<PAGE> 1
COVER PAGE
This prospectus describes Corporate VUL, a flexible premium variable universal
life insurance policy (the "Policy") offered by The Manufacturers Life Insurance
Company of America (the "Company" or "Manufacturers Life Of America"), a stock
life insurance company that is an indirect wholly-owned subsidiary of The
Manufacturers Life Insurance Company ("Manufacturers Life"). The Policy is
designed for use by corporations and other employers, to provide life insurance
and to fund other employee benefits.
The Policy is designed to provide lifetime insurance protection together with
flexibility as to the timing and amount of premium payments, the investments
underlying the Policy Value, and the amount of insurance coverage.
The Policy provides for:
(1) a Net Cash Surrender Value that can be obtained by surrendering the Policy;
(2) policy loans and partial withdrawals; and
(3) an insurance benefit payable at the life insured's death.
The Policy will remain in force so long as the Net Cash Surrender Value is
sufficient to cover charges assessed against the Policy.
Policy Value may be accumulated on a fixed basis or vary with the investment
performance of the sub-accounts of Manufacturer Life of America's Separate
Account Four (the "Separate Account") to which the policyholder allocates net
premiums. The assets of each sub-account will be used to purchase shares of a
particular investment portfolio (a "Portfolio") of Manufacturers Investment
Trust (the "Trust"). The accompanying prospectus for the Trust, and the
corresponding statement of additional information, describe the investment
objectives of the Portfolios. The Portfolios available for allocation of net
premiums are shown in the Policy Summary under "Investment Options and Fees".
Other sub-accounts and Portfolios may be added in the future.
BECAUSE OF THE SUBSTANTIAL NATURE OF THE SURRENDER CHARGES, THE POLICY IS NOT
SUITABLE FOR SHORT-TERM INVESTMENT PURPOSES. ALSO, PROSPECTIVE PURCHASERS SHOULD
NOTE THAT IT MAY NOT BE ADVISABLE TO PURCHASE A POLICY AS A REPLACEMENT FOR
EXISTING INSURANCE.
The Securities and Exchange Commission maintains a web site (http://www.sec.gov)
that contains material incorporated by reference and other information regarding
registrants that file electronically with the Commission.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE TRUST.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Manufacturers Life Insurance Company of America
500 North Woodward Avenue
Bloomfield Hills, Michigan 48304
The date of this Prospectus is September 11, 1998.
<PAGE> 2
TABLE OF CONTENTS
Cover Page.................................................................... 1
Table of Contents............................................................. 2
Definitions................................................................... 4
Policy Summary................................................................ 5
General.................................................................... 5
Death Benefits............................................................. 6
Premiums................................................................... 6
Policy Value............................................................... 6
Policy Loans............................................................... 6
Surrender and Partial Withdrawals.......................................... 6
Lapse and Reinstatement.................................................... 6
Charges and Deductions..................................................... 7
Investment Options and Investment Advisers................................. 7
Table of Charges and Deductions............................................ 8
Table of Investment Management Fees and Expenses........................... 9
Table of Investment Options and Investment Advisers........................10
General Information about Manufacturers.......................................13
Manufacturers Life of America..............................................13
Separate Account Four......................................................13
Manufacturers Investment Trust.............................................14
Investment Objectives of the Portfolios....................................14
Issuing A Policy..............................................................19
Use of the Policy..........................................................19
Requirements...............................................................19
Temporary Insurance Agreement..............................................20
Underwriting...............................................................20
Right to Examine the Policy................................................20
Death Benefits................................................................21
Life Insurance Qualification...............................................21
Death Benefit Options......................................................23
Changing the Face Amount...................................................23
Premium Payments..............................................................25
Initial Premiums...........................................................25
Subsequent Premiums........................................................25
Maximum Premium Limitation.................................................25
Premium Allocation.........................................................26
Charges and Deductions........................................................26
Premium Loads..............................................................26
Surrender Charges..........................................................26
Monthly Charges............................................................27
Charges Assessed Against Assets of the Investment Accounts.................28
Charges for Transfers......................................................28
Company Tax Considerations
Policy Value..................................................................29
Determination of the Policy Value..........................................29
Units and Unit Values......................................................29
Transfers of Policy Value..................................................30
Policy Loans..................................................................31
Maximum Loan...............................................................31
Effect of Policy Loan......................................................31
2
<PAGE> 3
Interest Charged on Policy Loans...........................................31
Loan Account...............................................................31
Policy Surrender and Partial Withdrawals......................................32
Policy Surrender...........................................................32
Partial Withdrawals........................................................32
Lapse and Reinstatement.......................................................33
Lapse......................................................................33
Reinstatement..............................................................33
The General Account...........................................................33
Guaranteed Interest Account................................................34
Other Provisions of the Policy................................................34
Policyholder Rights........................................................34
Beneficiary................................................................35
Incontestability...........................................................35
Misstatement of Age or Sex.................................................35
Suicide Exclusion..........................................................35
Supplementary Benefits.....................................................35
Tax Treatment of the Policy...................................................35
Life Insurance Qualification...............................................36
Tax Treatment of Policy Benefits...........................................37
Alternate Minimum Tax......................................................40
Income Tax Reporting.......................................................40
Other Information.............................................................40
Payment of Proceeds........................................................40
Reports to Policyholders...................................................40
Distribution of the Policies...............................................40
Responsibilities of Manufacturers Life.....................................40
Voting Rights..............................................................40
Substitution of Portfolio Shares...........................................40
Records and Accounts.......................................................40
State Regulations..........................................................40
Litigation.................................................................40
Experts....................................................................40
Further Information........................................................40
Officers and Directors.....................................................40
Impact of Year 2000........................................................40
Death Benefit Schedule with Flexible Term Insurance Option.................40
Illustrations..............................................................40
Assumptions................................................................40
Financial Statements.......................................................50
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUS OF MANUFACTURERS INVESTMENT TRUST, OR THE
STATEMENT OF ADDITIONAL INFORMATION OF MANUFACTURERS INVESTMENT TRUST.
Examine this prospectus carefully. The Policy Summary will briefly describe the
Policy. More detailed information will be found further in the prospectus.
3
<PAGE> 4
DEFINITIONS
Attained Age
is the Issue Age of the life insured plus the number of completed Policy Years.
Business Day
is any day that the New York Stock Exchange is open for business. A Business Day
ends at the close of regularly scheduled trading of the New York Stock Exchange
(currently 4:00 p.m. Eastern Time) on that day.
Case
is a group of Policies covering individuals with common employment or other
relationship, independent of the Policies.
Cash Surrender Value
is the Policy Value less the Surrender Charge and any outstanding monthly
deductions due.
Due Proof of Death
Due Proof of Death is required upon the death of the insured. One of the
following must be received at the Service Office:
(a) A certified copy of a death certificate;
(b) A certified copy of a decree of a court of competent jurisdiction as to the
finding of death; or
(c) Any other proof satisfactory to the Company.
Effective Date
is the date the Company becomes obligated under the Policy, and when the first
monthly deductions are taken. The Effective Date is the later of:
(a) the date the Company approves issuance of the Policy; and
(b) the date the Company receives at least the initial premium.
Guaranteed Interest Account
is that part of the Policy Value which reflects the value the policyholder has
in the general account of the Company.
Home Office
is the main office of the Company.
Investment Account
is that part of the Policy Value which reflects the value the policyholder has
in one of the sub-accounts of the Separate Account.
Issue Age
is the life insured's age on the birthday closer to the Policy Date.
Issue Date
is the date the Company issued the Policy. The Issue Date is also the date from
which the Suicide and Validity provisions of the Policy are measured.
4
<PAGE> 5
Loan Account
is that part of the Policy Value which reflects policy loans and interest
credited to the Policy Value in connection with such loans.
Net Cash Surrender Value
is the Cash Surrender Value less the Policy Debt.
Net Policy Value
is the Policy Value less the value in the Loan Account.
Net Premium
is the premium paid less the Premium Load.
Policy Anniversary
is the same date each year as the Policy Date.
Policy Date
is the date from which charges for the first monthly deduction are calculated,
and the date from which Policy Years, Policy Months, and Policy Anniversaries
are determined.
Policy Debt
as of any date is the aggregate amount of policy loans, including borrowed and
accrued interest, less any loan repayments.
Policy Year
is a period beginning on a Policy Anniversary and ending on the day immediately
preceding the next Policy Anniversary
Policy Value
is the sum of the values in the Loan Account, the Guaranteed Interest Account,
and the Investment Accounts.
Service Office
is McCamish Systems, L.L.C., 6425 Powers Ferry Road, Atlanta, Georgia 30339, or
such other service center or address as the Company may hereafter specify to the
policyholder by written notice.
Target Premium
is an amount used to measure the Surrender Charge under a Policy. The Target
Premium is based on the Face Amount, as well as the insured's age at issue and
sex, and is set forth in the Policy.
POLICY SUMMARY
GENERAL
The Policy is a flexible premium variable universal life insurance policy. The
following summary is intended to provide a general description of the most
important features of the Policy. It is not comprehensive and is qualified in
its entirety by the more detailed information contained in this prospectus.
Unless otherwise indicated or required by the context, the discussion throughout
this prospectus assumes that the Policy has not gone into default, there is no
outstanding Policy Debt, and the death benefit is not determined by the minimum
death benefit percentage. The Policy's provisions may vary in some states.
5
<PAGE> 6
DEATH BENEFITS
The Policy provides a death benefit in the event of the death of the life
insured. There are two death benefit options. Under Option 1 the death benefit
is the Face Amount of the Policy at the date of death or, if greater, the
Minimum Death Benefit. Under Option 2 the death benefit is the Face Amount plus
the Policy Value of the Policy at the date of death or, if greater, the Minimum
Death Benefit. The policyholder may change the death benefit option and increase
or decrease the Face Amount.
PREMIUMS
Premium payments may be made at any time and in any amount, subject to certain
limitations as described under "Premium Payments - Subsequent Premiums." Net
Premiums will be allocated, according to the policyholder's instructions, to one
or more of the general account and the sub-accounts of Manufacturers Life of
America's Separate Account Four. Allocation instructions may be changed at any
time and transfers among the accounts may be made.
POLICY VALUE
The Policy has a Policy Value reflecting premiums paid, certain charges for
expenses and cost of insurance, and the investment performance of the accounts
to which the policyholder has allocated premiums. The policyholder may obtain a
portion of the Policy Value by taking a policy loan or a partial withdrawal, or
by full surrender of the Policy.
POLICY LOANS
The policyholder may borrow against the Cash Surrender Value of the Policy. Loan
interest at a rate of 5.00% is due and payable in arrears on each Policy
Anniversary. All outstanding Policy Debt will be deducted from proceeds payable
at the insured's death, or upon surrender.
SURRENDER AND PARTIAL WITHDRAWALS
The policyholder may make a partial withdrawal of the Policy Value. A partial
withdrawal may result in a reduction in the Face Amount of the Policy and an
assessment of a portion of the surrender charges to which the Policy is subject.
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the life insured is living. The Net Cash Surrender Value is equal to the Policy
Value less Surrender Charges and outstanding monthly deductions due minus the
Policy Debt.
LAPSE AND REINSTATEMENT
A Policy will lapse (and terminate without value) when the Net Cash Surrender
Value is insufficient to pay the next monthly deduction and a grace period of 61
days expires without an adequate payment being made by the policyholder.
The Policies, therefore, differ in two important respects from conventional life
insurance policies. First, the failure to make planned premium payments will not
itself cause a Policy to lapse. Second, a Policy can lapse even if planned
premiums have been paid.
A lapsed Policy may be reinstated by the policyholder at any time within the
five year period following lapse if the Policy was not surrendered for its Net
Cash Surrender Value. Evidence of insurability is required, along with a certain
amount of premium as described under "Reinstatement."
6
<PAGE> 7
CHARGES AND DEDUCTIONS
The Company assesses certain charges and deductions in connection with the
Policy. These include charges assessed monthly for cost of insurance and
administration expenses, charges assessed daily against the assets invested in
the Investment Account, and loads deducted from premiums paid. These charges are
summarized in the Table of Charges and Deductions.
INVESTMENT OPTIONS AND INVESTMENT ADVISERS
Net Premiums may be allocated to the general account or to one or more of the
sub-accounts of Manufacturers Life of America's Separate Account Four. Each of
the sub-accounts invests in the shares of one of the Portfolios of the Trust.
The Trust receives investment advisory services from Manufacturers Securities
Services, LLC ("MSS"). MSS is a registered investment adviser under the
Investment Advisers Act of 1940. The Trust also employs subadvisers. The Table
of Investment Options and Investment Advisers shows the subadvisers that provide
investment subadvisery services to the indicated Portfolios.
INVESTMENT MANAGEMENT FEES AND EXPENSES
The Separate Account purchases shares of the Portfolios at net asset value. The
net asset value of those shares reflects investment management fees and certain
expenses. The fees and expenses of each Portfolio for the Trust's last fiscal
year are shown in the Table of Investment Management Fees and Expenses. These
fees and expenses are described in detail in the accompanying Trust prospectus
to which reference should be made.
7
<PAGE> 8
TABLE OF CHARGES AND DEDUCTIONS
Premium Load 2.00% of the premium paid.
Surrender Charges The following charges will be assessed on a
surrender or lapse. Charges are expressed as a
percentage of total premiums paid from the
Effective Date to the Policy Year shown. However,
premiums paid in any year in excess of the Target
Premium, and premiums paid after the fifth Policy
Year are not included in the determination of total
premiums paid. Percentages are as follows:
<TABLE>
<CAPTION>
Policy Year Percentage Policy Year Percentage
<S> <C> <C> <C>
1 10.00% 6 5.00%
2 7.50% 7 4.00%
3 5.00% 8 3.00%
4 5.00% 9 2.00%
5 5.00% 10+ 0.00%
</TABLE>
A portion of this charge may be assessed on a
partial withdrawal or a decrease in the Face
Amount.
Monthly Deductions The following charges will be deducted from Net
Policy Value:
An administration charge of $12. The cost of
insurance charge. Any additional charges for
supplementary benefits.
Investment Account Charges A mortality and expense risk charge is assessed
daily against the value of the Investment Account
assets. This charge varies by Policy Year as
follows:
<TABLE>
<CAPTION>
Annual Mortality and
Policy Years Expense Risk Charge
<S> <C>
1-10 0.75%
11+ 0.40%
</TABLE>
Loan Charges A fixed loan interest rate of 5.00%.
Interest credited to amounts in the Loan Account
will be equal to the 5.00% rate charged to the loan
less the following Loan Spread:
<TABLE>
<CAPTION>
Policy Years Loan Spread
<S> <C>
1-10 1.00%
11-20 0.50%
21+ 0.25%
</TABLE>
Transfer Charge A charge of $25 per transfer for each transfer in
excess of 12
8
<PAGE> 9
in a Policy Year.
9
<PAGE> 10
TABLE OF INVESTMENT MANAGEMENT FEES AND EXPENSES
ANNUAL EXPENSES OF EACH PORTFOLIO
(as a percentage of a Portfolio's average net assets)
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
PORTFOLIO FEES REIMBURSEMENT)*** ANNUAL EXPENSES
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth
Pacific Rim Emerging Markets 0.850% 0.570% 1.420%
Science & Technology 1.100% 0.160% 1.260%
International Small Cap 1.100% 0.210% 1.310%
Emerging Growth 1.050% 0.060% 1.110%
Pilgrim Baxter Growth 1.050% 0.130% 1.180%
Small/Mid Cap 1.000% 0.050% 1.050%
International Stock 1.050% 0.330% 1.380%
Growth
Worldwide Growth 1.000% 0.320% 1.320%
Global Equity 0.900% 0.110% 1.010%
Small Company Value 1.050% 0.100%* 1.150%
Equity 0.750% 0.050% 0.800%
Growth 0.850% 0.100% 0.950%
Quantitative Equity 0.700% 0.070% 0.770%***
Blue Chip Growth 0.925% 0.050% 0.975%
Real Estate Securities 0.700% 0.070% 0.770%***
Value 0.800% 0.160% 0.960%
International Growth and Income 0.950% 0.170% 1.120%
Growth and Income
Growth and Income 0.750% 0.040% 0.790%
Equity-Income 0.800% 0.050% 0.850%
Balanced
Balanced 0.800% 0.080% 0.880%
Aggressive Asset Allocation 0.750% 0.150% 0.900%
Bond
High Yield 0.775% 0.110% 0.885%
Moderate Asset Allocation 0.750% 0.100% 0.850%
Conservative Asset Allocation 0.750% 0.140% 0.890%
Strategic Bond 0.775% 0.100% 0.875%
Global Government Bond 0.800% 0.130% 0.930%
Capital Growth Bond 0.650% 0.080% 0.730%***
Investment Quality Bond 0.650% 0.090% 0.740%
U.S. Government Securities 0.650% 0.070% 0.720%
Money Market
Money Market 0.500% 0.040% 0.540%
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
Lifestyle
Lifestyle Aggressive 1000# 0% 1.116%** 1.116%
Lifestyle Growth 820# 0% 1.048%** 1.048%
Lifestyle Balanced 640# 0% 0.944%** 0.944%
Lifestyle Moderate 460# 0% 0.850%** 0.850%
Lifestyle Conservative 280# 0% 0.708%** 0.708%
</TABLE>
#Each Lifestyle Trust will invest in shares of the Underlying Portfolios.
Therefore, each Lifestyle Trust will bear its pro rata share of the fees and
expenses incurred by the Underlying Portfolios and the investment return of each
Lifestyle Trust will be net of the Underlying Portfolio expenses. Each Lifestyle
Portfolio must also bear its own expenses. However, the Adviser is currently
paying these expenses as described in footnote ** below.
*Based on estimates of payments to be made during the current fiscal year.
** Reflects expenses of the other portfolios of the Trust in which the Lifestyle
Trust invests ("Underlying Portfolios". MSS has voluntarily agreed to pay the
expenses of each Lifestyle Trust (excluding the expenses of the Underlying
Portfolios). This voluntary expense reimbursement may be terminated at any time.
If such expense reimbursement was not in effect, Total Trust Annual Expenses
would be .04% higher (based on expenses of the Lifestyle Trusts for the fiscal
year ended December 31, 1997) as noted in the chart below:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
<S> <C> <C> <C>
Lifestyle Aggressive 1000 0% 1.156% 1.156%
Lifestyle Growth 820 0% 1.088% 1.088%
Lifestyle Balanced 640 0% 0.984% 0.984%
Lifestyle Moderate 460 0% 0.890% 0.890%
Lifestyle Conservative 280 0% 0.748% 0.748%
</TABLE>
***During the one year period ended December 31, 1997, MSS voluntarily waived
fees payable to it and/or reimbursed expenses to the extent necessary to prevent
"Total Trust Annual Expenses" for the Quantitative Equity, Real Estate and
Capital Growth Bond Trusts from exceeding .50% of the Trust's average net
assets. This voluntary fee waiver was terminated effective January 1, 1998.
Expenses shown in the table for these three Trusts do not reflect the fee
waiver.
11
<PAGE> 12
TABLE OF INVESTMENT OPTIONS AND INVESTMENT ADVISERS
<TABLE>
<CAPTION>
Portfolio Subadviser
<S> <C>
Aggressive Growth
Pacific Rim Emerging Market Trust Manufacturers Adviser Corporation*
Science and Technology Trust T. Rowe Price Associates, Inc.
International Small Cap Trust Founders Asset Management, Inc.
Emerging Growth Trust Warburg, Pincus Counsellors, Inc.
Pilgrim Baxter Growth Trust Pilgrim, Baxter & Associates, Ltd.
Small/Mid Cap Trust Fred Alger Management, Inc.
International Stock Trust Rowe Price-Fleming International, Inc.
Growth
Worldwide Growth Trust Founders Asset Management LLC
Global Equity Trust Morgan Stanley Asset Management, Inc.
Small Company Value Trust Rosenberg Institutional Equity Management
Equity Trust Fidelity Management Trust Company
Growth Trust Founders Asset Management, Inc.
Quantitative Equity Trust Manufacturers Adviser Corporation*
Equity Index Trust Manufacturers Adviser Corporation*
Blue Chip Growth Trust T. Rowe Price Associates, Inc.
Real Estate Securities Trust Manufacturers Adviser Corporation*
Growth and Income
Value Trust Miller Anderson & Sherrerd, LLP
International Growth and Income Trust J.P. Morgan Investment Management, Inc.
Growth and Income Trust Wellington Management Company
Equity Income Trust T. Rowe Price Associates, Inc.
Balanced
Balanced Trust Founders Asset Management LLC
Aggressive Asset Allocation Trust Fidelity Management Trust Company
Moderate Asset Allocation Trust Fidelity Management Trust Company
Conservative Asset Allocation Trust Fidelity Management Trust Company
Bond
High Yield Trust Miller Anderson & Sherrerd, LLP
Strategic Bond Trust Salomon Brothers Asset Management, Inc.
Global Government Bond Trust Oechsle International Advisors, L.P.
Capital Growth Bond Trust Manufacturers Adviser Corporation*
Investment Quality Bond Trust Wellington Management Company
U.S. Government Securities Trust Salomon Brothers Asset Management, Inc.
Money Market
Money Market Trust Manufacturers Adviser Corporation*
Lifestyle
Lifestyle Aggressive Growth 1000 Trust Manufacturers Adviser Corporation*
Lifestyle Growth 820 Trust Manufacturers Adviser Corporation*
Lifestyle Balanced 640 Trust Manufacturers Adviser Corporation*
Lifestyle Moderate 460 Trust Manufacturers Adviser Corporation*
Lifestyle Conservative 280 Trust Manufacturers Adviser Corporation*
</TABLE>
*Manufacturers Adviser Corporation is an indirect wholly-owned subsidiary of
Manufacturers Life.
12
<PAGE> 13
GENERAL INFORMATION ABOUT MANUFACTURERS
MANUFACTURERS LIFE OF AMERICA
Manufacturers Life of America is a stock life insurance company organized under
the laws of Pennsylvania on April 11, 1977 and redomesticated under the laws of
Michigan on December 9, 1992. It is a licensed life insurance company in the
District of Columbia and all states of the United States except New York. The
ultimate parent of Manufacturers Life of America is Manufacturers Life, a mutual
life insurance company based in Toronto, Canada. Manufacturers Life and its
subsidiaries, together, constitute one of the largest life insurance companies
in North America and rank among the 60 largest life insurers in the world as
measured by assets. However, neither Manufacturers Life of America nor
Manufacturers Life guarantees the investment performance of the Separate
Account.
On January 20, 1998, the Board of Directors of Manulife asked the management of
Manulife to prepare a plan for conversion of Manulife from a mutual life
insurance company to an investor owned, publicly traded stock company. Any
demutualization plan for Manulife is subject to the approval of the Manulife
Board of Directors and policyholders as well as regulatory approval.
RATINGS
Manufacturers Life and Manufacturers Life of America have received the following
ratings from independent rating agencies:
Standard and Poor's Insurance Ratings Service: AA+ (for claims paying ability)
A.M.Best Company: A++ (for financial strength)
Duff & Phelps Credit Rating Co.: AAA (for claims paying ability)
Moody's Investors Service, Inc.: Aa2 (for financial strength)
SEPARATE ACCOUNT FOUR
Manufacturers Life of America established its Separate Account Four on March 17,
1987 as a separate account under Pennsylvania Law. Since December 9, 1992, it
has been operated under Michigan Law. The Separate Account holds assets that are
segregated from all of Manufacturers Life of America's other assets. The
Separate Account is currently used only to support variable life insurance
policies.
