers Life and its subsidiaries have consistently received excellent ratings from Standard and Poor's Insurance Rating Service, A.M. Best Company, Duff & Phelps Credit Rating Co., and Moody's Investors Service, Inc. Manufacturers Life of America's rapid growth, which commenced in 1992 with the emergence of the variable product line as a "core insurance product," continued in 1994 despite general economic uncertainty, rising interest rates and inflationary fears which produced poor equity and bond market performance. This continuing growth reflects increasing market acceptance of variable products and Manufacturers Life of America's commitment to develop these products as core "estate planning tools" for its U.S. target market. In 1994 Manufacturers Life of America launched a survivorship variable universal life product and a new variable annuity product. In addition, the Series Fund launched the International and Pacific Rim Emerging Markets Funds in October, increasing to eight the number of variable account investment options available to policyholders. Manufacturers Life remains committed to Manufacturers Life of America. Reflecting this commitment, Manufacturers Life has provided a claims paying guarantee to all U.S. policyholders and contributed an additional $20 million of capital in 1994. New business growth and statutory earnings remain consistent with internal projections. The significant growth in the variable product lines has created negative earnings because of the new business strain under statutory accounting principles. Long term profitability remains strong once critical mass has been achieved. Manufacturers Life of America's capital ratio remained strong with a surplus to liability ratio of 14%. FINANCIAL POSITION Financial results have been prepared on the basis of statutory accounting practices which are currently considered by the insurance industry to be in accordance with GAAP for all mutual life insurance companies and their wholly-owned subsidiaries. A description of the accounting policies can be found in Note 2 to the December 31, 1994 financial statements. ASSETS 1994 COMPARED TO 1993 At December 31, 1994 the total assets of Manufacturers Life of America were $403.1 million, an increase of $149.7 million or 59% from year-end 1993. The main contributors to this growth were: (1) General Account assets increased by $21.1 million. Bonds and short-term investments increased by $28.8 million and $10 million respectively due to: (a) A $20.0 million capital infusion in December, 1994. (b) Receipt of $21.5 million related to a block of participating whole life contracts assumed from Manufacturers Life. Common Stocks decreased by $14.9 million. The investment in common stocks represents Manufacturers Life of America's seed money investment in the Series Fund. This investment decreased because: (a) Manufacturers Life of America withdrew $13.0 million of seed money to pay operating expenses. (b) The values of the common stock decreased by $1.9 million due to underlying investment performance of the Series Fund. 34 37 Manufacturers Life of America's debt securities consist mainly of U.S. Treasury notes and bonds, mortgage backed securities, investment grade corporate bonds and money market securities. (2) Separate Account assets increased by $128.6 million. Consistent with Manufacturers Life of America's primary business operations of marketing variable products, the majority of "policy premium" is transferred immediately into the Separate Accounts. 1993 COMPARED TO 1992 At December 31, 1993, the total assets of Manufacturers Life of America were $253.4 million, an increase of $117.3 million or 86% over year-end 1992. The major changes in the various asset categories are due to the following: (1) The common stock of Manufacturers Life of America increased by $40.5 million. This increase reflects a change in basis of presentation of Manufacturers Life of America's seed money invested in the Series fund. During 1993, Manufacturers Life of America transferred ownership of its seed money from the Separate Account to the General Account. This transfer resulted in an increase in common stocks of $40.5 million. In prior years this investment was reported as a Separate Account asset. (2) Cash on hand increased by $4.5 million. This reflects, in part, the additional capital contribution used to fund Taiwan operations. At year-end 1993, the total capital and surplus invested in Taiwan totaled $7.7 million. (3) Consistent with Manufacturers Life of America's primary business operations of marketing variable products, the majority of "policy premium" is transferred immediately into the Separate Account. Accordingly, in 1993, Separate Account assets exclusive of Manufacturers Life of America's seed money increased by $114 million over 1992. LIABILITIES 1994 COMPARED TO 1993 At December 31, 1994, Manufacturers Life of America's total liabilities were $353.7 million, reflecting an increase of $151.0 million over year-end 1993. This increase is comprised of: (1) General Account liabilities increased by $22.4 million. This increase was primarily the result of Manufacturers Life of America's increasing the face amount it assumes from Manufacturers Life on a participating whole life block of business. Manufacturers Life of America increased the amount it assumes from the first $50,000 to the first $100,000 of initial face amount per policy. This transaction resulted in an initial premium transfer and the establishment of reserves totaling $21.5 million. (2) Separate Account liabilities increased by $128 million. Separate Account liabilities increase in tandem with, and are fully secured by, Separate Account assets. 1993 COMPARED TO 1992 Manufacturers Life of America's liabilities have increased by $122.2 million over year-end 1993, reflecting: (1) Increases in Separate Account liabilities totaling $114 million, due to increases in Separate Account deposits and investment results of the Separate Account assets. With the exception of activities related to the seed money, liabilities move in tandem with changes in Segregated Assets; 35 38 (2) Aggregate policy reserves increased by $8 million. This increase was primarily the result of Manufacturers Life of America's assuming an additional block of business from Manufacturers Life. Under this agreement, Manufacturers Life of America has assumed the first $50,000 of initial face amount per policy on a traditional block of insurance. This transaction resulted in an initial premium transfer and the establishment of reserves totaling $10.2 million. CAPITAL AND SURPLUS 1994 COMPARED TO 1993 At the end of 1994, Manufacturers Life of America's capital and surplus totalled $49.4 million, a decrease of $1.3 million over year-end 1993. The following details the changes made to capital and surplus during 1994:

(MILLIONS) ---------- Loss from Operations $(19.7) Issue of Common Stock/Contributed Surplus 20.0 Miscellaneous Changes (1.6) ------ Net Decrease in Capital and Surplus $ (1.3) ======

The loss from operations increased from a loss of $13.3 million in 1993 to a loss of $19.7 million primarily as a result of new business strain on increased sales. This reflects significant growth in the sale of both variable annuities and variable universal life products. The $20 million in proceeds from the sale of common stock is a result of Manufacturers Life of America issuing one common share with a par value $1 with the balance being treated as contributed surplus. During 1994, Manufacturers Life of America restructured its capital and surplus by exchanging 230,000 preferred shares, (par value $100), for 3,000,000 common shares, (par value $1) and contributed surplus of $20 million. This restructuring was done to ensure Manufacturers Life of America satisfied continued compliance with all state regulations regarding surplus. Total capital and surplus was unchanged by this restructuring. 1993 COMPARED TO 1992 At the end of 1993, Manufacturers Life of America's capital and surplus totalled $50.7 million, a decrease of $4.9 million over 1992. The following details the contributions made to capital and surplus during 1992:

(MILLIONS) ---------- Loss from Operations $(13.3) Unrealized Capital Losses (1.6) Gain on Surplus in the Separate Account 4.3 Sale of Common Stock/Contributed Surplus 5.9 Miscellaneous Changes in Capital (0.2) ------ Net decrease in Capital and Surplus $ (4.9) ======

Earnings declined from a loss of $5.3 million in 1992 to a loss of $13.3 million in 1993, primarily as a result of new business strain on dramatically increased sales. Premiums for 1993 represented an increase of 216% over 1992. This reflects significant growth in the sale of both variable annuities and variable universal life products. The Unrealized Capital Loss of $1.6 million represents the difference between the December 31, 1993 market value of the seed money shares and the actual cost of these shares. The unrealized loss occurred because the Series Fund paid a dividend shortly after the shares were transferred to the General Account. The impact of the dividend, while increasing investment income, simultaneously reduced the market value of the shares, giving rise to an unrealized loss. The gain on surplus in the Separate Account represents the investment income earned on Manufacturers Life of America's seed money in the Series Fund, while it was still in the Separate Account. 36 39 The $5.9 million in proceeds from the sale of common stock is a result of Manufacturers Life of America's issuing one common share (par value $1) with the balance being treated as contributed surplus. These funds were subsequently transferred to fund start-up operations in Taiwan. 1992 COMPARED TO 1991 At year end 1992, Manufacturers Life of America's capital and surplus totalled $55.5 million, an increase of $2.9 million over 1991. During the year, Manufacturers Life of America issued 60,000 preferred shares to its Parent resulting in a net increase of $6 million in capital. These funds were used to fund start-up operations in Taiwan. The remaining increase in surplus reflects investment income on Manufacturers Life of America's Separate Account investment, offset by operating losses. RESULTS OF OPERATIONS 1994 COMPARED TO 1993 The loss from operations increased from $13.3 million in 1993 to $19.7 million in 1994, principally as a result of higher new business strain from increased sales. The loss of $19.7 million in 1994 was derived as follows: (1) Under statutory accounting practices, all growing life insurance companies will experience operating losses in direct proportion to increased sales. During 1994, Manufacturers Life of America lost $15.9 million primarily due to the increased new business strain. In accordance with statutory life insurance accounting, high first-year business costs fall primarily to operations as higher expenses. These expenses are recovered over the life of the policy through policy/expense loads and will enhance future profit; (2) $3.8 million due to start-up operations in Taiwan. Manufacturers Life of America continues to expect significant growth in the sale of variable products. Given this, Manufacturers Life of America expects to experience statutory losses until the late 1990's at which time economies of scale should be achieved and profits should begin to emerge on business sold previously. 1993 COMPARED TO 1992 The loss from operations increased from $5.3 million in 1992 to $13.3 million mainly as a result of higher new business strain from increased sales. The 1993 loss of $13.3 million was derived as follows: (1) $10.2 million primarily due to the increased new business strain from dramatically higher variable sales; (2) $3.1 million due to start-up operations in Taiwan. 1992 COMPARED TO 1991 The Net Loss for 1992 was $5.3 million versus a profit of $.1 million in 1991. Premiums for 1992 were $39.8 million versus $14.3 and $8.0 for 1991 and 1990, respectively. This significant growth reflects positively on an internal reorganization that took place in late 1991 to refocus Manufacturers Life of America's activities on the marketing and sales activities for this emerging product line after several disappointing years. The success of these activities was directly reflected in the significant sales growth. The loss in 1992 was entirely attributable to higher new business strain on dramatically higher sales as required under current statutory accounting. CASH FLOW The majority of Manufacturers Life of America's cash flows arise from policyowner transactions related to the Separate Accounts and, as such, the assets and liabilities of these products are exactly matched. In the case of death benefits, Manufacturers Life of 37 40 America cedes a substantial portion of the risks to Manufacturers Life. Manufacturers Life of America's cash flows are adequate to meet the obligations retained on these contracts. Because of the excess of expense over income, which arises from first policy year issue, the continued success in generating substantial growth in sales will not only result in losses in its Results of Operations, but will create a cash flow strain as well. As a result, Manufacturers Life of America may look to its ultimate parent to provide the necessary capital to support its operations. Manufacturers Life of America has no material commitments for capital expenditures and, other than the claims paying guarantee discussed in the "Overview", does not have any financing arrangements not reflected on its balance sheet. 38 41 EXECUTIVE OFFICERS AND DIRECTORS The directors and executive officers of Manufacturers Life of America, together with their principal occupations during the past five years, are as follows:

POSITION WITH MANUFACTURERS LIFE NAME (AGE) OF AMERICA PRINCIPAL OCCUPATION ---------- ---------- -------------------- Sandra M. Cotter (32) Director (since December 1992) Attorney -- 1989-present, Dykema, Gossett Leonard V. Day, Jr. (53) Director (since May 1987) General Manager, Philadelphia Branch -- 1970-present, The Manufacturers Life Insurance Company Donald A. Guloien (38) President and Director (since September 1990) Senior Vice President, Business Development -- 1994-present, The Manufacturers Life Insurance Company; Vice President, U.S. Individual Business -- 1990-1994, The Manufacturers Life Insurance Company; Mr. Guloien is also a director of Manulife Series Fund, Inc. Stephen C. Nesbitt (46) Secretary, General Counsel, and Director (since May 1985) Legal Vice President -- 1990-present, The Manufacturers Life Insurance Company Joseph J. Pietroski (56) Director (since July 1982) Senior Vice President, General Counsel and Corporate Secretary -- 1988- present, The Manufacturers Life Insurance Company John D. Richardson (57) Chairman and Director (since January 1995) Senior Vice President and General 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 & CFO -- 1989-1991, Canada Trust Diane M. Schwartz (48) Director (since May 1987) Senior Vice President and International Operations -- 1992-present, The Manufacturers Life Insurance Company; Senior Vice President and General Manager, U.S. Operations -- 1988-1992, The Manufacturers Life Insurance Company

39 42

POSITION WITH MANUFACTURERS LIFE NAME (AGE) OF AMERICA PRINCIPAL OCCUPATION ---------- ---------- -------------------- Robin Bolton (49) Vice President, Marketing Assistant Vice President, Variable and Annuity Products -- 1992- present, The Manufacturers Life Insurance Company; Assistant Vice President, Variable Universal Life Products -- 1991-1992, The Manufacturers Life Insurance Company; Director, Agencies -- 1990-1991, The Manufacturers Life Insurance Company; Assistant Vice President, Finance and Planning -- 1987-1991, The Manufacturers Life Insurance Company John R. Ostler (42) Vice President, Chief Actuary and Treasurer Financial Vice President -- 1992-present, The Manufacturers Life Insurance Company; Vice President, Insurance Products -- 1990-1992, The Manufacturers Life Insurance Company Douglas H. Myers (40) Vice President, Finance and Com- pliance, Controller Assistant Vice President and Controller, U.S. Operations -- 1988- present, The Manufacturers Life Insurance Company

Legal fees were paid to the firm of Dykema Gossett during Manufacturers Life of America's last fiscal year. A director of Manufacturers Life of America is associated with that firm; however, legal fees so paid did not exceed 5% of Dykema Gossett's consolidated gross revenues during its last full fiscal year. EXECUTIVE COMPENSATION All of the executive officers of Manufacturers Life of America also serve as officers of Manufacturers Life and receive no compensation directly from Manufacturers Life of America. Allocations have been made as to such officers' time devoted to duties as executive officers of Manufacturers Life of America and its subsidiaries. The aggregate allocated cash compensation of the president of Manufacturers Life of America for services rendered in all capacities to Manufacturers Life of America and its subsidiaries during 1994 was $23,049. This consisted of salary ($16,488), profit-sharing ($4,690), flexible spending benefits ($1,871) and incentive plans (not eligible). No executive officer had allocated cash compensation in excess of $100,000. These figures include salary, applicable profit-sharing and incentive plans and flexible spending benefits. In addition to cash compensation, all officers are entitled to a standard benefit package including medical, health and pension. There are no other benefit packages which currently enhance overall compensation by more than 10%. Directors of Manufacturers Life of America who are also officers or employees of Manufacturers Life or its affiliates receive no compensation in addition to their compensation as officers or employees of Manufacturers Life or its affiliates. Directors who are not also officers or employees will receive compensation as set by the Board. No shares of Manufacturers Life of America are owned by any executive officer or director. Executive officers participate in certain plans sponsored by Manufacturers Life. A short-term profit sharing plan is in place for all employees of Manufacturers Life and its subsidiaries at "director" level and above. Pay-outs under the short-term profit sharing plan are based on a percentage of salary and the employee's level in the organization. Manufacturers Life also maintains a Long Term Incentive Plan for officers of Manufacturers Life who have attained the title of Vice President. Benefits are directly linked to long-term growth as measured by changes in Manufacturers Life's surplus. 40 43 Manufacturers' Life Insurance Company maintains a defined benefit pension plan for the benefit of all Canadian Staff which vests at two years of service. Benefit pay-out is a function of years of service and salary including all contractual incentive compensation. Pay-outs under this program are regulated by the various provincial benefit acts and Section 248 of the Income Tax Act (Canada). The maximum yearly pension benefit as permitted by Section 248 of the Income Tax Act (Canada) is $1,355 per year of service. There are no years of service restrictions limiting overall pay-outs under this section. The maximum yearly benefit is currently earned at a salary of $76,990. The yearly allowable benefit will be indexed commencing 1999 based on increases in average industrial wages. All executive officers of Manufacturers Life of America currently accrue maximum yearly benefits under this plan. In addition there is a supplemental pension arrangement available to officers of Manufacturers Life who have attained the title of Vice President. This is an unfunded, non-qualified arrangement intended to provide additional pension income consistent with the executive's pre-retirement income. Combined pension benefits at age 65 under these arrangements is as follows:

YEARS OF SERVICE ---------------- REMUNERATION* 15 20 25 30 35 ------------- -- -- -- -- -- $125,000 26,772 35,695 44,620 53,543 62,467 150,000 32,677 43,570 54,462 65,354 76,246 200,000 44,488 59,317 74,147 88,976 103,805 250,000 56,299 75,065 93,832 112,598 131,364 300,000 68,110 90,813 113,517 136,220 158,924 400,000 91,732 22,309 152,887 183,465 214,041 500,000 115,354 53,805 192,257 230,709 269,160 * Remuneration table is based on a 100% time allocation to Manufacturers Life of America.