ASSETS OF THE SEPARATE ACCOUNT
Manufacturers Life of America is the legal owner of the assets in the Separate
Account. The income, gains, and losses of the Separate Account, whether or not
realized, are, in accordance with applicable contracts, credited to or charged
against the Account without regard to the other income, gains, or losses of
Manufacturers Life of America. Manufacturers Life of America will at all times
maintain assets in the Separate Account with a total market value at least equal
to the reserves and other liabilities relating to variable benefits under all
policies participating in the Separate Account. These assets may not be charged
with liabilities which arise from any other business Manufacturers Life of
America conducts. However, all obligations under the variable life insurance
policies are general corporate obligations of Manufacturers Life of America.
REGISTRATION
The Separate Account is registered with the Securities and Exchange Commission
("S.E.C.") under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust. A unit investment trust is a type of investment company which
invests its assets in specified securities, such as the shares of one or more
investment companies, rather than in a portfolio of unspecified securities.
Registration under the 1940 Act does not involve any supervision by the S.E.C.
of the management or investment policies or practices of
13
<PAGE> 14
the Separate Account. For state law purposes the Separate Account is treated as
a part or division of Manufacturers Life of America.
MANUFACTURERS INVESTMENT TRUST
Each sub-account of the Separate Account will purchase shares only of a
particular Portfolio. The Trust is registered under the 1940 Act as an open-end
management investment company. The Separate Account will purchase and redeem
shares of the Portfolios at net asset value. Shares will be redeemed to the
extent necessary for Manufacturers Life of America to provide benefits under the
Policies, to transfer assets from one sub-account to another or to the general
account as requested by policyholders, and for other purposes not inconsistent
with the Policies. Any dividend or capital gain distribution received from a
Portfolio with respect to the policies will be reinvested immediately at net
asset value in shares of that Portfolio and retained as assets of the
corresponding sub-account.
The Trust shares are issued to fund benefits under both variable annuity
contracts and variable life insurance policies issued by the Company or life
insurance companies affiliated with the Company. Manufacturers Life of America
will also purchase shares through its general account for certain limited
purposes including initial portfolio seed money. For a description of the
procedures for handling potential conflicts of interest arising from the funding
of such benefits see the accompanying Trust prospectus.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
The investment objectives and certain policies of the Portfolios currently
available to policyholders through corresponding sub-accounts are set forth
below. There is, of course, no assurance that these objectives will be met. A
full description of the Trust, its investment objectives, policies and
restrictions, the risks associated therewith, its expenses, and other aspects of
its operation is contained in the accompanying Trust prospectus, which should be
read together with this prospectus.
AGGRESSIVE GROWTH PORTFOLIOS
PACIFIC RIM EMERGING MARKETS TRUST.
The investment objective of the Pacific Rim Emerging Markets Trust is to achieve
long-term growth of capital. Manufacturers Adviser Corporation ("MAC") manages
the Pacific Rim Emerging Markets Trust and seeks to achieve this investment
objective by investing in a diversified portfolio that is comprised primarily of
common stocks and equity-related securities of corporations domiciled in
countries of the Pacific Rim region.
SCIENCE & TECHNOLOGY TRUST
The investment objective of the Science and Technology Trust is long-term growth
of capital. Current income is incidental to the portfolio's objective. T. Rowe
Price Associates, Inc. manages the Science & Technology Trust.
INTERNATIONAL SMALL CAP TRUST
The investment objective of the International Small Cap Trust is to seek
long-term capital appreciation. Founders Asset Management LLC ("Founders")
manages the International Small Cap Trust and will pursue this objective by
investing primarily in securities issued by foreign companies which have total
market capitalizations or annual revenues of $1 billion or less. These
securities may represent companies in both established and emerging economies
throughout the world.
EMERGING GROWTH TRUST
The investment objective of the Emerging Growth Trust is maximum capital
appreciation. Warburg, Pincus Counsellors, Inc. manages the Emerging Growth
Trust and will pursue this objective by investing primarily in a portfolio of
equity securities of domestic companies. The Emerging Growth Trust ordinarily
14
<PAGE> 15
will invest at least 65% of its total assets in common stocks or warrants of
emerging growth companies that represent attractive opportunities for maximum
capital appreciation.
PILGRIM BAXTER GROWTH TRUST
The investment objective of the Pilgrim Baxter Growth Trust is capital
appreciation. Pilgrim, Baxter & Associates, Ltd. ("PBHG") manages the Pilgrim
Baxter Growth Trust and seeks to achieve its objective by investing in companies
believed by PBHG to have an outlook for strong earnings growth and potential for
significant capital appreciation.
SMALL/MID CAP TRUST
The investment objective of the Small/Mid Cap Trust is to seek long-term capital
appreciation. Fred Alger Management, Inc. manages the Small/Mid Cap Trust and
will pursue this objective by investing at least 65% of the portfolio's total
assets (except during temporary defensive periods) in small/mid cap equity
securities.
INTERNATIONAL STOCK TRUST
The investment objective of the International Stock Trust is to achieve
long-term growth of capital. Rowe Price-Fleming International, Inc. manages the
International Stock Trust and seeks to obtain this objective by investing
primarily in common stocks of established, non-U.S. companies.
GROWTH PORTFOLIOS
WORLDWIDE GROWTH TRUST
The investment objective of the Worldwide Growth Trust is long-term growth of
capital. Founders manages the Worldwide Growth Trust and seeks to attain this
objective by normally investing at least 65% of its total assets in equity
securities of growth companies in a variety of markets throughout the world.
GLOBAL EQUITY TRUST
The investment objective of the Global Equity Trust is long-term capital
appreciation. Morgan Stanley Asset Management Inc. manages the Global Equity
Trust and intends to pursue this objective by investing primarily in equity
securities throughout the world, including U.S. issuers.
SMALL COMPANY VALUE TRUST
The investment objective of the Small Company Value Trust is to seek long-term
growth of capital. Rosenberg Institutional Equity Management ("Rosenberg")
manages the Small Company Value Trust and intends to pursue this objective by
investing in equity securities of smaller companies which are traded principally
in the markets of the United States.
EQUITY TRUST
The principal investment objective of the Equity Trust is growth of capital.
Current income is a secondary consideration although growth of income may
accompany growth of capital. Fidelity Management Trust Company manages the
Equity Trust and seeks to attain the foregoing objective by investing primarily
in common stocks of United States issuers or securities convertible into or
which carry the right to buy common stocks.
GROWTH TRUST
The investment objective of the Growth Trust is to seek long-term growth of
capital. Founders manages the Growth Trust and will pursue this objective by
investing, under normal market conditions, at least 65% of its total assets in
common stocks of well-established, high-quality growth companies that Founders
believes have the potential to increase earnings faster than the rest of the
market.
15
<PAGE> 16
QUANTITATIVE EQUITY TRUST
The investment objective of the Quantitative Equity Trust (formerly 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. MAC manages the Quantitative Equity Trust.
EQUITY INDEX TRUST
The investment objective of the Equity Index Trust is to achieve investment
results which approximate the total return of publicly traded common stocks in
the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price
Index. MAC manages the Equity Index Trust.
BLUE CHIP GROWTH TRUST
The primary investment objective of the Blue Chip Growth Trust is to provide
long-term growth of capital. Current income is a secondary objective, and many
of the stocks in the Portfolio are expected to pay dividends.
T. Rowe Price Associates, Inc. manages the Blue Chip Growth Trust.
REAL ESTATE SECURITIES TRUST
The investment objective of the Real Estate Securities Trust is to achieve a
combination of long-term capital appreciation and satisfactory current income by
investing in real estate related equity and debt securities. MAC manages the
Real Estate Securities Trust.
GROWTH & INCOME PORTFOLIOS
VALUE TRUST
The investment objective of the Value Trust is to realize an above-average total
return over a market cycle of three to five years, consistent with reasonable
risk. Miller Anderson & Sherrerd, LLP ("MAS") manages the Value Trust and seeks
to attain this objective by investing primarily in common and preferred stocks,
convertible securities, rights and warrants to purchase common stocks, ADRs and
other equity securities of companies with equity capitalizations usually greater
than $300 million.
INTERNATIONAL GROWTH AND INCOME TRUST
The investment objective of the International Growth and Income Trust is to seek
long-term growth of capital and income. The portfolio is designed for investors
with a long-term investment horizon who want to take advantage of investment
opportunities outside the United States. J.P. Morgan Investment Management Inc.
manages the International Growth and Income Trust.
GROWTH AND INCOME TRUST
The investment objective of the Growth and Income Trust is to provide long-term
growth of capital and income consistent with prudent investment risk. Wellington
Management Company manages the Growth and Income Trust and seeks to achieve the
Trust's objective by investing primarily in a diversified portfolio of common
stocks of U.S. issuers which Wellington Management Company believes are of high
quality.
EQUITY-INCOME TRUST
The investment objective of the Equity-Income Trust (prior to December 31, 1996,
the "Value Equity Trust") is to provide substantial dividend income and also
long-term capital appreciation. T. Rowe Price Associates, Inc. manages the
Equity-Income Trust and seeks to attain this objective by investing primarily in
dividend-paying common stocks, particularly of established companies with
favorable prospects for both increasing dividends and capital appreciation.
16
<PAGE> 17
BALANCED PORTFOLIOS
BALANCED TRUST
The investment objective of the Balanced Trust is current income and capital
appreciation. Founders is the manager of the Balanced Trust and seeks to attain
this objective by investing in a balanced portfolio of common stocks, U.S. and
foreign government obligations and a variety of corporate fixed-income
securities.
AUTOMATIC ASSET ALLOCATION TRUSTS (AGGRESSIVE, MODERATE, AND CONSERVATIVE)
The investment objective of each of the Automatic Asset Allocation Trusts is to
realize the highest potential total return consistent with a specified level of
risk tolerance - conservative, moderate, or aggressive. The amount of each
Portfolio's assets invested in each category of securities - debt, equity, and
money market - is dependent upon the judgment of Fidelity Management Trust
Company as to what percentages of each Portfolio's assets in each category will
contribute to the limitation of risk and the achievement of its investment
objective.
BOND PORTFOLIOS
HIGH YIELD TRUST
The investment objective of High Yield Trust is to realize an above-average
total return over a market cycle of three to five years, consistent with
reasonable risk. MAS manages the High Yield Trust and seeks to attain this
objective by investing primarily in high yield debt securities, including
corporate bonds and other fixed-income securities.
STRATEGIC BOND TRUST
The investment objective of the Strategic Bond Trust is to seek a high level of
total return consistent with preservation of capital. The Strategic Bond Trust
seeks to achieve its objective by giving its Subadviser, Salomon Brothers Asset
Management Inc ("SBAM") broad discretion to deploy the Strategic Bond Trust's
assets among certain segments of the fixed-income market as SBAM believes will
best contribute to the achievement of the portfolio's objective.
GLOBAL GOVERNMENT BOND TRUST
The investment objective of the Global Government Bond Trust is to seek a high
level of total return by placing primary emphasis on high current income and the
preservation of capital. Oechsle International Advisors, L.P. manages the Global
Government Bond Trust and intends to pursue this objective by investing
primarily in a selected global portfolio of high-quality, fixed-income
securities of foreign and U.S. governmental entities and supranational issuers.
CAPITAL GROWTH BOND TRUST
The investment objective of the Capital Growth Bond Trust is to achieve growth
of capital by investing in medium-grade or better debt securities, with income
as a secondary consideration. MAC manages the Capital Growth Bond Trust. The
Capital Growth Bond Trust differs from most "bond" funds in that its primary
objective is capital appreciation, not income.
INVESTMENT QUALITY BOND TRUST
The investment objective of the Investment Quality Bond Trust is to provide a
high level of current income consistent with the maintenance of principal and
liquidity. Wellington Management Company manages the Investment Quality Bond
Trust and seeks to achieve the Trust's objective by investing primarily in a
diversified portfolio of investment grade corporate bonds and U.S. Government
bonds with intermediate to longer term maturities.
17
<PAGE> 18
U.S. GOVERNMENT SECURITIES TRUST
The investment objective of the U.S. Government Securities Trust is to obtain a
high level of current income consistent with preservation of capital and
maintenance of liquidity. SBAM manages the U.S. Government Securities Trust and
seeks to attain its objective by investing a substantial portion of its assets
in debt obligations and mortgage-backed securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities and derivative securities
such as collateralized mortgage obligations backed by such securities.
MONEY MARKET PORTFOLIO
MONEY MARKET TRUST
The investment objective of the Money Market Trust is to obtain maximum current
income consistent with preservation of principal and liquidity. MAC manages the
Money Market Trust and seeks to achieve this objective by investing in high
quality, U.S. dollar denominated money market instruments.
LIFESTYLE PORTFOLIOS
LIFESTYLE AGGRESSIVE 1000 TRUST
The investment objective of the Lifestyle Aggressive 1000 Trust is to provide
long-term growth of capital. Current income is not a consideration. MAC manages
the Lifestyle Aggressive 1000 Trust and seeks to achieve this objective by
investing approximately 100% of the Lifestyle Trust's assets in Underlying
Portfolios which invest primarily in equity securities.
LIFESTYLE GROWTH 820 TRUST
The investment objective of the Lifestyle Growth 820 Trust is to provide
long-term growth of capital with consideration also given to current income. MAC
manages the Lifestyle Growth 820 Trust and seeks to achieve this objective by
investing approximately 20% of the Lifestyle Trust's assets in Underlying
Portfolios which invest primarily in fixed-income securities and approximately
80% of the assets in Underlying Portfolios which invest primarily in equity
securities.
LIFESTYLE BALANCED 640 TRUST
The investment objective of the Lifestyle Balanced 640 Trust is to provide a
balance between high level of current income and growth of capital with a
greater emphasis given to capital growth. MAC manages the Lifestyle Balanced 640
Trust and seeks to achieve this objective by investing approximately 40% of the
Lifestyle Trust's assets in Underlying Portfolios which invest primarily in
fixed-income securities and approximately 60% of its assets in Underlying
Portfolios which invest primarily in equity securities.
LIFESTYLE MODERATE 460 TRUST
The investment objective of the Lifestyle Moderate 460 Trust is to provide a
balance between high level of current income and growth of capital with a
greater emphasis given to high income. MAC manages the Lifestyle Moderate 460
Trust and seeks to achieve this objective by investing approximately 60% of the
Lifestyle Trust's assets in Underlying Portfolios which invest primarily in
fixed-income securities and approximately 40% of its assets in Underlying
Portfolios which invest primarily in equity securities.
LIFESTYLE CONSERVATIVE 280 TRUST
The investment objective of the Lifestyle Conservative 280 Trust is to provide a
high level of current income with some consideration also given to growth of
capital. MAC manages the Lifestyle Conservative 280 Trust and seeks to achieve
this objective by investing approximately 80% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed-income securities and
approximately 20% of its assets in Underlying Portfolios which invest primarily
in equity securities.
18
<PAGE> 19
ISSUING A POLICY
USE OF THE POLICY
The Policy is designed to provide to corporations and other entities life
insurance coverage on their employees or other persons in whose lives they have
an insurable interest. The Policy may be owned individually or by a corporation,
trust, association, or similar entity. The Policy may be used for such purposes
as funding non-qualified executive deferred compensation or salary continuation
plans, as a means of funding death benefit liabilities incurred under executive
retirement plans, or as a source for funding cash flow obligations under such
plans.
REQUIREMENTS
To purchase a Policy, an applicant must submit a completed application. A Policy
will not be issued until the underwriting process has been completed to the
Company's satisfaction.
Policies may be issued on a basis which does not distinguish between the
insured's sex and/or smoking status, with prior approval from the Company. A
Policy will only be issued on the lives of insureds from ages 20 through 80.
Each Policy is issued with a Policy Date, an Effective Date and an Issue Date.
The Policy Date is the date from which the first monthly deductions are
calculated and from which Policy Years, Policy Months and Policy Anniversaries
are determined. The Effective Date is the date the Company becomes obligated
under the Policy and when the first monthly deductions are deducted from the
Policy Value. The Issue Date is the date from which the Suicide and
Incontestability are measured.
If an application is accompanied by a check for the initial premium and the
application is accepted:
(i) the Policy Date will be the date the application and check were received at
the Service Office (unless a special Policy Date is requested (See "Backdating a
Policy" below);
(ii) the Effective Date will be the date the Company's underwriters approve
issuance of the Policy; and
(iii) the Issue Date will be the date the Company issues the Policy.
If an application accepted by the Company is not accompanied by a check for the
initial premium:
(i) the Policy Date will be the date the Company issues the Policy (unless a
special Policy Date is requested (See "Backdating a Policy" below);
(ii) the Effective Date will be the date the Service Office receives the initial
premium; and
(iii) the Issue Date will be the date the Company issues the Policy.
The initial premium must be received within 60 days after the Policy Date. If
the premium is not paid or if the application is rejected, the Policy will be
cancelled and any partial premiums paid will be returned to the applicant.
MINIMUM INITIAL FACE AMOUNT
Manufacturers Life of America will issue a Policy only if it has a Face Amount
of at least $50,000.
19
<PAGE> 20
BACKDATING A POLICY
Under limited circumstances, the Company may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
However, in no event will a Policy be backdated earlier than the earliest date
allowed by state law, which is generally three months to one year prior to the
date of application for the Policy. Monthly deductions will be made for the
period the Policy Date is backdated. Regardless of whether or not a policy is
backdated, Net Premiums received prior to the Effective Date of a Policy will be
credited with interest from the date of receipt at the rate of return then being
earned on amounts allocated to the Money Market portfolio. As of the Effective
Date, the premiums paid plus interest credited, net of the premium load, will be
allocated among the Investment Accounts and/or Guaranteed Interest Account in
accordance with the policyholder's instructions unless such amount is first
allocated to the Money Market portfolio for the duration of the Right to Examine
period.
TEMPORARY INSURANCE AGREEMENT
In accordance with the Company's underwriting practices, temporary insurance
coverage may be provided under the terms of a Temporary Insurance Agreement.
Generally, temporary life insurance may not exceed $1,000,000 and may not be in
effect for more than 90 days. This temporary insurance coverage will be issued
on a conditional receipt basis, which means that any benefits under such
temporary coverage will only be paid if the life insured meets the Company's
usual and customary underwriting standards for the coverage applied for.
UNDERWRITING
The policies are offered on three underwriting bases, which vary by the amount
of information required of the prospective insured. These bases are: short form
underwriting, simplified underwriting, and regular (medical) underwriting. These
are described in more detail below. Regardless of which underwriting procedure
is used, the acceptance of an application is subject to the Company's
underwriting rules, and the Company reserves the right to request additional
information or to reject an application for any reason.
SHORT FORM UNDERWRITING
Generally, the availability of short form underwriting depends on the
characteristics of the Case, such as the number of lives to be insured and the
amounts of insurance. Under Short Form underwriting, a proposed Insured is
required to answer qualifying questions in the application, but is not required
to submit to a medical or paramedical exam. Short form underwriting is generally
available only up to issue age 65.
SIMPLIFIED UNDERWRITING
Like short form underwriting the availability of simplified underwriting depends
on the characteristics of the Case. Under Simplified Underwriting, the proposed
insured is required to respond satisfactorily to certain health questions in the
application. Medical records, such as "Attending Physician's Statements" (APS's)
are generally required. In some instances, a blood test may also be required.
REGULAR UNDERWRITING
If the requirements for short form or simplified underwriting are not satisfied,
the Company will require satisfactory evidence of insurability. This may include
medical exams and other information. Persons failing to meet standard
underwriting classification may be eligible for a Policy with an additional
rating assigned to it.
RIGHT TO EXAMINE THE POLICY
A Policy may be returned for a refund within 10 days after it is received. Some
states provide a longer period of time to exercise this right. The Policy will
indicate if the policyholder has a longer time. The Policy can be mailed or
delivered to the Manufacturers Life of America agent who sold it or to the
Service Office. Immediately on such delivery or mailing, the Policy shall be
deemed void from the beginning.
20
<PAGE> 21
Within seven days after receipt of the returned Policy at its Service Office,
the Company will refund to the policyholder an amount equal to:
(a) the difference between payments made and amounts allocated to the Separate
Account and the Guaranteed Interest Account; plus
(b) the value of the amount allocated to the Separate Account and the
Guaranteed Interest Account as of the date the returned Policy is received
by the Company; minus
(c) any partial withdrawals made and policy loans taken.
Some state laws require the refund of all premiums paid, without adjustment for
the investment gains and losses of the Separate Account. In these states, all
Net Premiums will be allocated to the Money Market Trust during the right to
examine period, and the policyholder will receive a refund of all payments made
less any partial withdrawals and policy loans taken.
If a policyholder requests an increase in face amount which results in new
surrender charges, he or she will have the same rights as described above to
cancel the increase. If cancelled, the Policy Value and the surrender charges
will be recalculated to the amounts they would have been had the increase not
taken place. A policyholder may request a refund of all or any portion of
premiums paid during the free look period, and the Policy Value and the
surrender charges will be recalculated to the amounts they would have been had
the premiums not been paid.
The Company reserves the right to delay the refund of any premium paid by check
until the check has cleared.
DEATH BENEFITS
If the Policy is in force at the time of the life insured's death, the Company
will pay an insurance benefit upon receipt of Due Proof of Death. The amount
payable will be the death benefit under the selected death benefit option, plus
any amounts payable under any supplementary benefits added to the Policy, less
the Policy Debt and any outstanding monthly deductions due. The insurance
benefit will be paid in one lump sum unless another form of settlement option is
agreed to by the beneficiary and the Company. If the insurance benefit is paid
in one sum, the Company will pay interest from the date of death to the date of
payment. If the life insured should die after the Company's receipt of a request
for surrender, no insurance benefit will be payable, and the Company will pay
only the Net Cash Surrender Value.
LIFE INSURANCE QUALIFICATION
A Policy must satisfy either of two tests to qualify as a life insurance
contract for purposes of Section 7702 of the Internal Revenue Code of 1986, as
amended. At the time of application, the policyholder may choose a Policy which
uses either the Cash Value Accumulation Test or the Guideline Premium Test. The
test cannot be changed once the Policy is issued.
CASH VALUE ACCUMULATION TEST
Under the Cash Value Accumulation Test ("CVA Test"), the Policy's death benefit
must be at least equal to the Minimum Death Benefit. There is no restriction on
the amount of premiums that may be paid into a Policy.
GUIDELINE PREMIUM TEST
The Guideline Premium Test ("GLP Test") restricts the maximum premiums that may
be paid into a life insurance policy for a given death benefit. The policy's
death benefit must also be at least equal to the Minimum Death Benefit
(described below). However, the Minimum Death Benefit Percentages are lower than
those required under the Cash Value Accumulation Test.
Changes to the Policy may affect the maximum amount of premiums, such as:
21
<PAGE> 22
- - A change in the policy's Face Amount.
- - A change in the death benefit option.
- - Partial Withdrawals.
Any of the above changes could cause the total premiums paid to exceed the new
maximum limit. In this situation, the Company will require the policyholder to
take a partial withdrawal. In addition, these changes could reduce the future
premium limitations.
MINIMUM DEATH BENEFIT
Both the Cash Value Accumulation Test and the Guideline Premium Test require a
life insurance policy to meet minimum ratios of life insurance coverage to
policy value. This is achieved by ensuring that the death benefit is at all
times at least equal to the Minimum Death Benefit. The Minimum Death Benefit on
any date is defined as the Policy Value on that date times the applicable
Minimum Death Benefit Percentage for the Attained Age of the life insured. The
Minimum Death Benefit Percentages for each test are shown in the Table of
Minimum Death Benefit Percentages.
TABLE OF MINIMUM DEATH BENEFIT PERCENTAGES
<TABLE>
<CAPTION>
CVA Test Percent CVA Test Percent
--------------------- ---------------------
GLP Test GLP Test
Age Percent Male Female Age Percent Male Female
<S> <C> <C> <C> <C> <C> <C> <C>
20 250% 653% 779% 60 130% 192% 221%
21 250% 634% 754% 61 128% 187% 214%
22 250% 615% 730% 62 126% 182% 208%
23 250% 597% 706% 63 124% 178% 203%
24 250% 580% 684% 64 122% 174% 197%
25 250% 562% 662% 65 120% 170% 192%
26 250% 545% 640% 66 119% 166% 187%
27 250% 528% 619% 67 118% 162% 182%
28 250% 511% 599% 68 117% 159% 177%
29 250% 494% 580% 69 116% 155% 173%
30 250% 479% 561% 70 115% 152% 169%
31 250% 463% 542% 71 113% 149% 164%
32 250% 448% 525% 72 111% 146% 160%
33 250% 433% 507% 73 109% 144% 156%
34 250% 419% 491% 74 107% 141% 153%
35 250% 406% 475% 75 105% 139% 149%
36 250% 392% 459% 76 105% 136% 146%
37 250% 380% 444% 77 105% 134% 143%
38 250% 367% 430% 78 105% 132% 140%
39 250% 356% 416% 79 105% 130% 138%
40 250% 344% 403% 80 105% 129% 135%
41 243% 333% 390% 81 105% 127% 133%
42 236% 323% 378% 82 105% 125% 130%
43 229% 313% 366% 83 105% 124% 128%
44 222% 303% 355% 84 105% 122% 126%
45 215% 294% 344% 85 105% 121% 124%
46 209% 285% 333% 86 105% 120% 123%
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
47 203% 277% 323% 87 105% 119% 121%
48 197% 268% 313% 88 105% 118% 119%
49 191% 260% 304% 89 105% 116% 118%
50 185% 253% 295% 90 105% 116% 117%
51 178% 245% 286% 91 104% 115% 115%
52 171% 238% 278% 92 103% 114% 114%
53 164% 232% 270% 93 102% 112% 113%
54 157% 225% 262% 94 101% 111% 112%
55 150% 219% 254% 95 100% 110% 110%
56 146% 213% 247% 96 100% 109% 109%
57 142% 207% 240% 97 100% 107% 107%
58 138% 202% 233% 98 100% 106% 106%
59 134% 197% 227% 99 100% 105% 105%
</TABLE>
DEATH BENEFIT OPTIONS
There are two death benefit options, described below.
DEATH BENEFIT OPTION 1
Under Option 1 the death benefit is the Face Amount of the Policy at the date of
death or, if greater, the Minimum Death Benefit.
DEATH BENEFIT OPTION 2
Under Option 2 the death benefit is the Face Amount plus the Policy Value of the
Policy at the date of death or, if greater, the Minimum Death Benefit.
CHANGING THE DEATH BENEFIT OPTION
The death benefit option may be changed on the first day of any Policy month.
The change will occur on the first day of the next Policy month which is 30 days
after a written request for a change is received at the Service Office. The
Company reserves the right to limit a request for a change if the change would
cause the Policy to fail to qualify as life insurance for tax purposes.
A change in the death benefit option will result in a change in the Policy's
Face Amount, in order to avoid any change in the amount of the death benefit, as
follows:
CHANGE FROM OPTION 1 TO OPTION 2
The new Face Amount will be equal to the Face Amount prior to the change minus
the Policy Value on the date of the change. The Policy will not be assessed a
Surrender Charge for a reduction in Face Amount solely due to a change in the
death benefit option.
CHANGE FROM OPTION 2 TO OPTION 1
The new Face Amount will be equal to the Face Amount prior to the change plus
the Policy Value on the date of the change. No new Surrender Charges will apply
to an increase in Face Amount solely due to a change in the death benefit
option.
CHANGING THE FACE AMOUNT
Subject to the limitations stated in this Prospectus, a policyholder may, upon
written request, increase or decrease the Face Amount of the Policy. The Company
reserves the right to limit a change in Face Amount so as to prevent the Policy
from failing to qualify as life insurance for tax purposes.
23
<PAGE> 24
INCREASE IN FACE AMOUNT
Increases in Face Amount are subject to satisfactory evidence of insurability.
An increase will become effective at the beginning of the Policy month following
the date Manufacturers Life of America approves the requested increase. The
Company reserves the right to refuse a requested increase if the life insured's
Attained Age at the effective date of the increase would be greater than the
maximum Issue Age for new Policies at that time.
NEW SURRENDER CHARGES FOR AN INCREASE
An increase in Face Amount will result in the Policy's being subject to new
Surrender Charges. The new Surrender Charges will be computed as if a new Policy
were being purchased for the increase in Face Amount. For purposes of
determining the new Surrender Charges a portion of the premiums paid on or
subsequent to the increase will be deemed to be premiums attributable to the
increase. The portion attributable to the increase in any Policy Year will be
the amount of premiums in excess of the sum of the Target Premiums for the (i)
initial Face Amount during the first five Policy Years and (ii) all prior
increases that are in effect at the time of the increase in Face Amount and have
been in effect for less than five years.
INCREASE WITH PRIOR DECREASES
If, at the time of the increase, there have been prior decreases in Face Amount,
these prior decreases will be restored first. There will be no new Surrender
Charges associated with these increases, since Surrender Charges will have
already been assessed at the time of the prior decrease.
DECREASE IN FACE AMOUNT
A written request from a policyholder for a decrease in the Face Amount must be
received by Manufacturers Life of America at least 30 days prior to the first
day of a policy month for the change to take effect on the first day of that
policy month. If there have been previous increases in Face Amount, the decrease
will be applied to the most recent increase first and thereafter to the next
most recent increases successively.
SURRENDER CHARGES ASSESSED ON A DECREASE
A portion of a Policy's Surrender Charge will be deducted from the Policy Value
on a decrease in Face Amount. Since Surrender Charges are determined separately
for the initial Face Amount and each Face Amount Increase, the portion of the
Surrender Charges to be deducted with respect to each level of insurance
coverage will be determined separately. The portion of the Surrender Charge
deducted with respect to a level of coverage will be equal to:
(a) the amount of the decrease; divided by
(b) the amount of the coverage prior to the decrease; multiplied by
(c) the Surrender Charge for the coverage.
The charges will be allocated among the Investment Accounts and the Guaranteed
Interest Account in the same proportion as the Policy Value in each bears to the
Net Policy Value.
Whenever a portion of the surrender charges are deducted as a result of a
decrease in Face Amount, the Policy's remaining surrender charges will be
reduced in the same proportion that the surrender charge deducted bears to the
total surrender charge immediately prior to the decrease in Face Amount.
24
<PAGE> 25
PREMIUM PAYMENTS
INITIAL PREMIUMS
No premiums will be accepted prior to receipt of a completed application by the
Company. All premiums received prior to the Effective Date of the Policy will be
held in the general account and credited with interest from the date of receipt
at the rate of return then being earned on amounts allocated to the Money Market
Trust.
On the Effective Date, the Net Premiums paid plus interest credited will be
allocated among the Investment Accounts or the Guaranteed Interest Account in
accordance with the policyholder's instructions.
All Net Premiums received on or after the Effective Date will be allocated among
Investment Accounts or the Guaranteed Interest Account as of the date the
premiums were received at the Service Office. Monthly deductions are due on the
Policy Date and at the beginning of each policy month thereafter. However, if
due prior to the Effective Date, they will be taken on the Effective Date
instead of the dates they were due.
EXCEPTION FOR CERTAIN STATES
Some state laws require the refund of all premiums paid, without adjustment for
gains and losses of the Separate Account, if a Policy is returned during the
right to examine period. In these states, all Net Premiums will be allocated to
the Money Market Trust during the right to examine period. At the end of this
period, the Policy Value in the Money Market Trust will be allocated among the
Investment Accounts or the Guaranteed Interest Account. The Policy will state if
a return of premiums is required.
SUBSEQUENT PREMIUMS
After the payment of the initial premium, premiums may be paid at any time and
in any amount during the lifetime of the life insured, subject to the
limitations on premium amount described below.
A Policy will be issued with a planned premium, which is based on the amount of
premium the policyholder wishes to pay. Manufacturers Life of America will send
notices to the policyholder setting forth the planned premium at the payment
interval selected by the policyholder. However, the policyholder is under no
obligation to make the indicated payment.
Payment of premiums will not guarantee that the Policy will stay in force.
Conversely, failure to pay premiums will not necessarily cause the Policy to
lapse.
MAXIMUM PREMIUM LIMITATION
If the Policy is issued under the Guideline Premium Test, in no event may the
total of all premiums paid exceed the then-current maximum premium limitations
established by federal income tax law for a Policy to qualify as life insurance.
If, at any time, a premium is paid which would result in total premiums
exceeding the above maximum premium limitation, the Company will only accept
that portion of the premium which will make the total premiums equal to the
maximum. Any part of the premium in excess of that amount will be returned and
no further premiums will be accepted until allowed by the then-current maximum
premium limitation. The maximum premium limitations are set forth in the Policy.
25
<PAGE> 26
PREMIUM ALLOCATION
Premiums may be allocated to either the Guaranteed Interest Account for
accumulation at a rate of interest equal to at least 4% or to one or more of the
Investment Accounts for investment in the Portfolio shares held by the
corresponding sub-account of the Separate Account. Allocations among the
Investment Accounts and the Guaranteed Interest Account are made as a percentage
of the premium. The percentage allocation to any account may be any number
between zero and 100, provided the total allocation equals 100. Alternatively, a
policyholder may specify the allocation of a specific premium payment in dollar
amounts, so long as the total allocation among the Investment Accounts equals
the Net Premium paid. A policyholder may change the way in which premiums are
allocated at any time without charge. The change will take effect on the date a
written request for change satisfactory to the Company is received at the
Service Office.
CHARGES AND DEDUCTIONS
PREMIUM LOADS
Manufacturers Life of America deducts a Premium Load from each premium payment,
equal to 2.00% of the premium. Premium Loads are deducted in order to cover
federal, state and local taxes on premium payments.
SURRENDER CHARGES
The Company will deduct a Surrender Charge if during the first 10 years
following the Policy Date, or the effective date of a Face Amount increase:
- - the Policy is surrendered for its Net Cash Surrender Value,
- - a partial withdrawal is made in excess of the Free Partial Withdrawal
Amount,
- - the Face Amount is decreased,
- - or the Policy lapses.
The Surrender Charge is expressed as a percentage of the total premiums paid
from the Effective Date. However, premiums paid in any Policy Year in excess of
the Target Premium, and premiums paid after the fifth Policy Year, are not
counted in the determination of total premiums paid. Therefore, the timing of
premium payments may affect the amount of the Surrender Charge. The percentages
vary by Policy Year as follows:
<TABLE>
<CAPTION>
Policy Year Percentage
<S> <C>
1 10.00%
2 7.50%
3 5.00%
4 5.00%
5 5.00%
6 5.00%
7 4.00%
8 3.00%
9 2.00%
10+ 0.00%
</TABLE>
Although the percentages remain level or decrease as the Policy Year increases,
the total dollar amount of Surrender Charges may increase, as the total premium
paid increases.
26
<PAGE> 27
SURRENDER CHARGES ON A PARTIAL WITHDRAWAL
A partial withdrawal will result in the assessment of a portion of the Surrender
Charges to which the Policy is subject. The portion of the Surrender Charges
assessed will be based on the ratio of the amount of the withdrawal which
exceeds the Free Withdrawal Amount to the Net Cash Surrender Value of the Policy
immediately prior to the withdrawal. The Surrender Charges will be deducted on a
pro-rata basis from each of the Investment Accounts and the Guaranteed Interest
Account. If the amount in the accounts are not sufficient to pay the Surrender
Charges assessed, then the amount of the withdrawal will be reduced.
Whenever a portion of the surrender charges are deducted as a result of a
partial withdrawal, the Policy's remaining surrender charges will be reduced in
the same proportion that the surrender charge deducted bears to the total
surrender charge immediately before the partial withdrawal.
FREE WITHDRAWAL AMOUNT
The Free Withdrawal Amount is equal to 10% of the Net Cash Surrender Value at
the time of the withdrawal. In determining what, if any, portion of a partial
withdrawal is in excess of the Free Withdrawal Amount, all previous partial
withdrawals that have occurred in the current Policy Year are included.
MONTHLY CHARGES
On the Policy Date and at the beginning of each policy month, a deduction is due
from the Policy Value to cover certain charges in connection with the Policy
until the insured reaches age 100. Monthly deductions due prior to the Effective
Date will be taken on the Effective Date instead of the dates they were due. The
charges consist of:
(i) a monthly administration charge;
(ii) a monthly charge for the cost of insurance;
(iii) a monthly charge for any supplementary benefits added to the Policy.
Unless otherwise allowed by the Company and specified by the policyholder, the
monthly deduction will be allocated among the Investment Accounts and the
Guaranteed Interest Account in the same proportion as the Policy value in each
bears to the Net Policy Value.
ADMINISTRATION CHARGE
This charge will be equal to $12 per policy month, which is guaranteed not to
increase. The charge is designed to cover certain administrative expenses
associated with the Policy, including maintaining policy records, collecting
premiums and processing death claims, surrender and withdrawal requests and
various change permitted under a Policy.
COST OF INSURANCE CHARGE
The monthly charge for the cost of insurance is determined by multiplying the
applicable cost of insurance rate times the net amount at risk at the beginning
of each policy month. The cost of insurance rate and the net amount at risk are
determined separately for the initial Face Amount and for each increase in Face
Amount. In determining the net amount at risk, if there have been increases in
the Face Amount, the Policy Value shall first be considered a part of the
initial Face Amount. If the Policy Value exceeds the initial Face Amount, it
shall then be considered a part of the additional increases in Face Amount
resulting from the increases in the order of the increases.
The net amount at risk is equal to the greater of zero, or the result of
(a) minus (b) where:
(a) is the death benefit as of the first day of the month, divided by
1.0032737; and
(b) is the Policy Value as of the first day of the month.
27
<PAGE> 28
The cost of insurance rate is based upon the following factors:
- - the issue age, sex (unless unisex rates are required by law) and smoking
status of the life insured;
- - the underwriting class of the Policy;
- - the number of years since issue or since an increase in Face Amount;
- - the amount of the Death Benefit in excess of the Face Amount,
- - any extra charges for additional ratings indicated in the Policy.
Cost of insurance rates will generally increase with the life insured's age.
The cost of insurance rates reflect the Company's expectations as to future
mortality experience. The rates may be changed from time to time on a basis
which does not unfairly discriminate within the class of lives insured. In no
event will the cost of insurance rate exceed the guaranteed rates set forth in
the Policy except to the extent that an extra charge is imposed because of an
additional rating applicable to the life insured. The guaranteed rates are based
on the 1980 Commissioners Standard Ordinary Mortality Tables.
CHARGES FOR SUPPLEMENTARY BENEFITS
If the Policy includes Supplementary Benefits, a charge will be made applicable
to such Supplementary Benefit.
CHARGES ASSESSED AGAINST ASSETS OF THE INVESTMENT ACCOUNTS
A daily charge is assessed against amounts in the Investment Accounts equal to a
percentage of the value of the Investment Account. This charge is to compensate
the Company for the mortality and expense risks it assumes under the Policy. The
mortality risk assumed is that lives insured may live for a shorter period of
time than the Company estimated. The expense risk assumed is that expenses
incurred in issuing and administering the Policy will be greater than the
Company estimated. The Company will realize a gain from this charge to the
extent it is not needed to provide benefits and pay expenses under the Policy.
The charge varies by Policy Year as follows:
<TABLE>
<CAPTION>
Equivalent Annual
Daily Mortality and Mortality and Expense
Policy Year Expense Risk Charge Risk Charge
<S> <C> <C>
1-10 0.000020625% 0.75%
11+ 0.000010981% 0.40%
</TABLE>
CHARGES FOR TRANSFERS
A charge of $25 will be imposed on each transfer in excess of twelve in a policy
year.
REDUCTION IN CHARGES
The Policy is available for purchase by corporations and other groups or
sponsoring organizations for multiple life sales. Manufacturers Life of America
reserves the right to reduce any of the Policy's loads or charges on certain
Cases where it is expected that the amount or nature of such Cases will result
in savings of sales, underwriting, administrative or other costs. Eligibility
for these reductions and the amount of reductions will be determined by a number
of factors, including the number of lives to be insured, the total premiums
expected to be paid, total assets under management for the policyholder, the
nature of the relationship among the insured individuals, the purpose for which
the policies are being purchased, expected persistency of the individual
policies, and any other circumstances which
28
<PAGE> 29
Manufacturers Life of America believes to be relevant to the expected reduction
of its expenses. Some of these reductions may be guaranteed and others may be
subject to withdrawal or modification, on a uniform Case basis. Reductions in
charges will not be unfairly discriminatory to any policyholders.
COMPANY TAX CONSIDERATIONS
At the present time, the Company makes no charge to the Separate Account for any
federal, state, or local taxes that the Company incurs that may be attributable
to such Account or to the Policies. The Company, however, reserves the right in
the future to make a charge for any such tax or other economic burden resulting
from the application of the tax laws that it determines to be properly
attributable to the Separate Account or to the Policies.
POLICY VALUE
DETERMINATION OF THE POLICY VALUE
A Policy has a Policy Value, a portion of which is available to the policyholder
by making a policy loan or partial withdrawal, or upon surrender of the Policy.
The Policy Value may also affect the amount of the death benefit. The Policy
Value at any time is equal to the sum of the values in the Investment Accounts,
the Guaranteed Interest Account, and the Loan Account.
INVESTMENT ACCOUNTS
An Investment Account is established under each Policy for each sub-account of
the Separate Account to which net premiums or transfer amounts have been
allocated. Each Investment Account under a Policy measures the interest of the
Policy in the corresponding sub-account. The value of the Investment Account
established for a particular sub-account is equal to the number of units of that
sub-account credited to the Policy times the value of such units.
GUARANTEED INTEREST ACCOUNT
Amounts in the Guaranteed Interest Account do not vary with the investment
performance of any sub-account. Instead, these amounts are credited with
interest at a rate determined by Manufacturers Life of America. For a detailed
description of the Guaranteed Interest Account, see "The General Account -
Guaranteed Interest Account".
LOAN ACCOUNT
Amounts borrowed from the Policy are transferred to the Loan Account. Amounts in
the Loan Account do not vary with the investment performance of any sub-account.
Instead, these amounts are credited with interest at a rate which is equal to
the amount charged on the outstanding Policy Debt less the Loan Spread. For a
detailed description of the Loan Account, see "Policy Loans - Loan Account".
UNITS AND UNIT VALUES
CREDITING AND CANCELING UNITS
Units of a particular sub-account are credited to a Policy when net premiums are
allocated to that sub-account or amounts are transferred to that sub-account.
Units of a sub-account are cancelled whenever amounts are deducted, transferred
or withdrawn from the sub-account. The number of units credited or cancelled for
a specific transaction is based on the dollar amount of the transaction divided
by the value of the unit on the Business Day on which the transaction occurs.
The number of units credited with respect to a premium payment will be based on
the applicable unit values for the Business Day on which the premium is received
at the Service Office, except for any premiums received before the Effective
Date. For premiums received before the Effective Date, the values will be
determined on the Effective Date.
29
<PAGE> 30
Units are valued at the end of each Business Day. When an order involving the
crediting or canceling of units is received after the end of a Business Day, or
on a day which is not a Business Day, the order will be processed on the basis
of unit values determined on the next Business Day. Similarly, any determination
of Policy Value, Investment Account value or death benefit to be made on a day
which is not a Business Day will be made on the next Business Day.
UNIT VALUES
The value of a unit of each sub-account was initially fixed at $10.00. For each
subsequent Business Day the unit value for that sub-account is determined by
multiplying the unit value for the immediately preceding Business Day by the net
investment factor for the that sub-account on such subsequent Business Day.
The net investment factor for a sub-account on any Business Day is equal to (a)
divided by (b) minus (c), where:
(a) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of such Business Day before any policy transaction are
made on that day;
(b) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of the immediately preceding Business Day after all
policy transaction were made for that day; and
(c) is a charge not exceeding the daily mortality and expense risk charge shown
in the "Charges and Deductions - Charges Assessed Against Assets of the
Investment Accounts" section.
The value of a unit may increase, decrease, or remain the same, depending on
the investment performance of a sub-account from one Business Day to the next.
Due to the fact that the daily mortality and expense risk charge varies by
Policy Years, two unit values will be calculated for each sub-account commencing
10 years after the effective date of the first Policy.
TRANSFERS OF POLICY VALUE
At any time, a policyholder may transfer Policy Value from one sub-account to
another or to the Guaranteed Interest Account. Transfer requests must be in
writing in a format satisfactory to the Company, or by telephone if a currently
valid telephone transfer authorization form is on file.
These transfer privileges are subject to the Company's consent. The Company
reserves the right to impose limitations on transfers, including the maximum
amount that may be transferred. In addition, transfer privileges are subject to
any restrictions that may be imposed by the Trust.
TRANSFER CHARGES
A policyholder may make up to twelve transfers each policy year free of charge.
Additional transfers in each policy year may be made at a cost of $25 per
transfer. This charge will be allocated among the Investment Accounts and the
Guaranteed Interest Account in the same proportion as the amount transferred
from each bears to the total amount transferred. All transfer requests received
by the Company on the same Business Day are treated as a single transfer
request.
30
<PAGE> 31
TRANSFERS INVOLVING GUARANTEED INTEREST ACCOUNT
The maximum amount that may be transferred from the Guaranteed Interest Account
in any one policy year is the greater of $500 or 15% of the Guaranteed Interest
Account Value at the previous Policy Anniversary. Any transfer which involves a
transfer out of the Guaranteed Interest Account may not involve a transfer to
the Investment Account for the Money Market Trust.
TELEPHONE TRANSFERS
Although failure to follow reasonable procedures may result in the Company being
liable for any losses resulting from unauthorized or fraudulent telephone
transfers, Manufacturers Life of America will not be liable for following
instructions communicated by telephone that the Company reasonably believes to
be genuine. The Company will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures shall
consist of confirming that a valid telephone authorization form is on file, tape
recording of all telephone transactions and providing written confirmation
thereof.
POLICY LOANS
At any time while this Policy is in force, a policyholder may borrow against the
Policy Value of the Policy. The Policy serves as the only security for the loan.
Policy loans may have tax consequences, see "Tax Treatment of Policy Benefits -
Policy Loan Interest."
MAXIMUM LOAN
The amount of any loan cannot exceed the amount which would cause the Policy
Debt to equal the Loan Value of the Policy on the date of the loan.
LOAN VALUE
The Loan Value is equal to the Policy's Cash Surrender Value less the monthly
deductions due to the next Policy Anniversary.