Normal retirement age is 65. Pay-out is annuity based with either single life with a ten year guarantee or joint life with a five year guarantee. Donald Guloien, President and Chief Operating Officer, has 13 years and 9 months of vested service. LEGAL PROCEEDINGS There are no pending legal proceedings affecting Separate Account Two or Manufacturers Life of America. STATE REGULATIONS Manufacturers Life of America is subject to regulation and supervision by the Michigan Department of Insurance, which periodically examines its financial 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 Policy has been filed with insurance officials and meets all standards set by law in each jurisdiction where it is 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. 41 44 OTHER MATTERS SPECIAL PROVISIONS FOR GROUP OR SPONSORED ARRANGEMENTS Where permitted by state insurance laws, Policies may be purchased under group or sponsored arrangements, as well as on an individual basis. A "group arrangement" includes a program under which a trustee, employer or similar entity purchases Policies covering a group of individuals on a group basis. A "sponsored arrangement" includes a program under which an employer permits group solicitation of its employees or an association permits group solicitation of its members for the purchase of Policies on an individual basis. Charges and deductions described above (see Description of the Policies--"Policy Charges") may be reduced for Policies issued in connection with group or sponsored arrangements. Such arrangements may also include sales without withdrawal charges and certain other charges to employees, officers, directors, agents, immediate family members of the foregoing and employees of agents of Manufacturers Life and its subsidiaries. Manufacturers Life of America will reduce the charges and deductions in accordance with its rules in effect as of the date an application for a Policy is approved. To qualify for such a reduction, a group or sponsored arrangement must satisfy certain criteria as to, for example, size of the group, expected number of participants and anticipated premium payments from the group. Generally, the sales contacts and effort, administrative costs and mortality risks and expense risks costs per Policy vary based on such factors as the size of the group or sponsored arrangements, the purposes for which Policies are purchased and certain characteristics of its members. The amount of reduction and the criteria for qualification will reflect the reduced sales effort and administrative, mortality and expense risks costs resulting from sales to qualifying groups and sponsored arrangements. Manufacturers Life of America may modify from time to time on a uniform basis, both the amounts of reductions and the criteria for qualification. Reductions in these charges will not be unfairly discriminatory against any person, including the affected Policyowners and all other owners of the Policies. SALE OF THE POLICIES ManEquity, Inc., an indirect wholly-owned subsidiary of Manufacturers Life, will act as the principal underwriter of, and continuously offer, the Policies pursuant to a Distribution Agreement with Manufacturers Life of America. ManEquity, Inc. is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers. The Policies will be sold by registered representatives of either ManEquity, Inc. or other broker-dealers having distribution agreements with ManEquity, Inc. who are also authorized by state insurance departments to do so. For the years ended December 31, 1992, December 31, 1993 and December 31, 1994, ManEquity, Inc. received $572,654, $2,053,988, and $2,389,494, respectively, as compensation for sales of other variable annuity policies issued by Separate Account Two by its registered representatives. Of these amounts $512,243, $1,898,178, and $2,283,353, respectively, were remitted to Manufacturers Life to reimburse it for commissions paid to such registered representatives. Agents will receive commissions on purchase payments not to exceed 4% thereof and, each year beginning with the seventh Policy Anniversary, 0.50% of the Policy Value at the respective Policy Anniversary. Under certain circumstances agents may be eligible for a bonus payment of not exceeding 1% of purchase payments. In addition, agents who meet certain productivity and persistency standards will be eligible for additional compensation. VOTING RIGHTS As stated above, all of the assets held in the Variable Accounts will be invested in shares of a particular Fund of the Series Fund. Manufacturers Life of America is the legal owner of those shares and as such has the right to vote to elect the Board of Directors of the Series Fund, 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 of the Series Fund held in the Variable Accounts in accordance with instructions received from Policyowners having an interest in such Accounts. Fund shares held in each Variable Account for which no timely instructions from Policyowners are received, including shares not attributable to Policies, will be voted by Manufacturers Life of America in the same proportion as those shares in that Variable Account for which instructions are received. Should the applicable federal securities laws 42 45 or regulations change so as to permit Manufacturers Life of America to vote shares of the Series Fund held in the Variable Accounts in its own right, it may elect to do so. The number of Fund shares in each Variable Account for which instructions may be given by a Policyowner is determined by dividing the portion of that Policy's Variable Policy Value derived from participation in that Variable Account, if any, by the value of one share of the corresponding Fund. The number will be determined as of a date chosen by Manufacturers Life of America, but not more than 90 days before the meeting of the Series Fund. Fractional votes are counted. Voting instructions will be solicited in writing at least 14 days prior to the meeting of the Series Fund. FURTHER INFORMATION A registration statement under the Securities Act of 1933 has been filed with the S.E.C. relating to the offering described in the prospectus. The prospectus does not include all the information set forth in the registration statement. The omitted information may be obtained at the S.E.C.'s principal office in Washington, D.C. upon payment of the prescribed fee. 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 MATTERS The legal validity of the Policies has been passed on by Stephen C. Nesbitt, Esq., Secretary and General Counsel of Manufacturers Life of America. Jones & Blouch, 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 The Manufacturers Life Insurance Company of America Separate Account Two appearing in this prospectus have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports appearing elsewhere herein and are included herein in reliance upon such reports given upon the authority of such firm as experts in auditing and accounting. PERFORMANCE AND OTHER COMPARATIVE INFORMATION From time to time, in advertisements or in reports to Policyowners, Manufacturers Life of America may quote various independent quotation services for the purpose of comparing Manufacturers Life of America's Policies' performance and other rankings with other companies' variable annuity policies and for the purpose of comparing any of the Funds of the Series Fund with other mutual funds with similar investment objectives. Performance rankings are not to be considered indicative of the future performance of the Funds. The quotation services which are currently followed by Manufacturers Life of America include Lipper Analytical Services, Inc., Morningstar, Inc., Variable Annuity Research and Data Service, and Money Magazine; however, other nationally recognized rating services may be quoted in the future. The performance of certain indices may also be quoted in advertisements or in reports to Policyowners. These indices include Standard & Poor's 500 Index, National Association of Real Estate A11 REIT's Index, Salomon Brothers (broad corporate index), Dow Jones Industrial Average, Donoghue Prime Money Fund Index, 3 month Treasury Bills, the National Association of Securities Dealers Automated Quotation System and the Financial Times Actuaries World Index. These comparisons may include graphs, charts, tables or examples. ADVERTISING PERFORMANCE OF VARIABLE ACCOUNTS Manufacturers Life of America may publish advertisements or distribute sales literature that contain performance data relating to the sub-accounts of Separate Account Two. Performance data will include average annual return quotations for one year, five year (when applicable) and ten year (when applicable) periods ending the last day of the month. Quotations for the period since inception of the Fund underlying a sub-account will replace such periods for a Fund that has not been in existence for a full five year or ten year period. In the case of a new Fund that is less than one year old, the one year figure would be replaced by an aggregate for the period since inception. Average annual total returns may also be advertised for three year periods and one year periods as of the last day of any month. Average annual total return is the average annual compounded rate of return that equates a purchase payment to the market value of that purchase payment on the last day of the period for which the return is calculated. Aggregate total return, which will also be advertised from time to time, is the percentage change that equates a purchase payment to the market value of that purchase payment 43 46 on the last day of the period. For the purpose of the calculations it is assumed that an initial payment of $1000.00 is made on the first day of the period for which the total return is calculated. All recurring charges are reflected in the calculations. Asset charges are reflected in changes in unit values. For purposes of the calculations, the annual administration charge is estimated by dividing the total administration charges collected during a given year by the average total assets attributable to the Policies during that year (including amounts allocated to both Separate Account Two and the Guaranteed Interest Account), multiplying that percentage by the average of the beginning and ending values of the hypothetical investment and subtracting the result from the year end account value. The contingent deferred sales charge that would be applicable to withdrawals at the end of periods for which the total return is measured are assumed to be deducted at the end of the period. The Policies have been offered to the public only since May 4, 1994. However, total return data may be advertised for as long a period of time as the underlying separate account has been active. The results for any period prior to the policies being offered would be calculated as if the policies had been offered during that period, deducting all recurring charges, including the annual record-keeping charge of $30.00 per policy, the daily mortality and expense and administration charges and the additional mortality and expense charge of .449928% annually (deducted monthly at a rate of .037494%). The average Policy Value for any period prior to the first full year in which the Policies are offered is determined assuming an initial deposit of $40,000 per Policy. 44 47 Total returns if surrendered for the period ending December 31, 1994 were as follows:

AVG. AVG. AVG. AVG. AVG. ANNUAL AGGREGATE ANNUAL ANNUAL ANNUAL ANNUAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL RETURN RETURN RETURN RETURN RETURN RETURN SINCE SINCE ONE YEAR THREE YEARS FIVE YEARS** TEN YEARS** INCEPTION* INCEPTION* -------- ----------- ------------ ----------- ---------- ---------- Emerging Growth Equity -13.11% 9.77% 14.12% 12.69% 12.51% 245.43% Balanced Assets -13.16% 1.01% 5.46% 8.92% 9.73% 165.35% Capital Growth Bond -13.46% 0.36% 4.82% 8.23% 9.06% 148.78% Common Stock -13.19% 1.37% 5.60% N/A 5.99% 56.23% Real Estate Securities -11.90% 9.74% 12.29% N/A 9.00% 93.68% Money-Market -5.69% -0.10% 2.73% 4.21% 4.38% 56.96% International N/A N/A N/A N/A N/A -9.75% Pacific Rim Emerging Markets N/A N/A N/A N/A N/A -13.50% * June 26, 1984 for the Emerging Growth Equity, Balanced Assets, Capital Growth Bond and Money-Market Funds; May 1, 1987 for the Common Stock and Real Estate Securities Funds; October 4, 1994 for the International and Pacific Rim Emerging Markets Funds. ** Policies have only been offered since May 4, 1994. Performance data for earlier periods are hypothetical figures based on the performance of the Fund in which policy assets may be invested.

Total returns if not surrendered are as follows:

AVG. AVG. AVG. AVG. AVG. ANNUAL AGGREGATE ANNUAL ANNUAL ANNUAL ANNUAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL RETURN RETURN RETURN RETURN RETURN RETURN SINCE SINCE ONE YEAR THREE YEARS FIVE YEARS** TEN YEARS** INCEPTION* INCEPTION* -------- ----------- ------------ ----------- ---------- ---------- Emerging Growth Equity -5.55% 11.40% 14.35% 12.69% 12.51% 245.43% Balanced Assets -5.60% 2.89% 5.78% 8.92% 9.73% 165.35% Capital Growth Bond -5.93% 2.22% 5.15% 8.23% 9.06% 148.78% Common Stock -5.64% 3.25% 5.92% N/A 5.99% 56.23% Real Estate Securities -4.24% 11.37% 12.54% N/A 9.00% 93.68% Money-Market 2.31% 1.77% 3.09% 4.21% 4.38% 56.96% International N/A N/A N/A N/A N/A -1.90% Pacific Rim Emerging Markets N/A N/A N/A N/A N/A -5.87% * June 26, 1984 for the Emerging Growth Equity, Balanced Assets, Capital Growth Bond and Money-Market Funds; May 1, 1987 for the Common Stock and Real Estate Securities Funds; October 4, 1994 for the International and Pacific Rim Emerging Markets Funds. ** Policies have only been offered since May 4, 1994. Performance data for earlier periods are hypothetical figures based on the performance of the Fund in which policy assets may be invested.

45 48 Aggregate total returns if surrendered as of the end of each year since inception are as follows:

1994 1993 1992 1991 1990 1989 1988 1987 ---- ---- ---- ---- ---- ---- ---- ---- Emerging Growth Equity -13.11% 14.01 11.96% 60.76% -22.90% 32.05% 7.15% -13.80% Balanced Assets -13.16% 2.30 -3.40% 13.51% -7.92% 11.50% -2.03% -10.98% Capital Growth Bond -13.46% 0.89 -3.72% 6.62% -3.04% 4.16% -2.49% -10.92% Common Stock -13.19% 3.67 -3.53% 20.20% -13.08% 20.68% 0.20% -22.58% Real Estate Securities -11.90% 12.75 11.46% 30.95% -13.50% -0.42% 2.03% -16.61% Money-Market -5.69% -6.82 -6.17% -4.00% -1.82% -0.76% -2.57% -3.92% International -9.75% N/A N/A N/A N/A N/A N/A N/A Pacific Rim Emerging Markets -13.50% N/A N/A N/A N/A N/A N/A N/A

1986 1985 1984 ---- ---- ---- Emerging Growth Equity 15.37% 13.52% -3.40% Balanced Assets 7.56% 17.37% 4.88% Capital Growth Bond 12.51% 16.22% 4.86% Common Stock N/A N/A N/A Real Estate Securities N/A N/A N/A Money-Market -3.54% -2.49% -4.02% International N/A N/A N/A Pacific Rim Emerging Markets N/A N/A N/A

Aggregate total returns as of the end of each year since inception, if not surrendered are as follows:

1994 1993 1992 1991 1990 1989 1988 1987 ---- ---- ---- ---- ---- ---- ---- ---- Emerging Growth Equity -5.55% 22.01% 19.96% 68.76% -16.19% 40.05% 15.16% -6.31% Balanced Assets -5.60% 10.30% 4.60% 21.51% 0.08% 19.50% 5.97% -3.24% Capital Growth Bond -5.93% 8.89% 4.28% 14.62% 4.96% 12.16% 5.51% -3.17% Common Stock -5.64% 11.67% 4.47% 28.20% -5.52% 28.68% 8.20% -15.85% Real Estate Securities -4.24% 20.75% 19.46% 38.95% -5.98% 7.58% 10.03% -9.35% Money-Market 2.31% 1.18% 1.83% 4.00% 6.18% 7.24% 5.43% 4.08% International -1.90% N/A N/A N/A N/A N/A N/A N/A Pacific Rim Emerging Markets -5.97% N/A N/A N/A N/A N/A N/A N/A

1986 1985 1984 ---- ---- ---- Emerging Growth Equity -8.01% 21.52% 4.60% Balanced Assets 5.56% 25.37% 12.88% Capital Growth Bond 20.51% 24.22% 12.86% Common Stock N/A N/A N/A Real Estate Securities N/A N/A N/A Money-Market 4.46% 5.51% 3.98% International N/A N/A N/A Pacific Rim Emerging Markets N/A N/A N/A

All of the above performance data are based on the actual historical performance of the Funds for specified periods, and the figures are not intended to indicate future performance. 46 49 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. 47 50 Report of Independent Auditors To the Board of Directors The Manufacturers Life Insurance Company of America We have audited the statement of assets and liabilities as of December 31, 1994 and the statement of operations and the statements of changes in net assets for each of the periods presented herein of Separate Account Two of The Manufacturers Life Insurance Company of America (comprising, respectively, 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). These financial statements are the responsibility of the management of The Manufacturers Life Insurance Company of America. 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 each of the respective sub-accounts constituting Separate Account Two of The Manufacturers Life Insurance Company of America at December 31, 1994, and the results of their operations and changes in their net assets for each of the periods presented herein, in conformity with generally accepted accounting principles. Philadelphia, Pennsylvania ERNST & YOUNG LLP February 6, 1995 48 51 Separate Account Two of The Manufacturers Life Insurance Company of America Statement of Assets and Liabilities December 31, 1994

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, 2,788,822 shares (cost $52,281,085) $ 51,734,732 Common Stock Fund, 1,208,447 shares (cost $17,275,512) $ 16,148,694 Real Estate Securities Fund, 2,002,653 shares (cost $28,461,405) $ 26,724,581 Balanced Assets Fund, 2,577,528 shares (cost $38,572,524) Capital Growth Bond Fund, 1,066,365 shares (cost $11,999,272) Money Market Fund, 1,236,781 shares (cost $12,788,176) International Fund, 86,308 shares (cost $853,025) Pacific Rim Emerging Markets Fund, 66,905 shares (cost $643,471) ---------------------------------------------------------- $ 51,734,732 $ 16,148,694 $ 26,724,581 Receivable (payable) for policy-related transactions $ 30,649 $ 3,027 $ (2,279) ---------------------------------------------------------- Net assets $ 51,765,381 $ 16,151,721 $ 26,722,302 ========================================================== Units outstanding $ 1,454,901 $ 803,568 $ 1,205,880 ========================================================== Net asset value per unit $ 36.58 $ 20.10 $ 22.16 ==========================================================

See accompanying notes. 49 52

PACIFIC RIM BALANCED CAPITAL EMERGING ASSETS GROWTH BOND MONEY MARKET INTERNATIONAL MARKETS SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL -------------------------------------------------------------------------------------------------------- 51,734,732 16,148,694 26,724,581 $35,504,879 35,504,879 $10,769,201 10,769,201 $12,692,039 12,692,039 $847,379 847,379 $629,371 629,371 -------------------------------------------------------------------------------------------------------- 35,504,879 10,769,201 12,692,039 847,379 629,371 155,050,876 29,336 2,089 (57,588) 19,446 3,660 28,340 -------------------------------------------------------------------------------------------------------- $35,534,215 $10,771,290 $12,634,451 $866,825 $633,031 $155,079,216 ======================================================================================================== 2,001,928 672,365 918,869 89,180 67,272 ======================================================================================================== $ 17.75 $ 16.02 $ 13.75 $ 9.72 $ 9.41 ========================================================================================================

50 53 Separate Account Two of The Manufacturers Life Insurance Company of America Statement of Operations Year ended December 31, 1994

EMERGING COMMON REAL ESTATE GROWTH EQUITY STOCK SECURITIES SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------------------------------------------------- Investment income: Dividend income $ 196,396 $ 800,888 $ 615,224 Expenses: Mortality and expense risks charge 431,634 139,014 231,870 -------------------------------------------------------------- Net investment (loss) income 235,238 661,874 383,354 -------------------------------------------------------------- Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 3,338,038 608,055 1,091,602 Cost of securities sold 3,056,187 493,059 924,949 -------------------------------------------------------------- Net realized gain (loss) 281,851 114,996 166,653 -------------------------------------------------------------- Unrealized appreciation (depreciation) of investments: Beginning of year 1,464,566 395,888 127,600 End of year (546,353) (1,126,818) (1,736,824) -------------------------------------------------------------- Net unrealized appreciation (depreciation) during the year (2,010,919) (1,522,706) (1,864,424) -------------------------------------------------------------- Net realized and unrealized loss on investments (1,729,068) (1,407,710) (1,697,771) -------------------------------------------------------------- Net (decrease) increase in net assets derived from operations $ (1,964,306) $ (745,836) $ (1,314,417) ============================================================== *Reflects the period from commencement of operations October 4, 1994 through December 31, 1994.