EFFECT OF POLICY LOAN
A policy loan will have an effect on future Policy Values, since that portion of
the Policy Value in the Loan Account will increase in value at the crediting
interest rate rather than varying with the performance of the underlying
Portfolios or increasing in value at the rate of interest credited for amounts
allocated to the Guaranteed Interest Account. A policy loan may cause a Policy
to be more susceptible to going into default since a policy loan will be
reflected in the Net Cash Surrender Value. See "Lapse and Reinstatement."
Finally, a policy loan will affect the amount payable on the death of the life
insured, since the death benefit is reduced by the Policy Debt at the date of
death in arriving at the insurance benefit.
INTEREST CHARGED ON POLICY LOANS
Interest on the Policy Debt will accrue daily and be payable annually on the
Policy Anniversary. The rate of interest charged will be an effective annual
rate of 5.00%.
LOAN ACCOUNT
When a loan is made, an amount equal to the loan will be deducted from the
Investment Accounts or the Guaranteed Interest Account and transferred to the
Loan Account. The policyholder may designate how the amount to be transferred to
the Loan Account is allocated among the accounts from which the transfer is to
be made. In the absence of instructions, the amount to be transferred will be
allocated to each account in the same proportion as the value in each Investment
Account and the Guaranteed Interest Account bears to the Net Policy Value. A
transfer from an Investment Account will result in the cancellation of units of
the underlying sub-account equal in value to the amount transferred from the
Investment Account. However, since the Loan Account is part of the Policy Value,
transfers made in connection with a loan will not change the Policy Value.
31
<PAGE> 32
INTEREST CREDITED TO THE LOAN ACCOUNT
Interest will be credited to amounts in the Loan Account at an effective annual
rate of at least 4.00%. The actual rate credited is equal to the rate of
interest charged on the policy loan less the Loan Spread. The Loan Spread varies
by policy year as follows:
<TABLE>
<CAPTION>
Policy Year Loan Spread
<S> <C>
1-10 1.00%
11-20 0.50%
21+ 0.25%
</TABLE>
LOAN ACCOUNT ADJUSTMENTS
On the first day of each policy month the difference between the Loan Account
and the Policy Debt is transferred to the Loan Account from the Investment
Accounts or the Guaranteed Interest Account. Amounts transferred from the Loan
Account will be allocated to the Investment Accounts and the Guaranteed Interest
Account in the same proportion as the value in each Investment Account and the
Guaranteed Interest Account bears to the Net Policy Value.
LOAN REPAYMENTS
Policy Debt may be repaid in whole or in part at any time prior to the death of
the life insured, provided that the Policy is in force. When a repayment is
made, the amount is credited to the Loan Account and transferred to the
Guaranteed Interest Account or the Investment Accounts. Loan repayments will be
allocated to the Guaranteed Interest Account and each Investment Account in the
same proportion as the value in each Investment Account and the Guaranteed
Interest Account bears to the Net Policy Value.
Amounts paid to the Company not specifically designated in writing as loan
repayments will be treated as premiums.
POLICY SURRENDER AND PARTIAL WITHDRAWALS
POLICY SURRENDER
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the life insured is living. The Net Cash Surrender Value is equal to the Policy
Value less any surrender charges and outstanding monthly deductions due (the
"Cash Surrender Value") minus the Policy Debt. The Net Cash Surrender Value will
be determined at the end of the Business Day on which Manufacturers Life of
America receives the Policy and a written request for surrender at its Service
Office. After a Policy is surrendered, the insurance coverage and all other
benefits under the Policy will terminate.
PARTIAL WITHDRAWALS
A policyholder may make a partial withdrawal of the Net Cash Surrender Value.
The policyholder may specify the portion of the withdrawal to be taken from each
Investment Account and the Guaranteed Interest Account. In the absence of
instructions, the withdrawal will be allocated among such accounts in the same
proportion as the Policy Value in each account bears to the Net Policy Value.
For information on Surrender Charges on a Partial Withdrawal see "Charges and
Deductions - Surrender Charges."
REDUCTION IN FACE AMOUNT DUE TO A PARTIAL WITHDRAWAL
If Death Benefit Option 1 is in effect when a partial withdrawal is made, the
Face Amount of the Policy will be reduced by the amount of the withdrawal plus
any applicable Surrender Charges. Reductions in Face Amount resulting from
partial withdrawals will not incur any Surrender Charges above the Surrender
Charges applicable to the withdrawal.
32
<PAGE> 33
If the death benefit is based upon the Policy Value times the minimum death
benefit percentage set forth under "Death Benefit - Minimum Death Benefit," the
Face Amount will be reduced only to the extent that the amount of the withdrawal
plus the portion of the Surrender Charge assessed exceeds the difference between
the death benefit and the Face Amount. When the Face Amount of a Policy is based
on one or more increases subsequent to issuance of the Policy, a reduction
resulting from a partial withdrawal will be applied in the same manner as a
requested decrease in Face Amount, i.e., against the Face Amount provided by the
most recent increase, then against the next most recent increases successively
and finally against the initial Face Amount.
LAPSE AND REINSTATEMENT
LAPSE
A Policy will go into default if at the beginning of any policy month the
Policy's Net Cash Surrender Value would go below zero after deducting the
monthly deduction then due. Therefore, a Policy could lapse eventually if
increases in Policy Value (prior to deduction of Policy charges) are not
sufficient to cover Policy charges. A lapse could have adverse tax consequences
as described under "Tax Treatment of the Policy - Tax Treatment of Policy
Benefits Surrender or Lapse." Manufacturers Life of America will notify the
policyholder of the default and will allow a 61 day grace period in which the
policyholder may make a premium payment sufficient to bring the Policy out of
default. The required payment will be equal to the amount necessary to bring the
Net Cash Surrender Value to zero, if it was less than zero on the date of
default, plus the monthly deductions due at the date of default and payable at
the beginning of each of the two policy months thereafter, plus any applicable
premium load. If the required payment is not received by the end of the grace
period, the Policy will terminate with no value.
DEATH DURING GRACE PERIOD
If the life insured should die during the grace period, the Policy Value used in
the calculation of the death benefit will be the Policy Value as of the date of
default and the insurance benefit will be reduced by any outstanding monthly
deductions due at the time of death.
REINSTATEMENT
A policyholder can reinstate a Policy which has terminated after going into
default at any time within the five year period following the date of
termination subject to the following conditions:
(a) The Policy must not have been surrendered for its Net Cash Surrender Value;
(b) Evidence of the life insured's insurability satisfactory to Manufacturers
Life of America is furnished to the Company; and
(c) A premium equal to the payment required during the grace period following
default to keep the Policy in force is paid to the Company.
THE GENERAL ACCOUNT
The general account of Manufacturers Life of America consists of all assets
owned by the Company other than those in the Separate Account and other separate
accounts of the Company. Subject to applicable law, Manufacturers Life of
America has sole discretion over the investment of the assets of the general
account.
By virtue of exclusionary provisions, interests in the general account of
Manufacturers Life of America have not been registered under the Securities Act
of 1933 and the general account has not been registered as an investment company
under the Investment Company Act of 1940. Accordingly, neither the general
account nor any interests therein are subject to the provisions of these acts,
and as a result the staff of the S.E.C. has not reviewed the disclosures in this
prospectus relating to the general account. Disclosures regarding the general
account may, however, be subject to certain generally applicable
33
<PAGE> 34
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in a prospectus.
GUARANTEED INTEREST ACCOUNT
A policyholder may elect to allocate net premiums to the Guaranteed Interest
Account or to transfer all or a portion of the Policy Value to the Guaranteed
Interest Account from the Investment Accounts. Manufacturers Life of America
will hold the reserves required for any portion of the Policy Value allocated to
the Guaranteed Interest Account in its general account. Transfers from the
Guaranteed Interest Account to the Investment Accounts are subject to
restrictions.
POLICY VALUE IN THE GUARANTEED INTEREST ACCOUNT The Policy Value in the
Guaranteed Interest Account is equal to:
(a) the portion of the net premiums allocated to it; plus
(b) any amounts transferred to it; plus
(c) interest credited to it; less
(d) any charges deducted from it; less
(e) any partial withdrawals from it; less
(f) any amounts transferred from it.
INTEREST ON THE GUARANTEED INTEREST ACCOUNT
An allocation of Policy Value to the Guaranteed Interest Account does not
entitle the policyholder to share in the investment experience of the general
account. Instead, Manufacturers Life of America guarantees that the Policy Value
in the Guaranteed Interest Account will accrue interest daily at an effective
annual rate of at least 4%, without regard to the actual investment experience
of the general account. Consequently, if a policyholder pays the planned
premiums, allocates all net premiums only to the general account and makes no
transfers, partial withdrawals, or policy loans, the minimum amount and duration
of the death benefit of the Policy will be determinable and guaranteed.
OTHER PROVISIONS OF THE POLICY
POLICYHOLDER RIGHTS
Unless otherwise restricted by a separate agreement, the policyholder may:
- - Vary the premiums paid under the Policy.
- - Change the death benefit option.
- - Change the premium allocation for future premiums.
- - Transfer amounts between sub-accounts.
- - Take loans and/or partial withdrawals.
- - Surrender the contract.
- - Transfer ownership to a new owner.
- - Name a contingent owner that will automatically become owner if the
policyholder dies before the insured.
- - Change or revoke a contingent owner.
- - Change or revoke a beneficiary.
ASSIGNMENT OF RIGHTS
Manufacturers Life of America will not be bound by an assignment until it
receives a copy of the assignment at its Service Office. Manufacturers Life of
America assumes no responsibility for the validity or effects of any assignment.
34
<PAGE> 35
BENEFICIARY
One or more beneficiaries of the Policy may be appointed by the policyholder by
naming them in the application. Beneficiaries may be appointed in three classes
- - primary, secondary, and final. Beneficiaries may also be revocable or
irrevocable. Unless an irrevocable designation has been elected, the beneficiary
may be changed by the policyholder during the life insured's lifetime by giving
written notice to Manufacturers Life of America in a form satisfactory to the
Company. If the life insured dies and there is no surviving beneficiary, the
policyholder, or the policyholder's estate if the policyholder is the life
insured, will be the beneficiary. If a beneficiary dies before the seventh day
after the death of the life insured, the Company will pay the insurance benefit
as if the beneficiary had died before the life insured.
INCONTESTABILITY
Manufacturers Life of America will not contest the validity of a Policy after it
has been in force during the life insured's lifetime for two years from the
Issue Date. It will not contest the validity of an increase in Face Amount,
after such increase or addition has been in force during the life insured's
lifetime for two years. If a Policy has been reinstated and been in force for
less than two years from the reinstatement date, the Company can contest any
misrepresentation of a fact material to the reinstatement.
MISSTATEMENT OF AGE OR SEX
If the life insured's stated age or sex or both in the Policy are incorrect,
Manufacturers Life of America will change the Face Amount, and if applicable, so
that the death benefit will be that which the most recent monthly charge for the
cost of insurance would have purchased for the correct age and sex.
SUICIDE EXCLUSION
If the life insured, whether sane or insane, dies by suicide within two years
from the Issue Date (or within the maximum period permitted by the state in
which the Policy was delivered, if less than two years), Manufacturers Life of
America will pay only the premiums paid less any partial withdrawals and any
Policy Debt. If the life insured should die by suicide within two year after a
Face Amount increase, the death benefit for the increase will be limited to the
monthly deduction for the increase. At the discretion of the Company, this
provision may be waived under some circumstances, such as policies purchased in
conjunction with certain existing benefit plans.
SUPPLEMENTARY BENEFITS
Subject to certain requirements, one or more supplementary benefits may be added
to a Policy, including, in the case of a Policy owned by a corporation or other
similar entity, a benefit permitting a change in the life insured. More detailed
information concerning these supplementary benefits may be obtained from an
authorized agent of the Company. The cost of any supplementary benefits will be
deducted as part of the monthly deduction.
TAX TREATMENT OF THE POLICY
The following summary provides a general description of the federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. Counsel
or other competent tax advisers should be consulted for more complete
information. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "Service"). No representation is made as to the
likelihood of continuation of the present federal income tax laws nor of the
current interpretations by the Service. MANUFACTURERS LIFE OF AMERICA DOES NOT
MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY POLICY OR ANY TRANSACTION
REGARDING THE POLICIES.
The Policies may be used in various arrangements, including non-qualified
deferred compensation or salary continuation plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans
35
<PAGE> 36
and others. The tax consequences of such plans may vary depending on the
particular facts and circumstances of each individual arrangement. Therefore, if
the use of such Policies in any such arrangement, the value of which depends in
part on the tax consequences, is contemplated, a qualified tax adviser should be
consulted for advice on the tax attributes of the particular arrangement.
LIFE INSURANCE QUALIFICATION
There are several requirements that must be met for a Policy to be considered a
Life Insurance Contract under the Internal Revenue Code, and thereby to enjoy
the tax benefits of such a contract:
1. The Policy must satisfy the definition of life insurance under Section
7702 of the Internal Revenue Code of 1986 (the "Code").
2. The investments of the Separate Account must be "adequately
diversified" in accordance with Section 817(h) of the Code and Treasury
Regulations.
3. The Policy must be a valid life insurance contract under applicable
state law.
4. The Policyholder must not possess "incidents of ownership" in the
assets of the Separate Account.
These four items are discussed in detail below.
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal tax purposes. For a Policy to be a life insurance contract, it must
satisfy either the Cash Value Accumulation Test or the Guideline Premium Test.
The Cash Value Accumulation Test requires a minimum death benefit for a given
Policy Value. The Guideline Premium Test also requires a minimum death benefit,
but in addition limits the total premiums that can be paid into a Policy for a
given amount of death benefit.
With respect to a Policy which is issued on the basis of a standard rate class,
the Company believes (largely in reliance on IRS Notice 88-128 and the proposed
mortality charge regulations under Section 7702, issued on July 5, 1991) that
such a Policy should meet the Section 7702 definition of a life insurance
contract.
With respect to a Policy that is issued on a substandard basis (i.e., a rate
class involving higher-than-standard mortality risk), there is less guidance, in
particular as to how mortality and other expense requirements of Section 7702
are to be applied in determining whether such a Policy meets the Section 7702
definition of a life insurance contract. Thus it is not clear whether or not
such a Policy would satisfy Section 7702, particularly if the policyholder pays
the full amount of premiums permitted under the Policy.
The Secretary of the Treasury (the "Treasury") is authorized to prescribe
regulations implementing Section 7702. However, while proposed regulations and
other interim guidance have been issued, final regulations have not been adopted
and guidance as to how Section 7702 is to be applied is limited. If a Policy
were determined not to be a life insurance contract for purposes of Section
7702, such a Policy would not provide the tax advantages normally provided by a
life insurance policy.
If it is subsequently determined that a Policy does not satisfy Section 7702,
the Company may take whatever steps are appropriate and reasonable to attempt to
cause such a Policy to comply with Section 7702. For these reasons, the Company
reserves the right to restrict Policy transactions as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
DIVERSIFICATION
Section 817(h) of the Code requires that the investments of the Separate Account
be "adequately diversified" in accordance with Treasury regulations in order for
the Policy to qualify as a life insurance contract under Section 7702 of the
code (discussed above). The Separate Account, through the Trust, intends to
comply with the diversification requirements prescribed in Treas. Reg. Sec.
1.817-5, which
36
<PAGE> 37
affect how the Trust's assets are to be invested. The Company believes that the
Separate Account will thus meet the diversification requirement, and the Company
will monitor continued compliance with the requirement.
STATE LAW
State regulations require that the policyholder have appropriate insurable
interest in the life insured. Failure to establish an insurable interest may
result in the Policy not qualifying as a life insurance contract for federal tax
purposes.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance Policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their policies. In those circumstances, income
and gains from the separate account assets would be includible in the variable
policyholder's gross income. The IRS has stated in published rulings that a
variable policyholder will be considered the owner of separate account assets if
the policyholder possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury Department
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the policyholder), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets". As of the date of this prospectus, no such guidance has been
issued.
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyholders were not owners of separate account assets. For example, the
policyholder has additional flexibility in allocating premium payments and
Policy Values. These differences could result in an owner being treated as the
owner of a pro-rata portion of the assets of the Separate Account. In addition,
the Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The company therefore reserves the right to modify the Policy as
necessary to attempt to prevent an owner from being considered the owner of a
pro rata share of the assets of the Separate Account.
TAX TREATMENT OF POLICY BENEFITS
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes. The Company believes that
the proceeds and cash value increases of a Policy should be treated in a manner
consistent with a fixed-benefit life insurance policy for federal income tax
purposes.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's death benefit option, a Policy loan, partial withdrawal, surrender,
change in ownership, the addition of an accelerated death benefit rider, or an
assignment of the Policy may have federal income tax consequences. In addition,
federal, state and local transfer, and other tax consequences of ownership or
receipt of Policy proceeds depend on the circumstances of each policyholder or
beneficiary.
DEATH BENEFIT
The death benefit under the Policy should be excludable from the gross income of
the beneficiary under Section 101(a)(1) of the Code.
CASH VALUES
Generally, the policyholder will not be deemed to be in constructive receipt of
the Policy Value until there is a distribution. This includes additions
attributable to interest, dividends, appreciation or gains realized on transfers
among sub-accounts.
37
<PAGE> 38
INVESTMENT IN THE POLICY Investment in the Policy means:
(a) the aggregate amount of any premiums or other consideration paid for a
Policy; minus
(b) the aggregate amount, other than loan amounts, received under the
Policy which has been excluded from the gross income of the
policyholder (except that the amount of any loan from, or secured by, a
Policy that is a MEC, to the extent such amount has been excluded from
gross income, will be disregarded); plus
(c) the amount of any loan from, or secured by a Policy that is a MEC to
the extent that such amount has been included in the gross income of
the policyholder.
The repayment of a policy loan, or the payment of interest on a loan, does not
affect the Investment in the Policy.
SURRENDER OR LAPSE
Upon a complete surrender or lapse of a Policy or when benefits are paid at a
Policy's maturity date, if the amount received plus the amount of Policy Debt
exceeds the total investment in the Policy, the excess will generally be treated
as ordinary income subject to tax.
If, at the time of lapse, a Policy has a loan, the loan is extinguished and the
amount of the loan is a deemed payment to the policyholder. If the amount of
this deemed payment exceeds the investment in the contract, the excess is
taxable income and is subject to Internal Revenue Service reporting
requirements.
DISTRIBUTIONS
The tax consequences of distributions from, and loans taken from or secured by,
a Policy depend on whether the Policy is classified as a "Modified Endowment
Contract" or "MEC".
DISTRIBUTIONS FROM NON-MEC'S
A distribution from a non-MEC is generally treated as a tax-free recovery by the
policyholder of the Investment in the Policy to the extent of such Investment in
the Policy, and as a distribution of taxable income only to the extent the
distribution exceeds the Investment in the Policy. Loans from, or secured by, a
non-MEC are not treated as distributions. Instead, such loans are treated as
indebtedness of the policyholder.
Force Outs
An exception to this general rule occurs in the case of a decrease in the
Policy's death benefit or any other change that reduces benefits under the
Policy in the first 15 years after the Policy is issued and that results in a
cash distribution to the policyholder in order for the Policy to continue to
comply with the Section 7702 definitional limits. Such a cash distribution will
be taxed in whole or in part as ordinary income (to the extent of any gain in
the Policy) under rules prescribed in Section 7702. Changes include partial
withdrawals and death benefit option changes.
DISTRIBUTIONS FROM MEC'S
Policies classified as MEC's will be subject to the following tax rules:
(a) First, all partial withdrawals from such a Policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of the
Policy Value immediately before the distribution over the Investment in the
Policy at such time.
38
<PAGE> 39
(b) Second, loans taken from or secured by such a Policy are treated as partial
withdrawals from the Policy and taxed accordingly. Past-due loan interest
that is added to the loan amount is treated as a loan.
(c) Third, a 10% additional income tax is imposed on the portion of any
distribution (including distributions on surrender) from, or loan taken
from or secured by, such a policy that is included in income except where
the distribution or loan:
(i) is made on or after the policyholder attains age 59 1/2;
(ii) is attributable to the policyholder becoming disabled; or
(iii) is part of a series of substantially equal periodic payments
for the life (or life expectancy) of the policyholder or the
joint lives (or joint life expectancies) of the policyholder
and the policyholder's beneficiary.
These exceptions are not likely to apply in situations where the Policy is not
owned by an individual.
Definition of Modified Endowment Contracts
Section 7702A establishes a class of life insurance contracts designated as
"Modified Endowment Contracts," which applies to Policies entered into or
materially changed after June 20, 1988.
In general, a Policy will be a Modified Endowment Contract if the accumulated
premiums paid at any time during the first seven policy years exceed the
"seven-pay premium limit". The seven-pay premium limit on any date is equal to
the sum of the net level premiums that would have been paid on or before such
date if the policy provided for paid-up future benefits after the payment of
seven level annual premiums (the "seven-pay premium").
The rules relating to whether a Policy will be treated as a MEC are extremely
complex and cannot be adequately described in the limited confines of this
summary. Therefore, a current or prospective policyholder should consult with a
competent adviser to determine whether a transaction will cause the Policy to be
treated as a MEC.
Material Changes
A policy that is not a MEC may become a MEC if it is "materially changed". If
there is a material change to the policy, the seven year testing period for MEC
status is restarted. The material change rules for determining whether a Policy
is a MEC are complex. In general, however, the determination of whether a Policy
will be a MEC after a material change generally depends upon the relationship
among the death benefit of the Policy at the time of such change, the Policy
Value at the time of the change, and the additional premiums paid into the
Policy during the seven years starting with the date on which the material
change occurs.
Reductions in Face Amount
If there is a reduction in benefits during the first seven policy years, the
seven-pay premium limit is recalculated as if the policy had been originally
issued at the reduced benefit level. Failure to comply would result in
classification as a MEC regardless of any efforts by the Company to provide a
payment schedule that will not violate the seven pay test.
Exchanges
A life insurance contract received in exchange for a MEC will also be treated as
a MEC.
Processing of Premiums
If a premium is received which would cause the Policy to become a MEC within 23
days of the next Policy Anniversary, the Company will not apply the portion of
the premium which would cause MEC status ("excess premium") to the Policy when
received. The excess premium will be placed in a suspense account until the next
anniversary date, at which point the excess premium, along with interest, earned
on
39
<PAGE> 40
the excess premium at a rate of 3.5% from the date the premium was received,
will be applied to the Policy. The policyholder will be advised of this action
and will be offered the opportunity to have the premium credited as of the
original date received or to have the premium returned. If the policyholder does
not respond, the premium and interest will be applied to the Policy as of the
first day of the next anniversary.
If a premium is received which would cause the Policy to become a MEC more than
23 days prior to the next Policy Anniversary, the Company will refund any excess
premium to the policyholder. The portion of the premium which is not excess will
be applied as of the date received. The policyholder will be advised of this
action and will be offered the opportunity to return the premium and have it
credited to the account as of the original date received.
Multiple Policies
All MEC's that are issued by a Company (or its affiliates) to the same
policyholder during any calendar year are treated as one MEC for purposes of
determining the amount includible in gross income under Section 72(e) of the
Code.
POLICY LOAN INTEREST
Generally, personal interest paid on any loan under a Policy which is owned by
an individual is not deductible. For policies purchased on or after January 1,
1996, interest on any loan under a Policy owned by a taxpayer and covering the
life of any individual who is an officer or employee of or is financially
interested in the business carried on by the taxpayer will not be tax deductible
unless the employee is a key person within the meaning of Section 264 of the
Code. A deduction will not be permitted for interest on a loan under a Policy
held on the life of a key person to the extent the aggregate of such loans with
respect to contracts covering the key person exceed $50,000. The number of
employees who can qualify as key persons depends in part on the size of the
employer but cannot exceed 20 individuals.
Furthermore, if a non-natural person owns a Policy, or is the direct or indirect
beneficiary under a Policy, section 264(f) of the Code disallows a pro-rata
portion of the taxpayer's interest expense allocable to unborrowed Policy cash
values attributable to insurance held on the lives of individuals who are not
20% (or more) owners of the taxpayer-entity, officers, employees, or former
employees of the taxpayer.
The portion of the interest expense that is allocable to unborrowed Policy cash
values is an amount that bears the same ratio to that interest expense as the
taxpayer's average unborrowed Policy cash values under such life insurance
policies bear to the average adjusted bases for all assets of the taxpayer.
If the taxpayer is not the Policyholder, but is the direct or indirect
beneficiary under the Policy, then the amount of unborrowed cash value of the
Policy taken into account in computing the portion of the taxpayer's interest
expense allocable to unborrowed Policy cash values cannot exceed the benefit to
which the taxpayer is directly or indirectly entitled under the Policy.
POLICY EXCHANGES
A policyholder generally will not recognize gain upon the exchange of a Policy
for another life insurance policy issued by the Company or another insurance
company, except to the extent that the policyholder receives cash in the
exchange or is relieved of Policy indebtedness as a result of the exchange. In
no event will the gain recognized exceed the amount by which the Policy Value
(including any unpaid loans) exceeds the policyholder's Investment in the
Policy.
OTHER TRANSACTIONS
A transfer of the Policy, a change in the owner, a change in the beneficiary,
and certain other changes to the Policy, as well as particular uses of the
Policy (including use in a so called "split-dollar" arrangement) may have tax
consequences depending upon the particular circumstances and should not be
undertaken
40
<PAGE> 41
prior to consulting with a qualified tax adviser. For instance, if
the owner transfers the Policy or designates a new owner in return for valuable
consideration (or, in some cases, if the transferor is relieved of a liability
as a result of the transfer), then the Death Benefit payable upon the death of
the Insured may in certain circumstances be includible in taxable income to the
extent that the Death Benefit exceeds the prior consideration paid for the
transfer and any premiums or other amounts subsequently paid by the transferee.
Further, in such a case, if the consideration received exceeds the transferor's
Investment in the Policy, the difference will be taxed to the transferor as
ordinary income.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the individual
circumstances of each policyholder and beneficiary.
ALTERNATE MINIMUM TAX
Corporate owners may be subject to Alternate Minimum Tax on the annual increases
in Cash Surrender Values and on the Death Benefit proceeds.
INCOME TAX REPORTING
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following:
(a) the value each year of the life insurance protection provided;
(b) an amount equal to any employer-paid premiums; or
(c) some or all of the amount by which the current value exceeds the
employer's interest in the Policy.
Participants should consult with their tax adviser to determine the tax
consequences of these arrangements.
OTHER INFORMATION
PAYMENT OF PROCEEDS
As long as the Policy is in force, Manufacturers Life of America will ordinarily
pay any policy loans, surrenders, partial withdrawals or insurance benefit
within seven days after receipt at its Service Office of all the documents
required for such a payment. The Company may delay the payment of any policy
loans, surrenders, partial withdrawals, or insurance benefit that depends on
Guaranteed Interest Account values for up to six months or in the case of any
Investment Account for any period during which (i) the New York Stock Exchange
is closed for trading (except for normal weekend and holiday closings), (ii)
trading on the New York Stock Exchange is restricted (iii) an emergency exists
as a result of which disposal of securities held in the Separate Account is not
reasonably practicable or it is not reasonably practicable to determine the
value of the Separate Account's net assets or (iv) the SEC, by order, so permits
for the protection of security holders; provided that applicable rules and
regulations of the SEC shall govern as to whether the conditions described in
(2) and (3) exist.
REPORTS TO POLICYHOLDERS
Within 30 days after each Policy Anniversary, Manufacturers Life of America will
send the policyholder a statement showing, among other things:
- - the amount of death benefit;
- - the Policy Value and its allocation among the Investment Accounts, the
Guaranteed Interest Account and the Loan Account;
- - the value of the units in each Investment Account to which the Policy
Value is allocated;
- - the Policy Debt and any loan interest charged since the last report;
- - the premiums paid and other Policy transactions made during the period
since the last report; and
41
<PAGE> 42
- - any other information required by law.
Each policyholder will also be sent an annual and a semi-annual report for
the Trust which will include a list of the securities held in each Portfolio as
required by the 1940 Act.
DISTRIBUTION OF THE POLICIES
ManEquity, Inc., an indirect wholly-owned subsidiary of Manufacturers Life, will
act as the principal underwriter of, and continuously offer, the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
ManEquity, Inc. is registered as a broker-dealer under the Securities Exchange
Act of 1934 and is a member of the National Association of Securities Dealers.
ManEquity, Inc. is located at 200 Bloor Street East, Toronto, Ontario, Canada,
M4W 1E5 and was organized under the laws of Colorado on May 4, 1970. The
directors of ManEquity, Inc. are: John Richardson, Roy Bubbs, Bruce Gordon, Gary
Buchanan and Douglas Myers. The officers of ManEquity, Inc. are: (i) Douglas
Myers - President, (ii) Gary Buchanan - Vice President, Compliance, (iii) Thomas
Reives - Treasurer, (iv) Brian Buckley - Secretary and General Counsel. The
principal business address of each director and officer of ManEquity, Inc.,
except Brian Buckley, is Manulife Financial, 200 Bloor Street East, Toronto,
Ontario, Canada, M4W 1E5. The principal business address of Brian Buckley is
Manulife Financial, 73 Tremont Street, Boston, MA 02108. The Policies will be
sold by registered representatives of either ManEquity or other broker-dealers
having distribution agreements with ManEquity who are also authorized by state
insurance departments to do so.
A registered representative will receive commissions not to exceed 15% of
premiums paid up to the Target Premium, and 2.5% of premiums paid in excess of
the Target Premium in Policy Years 1 through 5, commissions of 2.5% of premiums
paid in Policy Years 6 and later, and after the fifth anniversary 0.20% of the
Policy Value per year. In addition representatives may be eligible for an
additional commission of $100 per Policy per year. Representatives who meet
certain productivity standards with regard to the sale of the Policies and
certain other policies issued by Manufacturers Life of America or Manufacturers
Life will be eligible for additional compensation.
RESPONSIBILITIES OF MANUFACTURERS LIFE
Manufacturers Life and Manufacturers USA have entered into an agreement with
ManEquity, Inc. pursuant to which Manufacturers Life or Manufacturers USA, on
behalf of ManEquity, Inc. will pay the sales commissions in respect of the
Policies and certain other policies issued by Manufacturers Life of America,
prepare and maintain all books and records required to be prepared and
maintained by ManEquity, Inc. with respect to the policies and such other
policies, and send all confirmations required to be sent by ManEquity, Inc. with
respect to the Policies and such other policies. ManEquity, Inc. will promptly
reimburse Manufacturers Life or Manufacturers USA for all sales commissions paid
by Manufacturers Life or Manufacturers USA and will pay Manufacturers Life or
Manufacturers USA for its other services under the agreement in such amounts and
at such times as agreed to by the parties.
Manufacturers Life and Manufacturers USA have also entered into a Service
Agreement with Manufacturers Life of America pursuant to which Manufacturers
Life and Manufacturers USA will provide to Manufacturers Life of America all
issue, administrative, general services and recordkeeping functions on behalf of
Manufacturers Life of America with respect to all of its insurance policies
including the Policies.
Finally, Manufacturers USA has entered into a Stoploss Reinsurance Agreement
with Manufacturers Life of America under which Manufacturers Life (or
Manufacturers USA) reinsures all aggregate claims in excess of 110% of the
expected claims for all flexible premium variable life insurance policies issued
by Manufacturers Life of America. Under the agreement, Manufacturers USA will
automatically reinsure the risk for any one life up to a maximum of $7,500,000,
except in the case of aviation risks where the maximum will be $5,000,000.
However, Manufacturers USA may also consider reinsuring any non-aviation risk in
excess of $7,500,000 and any aviation risk in excess of $5,000,000.
42
<PAGE> 43
VOTING RIGHTS
As stated previously, all of the assets held in the sub-accounts of the Separate
Account will be invested in shares of a particular Portfolio of the Trust.
Manufacturers Life of America is the legal owner of those shares and as such has
the right to vote upon certain matters that are required by the 1940 Act to be
approved or ratified by the shareholders of a mutual fund and to vote upon any
other matters that may be voted upon at a shareholders' meeting. However,
Manufacturers Life of America will vote shares held in the sub-accounts in
accordance with instructions received from policyholders having an interest in
such sub-accounts. Shares held in each sub-account for which no timely
instructions from policyholders are received, including shares not attributable
to the Policies, will be voted by Manufacturers Life of America in the same
proportion as those shares in that sub-account for which instructions are
received. Should the applicable federal securities laws or regulations change so
as to permit Manufacturers Life of America to vote shares held in the Separate
Account in its own right, it may elect to do so.
The number of shares in each sub-account for which instructions may be given by
a policyholder is determined by dividing the portion of the Policy Value derived
from participation in that sub-account, if any, by the value of one share of the
corresponding Portfolio. The number will be determined as of a date chosen by
Manufacturers Life of America, but not more than 90 days before the
shareholders' meeting. Fractional votes are counted. Voting instructions will be
solicited in writing at least 14 days prior to the meeting.
Manufacturers Life of America may, if required by state officials, disregard
voting instructions if such instructions would require shares to be voted so as
to cause a change in the sub-classification or investment policies of one or
more of the Portfolios, or to approve or disapprove an investment management
contract. In addition, the Company itself may disregard voting instructions that
would require changes in the investment policies or investment adviser, provided
that Manufacturers Life of America reasonably disapproves such changes in
accordance with applicable federal regulations. If Manufacturers Life of America
does disregard voting instructions, it will advise policyholders of that action
and its reasons for such action in the next communication to policyholders.
SUBSTITUTION OF PORTFOLIO SHARES
It is possible that in the judgment of the management of Manufacturers Life of
America, one or more of the Portfolios may become unsuitable for investment by
the Separate Account because of a change in investment policy or a change in the
applicable laws or regulation, because the shares are no longer available for
investment, or for some other reason. In that event, Manufacturers Life of
America may seek to substitute the shares of another Portfolio or of an entirely
different mutual fund. Before this can be done, the approval of the S.E.C. and
one or more state insurance departments may be required.
Manufacturers Life of America also reserves the right (i) to combine other
separate accounts with the Separate Account, (ii) to create new separate
accounts, (iii) to establish additional sub-accounts within the Separate Account
to invest in additional portfolios of the Trust or another management investment
company, (iv) to eliminate existing sub-accounts and to stop accepting new
allocations and transfers into the corresponding portfolio, (v) to combine
sub-accounts or to transfer assets in one sub-account to another sub-account or
(vi) to transfer assets from the Separate Account to another separate account
and from another separate account to the Separate Account. The Company also
reserves the right to operate the Separate Account as a management investment
company or other form permitted by law, and to de-register the Separate Account
under the 1940 Act. Any such change would be made only if permissible under
applicable federal and state law.
RECORDS AND ACCOUNTS
McCamish Systems, L.L.C., 6425 Powers Ferry Road, Atlanta, Georgia 30339, will
act as a Transfer Agent on behalf of Manufacturers Life of America as it relates
to the Policies described in this Prospectus.
43
<PAGE> 44
In the role of a Transfer Agent, McCamish Systems will perform administrative
functions, such as decreases, increases, surrenders and partial withdrawals,
fund transfers on behalf of the Company.
All records and accounts relating to the Separate Account and the Portfolios
will be maintained by the Company. All financial transactions will be handled by
the Company. All reports required to be made and information required to be
given will be provided by McCamish Systems on behalf of the Company.
STATE REGULATIONS
Manufacturers Life of America is subject to the regulation and supervision by
the Michigan Department of Insurance, which periodically examines its financial
condition and operations. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business. The
Policies have been filed with insurance officials, and meet all standards set by
law, in each jurisdiction where they are sold.
Manufacturers Life of America is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
LITIGATION
No litigation is pending that would have a material effect upon the Separate
Account or the Trust.
EXPERTS
The financial statements of The Manufacturers Life Insurance Company of America
and Separate Account Four of The Manufacturers Life Insurance Company of
America at December 31, 1997 and for the three years then ended appearing in
this prospectus have been audited by Ernst & Young LLP, independent auditors,
to the extent indicated in their reports thereon also appearing elsewhere
herein. Such financial statements have been included herein in reliance upon
such reports given upon the authority of such firm as experts in auditing and
accounting.
FURTHER INFORMATION
A registration statement under the Securities Act of 1933 has been filed with
the S.E.C. relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. The omitted information may be obtained from the S.E.C.'s principal
office in Washington D.C. upon payment of the prescribed fee. The Commission
also maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission which is located at http://www.sec.gov.
For further information you may also contact Manufacturers Life of America's
Home Office, the address and telephone number of which are on the first page of
the prospectus.
<TABLE>
<CAPTION>
OFFICERS AND DIRECTORS
<S> <C> <C>
Position with
Manufacturers Life
Name of America Principal Occupation
Sandra M. Cotter (35) Director Attorney at Dykema Gosset - 1989 - present
(since December 1992)
James D. Gallagher (43) Director, Secretary and Vice President, Secretary and General Counsel -
General Counsel (since May January 1997- present, ManUSA; Vice President,
1996) Legal Services U.S. Operations - January 1996 -
present, The Manufacturers Life Insurance Company;
Vice President, Secretary and General Counsel -
1994 - present, The Manufacturers Life Insurance
Company of North America; Vice President and
Associate
</TABLE>
44
<PAGE> 45
<TABLE>
<S> <C> <C>
General Counsel - 1991 - 1994, The
Prudential Insurance Company of America
Bruce Gordon (54) Director Vice President, U.S. Operations - Pensions -
(since May 1996) 1990 - present, The Manufacturers Life
Insurance Company
Donald A. Guloien (41) Director and President Senior Vice President, Business Development -
(since August 1990) 1994 - present, The Manufacturers Life
Insurance Company; Vice President, U.S.
Individual Business - 1990 - 1994, The
Manufacturers Life Insurance Company
Theodore Kilkuskie, Jr. (42) Director, Vice President U.S. Vice President, U.S. Individual Insurance -
Individual Insurance January 1997 - present, ManUSA; Vice President,
U.S. Individual Insurance June 1995 - present,
The Manufacturers Life Insurance Company;
Executive Vice President, Mutual Funds -
January 1995 - May 1995, State Street Research,
Vice President, Mutual Funds - 1987 - 1994,
Metropolitan Life Insurance Company
Joseph J. Pietroski (59) Director (since July 1992) Senior Vice President, General Counsel and
Corporate Secretary - 1988 - present, The
Manufacturers Life Insurance Company
John D. Richardson (60) Chairman and Director Executive Vice President and General Manager,
(since January 1995) U.S. Operations - 1995 - present, The
Manufacturers Life Insurance Company; Senior
Vice President and General Manager, Canadian
Operations 1992 - 1994.
John R. Ostler (45) Vice President Financial Vice President - 1992 - present, The
and Treasurer Manufacturers Life Insurance Company.
Douglas H. Myers (43) Vice President, Finance and Assistant Vice President and Controller, U.S.
Compliance Controller Operations - 1988 - present, The Manufacturers
Life Insurance Company
Victor Apps (49) Senior Vice President, Asia Senior Vice President and General Manager,
Greater China Division - 1995 - present, The
Manufacturers Life Insurance Company; Vice
President and General Manager, Greater China
Division - 1993 - 1995, The Manufacturers Life
Insurance Company; International Vice President
- 1988 - 1993, Asia Pacific Division, The
Manufacturers Life Insurance Company.
Robert A. Cook (43) Vice President, Marketing Vice President, Product Management - 1996 -
present, The Manufacturers Life Insurance
Company; Sales and Marketing Director, U.S.
Division - 1994 - 1995, The Manufacturers Life
Insurance Company; Vice President, Corporation
Strategic Review - 1992 - 1993, The
Manufacturers Life Insurance Company
Felix Chee (51) Vice President, Investments Executive Vice President--1997 to present, The
Manufacturers Life Insurance Company; Chief
Investment Officer--1997 to present, The
Manufacturers Life Insurance Company; Senior
Vice President and Treasurer--1993-1994, The
Manufacturers Life Insurance Company; Senior
Vice President, Corporate Finance--April 1993
to September 1993, Ontario Hydro
Hugh C. McHaffie (39) Vice President Vice President, U.S. Annuities and Product
Development--1996 to present, The Manufacturers
Life Insurance Company; Vice President U.S.
Annuities and Development--1994 to present, The
Manufacturers Life Insurance Company of North
America; Product Development Executive--1990
to 1994, The Manufacturers Life Insurance
Company of North America
</TABLE>
45
<PAGE> 46
<TABLE>
<S> <C> <C>
John G. Vrysen (42) Vice President, Appointed Vice President and Chief Financial Officer,
Actuary U.S. Operations--1996 to present, The
Manufacturers Life Insurance Company; Vice
President and Chief Actuary--1996 to present,
The Manufacturers Life Insurance Company of
North America; Vice President and Chief
Actuary, The Manufacturers Life Insurance
Company of North America--1986 to present.
</TABLE>
46
<PAGE> 47
IMPACT OF YEAR 2000
Preparing computer systems to deal with the Year 2000 risk has become a
major issue for businesses throughout the world. Within Manufacturers Life, a
group-wide program has been underway since 1996 to make all critical systems
compliant by the end of 1998 and other systems compliant by the end of 1999.
Included in this program are all system applicable to and shared by the Company
with Manufacturers Life. Based on a detailed assessment, Manufacturers Life
determined that a portion of its software needs to be modified or replaced so
that its computer systems will function properly into the Year 2000 and beyond.
Like most companies, the Year 2000 issue represents a significant challenge for
Manufacturers Life and extensive resources have been dedicated to modifying
existing software and to converting to new software. However, there can be no
assurances that Manufacturers Life's systems, nor those of other companies on
which Manufacturers Life relies, will be fully converted on a timely basis and
therefore that all adverse effect on the Company due to the Year 2000 risk will
be avoided. Manufacturers Life is presently consulting with vendors, customers,
subsidiaries, third-parties and other businesses with which it deals to ensure
that no material aspect of its, or the Company's, operations will be hindered by
the Year 2000 risk.
The costs of the project and the date on which Manufacturers Life plans
to complete the modifications are based on management's best estimates and are
subject to some uncertainty. Manufacturers Life is using both internal and
external resources to reprogram, or replace, and test the software for Year 2000
modifications. The total cost of this program to Manufacturers Life is estimated
to be $64 million, comprised of $55 million for specifically budgeted programs
and $9 million for general contingencies. Manufacturers Life has incurred $15
million as at December 31, 1997 of which the Company will receive an allocation
due to its shared systems. The costs allocated are not expected to have a
material effect on the net operating income of the Company.
DEATH BENEFIT SCHEDULE WITH FLEXIBLE TERM INSURANCE OPTION
A Policy can be issued with a schedule of death benefits which may vary by
Policy Year. The entire schedule is called the Death Benefit Schedule. The Death
Benefit Schedule will provide flexible term insurance to age 100. The amount of
death benefit shown in the Death Benefit Schedule for any Policy Year is called
the Scheduled Annual Death Benefit for that Policy Year. Any amount of Scheduled
Annual Death Benefit over and above the death benefit provided by the Policy
will be provided by Flexible Term Insurance (the "Rider"). The combined death
benefit of the Policy and Rider may be the Scheduled Annual Death Benefit alone
(similar to Death Benefit Option 1), or the Scheduled Annual Death Benefit plus
the Policy Value (similar to Death Benefit Option 2).
A Policy may be combined with the Rider to result in an initial Scheduled
Annual Death Benefit equal to the same Face Amount that could be acquired under
the Policy alone. Depending upon the amount of premium paid into the Policy,
combining the Policy and the Rider may result in a surrender charge for the
Policy that is lower than the surrender charge provided under the Policy alone.
In addition, current cost of insurance rates for the Rider are generally less
than or equal to those for the Policy in the first fifteen Policy years, but
greater than or equal to the rates for the Policy in Policy Year 16 and later.
A policyholder may, upon written request, change the Death Benefit Schedule. A
written request for a change which results in a decrease to the Scheduled Annual
Death Benefit must be received at least 30 days prior to the first day of a
policy month for the change to take effect as of that policy month. A written
request for a change which results in an increase to the Scheduled Annual Death
Benefit in any Policy Year will take effect at the beginning of the month
following the date the Company approves the request. Increases in the Death
Benefit Schedule are subject to evidence of insurability satisfactory to the
Company, A requested decrease in the Schedule will require a decrease in the
Policy's Face Amount if the new Death Benefit Schedule in any year is less than
the Face Amount. In this case, the Face Amount will be reduced to the Scheduled
Annual Death Benefit. If a decrease in Face Amount is required,
47
<PAGE> 48
Surrender Charges will be assessed as provided under "Decrease in Face Amount -
Surrender Charges Assessed on a Decrease".
If the policyholder changes the Death Benefit Option of the Policy from
Death Benefit Option 2 to Death Benefit Option 1 and if the Face Amount of the
Policy after the change would be greater than the Scheduled Annual Death Benefit
in effect at the time of the change, then the Face Amount after the change will
be equal to the Scheduled Annual Death Benefit.
If the Face Amount of the Policy is increased then the Scheduled Annual
Death Benefit for all Policy Years after and including the effective date of the
change will be increased by the same amount. If the Face Amount of the Policy is
decreased then the Scheduled Annual Death Benefit for all Policy Years after and
including the effective date of the change will be decreased by the same amount.
This provision does not apply to increases or decreases in Face Amount due to a
change in the Death Benefit Option.
If in any Policy Year, the Face Amount is greater than the Scheduled
Annual Death Benefit for that Policy Year, the Face Amount will be reduced to be
equal to the Scheduled Annual Death Benefit. If the Face Amount is decreased,
Surrender Charges will be assessed as provided under "Decrease in Face Amount -
Surrender Charged Assessed on a Decrease."
Year to year changes within the Death Benefit Schedule, as well as a change in
the Death Benefit Schedule itself, may also have an effect on the maximum amount
of premium that a policyholder may pay into a Policy. The Company will inform
you of any such change. The Company reserves the right to limit a change in the
Death Benefit Schedule so as to prevent the Policy from failing to qualify as
life insurance for tax purposes.
The Rider is subject to the same Incontestability, Misstatement of Age or Sex,
and Suicide Exclusion provisions as the Policy.
The Rider terminates on the termination date of the Policy. The policyholder
may, however, terminate the Rider prior to the termination date of the Policy by
sending the Company a written request to terminate the Rider. The Rider will
then terminate at the end of the month in which the Company receives the
request.
ILLUSTRATIONS
The following tables illustrate the way in which a Policy's Death Benefit,
Policy Value, and Cash Surrender Value could vary over an extended period of
time.