See accompanying notes. 51 54

*PACIFIC RIM BALANCED CAPITAL EMERGING ASSETS GROWTH BOND MONEY MARKET *INTERNATIONAL MARKETS SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL ----------------------------------------------------------------------------------------------------------------- $ 1,876,137 $ 709,840 $ 371,695 $ 2,198 $ 2,242 $ 4,574,620 318,087 98,973 81,503 872 689 1,302,642 ----------------------------------------------------------------------------------------------------------------- 1,558,050 610,867 290,192 1,326 1,553 3,271,978 ----------------------------------------------------------------------------------------------------------------- 2,049,830 2,204,010 5,915,298 4,898 31,794 15,243,525 1,923,618 2,330,475 5,881,619 4,987 32,667 14,647,561 ----------------------------------------------------------------------------------------------------------------- 126,212 (126,465) 33,679 (89) (873) 595,964 ----------------------------------------------------------------------------------------------------------------- 276,074 (226,829) (19,735) - - 2,017,564 (3,067,645) (1,230,071) (96,137) (5,646) (14,100) (7,823,594) ----------------------------------------------------------------------------------------------------------------- (3,343,719) (1,003,242) (76,402) (5,646) (14,100) (9,841,158) ----------------------------------------------------------------------------------------------------------------- (3,217,507) (1,129,707) (42,723) (5,735) (14,973) (9,245,194) ----------------------------------------------------------------------------------------------------------------- $ (1,659,457) $ (518,840) $ 247,469 $ (4,409) $ (13,420) $ (5,973,216) =================================================================================================================

52 55 Separate Account Two of The Manufacturers Life Insurance Company of America Statements of Changes in Net Assets Years ended December 31, 1994 and 1993

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. 31/94 DEC. 31/93 DEC. 31/94 DEC. 31/93 DEC. 31/94 DEC. 31/93 ----------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment (loss) income $ (235,238) $ 3,200,433 $ 661,874 $ 479,778 $ 383,354 $ 1,293,019 Net realized gain (loss) 281,851 177,287 114,996 81,896 166,653 32,526 Unrealized (depreciation) appreciation of investments during the year (2,010,919) 957,940 (1,522,706) 106,332 (1,864,424) (101,193) ----------------------------------------------------------------------------------------------- (Decrease) increase in net assets derived from operations (1,964,306) 4,335,660 (745,836) 668,006 (1,314,417) 1,224,352 ----------------------------------------------------------------------------------------------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 20,192,208 18,977,034 6,307,192 5,646,020 11,495,742 11,475,542 Transfer on death Transfer on terminations (1,175,021) (316,957) (211,937) (103,519) (365,263) (72,275) Transfer on maturity Net interfund transfer 2,047,524 982,678 619,575 407,492 616,085 1,193,272 ----------------------------------------------------------------------------------------------- 20,944,544 19,642,755 6,616,284 5,949,993 11,662,109 12,596,539 ----------------------------------------------------------------------------------------------- Net increase in net assets 18,980,238 23,978,415 5,870,448 6,617,999 10,347,692 13,820,891 NET ASSETS Beginning of year 32,785,143 8,806,728 10,281,273 3,663,274 16,374,610 2,553,719 ----------------------------------------------------------------------------------------------- End of year $51,765,381 $32,785,143 $16,151,721 $10,281,273 $26,722,302 $16,374,610 ===============================================================================================

See accompanying notes. 53 56

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. 31/94 DEC. 31/93 DEC. 31/94 DEC. 31/93 DEC. 31/94 DEC. 31/93 -------------------------------------------------------------------------------------------------------------------------------- $ 1,558,050 $ 1,281,368 $ 610,867 $ 492,684 $ 290,192 $ 60,671 126,212 93,851 (126,465) 34,959 33,679 (500) (3,343,719) 10,732 (1,003,242) (184,106) (76,402) (5,837) -------------------------------------------------------------------------------------------------------------------------------- (1,659,457) 1,385,951 (518,840) 343,537 247,469 54,334 -------------------------------------------------------------------------------------------------------------------------------- 14,684,868 13,478,551 4,091,955 5,672,487 9,297,572 4,906,844 (51,630) - (2,484) - - - (715,314) (187,823) (530,903) (131,876) (504,302) (342,175) (59,741) (27,287) (49,450) - (2,334) (51,966) (860,845) 846,067 (686,906) (27,415) (801,647) (2,485,536) -------------------------------------------------------------------------------------------------------------------------------- 12,997,338 14,109,508 2,822,212 5,513,196 7,989,289 2,027,167 -------------------------------------------------------------------------------------------------------------------------------- 11,337,881 15,495,459 2,303,372 5,856,733 8,236,758 2,081,501 24,196,334 8,700,875 8,467,918 2,611,185 4,397,693 2,316,192 -------------------------------------------------------------------------------------------------------------------------------- $ 35,534,215 $ 24,196,334 $ 10,771,290 $8,467,918 $ 12,634,451 $4,397,693 ================================================================================================================================

54 57 Separate Account Two of The Manufacturers Life Insurance Company of America Statements of Changes in Net Assets (continued) Years ended December 31, 1994 and 1993

PACIFIC RIM INTERNATIONAL EMERGING MARKETS SUB-ACCOUNT SUB-ACCOUNT TOTAL -------------------------------------------------------------------------- *PERIOD ENDED *PERIOD ENDED YEAR ENDED YEAR ENDED DEC. 31/94 DEC. 31/94 DEC. 31/94 DEC. 31/93 -------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss) $ 1,326 $ 1,553 $ 3,271,978 $ 6,807,953 Net realized (loss) gain (89) (873) 595,964 420,019 Unrealized (depreciation) appreciation of investments during the year (5,646) (14,100) (9,841,158) 783,868 -------------------------------------------------------------------------- (Decrease) increase in net assets derived from operations (4,409) (13,420) (5,973,216) 8,011,840 -------------------------------------------------------------------------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 266,607 162,380 66,498,524 60,156,478 Transfer on death - - (131,091) - Transfer on terminations (69) (40) (3,502,849) (1,154,625) Transfer of maturity - - (337,716) (79,253) Net interfund transfers 604,696 484,111 2,022,593 916,558 -------------------------------------------------------------------------- 871,234 646,451 64,549,461 59,839,158 -------------------------------------------------------------------------- Net increase in net assets 866,825 633,031 58,576,245 67,850,998 NET ASSETS Beginning of year - - 96,502,971 28,651,973 -------------------------------------------------------------------------- End of year $866,825 $633,031 $155,079,216 $96,502,971 -------------------------------------------------------------------------- *Reflects the period from commencement of operations October 4, 1994 through December 31, 1994.

55 58 Separate Account Two of The Manufacturers Life Insurance Company of America Notes to Financial Statements December 31, 1994 1. ORGANIZATION Separate Account Two of The Manufacturers Life Insurance Company of America (the "Separate Account") is a unit investment trust registered under the Investment Company Act of 1940, as amended. The Separate Account is 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 annuity policies (the "Policies") issued by The Manufacturers Life Insurance Company of America ("Manufacturers Life of America"). The Separate Account was established by Manufacturers Life of America, a wholly-owned subsidiary of The Manufacturers Life Insurance Company of Michigan ("MLIM"), as a separate investment account on November 3, 1987. MLIM 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 chargeable with liabilities arising out of any other business Manufacturers Life of America may conduct. In May 1994, Manufacturers Life of America began to market a new variable annuity, Lifestyle, through Separate Account Two. 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. 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. 56 59 Separate Account Two of The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The current year's operations of the Separate Account are not expected to affect the sponsor's tax liabilities and, accordingly, no charges were made against the Separate Account for federal, state and local taxes. However, in the future, should the sponsor incur significant tax liabilities related to Separate Account operations, it intends to make a charge or establish a provision within the Separate Account for such taxes. 3. MORTALITY AND EXPENSE RISKS CHARGE Manufacturers Life of America deducts from the assets of the Separate Account a daily charge equivalent to an annual rate of 1.0% of the average net value of the Separate Account's assets for mortality and expense risks. 4. PURCHASES AND SALES OF 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, 1994 were $83,423,197 and $15,243,525, respectively and for the year ended December 31, 1993 were $72,116,950 and $5,871,626, respectively. 5. RELATED PARTY TRANSACTIONS ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary of Manulife Financial, acts as the principal underwriter of the Policies pursuant to a Distribution Agreement with Manufacturers Life of America. Registered representatives of either ManEquity, Inc. or other broker-dealers having distribution agreements with ManEquity, Inc. who are also authorized as variable life insurance agents under applicable state insurance laws, sell the Policies. Registered representatives are compensated on a commission basis. 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. 57 60 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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, 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 20, 1995 58 61 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA BALANCE SHEETS

DECEMBER 31 1994 1993 --------------------------------------- ASSETS Bonds, at amortized cost (market $51,082,395--1994 and $24,120,198--1993) $ 52,149,080 $ 23,375,773 Stocks (note 9) 25,629,580 40,549,278 Short-term investments 10,914,561 797,875 Policy loans 4,494,390 3,023,275 --------------------------------------- Total investments 93,187,611 67,746,201 Cash 5,069,197 8,260,261 Life insurance premiums deferred and uncollected 13,646 31,574 Accrued investment income 796,333 468,968 Separate account assets 302,736,198 174,182,746 Funds receivable on reinsurance assumed 880,284 2,240,200 Receivable for undelivered securities 69,003 353,576 Other assets 333,651 108,260 --------------------------------------- Total assets $403,085,923 $253,391,786 ======================================= LIABILITIES, CAPITAL AND SURPLUS Aggregate policy reserves $ 29,761,174 $ 13,019,605 Other contract deposits 3,938,425 3,284,211 Interest maintenance and asset valuation reserves 111,566 431,400 Policy and contract claims 94,346 153,709 Provision for policyholder dividends payable 1,385,409 1,016,502 Amounts due to affiliates 7,377,108 7,953,242 Payable for undelivered securities 3,512,459 - Accrued liabilities 4,773,565 2,694,433 Separate account liabilities 302,736,198 174,182,746 --------------------------------------- Total liabilities 353,690,250 202,735,848 Capital and surplus: Common shares, par value $1.00; authorized, 5,000,000 shares; issued and outstanding 4,501,855 shares (1,501,854 shares in 1993) 4,501,855 1,501,854 Preferred shares, par value $100; authorized 5,000,000 shares; issued and outstanding 105,000 shares (335,000 shares in 1993) 10,500,000 33,500,000 Surplus (deficit) (15,456,180) 5,804,085 --------------------------------------- Capital paid in excess of par value 49,849,998 9,849,999 Total capital and surplus 49,395,673 50,655,938 --------------------------------------- Total liabilities, capital and surplus $403,085,923 $253,391,786 =======================================

See accompanying notes. 59 62 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31 1994 1993 1992 ------------------------------------------------------- Revenues: Life and annuity premiums, principally reinsurance assumed $ 25,385,628 $ 12,745,981 $ 6,579,233 Other life and annuity considerations 168,075,003 113,332,974 33,268,869 Investment income, net of investment expenses ($106,908 in 1994, $89,186 in 1993, $58,423 in 1992) 3,588,629 3,323,962 1,430,454 Amortization of interest maintenance reserve 19,527 32,866 7,707 Commission and expense allowance on reinsurance ceded 187,694 - - Foreign exchange gain (loss) 114,728 (197,971) 24,657 Other revenue 54,763 33,935 4,903 ------------------------------------------------------- Total revenues 197,425,972 129,271,747 41,315,823 Benefits paid or provided: Increase in aggregate policy reserves 16,741,569 5,168,484 3,625,964 Increase in liability for deposit funds 654,214 2,820,520 422,369 Transfers to separate accounts, net 136,896,150 98,601,141 26,789,260 Death benefits 640,875 582,534 286,278 Maturity benefits 580,615 79,253 - Surrender benefits 3,701,591 2,319,926 1,596,434 ------------------------------------------------------- 159,215,014 109,571,858 32,720,305 Insurance expenses: Management fee 21,222,310 12,378,288 4,861,244 Commissions 23,416,110 14,742,130 5,192,462 General expenses 8,260,467 5,108,104 2,744,475 Commissions and expense allowances on reinsurance assumed 810,252 329,634 269,141 ------------------------------------------------------- 53,709,139 32,558,156 13,067,322 ------------------------------------------------------- Loss before policyholders' dividends and federal income tax (15,498,181) (12,858,267) (4,471,804) Dividends to policyholders 1,149,719 837,454 634,652 ------------------------------------------------------- Loss before federal income tax (16,647,900) (13,695,721) (5,106,456) Federal income tax provision (benefit) - (324,643) 339,539 ------------------------------------------------------- Net loss from operations after policyholders' dividends and federal income tax (16,647,900) (13,371,078) (5,445,995) Net realized capital gains (net of capital gains tax of $0 in 1994, $236,415 in 1993, and $0 in 1992 and $(554,000) in 1994, $347,292 in 1993, and $68,401 in 1992 transferred to (from) the interest maintenance reserve) (3,012,485) 93,618 139,261 ------------------------------------------------------- Net loss from operations $ (19,660,385) $ (13,277,460) $ (5,306,734) =======================================================

See accompanying notes. 60 63 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, 1991 $ 29,001,853 $ 4,000,000 $ 19,650,265 $ 52,652,118 Net loss from operations (5,306,734) (5,306,734) Issuance of preferred shares 6,000,000 6,000,000 Increase in asset valuation reserve (8,813) (8,813) Increase in nonadmitted assets (1,025,556) (1,025,556) Change in liability for reinsurance in unauthorized companies (7,166) (7,166) Company's share of increase in separate account assets 3,240,199 3,240,199 --------------------------------------------------------------------------- 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 common stocks 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 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 shares 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 ===========================================================================

See accompanying notes. 61 64 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31 1994 1993 1992 ---------------------------------------------------------- OPERATING ACTIVITIES Premiums collected, net $ 193,478,637 $ 126,075,035 $ 39,842,600 Policy benefits paid, net (4,982,444) (2,829,812) (1,932,712) Commissions and other expenses paid (48,141,400) (35,203,997) (9,431,344) Net investment income 3,343,515 3,197,892 1,356,553 Other income and expenses (1,946,063) (1,592,957) (1,849,180) Transfers to separate accounts, net (136,950,482) (98,220,292) (26,266,436) ---------------------------------------------------------- Net cash provided by (used in) operating activities 4,801,763 (8,574,131) 1,719,481 INVESTING ACTIVITIES Sale, maturity, or repayment of investments 73,187,733 28,248,633 11,975,475 Purchase of investments (91,063,874) (73,688,735) (24,400,135) ---------------------------------------------------------- Net cash used in investing activities (17,876,141) (45,440,102) (12,424,660) FINANCING ACTIVITIES Issuance of shares 20,000,000 5,850,000 6,000,000 Surplus withdrawn from separate account - 48,701,076 6,000,000 ---------------------------------------------------------- Net cash provided by financing activities 20,000,000 54,551,076 12,000,000 ---------------------------------------------------------- Net increase in cash and short-term investments 6,925,622 536,843 1,294,821 Cash and short-term investments at beginning of year 9,058,136 8,521,293 7,226,472 ---------------------------------------------------------- Cash and short-term investments at end of year $ 15,983,758 $ 9,058,136 $ 8,521,293 ==========================================================