ASSUMPTIONS
- - Hypothetical gross annual investment returns for the Portfolios (i.e.,
investment income and capital gains and losses, realized or unrealized)
equivalent to constant gross annual rates of 0%, 6%, and 12% over the
periods indicated.
- - An Insured who is a male, Issue Age 45, non-smoker.
- - A Face Amount of $365,000 in all Policy Years.
- - Payment of an annual premium of $20,000 each year for the first seven
Policy Years.
- - Premiums are paid on the Policy Anniversary. All Premiums are allocated
to and remain in the Variable Account for the entire period shown.
- - There are no transfers, partial withdrawals, or policy loans.
- - Tables 1, 2, and 3 assume regular underwriting. Tables 4, 5, and 6
assume short form underwriting.
- - The Cash Value Accumulation Test is used. Results would vary if the
Guideline Premium Test were used. See "Death Benefits - Life Insurance
Qualification" for a description of the differences between these two
Tests.
- - The illustrations assume all charges currently assessed against the
Policy, including monthly cost of insurance charges and administrative
charges and mortality and expense risk charges. The first set of
columns in each table, under the heading "Current Charges", assumes
cost of insurance rates
48
<PAGE> 49
currently expected to be charged. The second set of columns, under the
heading "Guaranteed Charges", assumes maximum cost of insurance rates.
- - The amounts shown in the Tables also take into account the Portfolios'
advisory fees and operating expenses, which are assumed to be at an
annual rate of 0.954% of the average daily net assets of the portfolio.
Five of the Portfolios (the five Lifestyle Trusts) are subject to a
voluntary expenses reimbursement whereby the Adviser pays the expenses
of each Lifestyle Trust (excluding the expenses of the underlying
portfolios). This expenses reimbursement may be terminated at any
time. If such expense reimbursement were not in affect, Portfolios'
advisory fees and operating expenses would be assumed to be at an
annual rate of .960% of the average daily net assets of the portfolio.
The Death Benefits, Policy Values, and Cash Surrender Values would be different
from those shown if the returns averaged 0%, 6%, and 12%, but fluctuated over
and under those averages throughout the years. The values would also be
different depending on the allocation of a Policy's total Policy Value among the
sub-accounts, if the actual rates of return averaged 0%, 6%, or 12%, but the
rates of each Portfolio varied above and below such averages.
The gross annual rates of returns correspond to net annual rates of return
according to the table below:
Gross Rate of Return
Policy Year 0.00% 6.00% 12.00%
Net Rate 1-10 -1.692% 4.206% 10.105%
of Return 11+ -1.346% 4.574% 10.493%
Current cost of insurance charges are not guaranteed and may be changed.
Upon request, Manufacturers Life of America will furnish a comparable
illustration based on the proposed life insured's Issue Age, sex and risk class,
any additional ratings and the death benefit option, Face Amount, Death Benefit
Schedule (if applicable), and planned premium requested. Illustrations for
smokers would show less favorable results than the illustration shown in this
prospectus.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Portfolios, the Company may include
cash surrender values and death benefit figures computed or using the same
methodology as that used in the following illustrations, but with the average
annual total return of the Portfolio for which performance data is shown in the
advertisement replacing the hypothetical rates of return shown in the following
tables.
The Policies were first sold to the public on September 11, 1998. However,
total return data may be advertised for as long a period of time as the
underlying Portfolio has been in existence. The results for any period prior to
the Policies being offered would be calculated as if the Policies had been
offered during that period of time, with all charges assumed to be the same as
for the first full year the Policies were offered.
49
<PAGE> 50
<TABLE>
<CAPTION>
Table 1
Regular Underwriting
Hypothetical Gross Investment Return of 0.00%
Current Charges
--------------------------------------------------------------------------------
Premiums Policy Plus Less Less Plus Policy Net Cash Death
Policy Annual Accum Value Net Admin Cost of Invest Value Sur Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees Ins Earnings End Yr Charges Value End Yr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 0 19,600 144 732 -324 18,400 2,000 16,400 365,000
2 20,000 43,050 18,400 19,600 144 980 -633 36,243 3,000 33,243 365,000
3 20,000 66,203 36,243 19,600 144 1,198 -933 53,569 3,000 50,569 365,000
4 20,000 90,513 53,569 19,600 144 1,285 -1,225 70,514 4,000 66,514 365,000
5 20,000 116,038 70,514 19,600 144 1,320 -1,512 87,138 5,000 82,138 365,000
6 20,000 142,840 87,138 19,600 144 1,381 -1,792 103,421 5,000 98,421 365,000
7 20,000 170,982 103,421 19,600 144 1,432 -2,068 119,378 4,000 115,378 365,000
8 0 179,531 119,378 0 144 1,598 -2,004 115,631 3,000 112,631 365,000
9 0 188,508 115,631 0 144 1,794 -1,939 111,754 2,000 109,754 365,000
10 0 197,933 111,754 0 144 2,035 -1,871 107,704 0 107,704 365,000
11 0 207,830 107,704 0 144 2,082 -1,433 104,045 0 104,045 365,000
12 0 218,221 104,045 0 144 2,089 -1,384 100,427 0 100,427 365,000
13 0 229,132 100,427 0 144 2,042 -1,336 96,906 0 96,906 365,000
14 0 240,589 96,906 0 144 1,859 -1,289 93,614 0 93,614 365,000
15 0 252,619 93,614 0 144 1,518 -1,248 90,704 0 90,704 365,000
16 0 265,249 90,704 0 144 1,680 -1,207 87,673 0 87,673 365,000
17 0 278,512 87,673 0 144 1,855 -1,165 84,508 0 84,508 365,000
18 0 292,438 84,508 0 144 2,049 -1,121 81,194 0 81,194 365,000
19 0 307,059 81,194 0 144 2,248 -1,075 77,727 0 77,727 365,000
20 0 322,412 77,727 0 144 2,455 -1,027 74,101 0 74,101 365,000
25 0 411,489 57,002 0 144 4,371 -734 51,752 0 51,752 365,000
30 0 525,176 24,565 0 144 8,479 -268 15,675 0 15,675 365,000
Guaranteed Charges
--------------------------------------------------------------------------------
Policy Plus Less Less Plus Policy Net Cash Death
Policy Value Net Admin Cost of Invest Value Sur Surrender Benefit
Year Beg Yr Premium Fees Ins Earnings End Yr Charges Value End Yr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 0 19,600 144 1,570 -316 17,570 2,000 15,570 365,000
2 17,570 19,600 144 1,612 -613 34,800 3,000 31,800 365,000
3 34,800 19,600 144 1,653 -904 51,700 3,000 48,700 365,000
4 51,700 19,600 144 1,687 -1,190 68,279 4,000 64,279 365,000
5 68,279 19,600 144 1,723 -1,470 84,542 5,000 79,542 365,000
6 84,542 19,600 144 1,753 -1,745 100,499 5,000 95,499 365,000
7 100,499 19,600 144 1,792 -2,015 116,148 4,000 112,148 365,000
8 116,148 0 144 1,986 -1,946 112,072 3,000 109,072 365,000
9 112,072 0 144 2,210 -1,875 107,843 2,000 105,843 365,000
10 107,843 0 144 2,466 -1,801 103,432 0 103,432 365,000
11 103,432 0 144 2,747 -1,371 99,170 0 99,170 365,000
12 99,170 0 144 3,057 -1,311 94,658 0 94,658 365,000
13 94,658 0 144 3,389 -1,248 89,877 0 89,877 365,000
14 89,877 0 144 3,755 -1,181 84,797 0 84,797 365,000
15 84,797 0 144 4,158 -1,110 79,386 0 79,386 365,000
16 79,386 0 144 4,616 -1,034 73,592 0 73,592 365,000
17 73,592 0 144 5,140 -952 67,356 0 67,356 365,000
18 67,356 0 144 5,748 -864 60,600 0 60,600 365,000
19 60,600 0 144 6,457 -767 53,231 0 53,231 365,000
20 53,231 0 144 7,272 -662 45,153 0 45,153 365,000
25 3,597 0 48 3,544 -5 0 0 0 0
30 0 0 0 0 0 0 0 0 0
- - THE POLICY VALUE, CASH SURRENDER VALUE, AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN
DIFFERENT AMOUNTS OR FREQUENCIES.
- - IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE
POLICYHOLDER, AND THE INVESTMENT RETURN FOR THE PORTFOLIOS OF MANUFACTURERS INVESTMENT TRUST.
- - THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT
ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS.
- - NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
Table 2
Regular Underwriting
Hypothetical Gross Investment Return of 6.00%
Current Charges
--------------------------------------------------------------------------------
Premiums Policy Plus Less Less Plus Policy Net Cash Death
Policy Annual Accum Value Net Admin Cost of Invest Value Sur Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees Ins Earnings End Yr Charges Value End Yr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 0 19,600 144 731 805 19,529 2,000 17,529 365,000
2 20,000 43,050 19,529 19,600 144 973 1,621 39,633 3,000 36,633 365,000
3 20,000 66,203 39,633 19,600 144 1,179 2,462 60,372 3,000 57,372 365,000
4 20,000 90,513 60,372 19,600 144 1,246 3,332 81,914 4,000 77,914 365,000
5 20,000 116,038 81,914 19,600 144 1,253 4,238 104,355 5,000 99,355 365,000
6 20,000 142,840 104,355 19,600 144 1,272 5,182 127,722 5,000 122,722 365,000
7 20,000 170,982 127,722 19,600 144 1,273 6,165 152,070 4,000 148,070 372,571
8 0 179,531 152,070 0 144 1,370 6,362 156,918 3,000 153,918 373,464
9 0 188,508 156,918 0 144 1,486 6,564 161,851 2,000 159,851 375,495
10 0 197,933 161,851 0 144 1,620 6,768 166,855 0 166,855 375,424
11 0 207,830 166,855 0 144 1,598 7,589 172,702 0 172,702 378,218
12 0 218,221 172,702 0 144 1,547 7,857 178,869 0 178,869 380,991
13 0 229,132 178,869 0 144 1,457 8,142 185,410 0 185,410 383,798
14 0 240,589 185,410 0 144 1,288 8,445 192,423 0 192,423 388,694
15 0 252,619 192,423 0 144 1,030 8,772 200,020 0 200,020 394,040
16 0 265,249 200,020 0 144 1,111 9,118 207,883 0 207,883 399,136
17 0 278,512 207,883 0 144 1,195 9,475 216,020 0 216,020 403,957
18 0 292,438 216,020 0 144 1,284 9,845 224,437 0 224,437 408,475
19 0 307,059 224,437 0 144 1,389 10,228 233,132 0 233,132 414,974
20 0 322,412 233,132 0 144 1,499 10,623 242,112 0 242,112 421,274
25 0 411,489 280,777 0 144 2,308 12,782 291,106 0 291,106 451,215
30 0 525,176 334,652 0 144 3,682 15,213 346,038 0 346,038 487,914
Guaranteed Charges
--------------------------------------------------------------------------------
Policy Plus Less Less Plus Policy Net Cash Death
Policy Value Net Admin Cost of Invest Value Sur Surrender Benefit
Year Beg Yr Premium Fees Ins Earnings End Yr Charges Value End Yr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 0 19,600 144 1,568 786 18,674 2,000 16,674 365,000
2 18,674 19,600 144 1,602 1,570 38,098 3,000 35,098 365,000
3 38,098 19,600 144 1,627 2,387 58,314 3,000 55,314 365,000
4 58,314 19,600 144 1,637 3,237 79,370 4,000 75,370 365,000
5 79,370 19,600 144 1,638 4,123 101,310 5,000 96,310 365,000
6 101,310 19,600 144 1,620 5,046 124,193 5,000 119,193 365,000
7 124,193 19,600 144 1,592 6,009 148,066 4,000 144,066 365,000
8 148,066 0 144 1,702 6,186 152,406 3,000 149,406 365,000
9 152,406 0 144 1,824 6,366 156,805 2,000 154,805 365,000
10 156,805 0 144 1,960 6,548 161,249 0 161,249 365,000
11 161,249 0 144 2,097 7,320 166,328 0 166,328 365,000
12 166,328 0 144 2,236 7,549 171,496 0 171,496 365,287
13 171,496 0 144 2,372 7,782 176,762 0 176,762 365,897
14 176,762 0 144 2,513 8,019 182,124 0 182,124 367,891
15 182,124 0 144 2,658 8,261 187,583 0 187,583 369,539
16 187,583 0 144 2,815 8,507 193,132 0 193,132 370,813
17 193,132 0 144 2,981 8,757 198,764 0 198,764 371,688
18 198,764 0 144 3,158 9,010 204,472 0 204,472 372,138
19 204,472 0 144 3,379 9,266 210,215 0 210,215 374,183
20 210,215 0 144 3,616 9,523 215,977 0 215,977 375,800
25 239,240 0 144 4,768 10,822 245,149 0 245,149 379,982
30 268,399 0 144 6,391 12,116 273,979 0 273,979 386,311
- - THE POLICY VALUE, CASH SURRENDER VALUE, AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN
DIFFERENT AMOUNTS OR FREQUENCIES.
- - IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE
POLICYHOLDER, AND THE INVESTMENT RETURN FOR THE PORTFOLIOS OF MANUFACTURERS INVESTMENT TRUST.
- - THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT
ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS.
- - NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
Table 3
Regular Underwriting
Hypothetical Gross Investment Return of 12.00%
Current Charges
--------------------------------------------------------------------------------------
Premiums Policy Plus Less Less Plus Policy Net Cash Death
Policy Annual Accum Value Net Admin Cost of Invest Value Sur Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees Ins Earnings End Yr Charges Value End Yr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 0 19,600 144 730 1,933 20,659 2,000 18,659 365,000
2 20,000 43,050 20,659 19,600 144 967 4,008 43,157 3,000 40,157 365,000
3 20,000 66,203 43,157 19,600 144 1,158 6,271 67,726 3,000 64,726 365,000
4 20,000 90,513 67,726 19,600 144 1,203 8,751 94,730 4,000 90,730 365,000
5 20,000 116,038 94,730 19,600 144 1,176 11,482 124,492 5,000 119,492 365,000
6 20,000 142,840 124,492 19,600 144 1,188 14,489 157,250 5,000 152,250 397,842
7 20,000 170,982 157,250 19,600 144 1,357 17,790 193,140 4,000 189,140 473,192
8 0 179,531 193,140 0 144 1,479 19,430 210,946 3,000 207,946 502,053
9 0 188,508 210,946 0 144 1,619 21,222 230,405 2,000 228,405 534,540
10 0 197,933 230,405 0 144 1,769 23,180 251,672 0 251,672 566,262
11 0 207,830 251,672 0 144 1,785 26,301 276,044 0 276,044 604,537
12 0 218,221 276,044 0 144 1,783 28,859 302,976 0 302,976 645,339
13 0 229,132 302,976 0 144 1,766 31,686 332,752 0 332,752 688,796
14 0 240,589 332,752 0 144 1,701 34,814 365,721 0 365,721 738,756
15 0 252,619 365,721 0 144 1,617 38,279 402,238 0 402,238 792,409
16 0 265,249 402,238 0 144 1,940 42,093 442,247 0 442,247 849,115
17 0 278,512 442,247 0 144 2,318 46,270 486,056 0 486,056 908,925
18 0 292,438 486,056 0 144 2,762 50,843 533,993 0 533,993 971,866
19 0 307,059 533,993 0 144 3,315 55,842 586,376 0 586,376 1,043,749
20 0 322,412 586,376 0 144 3,954 61,304 643,582 0 643,582 1,119,832
25 0 411,489 930,031 0 144 8,221 97,129 1,018,795 0 1,018,795 1,579,133
30 0 525,176 1,459,981 0 144 16,745 152,268 1,595,360 0 1,595,360 2,249,458
Guaranteed Charges
--------------------------------------------------------------------------------------
Policy Plus Less Less Plus Policy Net Cash Death
Policy Value Net Admin Cost of Invest Value Sur Surrender Benefit
Year Beg Yr Premium Fees Ins Earnings End Yr Charges Value End Yr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 0 19,600 144 1,566 1,888 19,779 2,000 17,779 365,000
2 19,779 19,600 144 1,591 3,886 41,529 3,000 38,529 365,000
3 41,529 19,600 144 1,600 6,083 65,468 3,000 62,468 365,000
4 65,468 19,600 144 1,582 8,503 91,844 4,000 87,844 365,000
5 91,844 19,600 144 1,541 11,170 120,930 5,000 115,930 365,000
6 120,930 19,600 144 1,505 14,112 152,994 5,000 147,994 387,074
7 152,994 19,600 144 1,889 17,332 187,893 4,000 183,893 460,337
8 187,893 0 144 2,134 18,865 204,480 3,000 201,480 486,663
9 204,480 0 144 2,430 20,526 222,432 2,000 220,432 516,043
10 222,432 0 144 2,746 22,323 241,865 0 241,865 544,197
11 241,865 0 144 3,118 25,199 263,803 0 263,803 577,729
12 263,803 0 144 3,533 27,478 287,604 0 287,604 612,597
13 287,604 0 144 3,974 29,952 313,438 0 313,438 648,817
14 313,438 0 144 4,491 32,634 341,437 0 341,437 689,703
15 341,437 0 144 5,054 35,541 371,780 0 371,780 732,407
16 371,780 0 144 5,680 38,690 404,646 0 404,646 776,921
17 404,646 0 144 6,374 42,101 440,228 0 440,228 823,227
18 440,228 0 144 7,148 45,792 478,728 0 478,728 871,284
19 478,728 0 144 8,111 49,778 520,251 0 520,251 926,047
20 520,251 0 144 9,183 54,076 565,000 0 565,000 983,100
25 781,355 0 144 15,979 81,099 846,331 0 846,331 1,311,813
30 1,156,814 0 144 28,264 119,817 1,248,223 0 1,248,223 1,759,995
- - THE POLICY VALUE, CASH SURRENDER VALUE, AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN
DIFFERENT AMOUNTS OR FREQUENCIES.
- - IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE
POLICYHOLDER, AND THE INVESTMENT RETURN FOR THE PORTFOLIOS OF MANUFACTURERS INVESTMENT TRUST.
- - THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT
ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS.
- - NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
<PAGE> 53
<TABLE>
<CAPTION>
Table 4
Short Form Issue
Hypothetical Gross Investment Return of 0.00%
Current Charges
--------------------------------------------------------------------------------
Premiums Policy Plus Less Less Plus Policy Net Cash Death
Policy Annual Accum Value Net Admin Cost of Invest Value Sur Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees Ins Earnings End Yr Charges Value End Yr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 0 19,600 144 840 -323 18,293 2,000 16,293 365,000
2 20,000 43,050 18,293 19,600 144 1,023 -631 36,095 3,000 33,095 365,000
3 20,000 66,203 36,095 19,600 144 1,236 -930 53,386 3,000 50,386 365,000
4 20,000 90,513 53,386 19,600 144 1,455 -1,221 70,167 4,000 66,167 365,000
5 20,000 116,038 70,167 19,600 144 1,624 -1,503 86,496 5,000 81,496 365,000
6 20,000 142,840 86,496 19,600 144 1,678 -1,779 102,496 5,000 97,496 365,000
7 20,000 170,982 102,496 19,600 144 1,686 -2,050 118,216 4,000 114,216 365,000
8 0 179,531 118,216 0 144 1,841 -1,982 114,249 3,000 111,249 365,000
9 0 188,508 114,249 0 144 2,031 -1,914 110,160 2,000 108,160 365,000
10 0 197,933 110,160 0 144 2,248 -1,842 105,926 0 105,926 365,000
11 0 207,830 105,926 0 144 2,287 -1,408 102,087 0 102,087 365,000
12 0 218,221 102,087 0 144 2,276 -1,356 98,310 0 98,310 365,000
13 0 229,132 98,310 0 144 2,222 -1,306 94,639 0 94,639 365,000
14 0 240,589 94,639 0 144 2,044 -1,258 91,193 0 91,193 365,000
15 0 252,619 91,193 0 144 1,723 -1,214 88,113 0 88,113 365,000
16 0 265,249 88,113 0 144 1,873 -1,171 84,925 0 84,925 365,000
17 0 278,512 84,925 0 144 2,036 -1,127 81,618 0 81,618 365,000
18 0 292,438 81,618 0 144 2,207 -1,081 78,187 0 78,187 365,000
19 0 307,059 78,187 0 144 2,372 -1,034 74,637 0 74,637 365,000
20 0 322,412 74,637 0 144 2,541 -985 70,967 0 70,967 365,000
25 0 411,489 53,902 0 144 4,415 -692 48,650 0 48,650 365,000
30 0 525,176 21,397 0 144 8,557 -225 12,471 0 12,471 365,000
Guaranteed Charges
--------------------------------------------------------------------------------
Policy Plus Less Less Plus Policy Net Cash Death
Policy Value Net Admin Cost of Invest Value Sur Surrender Benefit
Year Beg Yr Premium Fees Ins Earnings End Yr Charges Value End Yr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 0 19,600 144 1,570 -316 17,570 2,000 15,570 365,000
2 17,570 19,600 144 1,612 -613 34,800 3,000 31,800 365,000
3 34,800 19,600 144 1,653 -904 51,700 3,000 48,700 365,000
4 51,700 19,600 144 1,687 -1,190 68,279 4,000 64,279 365,000
5 68,279 19,600 144 1,723 -1,470 84,542 5,000 79,542 365,000
6 84,542 19,600 144 1,753 -1,745 100,499 5,000 95,499 365,000
7 100,499 19,600 144 1,792 -2,015 116,148 4,000 112,148 365,000
8 116,148 0 144 1,986 -1,946 112,072 3,000 109,072 365,000
9 112,072 0 144 2,210 -1,875 107,843 2,000 105,843 365,000
10 107,843 0 144 2,466 -1,801 103,432 0 103,432 365,000
11 103,432 0 144 2,747 -1,371 99,170 0 99,170 365,000
12 99,170 0 144 3,057 -1,311 94,658 0 94,658 365,000
13 94,658 0 144 3,389 -1,248 89,877 0 89,877 365,000
14 89,877 0 144 3,755 -1,181 84,797 0 84,797 365,000
15 84,797 0 144 4,158 -1,110 79,386 0 79,386 365,000
16 79,386 0 144 4,616 -1,034 73,592 0 73,592 365,000
17 73,592 0 144 5,140 -952 67,356 0 67,356 365,000
18 67,356 0 144 5,748 -864 60,600 0 60,600 365,000
19 60,600 0 144 6,457 -767 53,231 0 53,231 365,000
20 53,231 0 144 7,272 -662 45,153 0 45,153 365,000
25 3,597 0 48 3,544 -5 0 0 0 0
30 0 0 0 0 0 0 0 0 0
- - THE POLICY VALUE, CASH SURRENDER VALUE, AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN
DIFFERENT AMOUNTS OR FREQUENCIES.
- - IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE
POLICYHOLDER, AND THE INVESTMENT RETURN FOR THE PORTFOLIOS OF MANUFACTURERS INVESTMENT TRUST.
- - THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT
ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS.
- - NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
Table 5
Short Form Issue
Hypothetical Gross Investment Return of 6.00%
Current Charges
--------------------------------------------------------------------------------
Premiums Policy Plus Less Less Plus Policy Net Cash Death
Policy Annual Accum Value Net Admin Cost of Invest Value Sur Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees Ins Earnings End Yr Charges Value End Yr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 0 19,600 144 839 802 19,419 2,000 17,419 365,000
2 20,000 43,050 19,419 19,600 144 1,017 1,615 39,474 3,000 36,474 365,000
3 20,000 66,203 39,474 19,600 144 1,216 2,454 60,168 3,000 57,168 365,000
4 20,000 90,513 60,168 19,600 144 1,411 3,320 81,534 4,000 77,534 365,000
5 20,000 116,038 81,534 19,600 144 1,541 4,216 103,665 5,000 98,665 365,000
6 20,000 142,840 103,665 19,600 144 1,546 5,147 126,721 5,000 121,721 365,000
7 20,000 170,982 126,721 19,600 144 1,495 6,118 150,800 4,000 146,800 369,461
8 0 179,531 150,800 0 144 1,573 6,304 155,387 3,000 152,387 369,822
9 0 188,508 155,387 0 144 1,674 6,495 160,064 2,000 158,064 371,350
10 0 197,933 160,064 0 144 1,780 6,689 164,830 0 164,830 370,867
11 0 207,830 164,830 0 144 1,743 7,493 170,435 0 170,435 373,253
12 0 218,221 170,435 0 144 1,669 7,751 176,372 0 176,372 375,673
13 0 229,132 176,372 0 144 1,568 8,025 182,685 0 182,685 378,158
14 0 240,589 182,685 0 144 1,398 8,318 189,461 0 189,461 382,710
15 0 252,619 189,461 0 144 1,148 8,634 196,802 0 196,802 387,700
16 0 265,249 196,802 0 144 1,213 8,968 204,413 0 204,413 392,473
17 0 278,512 204,413 0 144 1,282 9,314 212,302 0 212,302 397,004
18 0 292,438 212,302 0 144 1,349 9,674 220,482 0 220,482 401,278
19 0 307,059 220,482 0 144 1,425 10,046 228,959 0 228,959 407,547
20 0 322,412 228,959 0 144 1,505 10,432 237,741 0 237,741 413,670
25 0 411,489 275,728 0 144 2,258 12,553 285,879 0 285,879 443,112
30 0 525,176 328,684 0 144 3,601 14,942 339,881 0 339,881 479,232
Guaranteed Charges
----------------------------------------------------------------------------------
Policy Plus Less Less Plus Policy Net Cash Death
Policy Value Net Admin Cost of Invest Value Sur Surrender Benefit
Year Beg Yr Premium Fees Ins Earnings End Yr Charges Value End Yr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 0 19,600 144 1,568 786 18,674 2,000 16,674 365,000
2 18,674 19,600 144 1,602 1,570 38,098 3,000 35,098 365,000
3 38,098 19,600 144 1,627 2,387 58,314 3,000 55,314 365,000
4 58,314 19,600 144 1,637 3,237 79,370 4,000 75,370 365,000
5 79,370 19,600 144 1,638 4,123 101,310 5,000 96,310 365,000
6 101,310 19,600 144 1,620 5,046 124,193 5,000 119,193 365,000
7 124,193 19,600 144 1,592 6,009 148,066 4,000 144,066 365,000
8 148,066 0 144 1,702 6,186 152,406 3,000 149,406 365,000
9 152,406 0 144 1,824 6,366 156,805 2,000 154,805 365,000
10 156,805 0 144 1,960 6,548 161,249 0 161,249 365,000
11 161,249 0 144 2,097 7,320 166,328 0 166,328 365,000
12 166,328 0 144 2,236 7,549 171,496 0 171,496 365,287
13 171,496 0 144 2,372 7,782 176,762 0 176,762 365,897
14 176,762 0 144 2,513 8,019 182,124 0 182,124 367,891
15 182,124 0 144 2,658 8,261 187,583 0 187,583 369,539
16 187,583 0 144 2,815 8,507 193,132 0 193,132 370,813
17 193,132 0 144 2,981 8,757 198,764 0 198,764 371,688
18 198,764 0 144 3,158 9,010 204,472 0 204,472 372,138
19 204,472 0 144 3,379 9,266 210,215 0 210,215 374,183
20 210,215 0 144 3,616 9,523 215,977 0 215,977 375,800
25 239,240 0 144 4,768 10,822 245,149 0 245,149 379,982
30 268,399 0 144 6,391 12,116 273,979 0 273,979 386,311
- - THE POLICY VALUE, CASH SURRENDER VALUE, AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN
DIFFERENT AMOUNTS OR FREQUENCIES.
- - IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE
POLICYHOLDER, AND THE INVESTMENT RETURN FOR THE PORTFOLIOS OF MANUFACTURERS INVESTMENT TRUST.
- - THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT
ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS.
- - NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
Table 6
Short Form Issue
Hypothetical Gross Investment Return of 12.00%
Current Charges
--------------------------------------------------------------------------------------
Premiums Policy Plus Less Less Plus Policy Net Cash Death
Policy Annual Accum Value Net Admin Cost of Invest Value Sur Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees Ins Earnings End Yr Charges Value End Yr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 0 19,600 144 837 1,928 20,546 2,000 18,546 365,000
2 20,000 43,050 20,546 19,600 144 1,010 3,995 42,987 3,000 39,987 365,000
3 20,000 66,203 42,987 19,600 144 1,195 6,252 67,500 3,000 64,500 365,000
4 20,000 90,513 67,500 19,600 144 1,362 8,720 94,314 4,000 90,314 365,000
5 20,000 116,038 94,314 19,600 144 1,446 11,425 123,749 5,000 118,749 365,000
6 20,000 142,840 123,749 19,600 144 1,440 14,401 156,166 5,000 151,166 395,099
7 20,000 170,982 156,166 19,600 144 1,613 17,667 191,676 4,000 187,676 469,607
8 0 179,531 191,676 0 144 1,727 19,269 209,074 3,000 206,074 497,597
9 0 188,508 209,074 0 144 1,867 21,019 228,083 2,000 226,083 529,152
10 0 197,933 228,083 0 144 2,002 22,933 248,869 0 248,869 559,956
11 0 207,830 248,869 0 144 2,016 25,994 272,704 0 272,704 597,222
12 0 218,221 272,704 0 144 2,003 28,496 299,054 0 299,054 636,984
13 0 229,132 299,054 0 144 1,977 31,263 328,196 0 328,196 679,365
14 0 240,589 328,196 0 144 1,901 34,325 360,476 0 360,476 728,161
15 0 252,619 360,476 0 144 1,794 37,719 396,256 0 396,256 780,624
16 0 265,249 396,256 0 144 2,110 41,456 435,457 0 435,457 836,078
17 0 278,512 435,457 0 144 2,475 45,549 478,387 0 478,387 894,584
18 0 292,438 478,387 0 144 2,899 50,031 525,375 0 525,375 956,183
19 0 307,059 525,375 0 144 3,399 54,934 576,766 0 576,766 1,026,643
20 0 322,412 576,766 0 144 3,984 60,294 632,932 0 632,932 1,101,301
25 0 411,489 914,629 0 144 8,085 95,521 1,001,921 0 1,001,921 1,552,977
30 0 525,176 1,435,788 0 144 16,467 149,744 1,568,921 0 1,568,921 2,212,178
Guaranteed Charges
--------------------------------------------------------------------------------------
Policy Plus Less Less Plus Policy Net Cash Death
Policy Value Net Admin Cost of Invest Value Sur Surrender Benefit
Year Beg Yr Premium Fees Ins Earnings End Yr Charges Value End Yr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 0 19,600 144 1,566 1,888 19,779 2,000 17,779 365,000
2 19,779 19,600 144 1,591 3,886 41,529 3,000 38,529 365,000
3 41,529 19,600 144 1,600 6,083 65,468 3,000 62,468 365,000
4 65,468 19,600 144 1,582 8,503 91,844 4,000 87,844 365,000
5 91,844 19,600 144 1,541 11,170 120,930 5,000 115,930 365,000
6 120,930 19,600 144 1,505 14,112 152,994 5,000 147,994 387,074
7 152,994 19,600 144 1,889 17,332 187,893 4,000 183,893 460,337
8 187,893 0 144 2,134 18,865 204,480 3,000 201,480 486,663
9 204,480 0 144 2,430 20,526 222,432 2,000 220,432 516,043
10 222,432 0 144 2,746 22,323 241,865 0 241,865 544,197
11 241,865 0 144 3,118 25,199 263,803 0 263,803 577,729
12 263,803 0 144 3,533 27,478 287,604 0 287,604 612,597
13 287,604 0 144 3,974 29,952 313,438 0 313,438 648,817
14 313,438 0 144 4,491 32,634 341,437 0 341,437 689,703
15 341,437 0 144 5,054 35,541 371,780 0 371,780 732,407
16 371,780 0 144 5,680 38,690 404,646 0 404,646 776,921
17 404,646 0 144 6,374 42,101 440,228 0 440,228 823,227
18 440,228 0 144 7,148 45,792 478,728 0 478,728 871,284
19 478,728 0 144 8,111 49,778 520,251 0 520,251 926,047
20 520,251 0 144 9,183 54,076 565,000 0 565,000 983,100
25 781,355 0 144 15,979 81,099 846,331 0 846,331 1,311,813
30 1,156,814 0 144 28,264 119,817 1,248,223 0 1,248,223 1,759,995
- - THE POLICY VALUE, CASH SURRENDER VALUE, AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN
DIFFERENT AMOUNTS OR FREQUENCIES.
- - IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE
POLICYHOLDER, AND THE INVESTMENT RETURN FOR THE PORTFOLIOS OF MANUFACTURERS INVESTMENT TRUST.
- - THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT
ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS.
- - NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
<PAGE> 56
FINANCIAL STATEMENTS
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
Six months ended June 30, 1998
(with December 31, 1997 comparative)
<PAGE> 57
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET UNITS NAV PER
ASSETS VALUE OUTSTANDING UNIT
<S> <C> <C> <C> <C>
Investment in Manufacturers Investment Trust
at market value
Emerging Growth Trust, 2,490,957 shares (cost $52,574,158 ) $62,946,479 944,272 66.66
Quantitative Equity Trust, 1,667,582 shares (cost $29,395,669 ) 38,170,961 808,932 47.19
Real Estate Securities Trust, 1,407,557 shares (cost $22,428,162 ) 23,717,338 594,529 39.89
Balanced Trust, 3,000,009 shares (cost $49,244,893 ) 55,800,175 1,723,913 32.37
Capital Growth Bond Trust, 1,275,407 shares (cost $14,124,154 ) 14,794,726 663,447 22.30
Money Market Trust, 1,176,946 shares (cost $11,769,459 ) 11,769,460 716,717 16.42
International Stock Trust, 750,148 shares (cost $9,117,393 ) 9,766,918 725,896 13.45
Pacific Rim Emerging Markets Trust, 333,785 shares (cost $3,363,471 ) 2,022,732 322,031 6.28
Equity Index Trust, 812,870 shares (cost $10,788,098 ) 11,705,332 659,237 17.76
International Small Cap Trust 60,640 shares (cost $941,082 ) 1,007,228 66,144 15.23
Equity Trust, 379,282 shares (cost $7,783,589 ) 7,543,912 505,886 14.91
Value Equity Trust, 572,958 shares (cost $9,482,099 ) 9,923,631 642,881 15.44
Growth and Income Trust, 504,806 shares (cost $11,712,843 ) 13,215,822 738,331 17.90
U.S. Government Securities Trust, 62,625 shares (cost $835,921 ) 832,285 73,605 11.31
Conservative Asset Allocation Trust, 59,411 shares (cost $683,708 ) 676,696 55,003 12.30
Moderate Asset Allocation Trust, 218,743 shares (cost $2,767,057 ) 2,804,281 207,623 13.51
Aggressive Asset Allocation Trust, 147,182 shares (cost $2,161,809 ) 2,147,387 147,168 14.59
Blue Chip Growth Trust, 588,762 shares (cost $9,103,504 ) 10,156,152 545,481 18.62
Science & Technology Trust, 281,943 shares (cost $4,151,923) 4,502,631 275,129 16.37
Pilgram Baxter Growth Trust, 28,972 shares (cost $367,744 ) 379,530 25,105 15.12
Small / Mid Cap Trust, 90,711 shares (cost $1,466,517 ) 1,677,245 92,270 18.18
Worldwide Growth Trust, 8,482 shares (cost $127,444 ) 134,353 8,764 15.33
Global Equity Trust, 51,918 shares (cost $1,090,705 ) 1,061,215 65,122 16.30
Growth Trust, 103,546 shares (cost $1,820,521 ) 2,039,854 115,263 17.70
Value Trust, 311,317 shares (cost $4,746,175 ) 4,850,323 321,097 15.11
International Growth & Income Trust, 16,763 shares (cost $204,367 ) 198,637 14,181 14.01
High Yield Trust, 152,839 shares (cost $2,144,314 ) 2,155,034 150,344 14.33
Strategic Bond Trust, 103,462 shares (cost $1,249,085 ) 1,228,097 88,518 13.87
Global Government Bond Trust, 5,615 shares (cost $78,109 ) 72,548 5,463 13.28
Investment Quality Bond Trust, 155,009 shares (cost $1,864,788 ) 1,850,812 131,723 14.05
Lifestyle Aggressive 1000 Trust, 38,622 shares (cost $523,381 ) 536,458 34,775 15.43
Lifestyle Growth 820 Trust, 231,374 shares (cost $3,233,289 ) 3,271,629 214,514 15.25
Lifestyle Balanced 640 Trust, 88,012 shares (cost $1,186,191 ) 1,205,772 80,928 14.90
Lifestyle Moderate 460 Trust, 6,553 shares (cost $87,558 ) 89,641 6,107 14.68
Lifestyle Conservative 280 Trust, 250 shares (cost $3,321 ) 3,255 227 14.34
Small Company Value Trust 2,996 shares (cost $37,871 ) 37,301 3,998 9.33
===============
TOTAL $304,295,850
===============
</TABLE>
<PAGE> 58
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS
FOR PERIOD ENDING JUNE 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Emerging Growth Quantitative Equity Real Estate Securities Balanced
Sub-Account Sub-Account Sub-Account Sub-Account
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividend Income $879,733 $4,420,030 $2,921,055 $6,701,569
Expenses
Mortality and expense risk charge 200,249 120,149 77,283 173,612
------------------------------------------------------------------------------
Net investment income (loss) 679,484 4,299,881 2,843,772 6,527,957
------------------------------------------------------------------------------
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales 5,750,469 2,665,659 1,809,568 2,048,850
Cost of securities sold 4,645,612 1,751,313 1,428,564 1,624,763
------------------------------------------------------------------------------
Net realized gain (loss) 1,104,857 914,346 381,004 424,087
------------------------------------------------------------------------------
Unrealized appreciation (depreciation)
of Investments
Beginning of Year 8,747,614 9,076,188 5,733,444 8,870,245
End of Period 10,372,322 8,775,292 1,289,176 6,555,280
------------------------------------------------------------------------------
Net unrealized depreciation
during the period 1,624,708 (300,896) (4,444,268) (2,314,965)
------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 2,729,565 613,450 (4,063,264) (1,890,878)
------------------------------------------------------------------------------
Net increase (decrease) in net
assets derived from operations $3,409,049 $4,913,331 ($1,219,492) $4,637,079
==============================================================================
</TABLE>
See accompanying notes.
<PAGE> 59
<TABLE>
<CAPTION>
International Pacific Rim
Capital Growth Money Market Stock Emerging Markets
Bond Sub-Account Sub-Account Sub-Account Sub-Account
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$789,202 $262,635 $477 $0
45,961 33,345 27,453 7,616
- -----------------------------------------------------------------------------
743,241 229,290 (26,976) (7,616)
- -----------------------------------------------------------------------------
522,637 5,257,223 2,385,911 288,309
509,890 5,257,223 2,126,262 474,147
- -----------------------------------------------------------------------------
12,747 0 259,649 (185,838)
- -----------------------------------------------------------------------------
969,325 0 (52,878) (1,155,601)
670,572 0 649,527 (1,340,740)
- -----------------------------------------------------------------------------
(298,753) 0 702,405 (185,139)
- -----------------------------------------------------------------------------
(286,006) 0 962,054 (370,977)
- -----------------------------------------------------------------------------
$457,235 $229,290 $935,078 ($378,593)
============================================================================
</TABLE>
<PAGE> 60
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS
FOR PERIOD ENDING JUNE 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
International Value
Equity Index Small Cap Equity Equity
Sub-Account Sub-Account Sub-Account Sub-Account
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividend Income $196,554 $1,473 $1,580,782 $439,236
Expenses
Mortality and expense risk charge 31,390 1,991 26,862 24,920
-----------------------------------------------------------------------
Net investment income (loss) 165,164 (518) 1,553,920 414,316
-----------------------------------------------------------------------
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales 1,455,159 315,945 2,324,502 744,053
Cost of securities sold 1,108,316 289,311 2,397,820 587,099
-----------------------------------------------------------------------
Net realized gain (loss) 346,843 26,634 (73,318) 156,954
-----------------------------------------------------------------------
Unrealized appreciation (depreciation)
of Investments
Beginning of Year 13,995 (15,134) 292,111 659,769
End of Period 917,232 66,147 (239,675) 441,531
-----------------------------------------------------------------------
Net unrealized depreciation
during the period 903,237 81,281 (531,786) (218,238)
------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 1,250,080 107,915 (605,104) (61,284)
-----------------------------------------------------------------------
Net increase (decrease) in net
assets derived from operations $1,415,244 $107,397 $948,816 $353,032
=======================================================================
</TABLE>
See accompanying notes.
<PAGE> 61
<TABLE>
<CAPTION>
Growth U.S. Government Conservative Moderate Aggressive
and Income Securities Asset Allocation Asset Allocation Asset Allocation
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$687,431 $34,788 $61,639 $276,382 $445,314
34,861 2,237 2,035 7,746 11,277
- ---------------------------------------------------------------------------------------------
652,570 32,551 59,604 268,636 434,037
- ---------------------------------------------------------------------------------------------
1,046,064 137,927 20,693 91,375 2,677,310
744,837 136,305 18,608 81,810 2,567,473
- ---------------------------------------------------------------------------------------------
301,227 1,622 2,085 9,565 109,837
- ---------------------------------------------------------------------------------------------
926,995 9,987 17,238 94,990 100,678
1,502,981 (3,635) (7,013) 37,224 (14,421)
- ---------------------------------------------------------------------------------------------
575,986 (13,622) (24,251) (57,766) (115,099)
- ---------------------------------------------------------------------------------------------
877,213 (12,000) (22,166) (48,201) (5,262)
- ---------------------------------------------------------------------------------------------
$1,529,783 $20,551 $37,438 $220,435 $428,775
=============================================================================================
</TABLE>
<PAGE> 62
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS
FOR PERIOD ENDING JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Science and Pilgram
Blue Chip Growth Technology Baxter Growth Small/Mid Cap
Sub-Account Sub-Account Sub-Account Sub-Account
--------------------------------------------------------------------
Investment income:
<S> <C> <C> <C> <C>
Dividend Income $163,206 $0 $0 $0
Expenses
Mortality and expense risk charge 25,951 8,337 1,129 6,546
------------------------------------------------------------------
Net investment income (loss) 137,255 (8,337) (1,129) (6,546)
------------------------------------------------------------------
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales 1,097,257 108,456 43,406 1,008,646
Cost of securities sold 876,153 107,605 39,221 929,571
------------------------------------------------------------------
Net realized gain (loss) 221,104 851 4,185 79,075
------------------------------------------------------------------
Unrealized appreciation (depreciation)
of Investments
Beginning of Year 235,927 (31,717) (1,826) (41,211)
End of Period 1,052,647 350,710 11,786 210,728
------------------------------------------------------------------
Net unrealized depreciation
during the period 816,720 382,427 13,612 251,939
------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 1,037,824 383,278 17,797 331,014
------------------------------------------------------------------
Net increase (decrease) in net
assets derived from operations $1,175,079 $374,941 $16,668 $324,468
==================================================================
</TABLE>
See accompanying notes.
<PAGE> 63
<TABLE>
<CAPTION>
Worldwide International Growth
Growth Global Equity Growth Value and Income High Yield Strategic Bond
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$0 $283,512 $88,404 $0 $2,310 $3,120 $41,408
602 11,252 6,753 10,895 294 4,020 2,168
- ------------------------------------------------------------------------------------------------------------------
(602) 272,260 81,651 (10,895) 2,016 (900) 39,240
- ------------------------------------------------------------------------------------------------------------------
189,623 3,622,876 711,780 422,563 4,476 223,942 36,429
169,139 3,245,520 637,625 371,627 4,223 218,019 34,465
- ------------------------------------------------------------------------------------------------------------------
20,484 377,356 74,155 50,936 253 5,923 1,964
- ------------------------------------------------------------------------------------------------------------------
(1,636) 142,878 42,938 (5,269) (1,097) (22,649) 10,671
6,910 (29,491) 219,334 104,147 (5,730) 10,720 (20,989)
- ------------------------------------------------------------------------------------------------------------------
8,546 (172,369) 176,396 109,416 (4,633) 33,369 (31,660)
- ------------------------------------------------------------------------------------------------------------------
29,030 204,987 250,551 160,352 (4,380) 39,292 (29,696)
- ------------------------------------------------------------------------------------------------------------------
$28,428 $477,247 $332,202 $149,457 ($2,364) $38,392 $9,544
=================================================================================================================
</TABLE>
<PAGE> 64
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS
FOR PERIOD ENDING JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Global Government Investment Lifestyle Aggressive
Bond Quality Bond 1000
Sub-Account Sub-Account Sub-Account
---------------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividend Income $5,515 $62,454 $26,598
Expenses
Mortality and expense risk charge 175 3,663 1,609
-----------------------------------------------------------
Net investment income (loss) 5,340 58,791 24,989
-----------------------------------------------------------
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales 842 166,517 90,919
Cost of securities sold 838 164,930 84,732
-----------------------------------------------------------
Net realized gain (loss) 4 1,587 6,187
-----------------------------------------------------------
Unrealized appreciation (depreciation)
of Investments
Beginning of Year 186 5,485 1,104
End of Period (5,560) (13,976) 13,076
-----------------------------------------------------------
Net unrealized depreciation
during the period (5,746) (19,461) 11,972
-----------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (5,742) (17,874) 18,159
-----------------------------------------------------------
Net increase (decrease) in net
assets derived from operations $(402) $40,917 $43,148
===========================================================
</TABLE>
See accompanying notes.