See accompanying notes. 62 65 The Manufacturers Life Insurance Company of America Notes to Financial Statements December 31, 1994 1. ORGANIZATION The Manufacturers Life Insurance Company of America (Manufacturers Life of America or the Company) is a wholly-owned subsidiary of The Manufacturers Life Insurance Company of Michigan (the Parent), which is in turn a wholly-owned subsidiary of The Manufacturers Life Insurance Company (Manulife Financial), a Canadian-based mutual life insurance company. During 1994, the Company's parent contributed $20,000,000 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, $6,000,000 in capital in return for 60,000 shares of preferred stock during 1992. During 1991, the Company invested $1,800,000 to fund initial branch operations in Taiwan. This investment in Taiwan was increased by $6,000,000 in 1992 and a further investment of $5,200,000 in 1993. There was no new funding in 1994 for the Taiwan branch. 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. 63 66 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 Standards Board issued Interpretation 40, Applicability of Generally Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises The interpretation, which has been amended to be 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). This will require life insurance companies 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. All amounts presented are expressed in U.S. Dollars. Certain amounts from prior periods have been reclassified to conform with current period presentation. STOCKS Stocks are carried at market value. BONDS Bonds are carried at amortized cost. Discounts and premiums on investments are amortized using the effective interest 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. 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. 64 67 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 December 31, 1994 are summarized as follows:

QUOTED OR GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE --------------------------------------------------------------------- U.S. Government securities $ 34,265,152 $ 243,971 $ (441,592) $ 34,067,531 Foreign government securities 7,388,458 - (294,385) 7,094,073 Corporate securities 10,495,470 2,457 (577,136) 9,920,791 --------------------------------------------------------------------- $ 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. 65 68 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 investments in fixed maturities (bonds) as of December 31, 1993 are summarized as follows:

QUOTED OR GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ------------------------------------------------------------------- U.S. Government securities $ 15,473,821 $ 725,851 $ (19,830) $ 16,179,842 Foreign government securities 3,277,886 39,710 (5,316) 3,312,280 Corporate securities 4,624,066 47,402 (43,392) 4,628,076 ------------------------------------------------------------------- $ 23,375,773 $ 812,963 $ (68,538) $ 24,120,198 ===================================================================

Proceeds from sales of investments in debt securities during 1993 were $28,248,633. Gross gains of $694,800 and gross losses of $17,715 were realized on those sales. The amortized cost and market value of fixed maturities at December 31, 1994 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 $ 107,413 $ 108,160 Greater than 1; up to 5 years 5,213,296 5,217,002 Greater than 5; up to 10 years 24,217,449 23,599,525 Due after 10 years 22,610,922 22,157,708 ------------------------------------ $ 52,149,080 $ 51,082,395 ====================================

At December 31, 1994, $4,447,934 of bonds at amortized cost were on deposit with government insurance departments to satisfy regulatory regulations. 66 69 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 each year were as follows:

NET INVESTMENT INCOME 1994 1993 1992 --------------------------------------------------- Gross investment income: Dividends; Manulife Series Fund, Inc. $ 1,244,794 $ 1,440,392 $ - Bond income 1,712,294 1,422,064 1,043,273 Policy loans 236,972 166,514 131,606 Short-term investments 501,477 384,178 313,998 -------------------------------------------------- 3,695,537 3,413,148 1,488,877 Investment expenses (106,908) (89,786) (58,423) -------------------------------------------------- Net investment income $ 3,588,629 $ 3,323,962 $ 1,430,454 ==================================================

4. RELATED PARTY TRANSACTIONS The Company has a formal service agreement with Manulife Financial which can be terminated by either party upon two months' notice. Under the Agreement, the Company will pay direct operating expenses incurred each year by Manulife Financial on behalf of the Company. Services provided under the Agreement include legal, actuarial, investment, data processing and certain other administrative services. Costs incurred under this Agreement were $21,326,446 in 1994, $12,467,474 in 1993, and $4,919,667 in 1992. In addition, there were $7,795,184 agents' bonuses in 1994, $5,363,558 in 1993, and $1,871,799 in 1992 which were allocated to the Company and are included in commissions. The Company has 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. 67 70 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:

1994 1993 1992 --------------------------------------------------------- Life and annuity premiums assumed $ 25,385,628 $ 12,745,981 $ 6,579,233 Other life and annuity considerations ceded (437,650) (201,685) (114,505) Commissions and expense allowances on reinsurance assumed (810,252) (329,634) (269,141) Policy reserves assumed 47,672,591 23,070,952 10,799,350 Policy reserves ceded 3,786,647 3,782,156 3,662,930

During 1992 and 1993 the Company assumed the first $50,000 of initial face amount on two blocks of business. This resulted in transfers of $5,031,000 and $10,837,000, respectively, 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. 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. The Company, Parent and The Manufacturers Life Insurance Co. (U.S.A.) have available consolidated net operating losses of approximately $92,600,000 which will expire in the years 2007 to 2009, and capital loss carryforwards of $129,600,000 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. However, losses of Manufacturers Reinsurance Limited may not be used to offset the income of the other members of the consolidated group. 68 71 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 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. Summary financial information related to these reinsurance activities is as follows:

1994 1993 1992 ------------------------------------------------------- Life insurance premiums assumed $ - $ - $28,887,669 Life insurance premiums ceded (218,767) (130,913) (28,809,307)

During 1992, the Company assumed and ceded a significant block of business on a yearly renewable term basis. This contract was not renewed in 1993. 8. AGGREGATE POLICY 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, 1994 and 1993 is as follows:

MORTALITY INTEREST AGGREGATE RESERVES TABLE RATES --------------------------------------- --------- -------- 1994 1993 --------------------------------------- $ - $ 758,158 1958 CSO 4% 28,553,885 11,792,874 1980 CSO 4% (189,080) (62,228) Reinsurance ceded 1,396,369 530,801 Miscellaneous --------------------------------------- $ 29,761,174 $ 13,019,605 =======================================

69 72 The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 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. 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, 1994, the $25,629,580 common stock represents the Company's seed money investment in Manulife Series Fund, Inc. During 1994, 1993, and 1992, the following dividends were received from Manulife Series Fund, Inc.:

1994 1993 1992 -------------------------------------------------------- Separate Account One $ 38,732 $ 1,610,693 $ 3,166,712 Separate Account Two 4,574,620 7,377,861 1,706,218 Separate Account Three 1,490,374 666,141 277,830 Separate Account Four 3,072,376 4,966,559 1,578,932 General Account 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. 70 73 APPENDIX A ANNUITY OPTIONS The Policyowner may elect one of the following annuity options described below. If no option is specified, annuity payments will be made as a life annuity with a ten year certain period. Treasury or Labor Department regulations may require a different annuity option if no option is specified and may preclude the availability of certain options in connection with Qualified Policies. There may also be state insurance law requirements that limit the availability of certain options. The amounts payable under each option will be no less than amounts determined on the basis of tables contained in each Policy. Such tables are based on the 1983 Individual Annuity Mortality Tables and an assumed interest rate of 3% per year. OPTION 1: ANNUITY CERTAIN -- payments in equal installments for a period of not less than five years and not more than twenty years. OPTION 2(A): LIFE ANNUITY WITHOUT REFUND -- payments in equal installments during the lifetime of an Annuitant. Upon the death of the Annuitant, payments will cease. Since there is no guarantee that any minimum number of payments will be made, the payee may receive only one payment if he or she dies before the date the second payment is due. OPTION 2(B): LIFE ANNUITY WITH CERTAIN PERIOD -- payments in equal installments during the lifetime of an Annuitant and if the Annuitant dies before installments have been paid for a designated period, either five, ten or twenty years, payments will continue for the remainder of the period selected. OPTION 2(C): LIFE ANNUITY WITH INSTALLMENT REFUND -- payments in equal installments during the lifetime of an Annuitant and if the Annuitant dies before the total installments paid equal the Policy Value applied to provide the annuity, payments will continue until the Policy Value has been paid. OPTION 3(A): JOINT AND SURVIVOR ANNUITY WITHOUT REFUND -- payments in equal installments during the lifetime of two Annuitants with payments continuing in full amount to the survivor upon death of either. Since there is no guarantee that any minimum number of payments will be made, the payees may receive only one payment if they both die before the date the second payment is due. OPTION 3(B): JOINT AND SURVIVOR ANNUITY WITH CERTAIN PERIOD -- payments in equal installments during the lifetime of two Annuitants and if both die before installments have been paid for a ten year period, payments will continue for the remainder of the period. Under Options 2(b), 2(c) and 3(b), upon the death of the Annuitant or second to die of joint Annuitants, the beneficiary may elect to receive the commuted value of any remaining payments. Any such commutation will be at the interest rate used to determine the amount of the annuity payments plus 1/2%. 71 74 APPENDIX B SAMPLE CALCULATIONS OF MARKET VALUE ADJUSTMENTS AND WITHDRAWAL CHARGES(1) MVA FORMULA The MVA factor is equal to: (1+G) N ------- -1 (1+C) EXAMPLE ONE: NEGATIVE MVA AND NO WITHDRAWAL CHARGE Assume the following: Type of Account: Fixed Type of Transaction: Transfer Time remaining in the Guarantee Period: 30 months, 5 days Guaranteed Rate: 6% Current Rate for new 3-year deposits: 8% Transfer Requested: $10,000 Withdrawal Charge: 0% Other Charges: $35 transfer charge In this example, N = 30/12 = 2.5 G = .06 C = .08 The MVA factor equals: 1.06 (2.5) - 1 = -0.0457 1.08 Manufacturers Life of America will deduct a Gross Withdrawal Amount of $10,000.00. From this, Manufacturers Life of America will deduct the transfer charge of $35. This will leave $9,965.00. The amount of the MVA adjustment would be $9,965.00 x -0.0457, or -$455.40. The cash transferred to another account(s) would be $9,965.00 -$455.40, or $9,509.60. (1) The assumed fixed interest rates used in the examples in this Appendix illustrate the operation of the Market Value Adjustment and are not intended to reflect the levels of interest rates currently offered on the Fixed Accounts. 72 75 EXAMPLE TWO: POSITIVE MVA AND NO WITHDRAWAL CHARGE Assume the following: Type of Account: Fixed Type of Transaction: Partial Withdrawal Time remaining in the Guarantee Period: 47 months Guaranteed Rate: 6% Current Rate for new 3-year deposits: 4% Current Rate for new 4-year deposits: Not Offered Current Rate for new 5-year deposits: 6% Cash Withdrawal Requested: $10,000 Withdrawal Charge: 0% Other Charges: None In this example, N = 47/12 = 3.91677 G = .06 C = .05 The time remaining in the Guarantee Period, rounded to the next full year, is 4 years. Since the 4-year deposit is not available, interpolate between the 3-year rate and the 5-year rate, to get a rate of 5%. The MVA factor equals: 1.06 (3.91677) - 1 1.05 = 0.0378 We will take out a Gross Withdrawal Amount of $9,635.77 The amount of the MVA adjustment would be $9,635.77 x 0.0378, or $364.23. The cash received by the Policyowner would be $9,635.77 + $364.23, or $10,000. EXAMPLE THREE: WITHDRAWAL CHARGE AND NO MVA Assume the following: Type of Account: Variable Type of Transaction: Partial Withdrawal Cash Withdrawal Requested: $10,000 Withdrawal Charge: 6%* Other Charges: None The Gross Withdrawal Amount will be $10,638.30. The withdrawal charge will be $10,638.30 x 6%, or $638.30. The cash received by the Policyowner would be $10,638.30 -- $638.30, or $10,000. * In this example, Manufacturers Life of America assumes that a 10% free withdrawal has already been taken earlier in the year, and that the withdrawal charge percentage applies to the total Policy Value. In other situations the withdrawal charge may not apply to the total Policy Value. 73 76 EXAMPLE FOUR: NEGATIVE MVA AND WITHDRAWAL CHARGE Assume the following: Type of Account: Fixed Type of Transaction: Surrender Time remaining in the Guarantee Period: 30 months, 5 days Guaranteed Rate: 6% Current Rate for new 3-year deposits: 8% Policy Value: $10,000 Withdrawal Charge: 6%* Other Charges: $30 record-keeping charge In this example, N = 30/12 = 2.5 G = .06 C = .08 The MVA factor equals: 1.06 (2.5) - 1 1.08 = - 0.0457 On a surrender, the Gross Withdrawal Amount is the Policy Value, or $10,000 in this example. Manufacturers Life of America will deduct the record-keeping charge of $30, leaving $9,970. The amount of the MVA adjustment would be $9,970 x - 0.0457, or $455.63. This leaves an amount of $9,970.00 - $455.63, or $9,514.37. The withdrawal charge will be $9,514.37 x 6%, or $570.86. The cash received by the Policyowner would be $9,514.37 - $570.86, or $8,943.51. * In this example, Manufacturers Life of America assumes that a 10% free withdrawal has already been taken earlier in the year, and that the withdrawal charge percentage applies to the total Policy Value. In other situations the withdrawal charge may not apply to the total Policy Value. 74 77 PROSPECTUS MANULIFE SERIES FUND, INC. with Executive Offices at 200 Bloor Street East Toronto, Ontario, Canada M4W 1E5 (416) 926-6100 Manulife Series Fund, Inc. (the "Company"), a Maryland corporation, is a diversified open-end management investment company, commonly known as a mutual fund. Shares of the Company are not offered directly to the public but are sold only to The Manufacturers Life Insurance Company of America ("Manufacturers Life of America") in connection with variable contracts issued by Manufacturers Life of America. Such variable contracts are described in their respective prospectuses. The Company offers the following separate investment portfolios, referred to herein as "Funds," which have the following investment objectives: EMERGING GROWTH EQUITY FUND -- To achieve growth of capital by investing primarily in equity securities of companies believed to offer growth potential over both the intermediate and the long term. BALANCED ASSETS FUND -- To achieve intermediate and long-term growth through capital appreciation and income by investing in both debt and equity securities. CAPITAL GROWTH BOND FUND -- To achieve growth of capital by investing in medium-grade or better debt securities, with income as a secondary consideration. MONEY-MARKET FUND -- To provide maximum current income consistent with capital preservation and liquidity by investing in high-quality money-market instruments. COMMON STOCK FUND -- 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. REAL ESTATE SECURITIES FUND -- To achieve a combination of long-term capital appreciation and satisfactory current income by investing in real estate related equity and debt securities. INTERNATIONAL FUND -- To achieve long-term growth of capital by investing in a diversified portfolio comprised primarily of common stocks and equity-related securities of corporations domiciled in countries other than the U.S. and Canada. PACIFIC RIM EMERGING MARKETS FUND -- To achieve long-term growth of capital by investing in a diversified portfolio comprised primarily of common stocks and equity-related securities of the countries of the Pacific Rim region. This Prospectus sets forth concisely the information about the Company that a prospective purchaser of a variable contract from The Manufacturers Life Insurance Company of America should know before purchasing such a contract. Please read this Prospectus and retain it for future reference. Additional information about the Company has been filed with the Securities and Exchange Commission and is available upon request and without charge by writing to the address or calling the number listed above and requesting the "Statement of Additional Information for Manulife Series Fund, Inc." (hereinafter "Statement of Additional Information"). The Statement of Additional Information is incorporated by reference into this Prospectus. 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. AN INVESTMENT IN THE MONEY-MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. MANUFACTURERS ADVISER CORPORATION INVESTMENT MANAGER The date of this Prospectus and Statement of Additional Information is May 1, 1995. 78 MANULIFE SERIES FUND, INC. TABLE OF CONTENTS

PAGE ---- The Company 2 Shareholder Transaction Expenses 2 Condensed Financial Information 4 Investment Objectives, Policies And Risks 11 Emerging Growth Equity Fund 11 Balanced Assets Fund 11 Capital Growth Bond Fund 12 Money-Market Fund 12 Common Stock Fund 13 Real Estate Securities Fund 13 International Fund And Pacific Rim Emerging Markets Fund 14 Investment Techniques Of The International Fund And Pacific Rim Emerging Markets Fund 16 Investment Restrictions 17 Foreign Securities 18 Lending Securities 18 Management Of The Funds 19 Investment Management Arrangements 19 Expenses 22 Fees 22 Capital Stock 22 Taxes, Dividends And Distributions 22 Purchases And Redemptions Of Shares 22 Determination Of Net Asset Value 23 Custodian 23 Performance Data 24

NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INVESTMENT MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. 1 79 THE COMPANY Manulife Series Fund, Inc. (the "Company") is a diversified, open-end management investment company incorporated under Maryland law on July 22, 1983. The Company was established to serve as the underlying investment medium for variable life insurance and variable annuity products issued by The Manufacturers Life Insurance Company of America ("Manufacturers Life of America"). Both the Company and Manufacturers Life of America are indirect wholly-owned subsidiaries of The Manufacturers Life Insurance Company ("Manufacturers Life"). Manufacturers Life is a mutual life insurance company based in Toronto, Canada which, together with its subsidiaries, ranks among the largest such companies in North America as measured by assets. As the underlying investment medium for Manufacturers Life of America variable products, the Company provides a range of investment alternatives. Currently, the Company offers the following investment portfolios, referred to herein as "Funds" -- the Emerging Growth Equity Fund, the Balanced Assets Fund, the Capital Growth Bond Fund, the Money-Market Fund, the Common Stock Fund, the Real Estate Securities Fund, the International Fund, and the Pacific Rim Emerging Markets Fund. As described in the attached Prospectus for such variable product, policyowners may allocate their net premiums among the Funds. Because the value of certain benefits under the Policies will vary with the investment performance of the Funds and because the type of investment and the level of risk preferred by policyowners will vary, policyowners should carefully review the investment objective, policies and risks of each Fund as described in this Prospectus. While policyowners will direct the investment of their net premiums, shares of the Company are sold only to Manufacturers Life of America. Consequently, the terms "shareholder" and "shareholders" in this Prospectus refer only to Manufacturers Life of America. However, Manufacturers Life of America will vote shares of the Company in accordance with instructions received from policyowners. Shares for which no timely instructions from policyowners are received, including shares not attributable to variable products, will be voted by Manufacturers Life of America in the same proportion within those class of shares for which instructions are received. Subject to the supervision of the Company's Board of Directors, Manufacturers Adviser Corporation (the "Manager") will serve as the Company's investment manager. As such, the Manager will administer the Funds and direct the investment and reinvestment of Fund assets. SHAREHOLDER TRANSACTION EXPENSES ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) MANAGEMENT FEES International Fund 0.85%* Pacific Rim Emerging Markets Fund 0.85%* All Other Funds 0.50% OTHER EXPENSES International Fund 0.50% Pacific Rim Emerging Markets Fund 0.65% TOTAL FUND OPERATING EXPENSES International Fund 1.35% Pacific Rim Emerging Markets Fund 1.50% All Other Funds 0.50% * Management fee would drop to 0.70% on assets over $100 million. 2 80 EXAMPLE ------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period.

1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- International Fund $14 $43 $74 $162 Pacific Rim Emerging Markets Fund $15 $47 $82 $179 All Other Funds $5 $16 $28 $63

The purpose of this table is to assist investors in understanding the expenses an investor in the Company will bear. The management fee and total fund operating expenses are the same for each Fund. Variable contracts issued by Manufacturers Life of America provide for charges not reflected in the above table. 3 81 CONDENSED FINANCIAL INFORMATION The following condensed financial information for the years and periods mentioned below has been derived from financial statements audited by Ernst & Young LLP, independent auditors, whose report with respect thereto appears in the Statement of Additional Information. Further information about the performance of the Company is contained in the Company's annual report, which may be obtained without charge by calling or writing to the Company. Performance information shown in this section does not reflect expenses that apply to the separate account or the related insurance policies. Inclusion of these charges would reduce the performance figures for all periods shown. Selected data for a share of capital stock outstanding for the periods indicated.

EMERGING GROWTH EQUITY FUND --------------------------- YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 -------- -------- -------- -------- -------- Net asset value beginning of period $ 19.42 $ 17.76 $ 16.18 $ 9.95 $12.20 ------- ------- ------- ------ ------ Income From Investment Operations: Net investment income (loss) 0.01 (0.01) (0.02) -- 0.17 Net realized and unrealized gain (loss) on investments (0.81) 4.16 3.51 7.08 (1.98) ------- ------- ------- ------ ------ Total from investment operations (0.80) 4.15 3.49 7.08 (1.81) ------- ------- ------- ------ ------ Dividends: Net investment income -- -- -- -- (0.17) Net realized gain (0.07) (2.49) (1.91) (0.85) (0.27) (0.07) (2.49) (1.91) (0.85) (0.44) ------- ------- ------- ------ ------ Net asset value end of period $ 18.55 $ 19.42 $ 17.76 $16.18 $ 9.95 ======= ======= ======= ====== ====== Net assets end of period ('000s) $97,379 $55,767 $18,504 $9,822 $4,137 Aggregate return on share outstanding during entire period (4.10)% 23.89% 21.82% 71.34% (14.90)% Significant Ratios: Portfolio turnover 69.40% 92.95% 126.62% 87.63% 100.86% Ratio of expenses to average net assets 0.50% 0.50% 0.50% 0.50% 0.50% Ratio of net investment income to average net assets 0.07% (0.04)% (0.14)% 0.02% 1.55% Ratio of net investment income and realized and unrealized gain (loss) to average net assets (3.02) 23.61% 23.82% 50.44% (16.10)%

YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED 12/31/89 12/31/88 12/31/87 12/31/86 12/31/85 -------- -------- -------- -------- -------- Net asset value beginning of period $ 8.75 $ 7.61 $10.45 $12.58 $10.67 ------- ------- ------- ------ ------ Income From Investment Operations: Net investment income (loss) 0.20 0.14 0.01 0.03 0.10 Net realized and unrealized gain (loss) on investments 3.46 1.16 0.18 (0.78) 2.32 ------- ------- ------- ------ ------ Total from investment operations 3.66 1.30 0.19 (0.75) 2.42 ------- ------- ------ ------ ------ Dividends: Net investment income (0.21) (0.12) (0.01) (0.03) (0.40) Net realized gain -- (0.04) (3.02) (1.35) (0.11) (0.21) (0.16) (3.03) (1.38) (0.51) ------- ------- ------- ------ ------ Net asset value end of period $12.20 $ 8.75 $ 7.61 $10.45 $12.58 ====== ====== ====== ====== ====== Net assets end of period ('000s) $3,859 $2,682 $2,012 $1,377 $1,403 Aggregate return on share outstanding during entire period 42.19% 16.94% (4.88)% (6.59)% 23.38% Significant Ratios: Portfolio turnover 116.14% 190.06% 196.48% 247.88% 64.52% Ratio of expenses to average net assets 0.50% 0.50% 0.50% 0.20% 0.20% Ratio of net investment income to average net assets 1.95% 1.54% 0.06% 0.26% 0.81% Ratio of net investment income and realized and unrealized gain (loss) to average net assets 34.63% 14.77% (16.68)% (6.68)% 20.63%

4 82

COMMON STOCK FUND ----------------- YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED 12/31/94 12/31/93 12/31/92 12/31/91 -------- -------- -------- -------- Net asset value beginning of period $ 14.68 $ 13.73 $13.33 $10.48 ------- ------- ------ ------ Income From Investment Operations: Net investment income (loss) 0.20 0.19 0.18 0.21 ------- ------- ------ ------ Net realized and unrealized gain (loss) on investments (0.81) 1.64 0.61 2.94 ------- ------- ------ ------ Total from investment operations (0.61) 1.83 0.79 3.15 Dividends: Net investment income (0.20) (0.19) (0.18) (0.21) Net realized gain (0.51) (0.69) (0.21) (0.09) ------- ------- ------ ------ (0.71) (0.88) (0.39) (0.30) ------- ------- ------ ------ Net asset value: end of period $ 13.36 $ 14.68 $13.73 $13.33 ======= ======= ====== ====== Net assets end of period ('000s) $34,829 $21,651 $9,708 $5,480 Aggregate return on share outstanding during entire period (4.19)% 13.39% 6.07% 30.18% Significant Ratios: Portfolio turnover 84.78% 88.23% 47.60% 53.01% Ratio of expenses to average net assets 0.50% 0.50% 0.50% 0.50% Ratio of net investment income to average net assets 1.53% 1.39% 1.51% 1.78% Ratio of net investment income and realized and unrealized gain (loss) to average net assets (4.49)% 11.50% 7.94% 25.41%

YEAR YEAR YEAR PERIOD ENDED ENDED ENDED 04/30/87- 12/31/90 12/31/89 12/31/88 12/31/87+ -------- -------- -------- --------- Net asset value beginning of period $ 11.25 $ 8.91 $ 8.36 $ 9.97 ------- ------- ------- ------- Income From Investment Operations: Net investment income (loss) 0.32 0.36 0.28 0.15 ------- ------- ------- ------- Net realized and unrealized gain (loss) on investments (0.77) 2.34 0.56 (1.63) ------- ------- ------- ------- Total from investment operations (0.45) 2.70 0.84 (1.48) Dividends: Net investment income (0.32) (0.36) (0.29) (0.13) Net realized gain -- -- -- -- ------- ------- ------- ------- (0.32) (0.36) (0.29) (0.13) ------- ------- ------- ------- Net asset value: end of period $ 10.48 $ 11.25 $ 8.91 $ 8.36 ======= ======= ======= ======= Net assets end of period ('000s) $ 2,873 $ 2,140 $ 1,173 $ 942 Aggregate return on share outstanding during entire period (4.06)% 30.66% 9.86% (14.98)% Significant Ratios: Portfolio turnover 120.84% 120.92% 172.13% 54.87% Ratio of expenses to average net assets 0.50% 0.50% 0.50% 0.50%** Ratio of net investment income to average net assets 3.06% 3.48% 3.16% 2.28%** Ratio of net investment income and realized and unrealized gain (loss) to average net assets (3.40)% 23.77% 9.13% (24.73)%

5 83

REAL ESTATE SECURITIES FUND --------------------------- YEAR YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 -------- -------- -------- -------- -------- -------- Net asset value beginning of period $14.07 $12.75 $10.92 $ 8.16 $ 9.24 $ 9.12 ------ ------ ------ ------ ------ ------ Income From Investment Operations: Net investment income (loss) 0.55 0.47 0.45 0.53 0.67 0.68 Net realized and unrealized gain (loss) on investments (0.93) 2.38 1.83 2.76 (1.09) 0.15 ------- ------- ------ ------ ------ ------ Total from investment operations (0.38) 2.85 2.28 3.29 (0.42) 0.83 ------- ------- ------ ------ ------ ------ Dividends: Net investment income (0.27) (0.47) (0.45) (0.53) (0.66) (0.71) Net realized gain (0.08) (1.06) -- -- -- -- ------- ------- ------ ------ ------ ------ (0.35) (1.53) (0.45) (0.53) (0.66) (0.71) ------- ------- ------ ------ ------ ------ Net asset value end of period $ 13.34 $ 14.07 $12.75 $10.92 $ 8.16 $ 9.24 ======= ======= ====== ====== ====== ====== Net assets end of period ('000s) $42,571 $24,106 $7,273 $4,120 $2,771 $2,875 Aggregate return on share outstanding during entire period (2.76)% 22.61% 21.29% 41.10% (4.53)% 9.23% Significant Ratios: Portfolio turnover 35.60% 143.00% 70.71% 40.29% 24.37% 15.09% Ratio of expenses to average net assets 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% Ratio of net investment income to average net assets 4.26% 3.93% 4.13% 5.40% 7.74% 7.29% Ratio of net investment income and realized and unrealized gain (loss) to average net assets (4.48)% 15.23% 20.29% 33.48% (4.73)% 8.53%

REAL ESTATE SECURITIES FUND --------------------------- YEAR PERIOD ENDED 04/30/87- 12/31/88 12/31/87+ -------- -------- Net asset value beginning of period $ 8.76 $10.02 ------ ------ Income From Investment Operations: Net investment income (loss) 0.70 0.48 Net realized and unrealized gain (loss) on investments 0.37 (1.30) ------- ------- Total from investment operations 1.07 (0.82) ------- ------- Dividends: Net investment income (0.71) (0.44) Net realized gain -- -- ------- ------- (0.71) (0.44) ------- ------- Net asset value end of period $ 9.12 $ 8.76 ======= ======= Net assets end of period ('000s) $2,488 $2,007 Aggregate return on share outstanding during entire period 11.72% (8.42)% Significant Ratios: Portfolio turnover 23.15% 10.27% Ratio of expenses to average net assets 0.50% 0.50%** Ratio of net investment income to average net assets 7.18% 7.34%** Ratio of net investment income and realized and unrealized gain (loss) to average net assets 10.52% (13.19)% + Effective Date of Registration under the Securities Act of 1933. ** Annualized.

6 84

BALANCED ASSETS FUND -------------------- YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 -------- -------- -------- -------- -------- Net asset value beginning of period $ 15.18 $ 14.52 $ 14.51 $ 12.35 $ 12.87 ------- ------- ------- ------ ------- Income From Investment Operations: Net investment income (loss) 0.48 0.44 0.51 0.60 0.69 Net realized and unrealized gain (loss) on investments (1.11) 1.29 0.37 2.22 (0.50) ------- ------- ------- ------- ------- Total from investment operations (0.63) 1.73 0.88 2.82 0.19 ------- ------- ------- ------- ------- Dividends: Net investment income (0.48) (0.44) (0.51) (0.60) (0.71) Net realized gain (0.30) (0.63) (0.36) (0.06) -- ------- ------- ------- ------- ------- Total dividends (0.78) (1.07) (0.87) (0.66) (0.71) ------- ------- ------- ------- ------- Net asset value end of period $ 13.77 $ 15.18 $ 14.52 $ 14.51 $ 12.35 ======= ======= ======= ======= ======= Net assets end of period ('000s) $74,737 $58,156 $27,733 $18,515 $12,733 Aggregate return on share outstanding during entire period (4.15)% 11.99% 6.21% 23.36% 1.62% Significant Ratios: Portfolio turnover 86.42% 96.62% 75.83% 41.95% 116.03% Ratio of expenses to average net assets 0.50% 0.50% 0.50% 0.50% 0.50% Ratio of net investment income to average net assets 3.37% 3.08% 3.75% 4.52% 5.71% Ratio of net investment income and realized and unrealized gain (loss) to average net assets (4.11)% 10.09% 6.99% 20.84% 2.04%

BALANCED ASSETS FUND -------------------- YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED 12/31/89 12/31/88 12/31/87 12/31/86 12/31/85 -------- -------- -------- -------- -------- Net asset value beginning of period $ 11.22 $11.09 $14.11 $12.85 $11.57 ------- ------ ------ ------ ------ Income From Investment Operations: Net investment income (loss) 0.75 0.61 0.56 0.68 0.79 Net realized and unrealized gain (loss) on investments 1.61 0.22 (0.28) 1.49 1.95 ------- ------ ------ ---- ---- Total from investment operations 2.36 0.83 0.28 2.17 2.74 ------- ------ ------ ---- ---- Dividends: Net investment income (0.71) (0.67) (0.67) (0.66) (1.13) Net realized gain -- (0.03) (2.63) (0.25) (0.33) ------- ------ ------ ------ ----- Total dividends (0.71) (0.70) (3.30) (0.91) (1.46) ------- ------ ------ ------ ----- Net asset value end of period $ 12.87 $11.22 $11.09 $14.11 $12.85 ======= ====== ====== ====== ====== Net assets end of period ('000s) $10,412 $8,004 $7,872 $5,285 $4,435 Aggregate return on share outstanding during entire period 21.33% 7.61% (1.77)% 17.35% 27.30% Significant Ratios: Portfolio turnover 131.31% 132.32% 127.46% 81.42% 36.46% Ratio of expenses to average net assets 0.50% 0.50% 0.50% 0.20% 0.20% Ratio of net investment income to average net assets 6.06% 5.42% 3.60% 4.83% 6.73% Ratio of net investment income and realized and unrealized gain (loss) to average net assets 18.69% 7.40% (5.59)% 15.18% 24.70%

7 85

CAPITAL GROWTH BOND FUND ------------------------ YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 -------- -------- -------- -------- -------- Net asset value beginning of period $ 11.33 $ 11.12 $ 11.47 $ 10.62 $ 10.82 ------- ------- ------- ------- ------- Income From Investment Operations: Net investment income (loss) 0.72 0.65 0.77 0.83 0.88 Net realized and unrealized gain (loss) on investments (1.22) 0.51 (0.11) 0.85 (0.21) ------- ------- ------- ------- ------- Total from investment operations (0.50) 1.16 0.66 1.68 0.67 ------- ------- ------- ------- ------- Dividends: Net investment income (0.72) (0.65) (0.78) (0.83) (0.87) Net realized gain (0.01) (0.30) (0.23) -- -- ------- ------- ------- ------- ------- Total dividends (0.73) (0.95) (1.01) (0.83) (0.87) ------- ------- ------- ------- ------- Net asset value end of period $ 10.10 $ 11.33 $ 11.12 $ 11.47 $ 10.62 ======= ======= ======= ======= ======= Net assets end of period ('000s) $33,618 $41,183 $30,695 $29,326 $24,818 Aggregate return on share outstanding during entire period (4.49)% 10.56% 5.89% 16.38% 6.58% Significant Ratios: Portfolio turnover 79.04% 94.75% 153.05% 19.60% 40.73% Ratio of expenses to average net assets 0.50% 0.50% 0.50% 0.50% 0.50% Ratio of net investment income to average net assets 6.29% 5.69% 6.76% 7.54% 8.25% Ratio of net investment income and realized and unrealized gain (loss) to average net assets (5.23)% 9.28% 5.78% 15.35% 6.51%

CAPITAL GROWTH BOND FUND ------------------------ YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED 12/31/89 12/31/88 12/31/87 12/31/86 12/31/85 -------- -------- -------- -------- -------- Net asset value beginning of period $ 10.32 $ 10.53 $ 13.09 $ 12.62 $ 11.53 ------- ------- ------- ------- ------- Income From Investment Operations: Net investment income (loss) 0.90 0.92 0.99 1.04 1.15 Net realized and unrealized gain (loss) on investments 0.50 (0.17) (1.12) 1.46 1.48 ------- ------- ------- ------- ------- Total from investment operations 1.40 0.75 (0.13) 2.50 2.63 ------- ------- ------- ------- ------- Dividends: Net investment income (0.90) (0.93) (1.20) (1.03) (1.53) Net realized gain -- (0.03) (1.23) (1.00) (0.01) ------- ------- ------- ------- ------- Total dividends (0.90) (0.96) (2.43) (2.03) (1.54) ------- ------- ------- ------- ------- Net asset value end of period $ 10.82 $ 10.32 $ 10.53 $ 13.09 $ 12.62 ======= ======= ======= ======= ======= Net assets end of period ('000s) $22,768 $19,722 $18,095 $17,674 $14,481 Aggregate return on share outstanding during entire period 13.88% 7.14% (1.69)% 22.37% 26.13% Significant Ratios: Portfolio turnover 68.61% 29.36% 55.80% 42.57% 286.36% Ratio of expenses to average net assets 0.50% 0.50% 0.50% 0.20% 0.20% Ratio of net investment income to average net assets 8.34% 8.48% 8.13% 8.10% 9.96% Ratio of net investment income and realized and unrealized gain (loss) to average net assets 12.83% 6.88% (1.68)% 19.72% 23.91%

8 86

MONEY-MARKET FUND ----------------- YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 -------- -------- -------- -------- -------- Net asset value beginning of period $ 10.23 $ 10.22 $ 10.21 $10.21 $10.16 ------- ------- ------- ------ ------ Income From Investment Operations: Net investment income (loss) 0.39 0.27 0.34 0.57 0.78 Net realized and unrealized gain (loss) on investments -- -- -- -- -- ------- ------- ------- ------ ------ Total from investment operations 0.39 0.27 0.34 0.57 0.78 Dividends: Net investment income (0.36) (0.26) (0.33) (0.57) (0.73) Net realized gain -- -- -- -- -- ------- ------- ------- ------ ------ Total dividends (0.36) (0.26) (0.33) (0.57) (0.73) ------- ------- ------- ------ ------ Net asset value end of period $ 10.26 $ 10.23 $ 10.22 $10.21 $10.21 ======= ======= ======= ====== ====== Net assets end of period ('000s) $24,384 $13,860 $10,825 $8,615 $8,606 Aggregate return on share outstanding during entire period 3.89% 2.73% 3.40% 5.60% 7.82% Significant Ratios: Portfolio turnover None None None None None Ratio of expenses to average net assets 0.50% 0.50% 0.50% 0.50% 0.50% Ratio of net investment income to average net assets 3.84% 2.67% 3.25% 5.45% 7.41% Ratio of net investment income and realized and unrealized gain (loss) to average net assets 3.84% 2.67% 3.25% 5.45% 7.41%

MONEY-MARKET FUND ----------------- YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED 12/31/89 12/31/88 12/31/87 12/31/86 12/31/85 -------- -------- -------- -------- -------- Net asset value beginning of period $10.15 $10.02 $10.14 $10.19 $10.62 ------ ------ ------ ------ ------ Income From Investment Operations: Net investment income (loss) 0.88 0.89 0.58 0.60 0.71 Net realized and unrealized gain (loss) on investments -- -- -- -- -- ------ ------ ------ ------ ------ Total from investment operations 0.88 0.89 0.58 0.60 0.71 Dividends: Net investment income (0.87) (0.76) (0.70) (0.65) (1.14) Net realized gain -- -- -- -- -- ------ ------ ------ ------ ------ Total dividends (0.87) (0.76) (0.70) (0.65) (1.14) ------ ------ ------ ------ ------ Net asset value end of period $10.16 $10.15 $10.02 $10.14 $10.19 ====== ====== ====== ====== ====== Net assets end of period ('000s) $6,037 $5,259 $1,545 $1,198 $1,134 Aggregate return on share outstanding during entire period 8.88% 7.06% 5.67% 6.07% 7.13% Significant Ratios: Portfolio turnover None None None None None Ratio of expenses to average net assets 0.50% 0.50% 0.50% 0.20% 0.20% Ratio of net investment income to average net assets 8.43% 6.94% 5.50% 5.89% 6.89% Ratio of net investment income and realized and unrealized gain (loss) to average net assets 8.43% 6.94% 5.50% 5.89% 6.89%

9 87

INTERNATIONAL FUND ------------------ PERIOD 10/04/94-12/31/94+ ------------------------- Net asset value beginning of period $ 10.00 ------- Income From Investment Operations: Net investment income (loss) 0.02 Net realized and unrealized gain (loss) on investments (0.18) ------- Total from investment operations (0.16) Dividends: Net investment income (0.02) Net realized gain 0.00 ------- (0.02) ------- Net asset value end of period $ 9.82 Net assets end of period ('000s) $11,290 Aggregate return on share outstanding during entire period (1.54)%** Significant Ratios: Portfolio turnover 0.00% Ratio of expenses to average net assets 1.35%** Ratio of net investment income to average net assets 1.31%** Ratio of net investment income and realized and unrealized gain (loss) to average net assets (6.28)%**

PACIFIC RIM EMERGING MARKETS FUND --------------------- PERIOD 10/04/94-12/31/94+ ------------------------- Net asset value beginning of period $10.00 ------ Income From Investment Operations: Net investment income (loss) 0.04 Net realized and unrealized gain (loss) on investments (0.59) ------ Total from investment operations (0.55) ------ Dividends: Net investment income (0.04) Net realized gain 0.00 ------ (0.04) ------ Net asset value end of period $ 9.41 Net assets end of period ('000s) $7,657 Aggregate return on share outstanding during entire period (5.63)%** Significant Ratios: Portfolio turnover 0.00% Ratio of expenses to average net assets 1.65%** Ratio of net investment income to average net assets 1.84%** Ratio of net investment income and realized and unrealized gain (loss) to average net assets (23.41)%** + Inception date October 4, 1994. ** Annualized.

10 88 INVESTMENT OBJECTIVES, POLICIES AND RISKS Each Fund has a different investment objective which it pursues through separate investment policies as described below. The differences in objectives and policies among the Funds can be expected to affect the return of each Fund and the degree of market and financial risk to which each Fund is subject. The investment objective of each Fund discussed below is a fundamental policy of that Fund and may not be changed without the approval of the holders of a majority of the outstanding shares of such Fund. The policies by which a Fund seeks to achieve its investment objective, however, are not fundamental and may be changed by the Board of Directors of the Company without the approval of the shareholders. There can be no assurance that the investment objective of any Fund will be achieved. The Funds are subject to varying degrees of financial and market risk. Financial risk refers to the ability of an issuer of a debt security to pay principal and interest on such security and to the earnings stability and overall financial soundness of an issuer of an equity security; market risk refers to the volatility of the reaction of the price of a security to changes in conditions in the securities markets in general and, with particular reference to debt securities, changes in the overall level of interest rates. EMERGING GROWTH EQUITY FUND The investment objective of the Emerging Growth Equity Fund is to achieve growth of capital by investing primarily in equity securities of companies believed to offer growth potential over both the intermediate and the long term. Current income is not a significant consideration. In pursuit of its objective, the Emerging Growth Equity Fund will invest primarily in common stocks or in securities convertible into or carrying rights or warrants to purchase common stock or to participate in earnings. The Fund will not purchase independent warrants if they are not publicly traded and if any such purchase would cause more than 2% of the value of its total assets to be invested in such warrants. In selecting investments, emphasis will be placed on securities of progressive companies with aggressive and competent managements. A substantial portion of the Fund's assets may be invested in emerging growth companies, which at the time of the Fund's investment may be paying no dividends to their shareholders. Emerging growth companies are companies believed by management to have above-average prospects for growth as a result of their providing products or services in emerging industries or sub-industries. Investments will be made primarily in securities listed on national securities exchanges, but the Fund may purchase securities traded in the U.S. over-the-counter market. When, in the opinion of management, market or economic conditions warrant a defensive posture, the Fund may place all or a portion of its assets in fixed-income securities. The Fund may also maintain a portion of its assets in cash or short-term debt securities pending selection of particular long-term investments. The Fund may purchase securities on a forward-commitment, when-issued or delayed-delivery basis. For a discussion of these securities, please see the Statement of Additional Information. Emerging growth companies may have limited product lines, market or financial resources, or they may be dependent upon a small management group. An investment in the Emerging Growth Equity Fund may therefore involve greater financial risk than is customarily associated with less aggressive companies. In addition, the Fund may be subject to relatively high levels of market risk. The securities of aggressive growth companies may be subject to more abrupt or erratic market movements than other companies or the market averages in general. Because shares of the Emerging Growth Equity Fund may experience above-average fluctuations in net asset value, they should be considered as long-term investments. BALANCED ASSETS FUND The investment objective of the Balanced Assets Fund is to achieve intermediate and long-term growth through capital appreciation and income by investing in both debt and equity securities. In pursuit of its objective, the Balanced Assets Fund will invest in common stocks, preferred stocks or bonds (which may or may not be convertible into or carry rights to purchase common stock or to participate in earnings) and other long-term and short-term debt securities. Common stocks will be held for possible growth of capital as well as for income, while preferred stocks and debt securities will be held for income and possible capital appreciation as a result of a decline in the level of prevailing interest rates. The Fund will maintain at all times a balance between debt securities or preferred stocks, on the one hand, and common stocks, on the other. At least 25% of the Fund's assets will be invested in each of the two basic categories. Investments will be made primarily in securities listed on national securities exchanges, but the Fund may purchase securities traded in the U.S. over-the-counter market. The Fund may also maintain a portion of its assets in cash or short-term debt securities pending selection of particular long-term investments. The Fund may purchase securities on a forward-commitment, when-issued or delayed-delivery basis. For a discussion of these securities, please see the Statement of 11 89 Additional Information. See the Capital Growth Bond Fund, below, for a description of the type of debt securities in which the Fund may invest. Investment in shares of the Balanced Assets Fund should involve less financial and market risk than an investment in the Emerging Growth Equity Fund. CAPITAL GROWTH BOND FUND The investment objective of the Capital Growth Bond Fund is to achieve growth of capital by investing in medium-grade or better debt securities, with income as a secondary consideration. The Capital Growth Bond Fund differs from most "bond" funds in that its primary objective is capital appreciation, not income. Opportunities for capital appreciation will usually exist only when the levels of prevailing interest rates are falling. During periods when the Manager expects interest rates to decline, the Fund will invest primarily in intermediate-term and long-term corporate and government debt securities. However, during periods when the Manager expects interest rates to rise or believes that market or economic conditions otherwise warrant such action, the Fund may invest substantially all of its assets in short-term debt securities to preserve capital and maintain income. The Fund may also maintain a portion of its assets temporarily in cash or short-term debt securities pending selection of particular long-term investments. The Capital Growth Bond Fund will be carefully positioned in relation to the term of debt obligations and the anticipated movement of interest rates. It is contemplated that at least 75% of the value of the Fund's total investment in corporate debt securities, excluding commercial paper, will be represented by debt securities which have, at the time of purchase, a rating within the four highest grades as determined by Moody's Investors Service, Inc. (Aaa, Aa, A or Baa), Standard & Poor's Corporation (AAA, AA, A or BBB), or Fitch's Investors Service (AAA, AA, A or BBB) and debt securities of banks and other issuers which, although not rated as a matter of policy by either Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation ("Standard & Poor's"), or Fitch's Investors Service ("Fitch's"), are considered by the Manager to have investment quality comparable to securities receiving ratings within such four highest grades. Although the Fund does not intend to acquire or hold debt securities of below investment-grade quality, policyowners should note that even bonds of the lowest categories of investment-grade quality may have speculative characteristics, and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case with higher-grade bonds. It should be further noted that should an obligation in the Fund's portfolio drop below investment grade, the Fund will make every effort to dispose of it promptly so long as to do so would not be detrimental to the Fund. Government obligations in which the Capital Growth Bond Fund may invest will be limited to those issued or guaranteed as to principal or interest by the United States Government or its agencies or instrumentalities or by the Government of Canada or any Canadian Crown agency. Any Canadian obligation acquired by the Fund will be payable in U.S. dollars. The Fund may purchase securities on a forward-commitment, when-issued or delayed-delivery basis. For a discussion of these securities, please see the Statement of Additional Information. The Capital Growth Bond Fund may purchase corporate debt securities which carry certain equity features, such as conversion or exchange rights or warrants for the acquisition of stock of the same or a different issuer or participations based on revenues, sales, or profits. The Fund will not exercise any such conversion, exchange or purchase rights if, at the time, the value of all equity interests so owned would exceed 10% of the value of the Fund's total assets. Because of the Fund's emphasis on medium-grade or better instruments, an investment in the Capital Growth Bond Fund should result in less financial risk than an investment in the Emerging Growth Equity Fund or Balanced Assets Fund. However, the Capital Growth Bond Fund will be subject to substantial market risk arising from changes in the level of prevailing interest rates and the Fund's active management in anticipation of such changes. MONEY-MARKET FUND The investment objective of the Money-Market Fund is to provide maximum current income consistent with capital preservation and liquidity by investing in a portfolio of high-quality money market instruments. In pursuit of its objective, the Money-Market Fund may invest in: (1) obligations issued or guaranteed as to principal or interest by the United States Government, or any agency or authority controlled or supervised by and acting as an instrumentality of the U.S. Government pursuant to authority granted by Congress, or issued or guaranteed as to principal or interest by the Government of Canada or any Canadian Crown agency (any Canadian obligation acquired by the Fund will be payable in U.S. dollars); 12 90 (2) obligations (including negotiable certificates of deposit) of U.S. banks and savings and loan associations which at the date of the investment have capital, surplus and undivided profits (as of the date of their most recently published financial statements) in excess of $100,000,000 and foreign branches of U.S. banks if such banks meet the stated qualifications; (3) commercial paper which at the date of the investment is rated (or guaranteed by a company whose commercial paper is rated) A-1 by Standard & Poor's, P-1 by Moody's, or F-1 by Fitch's, or, if not rated, is issued by a company which at the date of the investment has an outstanding short-term debt issue that is so rated or which is determined by management, pursuant to guidelines adopted and reviewed by the Fund's Board of Directors, to be of comparable quality to securities that are so rated; (4) corporate obligations maturing in one year or less which at the date of investment are rated AA or higher by Standard & Poor's, Fitch's or Moody's or either (a) are issued by a company with outstanding short-term debt securities rated A-1 by Standard & Poor's, P-1 by Moody's, or F-1 by Fitch's or (b) are determined by management, pursuant to guidelines established and reviewed by the Fund's Board of Directors, to be of comparable quality to securities that are so rated; and (5) repurchase agreements with respect to any of the foregoing obligations. More complete descriptions of the money market instruments in which the Fund may invest and the debt security ratings used by the Fund are set forth in the Statement of Additional Information. All of the Money-Market Fund's investments will mature in 13 months or less and the portfolio will maintain a dollar-weighted average portfolio maturity of less than 90 days. By limiting the maturity of its investments, the Fund seeks to lessen the changes in the value of its assets caused by fluctuations in short-term interest rates. All of the Money-Market Fund's investments will be ones whose issuers are determined to present minimal credit risks. The Fund may purchase securities on a forward-commitment, when-issued or delayed-delivery basis. For a discussion of these securities, please see the Statement of Additional Information. Investment in shares of the Money-Market Fund should involve less market or financial risk than an investment in any other Fund. However, the Fund's performance will vary with changes in short-term interest rates. COMMON STOCK FUND The investment objective of the Common Stock Fund 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. In pursuit of its objective, the Common Stock Fund will invest principally in common stocks or in securities convertible into common stocks or carrying rights or warrants to purchase common stock or to participate in earnings. In selecting investments, emphasis will be placed on companies with good financial resources, strong balance sheet, satisfactory rate of return on capital, good industry position, superior management skills, and earnings that tend to grow consistently. The Fund's investments are not limited to any particular type or size of company, but high-quality growth stocks are emphasized. Investments will be made primarily in securities listed on national securities exchanges, but the Fund may purchase securities traded in the United States over-the-counter market. When, in the opinion of management, market or economic conditions warrant a defensive posture, the Fund may place all or a portion of its assets in fixed-income securities. The Fund may also maintain a portion of its assets in cash or short-term debt securities pending selection of particular long-term investments. The Fund may purchase securities on a forward-commitment, when-issued or delayed-delivery basis. For a discussion of these securities, please see the Statement of Additional Information. Investment in shares of the Common Stock Fund should involve less financial and market risk than the Emerging Growth Equity Fund, but the Fund may occasionally experience above-average fluctuations in net asset value, and therefore should be considered as a long-term investment. REAL ESTATE SECURITIES FUND The investment objective of the Real Estate Securities Fund is to achieve a combination of long-term capital appreciation and satisfactory current income by investing in real estate related equity and debt securities. 13 91 In pursuit of its objective, the Real Estate Securities Fund will invest principally in real estate investment trust equity and debt securities and other securities issued by companies which invest in real estate or interests therein. The Fund may also purchase the common stocks, preferred stocks, convertible securities and bonds of companies operating in industry groups relating to the real estate industry. This would include companies engaged in the development of real estate, building and construction, and other market segments related to real estate. The Fund will not invest directly in real property nor will it purchase mortgage notes directly. Under normal circumstances, at least 65% of the value of the Fund's total assets will be invested in real estate related equity and debt securities. When, in the opinion of management, market or economic conditions warrant a defensive posture, the Fund may place all or a portion of its assets in fixed-income securities which may or may not be real estate debt related securities. The Fund may also maintain a portion of its assets in cash or short-term debt securities pending selection of particular long-term investments. The Fund may purchase securities on a forward-commitment, when-issued or delayed-delivery basis. For a discussion of these securities, please see the Statement of Additional Information. Because the Fund considers current income in its investment objectives, an investment in the Real Estate Securities Fund should involve less financial and market risk than the Emerging Growth Equity Fund. However, the Fund's share value may experience above-average fluctuation in periods of changing interest rates and therefore the shares should be considered as long-term investments. INTERNATIONAL FUND AND PACIFIC RIM EMERGING MARKETS FUND The investment objective of both the International Fund and the Pacific Rim Emerging Markets Fund is to achieve long-term growth of capital. The Funds will attempt to achieve their respective investment objectives by investing in a diversified portfolio that is comprised primarily of common stocks and equity-related securities of corporations domiciled in countries other than the United States and Canada. Current income from dividends and interest will not be an important consideration in the selection of portfolio securities. INVESTMENT POLICY. In pursuit of their respective investment objectives, the International Fund and the Pacific Rim Emerging Markets Fund will vary the geographical distribution of their investments based upon the continuous evaluation of political, economic and market trends throughout the world. Investments will be shifted among the world's capital markets in accordance with the ongoing analyses of trends and developments affecting such markets and securities. Although the International Fund has no limits on geographical distribution other than the United States and Canada, it is expected to invest primarily in companies domiciled in western European countries, Australia, the Far East, Mexico and South America. The Pacific Rim Emerging Markets Fund will invest primarily in companies domiciled in potentially all countries of the Pacific Rim region. For purposes of this Fund, the countries of the Pacific Rim region are India, Pakistan, Japan, Hong Kong, Singapore, Malaysia, Thailand, Indonesia, Australia, South Korea, Taiwan, Philippines, New Zealand and China. Investment in foreign countries often requires approval by the specific country involved. As a result, although the International Fund and Pacific Rim Emerging Markets Fund intend to invest as above, not all countries may be available initially. The International Fund and the Pacific Rim Emerging Markets Fund will, under normal conditions, invest at least 65% of their net assets in common stocks and equity-related securities of established larger-capitalization non-U.S. companies that have attractive long-term prospects for growth of capital. Equity-related securities in which the Funds may invest include: preferred stocks, warrants and securities convertible into or exchangeable into common stocks. A Fund will invest in the securities of issuers domiciled or primarily traded in at least five foreign countries if the Fund has invested at least 80% of its net assets in foreign issuers. If the Fund has less than 20% of its net assets in foreign issuers, then all of such investment may be in issuers domiciled or primarily traded in one country. If the Fund has at least 20% but less than 40% of its net assets in foreign issuers, then such investment must be allocated to issuers domiciled or primarily traded in at least two foreign countries. Similarly, if the Fund has at least 40% but less than 60% of its net assets invested in foreign issuers, such investment must be allocated to at least three foreign countries. Foreign investments must be allocated to at least four foreign countries if such investments comprise at least 60% but less than 80% of the Fund's net assets. A Fund will not invest more than 20% of its net assets in securities of issuers domiciled or primarily traded in any one country, except that a Fund may invest up to 35% of its net assets in issuers domiciled or primarily traded in any one of the following countries: Australia, France, Japan, the United Kingdom, or Germany. The Funds may, for defensive purposes, invest all or a portion of their assets in non-convertible fixed income securities denominated in U.S. and non-U.S. dollars. These non-convertible fixed income securities will include debt of corporations, foreign governments and 14 92 supranational organizations. The Funds may also maintain a portion of their assets in cash or short term debt securities pending the selection of certain long-term investments. The International Fund and the Pacific Rim Emerging Markets Fund may also purchase and sell the following equity-related financial instruments: -- exchange-listed call and put options on equity indices. -- over-the-counter ("OTC") and exchange-listed equity index futures. In order to assist in the foreign currency risk management of the International Fund and the Pacific Rim Emerging Markets Fund, the following foreign currency related financial instruments may also be purchased and sold: -- OTC and exchange-listed call and put options on various currencies in the portfolio. -- OTC foreign currency futures contracts on various currencies in the portfolio. Please see Investment Techniques Of The International Fund And Pacific Rim Emerging Markets Fund--"Options," "Futures," and "Risk Factors In Options And Futures." 15 93 INVESTMENT TECHNIQUES OF THE INTERNATIONAL FUND AND PACIFIC RIM EMERGING MARKETS FUND OPTIONS. The Funds will not write uncovered OTC or exchange-listed put or call options on specific equities, equity or market indices, or foreign currency. The Funds will also not enter into interest rate or foreign currency swaps, caps, collars or floors. The International Fund and the Pacific Rim Emerging Markets Fund may purchase put and call options on various equity indices and sell put or call options they have previously purchased. An option is a contract that gives the holder the right to purchase (in the case of a call) or the right to sell (in the case of a put) a specified amount of an underlying security at a fixed price upon the exercise of the option. In the case of equity index options, exercises are settled through the payment of cash rather than the delivery of a security. The purchase of put and call options on various equity indices is done in order to hedge against changes in stock prices which may adversely affect the prices of securities that the portfolio wants to purchase at a later date, to hedge its existing investments against a decline in value, or to attempt to reduce the risk of missing a market or industry segment advance. An equity index is a method of reflecting in a single number the market value of an agreed-upon basket of different stocks. The index may be designed to be representative of the stock market as a whole or of a particular broad market sector or industry. The most common equity indices are value-weighted indices that reflect the aggregate market value of many different companies by taking into account prices of the component stocks and the number of shares outstanding for each respective company included in the index. The premium paid for a put or call option, plus any transaction costs, will reduce the benefit, if any, realized by the Fund upon exercise or liquidation of the option. The option may expire without value to the Fund unless the price of the underlying equity index changes in an amount in excess of the premium paid to purchase the option. Equity index options acquired by the Fund will be traded on locally recognized exchanges. Options traded in the OTC market may not be as actively traded as those on an exchange and may be considered as illiquid securities. It may also be more difficult to value such options. The International Fund and the Pacific Rim Emerging Markets Fund may purchase and sell put and call options on foreign currencies for the purpose of protecting against declines in the dollar value of portfolio securities and against increases in the dollar cost of securities to be acquired. Such investment strategies will be used as a hedge and not for speculation. The purchase of put or call options on foreign currencies may constitute an effective hedge against fluctuations in exchange rates although in the case of foreign exchange rate movements adverse to the Fund's position, it may forfeit the entire amount of premium paid plus related transaction costs. Foreign currency options acquired by the Funds may be traded on either locally recognized exchanges or the OTC market. As in the case of equity index options, foreign currency options traded in the OTC market may not be as actively traded as those on an exchange and may be considered as illiquid securities. FUTURES. The International Fund and the Pacific Rim Emerging Markets Fund may purchase and sell equity index futures contracts in order to hedge the equity portion of their assets or equity assets they intend to acquire, with regard to market risk as distinguished from stock-specific risk. The equity index futures contracts purchased by the Funds will be both OTC and locally-recognized-exchange-traded. As in the case of OTC-traded options, OTC-traded futures may not be as actively traded as those on an exchange and may be considered as illiquid. It may also be more difficult to value such futures. FOREIGN CURRENCY FUTURES CONTRACTS. The International Fund and the Pacific Rim Emerging Markets Fund may enter into contracts for the purchase or sale of a specific currency at an agreed-upon future date and price set at the time of the contract. The Funds will enter into foreign currency futures contracts for hedging purposes, only with the purpose of protecting the U.S. dollar equivalent of securities in the Fund that are denominated in non-U.S. dollars. Proper use of foreign currency futures contracts will protect the Funds against a loss arising from an adverse change in the relationship between the U.S. dollar and the particular foreign currency for the period of time from when the foreign currency futures contract is purchased or sold and the date on which payment is made or received on the underlying foreign currency. Foreign currency futures contracts are traded in the inter-bank market and carry much the same risks as noted above for OTC-traded futures and options. RISK FACTORS IN FUTURES AND OPTIONS. The purchase and sale of futures and options expose the International Fund and the Pacific Rim Emerging Markets Fund to risks that are not present in the other Funds. 16 94 To the extent that hedging is effective, it will protect the value of the securities or currencies which are hedged but will accordingly diminish the potential for gain should the unhedged currency or security position move in a favorable direction. There is the potential for a hedging transaction using futures and options to create a loss as a result of imperfect correlation of price movements between the hedging vehicle and the hedged item(s). The risks of option trading include possible loss of the entire premium paid for the option or the inability to effect closing transactions at favorable prices. The risks of trading futures contracts also include the risks of inability to effect closing transactions or to do so at favorable prices; consequently, losses from investing in futures contracts are potentially unlimited. RISK FACTORS Investors should recognize that investing in foreign securities involves special risk considerations, including those that are listed below, which are not typically associated with investing in U.S. securities. Investment in the International Fund and the Pacific Rim Emerging Markets Fund will involve foreign currency risk because the offering price of their shares will be stated in U.S. dollars while it is anticipated that the overwhelming majority of their assets will be priced and quoted in other currencies. The value of the Funds' securities denominated in foreign currencies will be affected favorably or unfavorably by changes in currency exchange rates and the Funds' values will be affected by the costs incurred in connection with the conversions between various currencies. The securities of non-U.S. issuers held by the Funds generally will not be registered under, nor will the issuers thereof be subject to, the reporting requirements of the U.S. Securities and Exchange Commission. As a consequence, there may be less publicly available information about the foreign issuer than is available about a U.S. company or government entity. Foreign issuers are also not subject to the same accounting, auditing and financial reporting standards, requirements, and practices applicable to U.S. companies. Stock markets outside the U.S. are generally not as developed or as efficient as those in the U.S. As a result, the extent and effectiveness of government regulation of those stock markets and brokers may not be identical to that in the U.S. Frequently, liquidity in most foreign bond markets is less than generally exists in the U.S. bond market and, at times, price volatility can be greater than in the U.S. Fixed brokerage commissions on certain non-U.S. stock exchanges are generally higher than negotiated commissions on U.S. exchange-listed securities. Similarly, the bid-to-ask spreads in foreign bond markets are generally larger than commissions or bid-to-ask spreads in the U.S. bond market. Custodial costs related to non-U.S. securities generally exceed those on comparable U.S. securities. With respect to certain foreign countries, there is the possibility of political or social instability, or diplomatic events that could result in potential restrictions on the flow of international capital, including the possibility of expropriation or confiscatory taxation. The Funds' adviser will consider these and other pertinent factors before investing in foreign securities. Investments in foreign securities will not occur unless the Funds' adviser believes that the potential benefits of the investment outweigh the risks and that such investments meet the policies, standards, risk profile and objectives of a particular portfolio. Accordingly, investment in the shares of the International Fund and the Pacific Rim Emerging Markets Fund should involve more financial and market risk than any of the domestic Funds. Because the shares of the International Fund and the Pacific Rim Emerging Markets Fund may experience above-average fluctuations in net asset value, they should be considered as long-term investments. INVESTMENT RESTRICTIONS In pursuing their investment objectives and policies, the Funds are subject to a number of investment restrictions. The following is a brief summary of certain restrictions that the Company believes to be of interest to variable contract purchasers. Some of these restrictions are subject to exceptions not stated here. Such exceptions and a complete list of the investment restrictions applicable to the Funds and to the Company are set forth in the Statement of Additional Information under the heading "Investment Restrictions." Except for the restrictions specifically identified as fundamental, all investment restrictions described in this Prospectus and in the Statement of Additional Information are not fundamental, so that the Board of Directors may change them without shareholder approval. Fundamental restrictions may not be changed without the affirmative vote of a majority of the outstanding voting securities of each Fund affected by the change. 17 95 Restrictions that are fundamental and applicable to all Funds include prohibitions on (i) investing more than 25% of the total assets of any Fund in the securities of issuers having their principal activities in any particular industry (except in the case of the Real Estate Securities Fund and with exceptions for U.S. Government and Government agency securities and certain money-market instruments), (ii) borrowing money, except for temporary or emergency purposes and then not in excess of 10% of the total assets of any Fund, and (iii) purchasing securities of any issuer if the purchase would cause more than 5% of a Fund's total assets to be invested in the securities of any one issuer (excluding U.S. Government and Government agency securities and bank obligations) or cause more than 10% of the voting securities of the issuer to be held by a Fund, except that up to 25% of each Fund's total assets may be invested without regard to the restrictions of this clause (iii). Restrictions that apply to all Funds and that are not fundamental include prohibitions on pledging, hypothecating, mortgaging or transferring more than 10% of the total assets of any Fund as security for indebtedness. The Money-Market Fund will not purchase securities of an issuer if it would cause more than 5% of the Money-Market Fund's total assets to be invested in the securities of that issuer (excluding U.S. Government and Government agency securities). The Money-Market Fund will not purchase securities that have not received the highest short-term debt rating by a nationally recognized statistical rating organization and are not of comparable quality to securities so rated if it would cause more than the greater of 1% of its total assets or $1,000,000 to be invested in the securities of such issuer or if it would cause more than 5% of its total assets to be invested in securities that were not so rated or comparable to securities so rated. If a percentage restriction is adhered to at the time of an investment, a later increase or decrease in the investment's percentage of a Fund's total assets resulting from a change in the value of such assets will not constitute a violation of the percentage restriction. The following is a description of certain investment policies that are subject to restrictions and that the Company's management believes to be of interest to variable contract purchasers. FOREIGN SECURITIES Each of the Funds may invest in foreign securities, but, with respect to all Funds except the International and Pacific Rim Emerging Markets Funds, such investment is restricted as a matter of non-fundamental policy to securities of the following types: (i) U.S. dollar denominated obligations of foreign branches of U.S. banks, (ii) securities represented by American Depository Receipts listed on a national securities exchange or traded in the U.S. over-the-counter market, (iii) securities of a corporation organized in a jurisdiction other than the U.S. and listed on the New York Stock Exchange or NASDAQ ("Interlisted Securities") or (iv) securities denominated in U.S. dollars but issued by non U.S. issuers and issued under U.S. federal securities regulations (for example, U.S. dollar denominated obligations issued or guaranteed as to principal or interest by the Government of Canada or any Canadian Crown agency); provided, however, this restriction shall not apply to the International Fund or the Pacific Rim Emerging Markets Fund. Foreign securities may be subject to foreign government taxes which reduce their attractiveness. In addition, investing in the securities of foreign issuers, particularly non-governmental issuers, involves risks which are not ordinarily associated with investing in domestic issuers. These risks include political or economic instability in the country involved and the possibility of imposition of currency controls. In addition, there may be less publicly available information about a foreign issuer than about a domestic issuer. Foreign issuers, including foreign branches of U.S. banks, are subject to different accounting and reporting requirements, which are generally less extensive than the requirements applicable to domestic issuers. With respect to certain foreign countries, there is a possibility of expropriation, confiscatory taxation or diplomatic developments which could affect investment in those countries. Foreign securities also involve currency risks. The value of a foreign security denominated in foreign currency changes with variations in the exchange rates. Fluctuations in exchange rates may also affect the earning power and asset value of the foreign entity issuing a security, even one denominated in U.S. dollars. Dividend and interest payments will be repatriated based on the exchange rate at the time of disbursement, and restrictions on capital flows may be imposed. Finally, in the event of a default on any foreign obligation, it may be difficult for the Company to obtain or to enforce a judgment against the issuer. The Manager will consider these and other factors before investing in foreign securities and will not make such investments unless, in its opinion, such investments will meet the standards and objectives of a particular Fund. LENDING SECURITIES Each Fund may lend its securities so long as such loans do not represent in excess of 20% of a Fund's total assets. This is a fundamental policy. The procedure for lending securities is for the borrower to give the Fund collateral consisting of cash or cash equivalents. The Fund may invest the cash collateral and earn additional income or receive an agreed-upon fee from a borrower which has delivered cash-equivalent collateral. The Company anticipates that its securities will be lent only under the following conditions: (1) the borrower must furnish collateral equal at all times to the market value of the securities lent and the borrower must agree to increase the collateral 18 96 on a daily basis if the securities increase in value; (2) the loan will be made in accordance with New York Stock Exchange rules, which currently require the borrower, after notice, to redeliver the securities within five business days; (3) any cash collateral invested by a Fund will be in short-term investments which give maximum liquidity so that the collateral may be paid back to the borrower when the securities are returned; (4) the Fund may pay reasonable service, placement, custodian or other fees in connection with loans of securities and share a portion of the interest from these investments with the borrower of the securities; and (5) the Company will limit the amount of lending of securities so that the aggregate amount of interest received attributed to securities lent, if considered "other income" for Federal tax purposes, will not cause the Company to lose its status as a regulated investment company. MANAGEMENT OF THE FUNDS Under Maryland law and the Company's Articles of Incorporation and By-laws, the business and affairs of the Company are managed under the direction of the Company's Board of Directors. The Board of Directors is elected by the holders of the Company's securities. While all of the Company's outstanding securities are owned by Manufacturers Life of America, shares will be voted as directed by variable contract policyowners. The By-laws of the Company provide that the Company need not hold an annual meeting of shareholders in any year in which none of the following is required to be acted on by shareholders under the Investment Company Act of 1940: election of directors; approval of investment advisory agreement; ratification of selection of independent public accountants; and approval of distribution agreement. The Company intends to hold shareholder meetings only when required by law and at other times as may be deemed appropriate by the Board of Directors. INVESTMENT MANAGEMENT ARRANGEMENTS The Fund's investment manager is Manufacturers Adviser Corporation (the "Manager"), a Colorado corporation whose principal business at the present time is to provide investment management services to the Company. The Manager was organized in 1970 and became operational in 1984. The Manager is an indirect wholly-owned subsidiary of Manufacturers Life. The address of the Manager is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5. The Company has entered into an Investment Advisory Agreement with the Manager pursuant to which the Manager agrees to manage the investment and reinvestment of the assets of each Fund and to administer the affairs of the Company subject to the supervision of the Company's Board of Directors. The Manager provides the Company with an investment program and with investment research, supervision and advice necessary for the proper supervision of each Fund. Subject to review of the Company's Board of Directors and to the investment objective, policies and restrictions of each Fund, the Manager determines which securities will be purchased or sold for each Fund. The Manager also serves as the Company's transfer agent and dividend disbursing agent. Under a Service Agreement among the Manager, the Company and Manufacturers Life, Manufacturers Life has agreed to furnish to the Manager personnel, office space, supplies and equipment required by it and to make available to the Manager certain statistical and economic data, investment research reports and other research materials of Manufacturers Life's Investment Department. The Manager has agreed to reimburse Manufacturers Life for its costs in this regard. 19 97 MANAGEMENT OF THE FUNDS The Manager of the Funds consist of a team of investment professionals each of whom plays an important role in the management process of each Fund. Team members work together to develop investment strategies and select securities for a Fund's portfolio. They are supported by research analysts, traders and other investment specialists who work alongside the investment professionals in an effort to utilize all available resources to benefit the shareholders.

BUSINESS EXPERIENCE FUND FUND MANAGER(S) DURING PAST FIVE YEARS ---- --------------- ---------------------- EMERGING GROWTH EQUITY FUND Veronica Onyskiw (since 1983) Vice President, U.S. Equities, The Manufacturers Life Insurance Company, 1989-present BALANCED ASSETS FUND Catherine Addison (since 1988) Assistant Vice President, U.S. Investments, The Manufacturers Life Insurance Company, 1994-present; Director, U.S. Fixed Income, The Manufacturers Life Insurance Company, 1985-1994 Veronica Onyskiw (since 1983) Vice President, U.S. Equities, The Manufacturers Life Insurance Company, 1989-present CAPITAL GROWTH BOND FUND Catherine Addison (since 1988) Assistant Vice President, U.S. Investments, The Manufacturers Life Insurance Company, 1994-present; Director, U.S. Fixed Income, The Manufacturers Life Insurance Company, 1985-1994 MONEY-MARKET FUND Emily Shum (since 1992) Director, Money-Market, The Manufacturers Life Insurance Company, 1992-present; Money Market Manager, ManuVest Investment Management Corporation, 1985-1991 COMMON STOCK FUND Veronica Onyskiw (since 1987) Vice President, U.S. Equities, The Manufacturers Life Insurance Company, 1989-present Stephan Kahn (since 1987) Assistant Vice President, U.S. Investments, The Manufacturers Life Insurance Company, 1994-present; Investment Management, U.S., The Manufacturers Life Insurance Company, 1986-1994 REAL ESTATE SECURITIES FUND Stephan Kahn (since 1987) Assistant Vice President, U.S. Investments, The Manufacturers Life Insurance Company, 1994-present; Investment Management, U.S., The Manufacturers Life Insurance Company, 1986-1994

20 98

BUSINESS EXPERIENCE FUND FUND MANAGER(S) DURING PAST FIVE YEARS ---- --------------- ---------------------- INTERNATIONAL FUND Michael Willans (since 1994) Investment Management, The Manufacturers Life Insurance Company, 1990-present Lorraine Gail Christison Benjamin Pinel (since 1994) Investment Management, The Manufacturers Life Insurance Company, 1981-present Mark Andrew Hirst (since 1994) Investment Management, The Manufacturers Life Insurance Company, 1986-present Robert William Chapman (since 1994) Investment Management, The Manufacturers Life Insurance Company, 1975-present Richard James Crook (since 1994) Investment Management, The Manufacturers Life Insurance Company, 1975-present PACIFIC RIM EMERGING MARKETS FUND Richard James Crook (since 1994) Investment Management, The Manufacturers Life Insurance Company, 1975-present Michael Willans (since 1994) Investment Management, The Manufacturers Life Insurance Company, 1990-present

21 99 EXPENSES With respect to the Emerging Growth Equity Fund, Balanced Assets Fund, Capital Growth Bond Fund, Money-Market Fund, Common Stock Fund and Real Estate Securities Fund, the Manager has agreed to pay all of the expenses of the Company except for the following, which are borne by the Company: the investment management fee, brokerage commissions on portfolio transactions (including any other direct costs related to the acquisition, disposition, lending or borrowing of portfolio investments), taxes payable by the Company, interest and any other costs related to borrowings by the Company, and any extraordinary or non-recurring expenses (such as legal claims and liabilities and litigation costs and any indemnification related thereto). With respect to the International Fund and the Pacific Rim Emerging Markets Fund, the Company shall pay all of the foregoing expenses plus up to .50% and .65%, respectively, of any additional expenses in connection with the operation of these Funds. FEES As compensation for its services, the Manager receives a fee from the Company each day on which the Company's net asset value is determined. With respect to the Emerging Growth Equity Fund, Balanced Assets Fund, Capital Growth Bond Fund, Money-Market Fund, Common Stock Fund and Real Estate Securities Fund, the fee is equivalent to an annual rate of 0.50% of the average daily value of the aggregate net assets of the Funds. Prior to January 1, 1987, the Manager's fee was equivalent to an annual rate of 0.20% of such value. The amount of the daily charge for the fee is divided among the Funds in proportion to their daily net asset values. With respect to the International Fund and the Pacific Rim Emerging Markets Fund, the fee will be equivalent to an annual rate of (i) 0.85% of the average daily value of the net assets of the first $100 million of each Fund and (ii) 0.70% of the average daily value of the net assets of each Fund in excess of $100 million. For the years ended December 31, 1992, 1993 and 1994 the Manager received $437,758, $743,241, and $1,429,270 respectively, under the Investment Advisory Agreement. CAPITAL STOCK The Company has eight classes of stock, one for each Fund. The shares of each Fund have equal rights with respect to voting, redemptions, dividends, distributions and liquidations with regard to that Fund. The shares of each Fund, when issued and paid for, will be fully paid and non-assessable, will have no preference, pre-emptive, conversion, exchange or similar rights, and will be freely transferable. Holders of shares of any Fund are entitled to redeem their shares as set forth under "Purchases And Redemptions Of Shares." TAXES, DIVIDENDS AND DISTRIBUTIONS The Company intends to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code (the "Code"). Under such provisions, the Company will not be subject to federal income tax on such part of its net ordinary income and net realized capital gains that it distributes to shareholders. The Company intends to distribute as dividends substantially all of the net investment income, if any, of each Fund. For dividend purposes, net investment income of each Fund will consist of all payments of dividends (other than stock dividends) or interest received by such Fund less the estimated expenses of such Fund (including fees payable to the Manager). Dividends from the net investment income of a Fund will be declared at least annually and reinvested in additional full and fractional shares of that Fund. The Funds of the Company also presently intend to declare and distribute annually after the close of their fiscal year all of their net realized capital gains, if any. PURCHASES AND REDEMPTIONS OF SHARES Shares of the Company are currently offered continuously, without sales charge, at prices equal to the respective net asset values of the Funds, only to Manufacturers Life of America. The Company sells its shares to Manufacturers Life of America directly without the use of any underwriter. Manufacturers Life of America uses shares of the Company to fund benefits under both variable annuity contracts and variable life insurance policies. The Company's Board of Directors will monitor the Funds for the existence of any material irreconcilable conflict between the interests of variable annuity policyowners investing in the Company and interests of holders of variable life insurance policies investing in the Company. Manufacturers Life of America will report any potential or existing conflicts to the directors of the Company. If a material irreconcilable conflict arises, Manufacturers Life of America will, at its own cost, remedy such 22 100 conflict up to and including establishing a new registered management investment company and segregating the assets underlying the variable annuity contracts and the variable life insurance policies. The Company reserves the right to offer its shares in the future to other persons or entities. Shares of the Company are sold and redeemed at their net asset value next computed after a purchase or redemption order is received by the Company. Depending upon the net asset values at that time, the amount paid upon redemption may be more or less than the cost of the shares redeemed. Payment for shares redeemed will be made as soon as possible, but in any event within seven days after receipt of a request for redemption. DETERMINATION OF NET ASSET VALUE The net asset value of the shares of each Fund is determined once daily by the Manager at 4:00 p.m., Eastern time on each day during which the New York Stock Exchange ("Exchange") is open for trading. The Exchange is open daily Monday through Friday except on the following business holidays: New Year's Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. The net asset value per share of each Fund is computed by adding the sum of the value of the securities held by that Fund plus any cash or other assets it holds, subtracting all its liabilities, and dividing the result by the total number of shares outstanding of that Fund at such time. The values of all assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at the exchange rates provided by an approved pricing service as of 12:00 p.m. Eastern time. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed well before 4:00 p.m. Eastern time on each business day in New York (i.e., a day on which the Exchange is open). In addition, European or Far Eastern securities trading generally or in a particular country or countries may not take place on all business days in New York. Furthermore, trading may take place in certain markets on days which are not business days in New York and on which a Fund's net asset value is not calculated. Since the Fund does not price on these days, the portfolio will trade and the net asset value of the Fund's redeemable securities may be significantly affected on days when shareholders have no access to the Fund. A Fund calculates net asset value per share, and therefore effects sales, redemptions and repurchases of its shares, as of the close of the Exchange once on each day on which the Exchange is open. As a result, such calculation may not take place contemporaneously with the determination of the prices of the majority of the portfolio securities used in such calculation. If events materially affecting the value of such securities occur between the time when their price is determined and the time when the Fund's net asset value is calculated, such securities will be valued at fair value as determined in good faith by, or under the direction of, the Board of Directors. Except with respect to debt instruments having a remaining maturity of 60 days or less, securities held by a Fund will be valued as follows: Securities listed on a securities exchange will be valued at the last sale price or, if there has been no sale that day, at the last bid price reported as of the close of trading on the Exchange; provided, however, with respect to the International Fund and the Pacific Rim Emerging Markets Fund, if a particular country has adopted conventions with respect to valuations, these will be utilized instead. Securities traded in the over-the-counter market for which closing prices are readily available will be valued at the last bid price or yield equivalent as of the close of trading on the Exchange. However, if closing prices are not readily available for these securities, quotations will be obtained from more than one source and the securities will be valued at a mean of the bid prices so obtained. Securities which are traded both in the over-the-counter market and on a stock exchange will be valued according to the broadest and most representative market, and it is expected that for debt securities this ordinarily will be the over-the-counter market. If market quotations for assets are or become unavailable, such assets will be valued at their fair value as determined in good faith by, or under the direction of, the Company's Board of Directors. Where appropriate, debt instruments with maturities greater than 60 days are valued on the basis of a valuation believed to reflect the fair value of the security, as provided by an approved pricing service. Debt instruments with remaining maturities of 60 days or less are valued on an amortized cost basis. Under this method of valuation, a security is initially valued at cost on the date of purchase (or in the case of securities purchased with more than 60 days remaining to maturity, the market value on the 61st day prior to maturity); and thereafter a constant proportionate amortization in value is assumed until maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the security. For purposes of this method of valuation, the maturity of a variable rate instrument is deemed to be the next date on which the interest rate is to be adjusted. CUSTODIAN State Street Bank and Trust Company ("State Street") acts as custodian of the securities held by each Fund. State Street is authorized to use the facilities of the Depository Trust Company and the book-entry system of the Federal Reserve Banks. 23 101 CUSTODIAN FOR FOREIGN FUNDS. Securities purchased for the International Fund and Pacific Rim Emerging Markets Fund are maintained in the custody of foreign banks and trust companies which are members of State Street's Global Custody Network and foreign depositories (foreign sub-custodians). State Street and each of the foreign custodial institutions holding securities of the Funds has been approved by the Board in accordance with regulations under the Investment Company Act of 1940. The Board reviews, at least annually, whether it is in the best interest of the International Fund and the Pacific Rim Emerging Markets Fund and its shareholders to maintain Fund assets in each custodial institution. However, with respect to foreign sub-custodians, there can be no assurance that the Fund and the values of its shares will not be adversely affected by acts of foreign governments, financial or operational difficulties of the foreign sub-custodians, difficulties and costs of obtaining jurisdiction over, or enforcing judgments against, the foreign sub-custodians, or application of foreign law to a Fund's foreign sub-custodial arrangements. Thus the non-investment risks involved in holding assets abroad may be greater than those associated with investing in the U.S. PERFORMANCE DATA From time to time Manufacturers Life of America may publish advertisements or distribute sales literature containing performance data relating to the Funds. All such performance data are based on the actual historical performance of the Funds for specified periods, and the figures are not intended to indicate future performance. Performance data will include average annual total return quotations for one-year, five-year and (when applicable) 10-year periods. Quotations for the period since inception of a Fund will replace such periods for a Fund that has not been in existence for a full five-year or 10-year period. Performance data may also include average annual total return for other time periods than those listed, and aggregate total return for various periods of time. More detailed information on the computations is set forth in the Statement of Additional Information. Performance data of the Funds will not reflect charges made pursuant to the terms of the variable life insurance and variable annuity policies funded by separate accounts that invest in the Company's shares. However, sales literature containing performance data for the Funds that is part of an advertisement for variable annuity contracts whose assets may be invested in the Fund will also contain corresponding performance data for the separate account funding those contracts. Similarly, sales literature containing performance data for the Funds that is part of an advertisement for variable life insurance policies whose assets may be invested in the Fund will also contain illustrations of the cash surrender and death benefit values for the same time periods. 24