<PAGE> 65
<TABLE>
<CAPTION>
Lifestyle Growth Lifestyle Balanced Lifestyle Moderate Lifestyle Conservative
820 640 460 280
Sub-Account Sub-Account Sub-Account Sub-Account
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
$151,143 $56,358 $4,450 $142
9,054 3,400 333 6
- --------------------------------------------------------------------------------
142,089 52,958 4,117 136
- --------------------------------------------------------------------------------
129,836 13,214 22,583 265
121,168 12,370 21,990 270
- --------------------------------------------------------------------------------
8,668 844 593 (5)
- --------------------------------------------------------------------------------
7,721 17,177 361 0
38,343 19,580 2,083 (66)
- --------------------------------------------------------------------------------
30,622 2,403 1,722 (66)
- --------------------------------------------------------------------------------
39,290 3,247 2,315 (71)
- --------------------------------------------------------------------------------
$181,379 $56,205 $6,432 $65
================================================================================
</TABLE>
<PAGE> 66
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS
FOR PERIOD ENDING JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
**Small Company
Value Trust
Sub-Account TOTAL
----------------------------------------------
<S> <C> <C>
Investment income:
Dividend Income $0 $20,586,920
Expenses
Mortality and expense risk charge 16 925,190
-----------------------------------------------
Net investment income (loss) (16) 19,661,730
-----------------------------------------------
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales 83 37,435,367
Cost of securities sold 87 32,788,906
-----------------------------------------------
Net realized gain (loss) (4) 4,646,461
-----------------------------------------------
Unrealized appreciation (depreciation)
of Investments
Beginning of Year 0 34,648,009
End of Period (570) 31,635,482
-----------------------------------------------
Net unrealized depreciation
during the period (570) (3,012,527)
-----------------------------------------------
Net realized and unrealized gain (loss)
on investments (574) 1,633,934
-----------------------------------------------
Net increase (decrease) in net
assets derived from operations $(590) $21,295,664
===============================================
</TABLE>
** Reflects the period from commencement of operations May 1, 1998 through
June 30, 1998.
See accompanying notes.
<PAGE> 67
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDING JUNE 30, 1998 AND DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Quantitative
Emerging Growth Equity
Sub-Account Sub-Account
------------------------------------------------------------------
Period Ended Year Ended Period Ended Year Ended
June 30/98 Dec. 31/97 June 30/98 Dec. 31/97
------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $679,484 $(373,014) $4,299,881 $(197,730)
Net realized gain (loss) 1,104,857 942,356 914,346 1,013,649
Unrealized appreciation (depreciation)
of investments during the period 1,624,708 8,161,227 (300,896) 6,681,076
------------------------------------------------------------------
Increase (decrease) in net assets
derived from operations 3,409,049 8,730,569 4,913,331 7,496,995
------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 4,962,989 10,968,515 1,909,881 5,269,678
Transfer of terminations (5,145,992) (5,398,115) (1,808,822) (3,038,289)
Transfer of policy loans (185,848) (624,209) (128,072) (229,614)
Net interfund transfers (2,176,689) (10,114,334) (1,328,199) (447,386)
------------------------------------------------------------------
(2,545,540) (5,168,143) (1,355,212) 1,554,389
------------------------------------------------------------------
Net increase in net assets 863,509 3,562,426 3,558,119 9,051,384
NET ASSETS
Beginning of Year 62,082,970 58,520,544 34,612,842 25,561,458
------------------------------------------------------------------
End of Period $62,946,479 $62,082,970 $38,170,961 $34,612,842
==================================================================
</TABLE>
See accompanying notes.
<PAGE> 68
<TABLE>
<CAPTION>
Real Estate
Securities Balanced Capital Growth Bond
Sub-Account Sub-Account Sub-Account
- ------------------------------------------------------------------------------------------------------
Period Ended Year Ended Period Ended Year Ended Period Ended Year Ended
June 30/98 Dec. 31/97 June 30/98 Dec. 31/97 June 30/98 Dec. 31/97
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2,843,772 $(138,789) $6,527,957 $(312,899) $743,241 $(88,739)
381,004 409,362 424,087 1,177,705 12,747 (166,789)
(4,444,268) 3,375,616 (2,314,965) 6,637,188 (298,753) 1,292,079
- -------------------------------------------------------------------------------------------------------
(1,219,492) 3,646,189 4,637,079 7,501,994 457,235 1,036,551
- -------------------------------------------------------------------------------------------------------
1,671,062 3,087,313 4,410,308 7,548,194 1,108,695 1,927,024
(1,225,978) (2,187,862) (2,443,099) (5,118,735) (544,690) (1,630,139)
(85,811) (150,861) (50,849) (520,775) (36,205) (60,413)
15,125 1,362,290 (359,934) (5,272,252) 106,969 (1,458,915)
- -------------------------------------------------------------------------------------------------------
374,398 2,110,880 1,556,426 (3,363,568) 634,769 (1,222,443)
- -------------------------------------------------------------------------------------------------------
(845,094) 5,757,069 6,193,505 4,138,426 1,092,004 (185,892)
24,562,432 18,805,363 49,606,670 45,468,244 13,702,722 13,888,614
- -------------------------------------------------------------------------------------------------------
$23,717,338 $24,562,432 $55,800,175 $49,606,670 $14,794,726 $13,702,722
=======================================================================================================
</TABLE>
<PAGE> 69
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDING JUNE 30, 1998 AND DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Pacific Rim
Money Market International Stock Emerging Markets
Sub-Account Sub-Account Sub-Account
-------------------------------------------------------------------------------------------
Period Ended Year Ended Period Ended Year Ended Period Ended Year Ended
June 30/98 Dec. 31/97 June 30/98 Dec. 31/97 June 30/98 Dec. 31/97
-------------------------------------------------------------------------------------------
FROM OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $229,290 $316,526 $(26,976) $60,175 $(7,616) $(15,403)
Net realized gain (loss) 0 (275,816) 259,649 265,602 (185,838) (93,881)
Unrealized appreciation (depreciation)
of investments during the period 0 275,826 702,405 (284,063) (185,139) (1,160,926)
-------------------------------------------------------------------------------------------
Increase (decrease) in net assets
derived from operations 229,290 316,536 935,078 41,714 (378,593) (1,270,210)
-------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 6,376,047 3,105,289 2,117,289 2,524,804 355,836 858,191
Transfer of terminations (398,781) (1,271,291) (477,262) (503,518) (93,660) (808,786)
Transfer of policy loans (197,414) 17,308 (21,881) (88,083) (4,102) (65,080)
Net interfund transfers (756,515) (2,379,177) 502,611 871,148 (200,213) (58,053)
-------------------------------------------------------------------------------------------
5,023,337 (527,871) 2,120,757 2,804,351 57,861 (73,728)
-------------------------------------------------------------------------------------------
Net increase in net assets 5,252,627 (211,335) 3,055,835 2,846,065 (320,732) (1,343,938)
NET ASSETS
Beginning of Year 6,516,833 6,728,168 6,711,083 3,865,018 2,343,464 3,687,402
-------------------------------------------------------------------------------------------
End of Period $11,769,460 $6,516,833 $9,766,918 $6,711,083 $2,022,732 $2,343,464
===========================================================================================
</TABLE>
See accompanying notes.
<PAGE> 70
<TABLE>
<CAPTION>
International Value
Equity Index Small Cap Equity Equity
Sub-Account Sub-Account Sub-Account Sub-Account
- ------------------------------------------------------------------------------------------------------------------------------------
Period Ended Year Ended Period Ended Year Ended Period Ended Year Ended Period Ended Year Ended
June 30/98 Dec. 31/97 June 30/98 Dec. 31/97 June 30/98 Dec. 31/97 June 30/98 Dec. 31/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$165,164 $847,432 $(518) $(2,769) $1,553,920 $1,034,760 $414,316 $381,070
346,843 36,960 26,634 10,150 (73,318) 24,440 156,954 74,851
903,237 (32,178) 81,281 (15,134) (531,786) 21,454 (218,238) 497,341
- ------------------------------------------------------------------------------------------------------------------------------------
1,415,244 852,214 107,397 (7,753) 948,816 1,080,654 353,032 953,262
- ------------------------------------------------------------------------------------------------------------------------------------
3,075,746 3,106,131 81,870 78,736 1,044,855 3,023,077 2,074,383 856,465
(914,124) (166,672) (33,314) (20,504) (378,393) (778,177) (422,305) (394,553)
(178,882) (3,054) (9,234) (2,010) (8,503) (30,340) (6,054) (21,910)
1,392,649 1,961,503 306,221 505,819 (2,076,652) 582,252 2,323,019 2,113,454
- ------------------------------------------------------------------------------------------------------------------------------------
3,375,389 4,897,908 345,543 562,041 (1,418,693) 2,796,812 3,969,043 2,553,456
- ------------------------------------------------------------------------------------------------------------------------------------
4,790,633 5,750,122 452,940 554,288 (469,877) 3,877,466 4,322,075 3,506,718
6,914,699 1,164,577 554,288 0 8,013,789 4,136,323 5,601,556 2,094,838
- ------------------------------------------------------------------------------------------------------------------------------------
$11,705,332 $6,914,699 $1,007,228 $554,288 $7,543,912 $8,013,789 $9,923,631 $5,601,556
====================================================================================================================================
</TABLE>
<PAGE> 71
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDING JUNE 30, 1998 AND DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Growth U.S. Government
and Income Securities
Sub-Account Sub-Account
--------------------------------------------------------------
Period Ended Year Ended Period Ended Year Ended
June 30/98 Dec. 31/97 June 30/98 Dec. 31/97
--------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $652,570 $241,574 $32,551 $17,253
Net realized gain (loss) 301,227 206,751 1,622 10,335
Unrealized appreciation (depreciation)
of investments during the period 575,986 781,276 (13,622) 6,207
--------------------------------------------------------------
Increase (decrease) in net assets
derived from operations 1,529,783 1,229,601 20,551 33,795
--------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 1,806,189 2,327,523 116,052 112,190
Transfer of terminations (892,502) (494,932) (23,565) (28,622)
Transfer of policy loans (10,780) (11,939) (467) (10,083)
Net interfund transfers 2,546,194 3,120,002 58,862 378,086
--------------------------------------------------------------
3,449,101 4,940,654 150,882 451,571
--------------------------------------------------------------
Net increase in net assets 4,978,884 6,170,255 171,433 485,366
NET ASSETS
Beginning of Year 8,236,938 2,066,683 660,852 175,486
--------------------------------------------------------------
End of Period $13,215,822 $8,236,938 $832,285 $660,852
=============================================================
</TABLE>
See accompanying notes.
<PAGE> 72
<TABLE>
<CAPTION>
Conservative Moderate Aggressive
Asset Allocation Asset Allocation Asset Allocation Blue Chip Growth
Sub-Account Sub-Account Sub-Account Sub-Account
- ------------------------------------------------------------------------------------------------------------------------------------
Period Ended Year Ended Period Ended Year Ended Period Ended Year Ended Period Ended Year Ended
June 30/98 Dec. 31/97 June 30/98 Dec. 31/97 June 30/98 Dec. 31/97 June 30/98 Dec. 31/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$59,604 $32,395 $268,636 $89,913 $434,037 $57,231 $137,255 $48,890
2,085 774 9,565 34,682 109,837 18,481 221,104 (12,123)
(24,251) 10,030 (57,766) 58,528 (115,099) 80,807 816,720 235,927
- ----------------------------------------------------------------------------------------------------------------------------------
37,438 43,199 220,435 183,123 428,775 156,519 1,175,079 272,694
- ----------------------------------------------------------------------------------------------------------------------------------
53,790 107,136 517,319 887,517 789,131 2,451,770 4,331,335 3,002,085
(20,897) (13,120) (113,681) (176,631) (141,132) (230,373) (378,540) (121,898)
0 0 1,352 (10) (647) (296) (10,109) (545)
40,438 285,503 318,592 254,676 (2,139,807) 471,051 521,319 1,364,732
- ---------------------------------------------------------------------------------------------------------------------------------
73,331 379,519 723,582 965,552 (1,492,455) 2,692,152 4,464,005 4,244,374
- ---------------------------------------------------------------------------------------------------------------------------------
110,769 422,718 944,017 1,148,675 (1,063,680) 2,848,671 5,639,084 4,517,068
565,927 143,209 1,860,264 711,589 3,211,067 362,396 4,517,068 0
- ----------------------------------------------------------------------------------------------------------------------------------
$676,696 $565,927 $2,804,281 $1,860,264 $2,147,387 $3,211,067 $10,156,152 $4,517,068
=================================================================================================================================
</TABLE>
<PAGE> 73
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDING JUNE 30, 1998 AND DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Science and Pilgram
Technology Baxter Growth
Sub-Account Sub-Account
-----------------------------------------------------------------
Period Ended *Period Ended Period Ended *Period Ended
June 30/98 Dec. 31/97 June 30/98 Dec. 31/97
-----------------------------------------------------------------
FROM OPERATIONS
<S> <C> <C> <C> <C>
Net investment income (loss) $(8,337) $22,028 $(1,129) $(764)
Net realized gain (loss) 851 1,545 4,185 433
Unrealized appreciation (depreciation)
of investments during the period 382,427 (31,717) 13,612 (1,826)
-----------------------------------------------------------------
Increase (decrease) in net assets
derived from operations 374,941 (8,144) 16,668 (2,157)
-----------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 1,476,335 1,280,093 60,529 52,430
Transfer of terminations (133,409) (8,796) 217 (3,413)
Transfer of policy loans (3,320) 0 (10,357) 0
Net interfund transfers 1,338,769 186,162 22,928 242,685
-----------------------------------------------------------------
2,678,375 1,457,459 73,317 291,702
-----------------------------------------------------------------
Net increase in net assets 3,053,316 1,449,315 89,985 289,545
NET ASSETS
Beginning of Year 1,449,315 0 289,545 0
-----------------------------------------------------------------
End of Period $4,502,631 $1,449,315 $379,530 $289,545
=================================================================
</TABLE>
* Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
See accompanying notes.
<PAGE> 74
<TABLE>
<CAPTION>
Worldwide
Small/Mid Cap Growth Global Equity Growth
Sub-Account Sub-Account Sub-Account Sub-Account
- ----------------------------------------------------------------------------------------------------------------------------------
Period Ended *Period Ended Period Ended *Period Ended Period Ended *Period Ended Period Ended *Period Ended
June 30/98 Dec. 31/97 June 30/98 Dec. 31/97 June 30/98 Dec. 31/97 June 30/98 Dec. 31/97
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(6,546) $(1,669) $(602) $1,584 $272,260 $(2,697) $81,651 $(1,748)
79,075 (767) 20,484 25 377,356 1,042 74,155 464
251,939 (41,211) 8,546 (1,636) (172,369) 142,878 176,396 42,938
- -------------------------------------------------------------------------------------------------------------------------------
324,468 (43,647) 28,428 (27) 477,247 141,223 332,202 41,654
- ------------------------------------------------------------------------------------------------------------------------------
272,384 1,504,311 25,868 3,589 639,692 3,088,398 369,523 1,408,136
(71,728) (24,555) (24,656) (385) (90,322) (47,709) (39,275) (22,975)
(6,816) 0 0 0 (12,390) 0 (3,926) 0
(638,615) 361,443 (96,563) 198,099 (3,351,518) 216,594 (373,192) 327,707
- -------------------------------------------------------------------------------------------------------------------------------
(444,775) 1,841,199 (95,351) 201,303 (2,814,538) 3,257,283 (46,870) 1,712,868
- -------------------------------------------------------------------------------------------------------------------------------
(120,307) 1,797,552 (66,923) 201,276 (2,337,291) 3,398,506 285,332 1,754,522
1,797,552 0 201,276 0 3,398,506 0 1,754,522 0
- -------------------------------------------------------------------------------------------------------------------------------
$1,677,245 $1,797,552 $134,353 $201,276 $1,061,215 $3,398,506 $2,039,854 $1,754,522
===============================================================================================================================
</TABLE>
<PAGE> 75
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDING JUNE 30, 1998 AND DECEMBER 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
International Growth
Value and Income
Sub-Account Sub-Account
----------------------------------------------------------------------
Period Ended *Period Ended Period Ended *Period Ended
June 30/98 Dec. 31/97 June 30/98 Dec. 31/97
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) ($10,895) $40,098 $2,016 ($61)
Net realized gain (loss) 50,936 1,134 253 (260)
Unrealized appreciation (depreciation)
of investments during the period 109,416 (5,269) (4,633) (1,097)
----------------------------------------------------------------------
Increase (decrease) in net assets
derived from operations 149,457 35,963 (2,364) (1,418)
----------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 2,775,319 811,955 24,499 1,816
Transfer of terminations (183,463) (29,096) (185) (376)
Transfer of policy loans (5,184) (4,630) 0 0
Net interfund transfers 741,256 558,746 155,629 21,036
----------------------------------------------------------------------
3,327,928 1,336,975 179,943 22,476
----------------------------------------------------------------------
Net increase in net assets 3,477,385 1,372,938 177,579 21,058
NET ASSETS
Beginning of Year 1,372,938 0 21,058 0
----------------------------------------------------------------------
End of Period $4,850,323 $1,372,938 $198,637 $21,058
======================================================================
</TABLE>
* Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
See accompanying notes.
<PAGE> 76
<TABLE>
<CAPTION>
Global Government Investment
High Yield Strategic Bond Bond Quality Bond
Sub-Account Sub-Account Sub-Account Sub-Account
- ------------------------------------------------------------------------------------------------------------------------------------
Period Ended *Period Ended Period Ended *Period Ended Period Ended *Period Ended Period Ended *Period Ended
June 30/98 Dec. 31/97 June 30/98 Dec. 31/97 June 30/98 Dec. 31/97 June 30/98 Dec. 31/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
($900) $30,182 $39,240 ($827) $5,340 ($17) $58,791 ($391)
5,923 4,384 1,964 286 4 3 1,587 67
33,369 (22,649) (31,660) 10,671 (5,746) 186 (19,461) 5,485
- ---------------------------------------------------------------------------------------------------------------------------------
38,392 11,917 9,544 10,130 (402) 172 40,917 5,161
- ---------------------------------------------------------------------------------------------------------------------------------
503,854 563,344 225,364 174,730 6,754 185 713,478 298,577
(45,774) (17,818) (19,710) (7,767) (2,362) (187) (51,531) (8,387)
(3,714) (2,703) (7,847) (83) 0 (52) (7,581) 0
823,383 284,153 613,796 229,940 60,472 7,968 685,716 174,462
- ---------------------------------------------------------------------------------------------------------------------------------
1,277,749 826,976 811,603 396,820 64,864 7,914 1,340,082 464,652
- ---------------------------------------------------------------------------------------------------------------------------------
1,316,141 838,893 821,147 406,950 64,462 8,086 1,380,999 469,813
838,893 0 406,950 0 8,086 0 469,813 0
- ---------------------------------------------------------------------------------------------------------------------------------
2,155,034 $838,893 $1,228,097 $406,950 $72,548 $8,086 $1,850,812 $469,813
=================================================================================================================================
</TABLE>
<PAGE> 77
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDING JUNE 30, 1998 AND DECEMBER 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Lifestyle Aggressive Lifestyle Growth
1000 820
Sub-Account Sub-Account
------------------------------------------------------------------------
Period Ended *Period Ended Period Ended *Period Ended
June 30/98 Dec. 31/97 June 30/98 Dec. 31/97
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $24,989 $156 $142,089 $10,545
Net realized gain (loss) 6,187 1,617 8,668 6,507
Unrealized appreciation (depreciation)
of investments during the period 11,972 1,104 30,622 7,721
----------------------------------------------------------------------
Increase (decrease) in net assets
derived from operations 43,148 2,877 181,379 24,773
----------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 33,310 33,139 165,990 104,216
Transfer of terminations (19,236) (7,521) (165,014) (42,295)
Transfer of policy loans (9,792) (10,340) 76,453 (91,693)
Net interfund transfers 18,321 452,552 698,488 2,319,332
----------------------------------------------------------------------
22,603 467,830 775,917 2,289,560
----------------------------------------------------------------------
Net increase in net assets 65,751 470,707 957,296 2,314,333
NET ASSETS
Beginning of Year 470,707 0 2,314,333 0
----------------------------------------------------------------------
End of Period $536,458 $470,707 $3,271,629 $2,314,333
======================================================================
</TABLE>
* Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
See accompanying notes.
<PAGE> 78
<TABLE>
<CAPTION>
Lifestyle Balanced Lifestyle Moderate Lifestyle Conservative
640 460 280
Sub-Account Sub-Account Sub-Account
- -----------------------------------------------------------------------------------------------------------------
Period Ended *Period Ended Period Ended *Period Ended Period Ended *Period Ended
June 30/98 Dec. 31/97 June 30/98 Dec. 31/97 June 30/98 Dec. 31/97
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$52,958 $4,341 $4,117 $621 $136 $0
844 440 593 (2) (5) 0
2,403 17,177 1,722 361 (66) 0
- ----------------------------------------------------------------------------------------------------------------
56,205 21,958 6,432 980 65 0
- ----------------------------------------------------------------------------------------------------------------
106,531 30,549 8,428 890 4,110 0
(16,415) (8,966) (2,636) (274) (920) 0
0 0 (20,717) 0 0 0
209,234 806,676 702 95,836 0 0
- ----------------------------------------------------------------------------------------------------------------
299,350 828,259 (14,223) 96,452 3,190 0
- ----------------------------------------------------------------------------------------------------------------
355,555 850,217 (7,791) 97,432 3,255 0
850,217 0 97,432 0 0 0
- ----------------------------------------------------------------------------------------------------------------
$1,205,772 $850,217 $89,641 $97,432 $3,255 $0
================================================================================================================
</TABLE>
<PAGE> 79
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDING JUNE 30, 1998 AND DECEMBER 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
**Small Company
Value Trust TOTAL
Sub-Account
------------------------------------------------------
Period Ended Period Ended Year Ended
June 30/98 June 30/98 Dec. 31/97
------------------------------------------------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) ($16) $19,661,730 $2,099,257
Net realized gain (loss) (4) 4,646,461 3,694,407
Unrealized appreciation (depreciation)
of investments during the period (570) (3,012,527) 26,745,397
---------------------------------------------------
Increase (decrease) in net assets
derived from operations (590) 21,295,664 32,539,061
---------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 9,866 44,224,611 60,597,996
Transfer of terminations 60 (16,323,096) (22,612,737)
Transfer of policy loans 0 (948,697) (1,911,415)
Net interfund transfers 27,965 30,761 23,790
---------------------------------------------------
37,891 26,983,579 36,097,634
--------------------------------------------------
Net increase in net assets 37,301 48,279,243 68,636,695
NET ASSETS
Beginning of Year 0 256,016,607 187,379,912
--------------------------------------------------
End of Period $37,301 $304,295,850 $256,016,607
===================================================
</TABLE>
** Reflects the period from commencement of operations May 1, 1998 through
June 30, 1998
See accompanying notes.
<PAGE> 80
Separate Account Four of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
June 30, 1998
1. ORGANIZATION
Separate Account Four of The Manufacturers Life Insurance Company of America
(the "Separate Account") is a unit investment trust registered under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
investment sub-accounts available for allocation of net premiums under variable
universal life insurance policies (the "policies") issued by The Manufacturers
Life Insurance Company of America ("Manufacturers Life of America"). The
Separate Account was established by Manufacturers Life of America, a life
insurance company organized in 1983 under Michigan law. Manufacturers Life of
America is an indirect, wholly-owned subsidiary of The Manufacturers Life
Insurance Company ("Manulife Financial"), a Canadian mutual life insurance
company. On January 1, 1996, Manulife Financial merged with North American Life
Assurance Company and, as a result, acquired control of NASL Series Trust which,
effective October 31, 1997, was renamed Manufacturers Investment Trust. Each
investment sub-account invests solely in shares of a particular Manufacturers
Investment Trust and, prior to the merger, Manulife Series Fund are registered
under the Investment Company Act of 1940 as open-end management investment
companies.
The Small Company Value Trust was added to the Separate Account on May 1, 1998,
and the International Small Cap and Blue Chip Growth Trusts were added to the
Separate Account on January 1, 1997 as investment options for variable universal
life policy holders of Manufacturers Life of America. The Science & Technology,
Pilgram Baxter Growth, Small/Mid Cap, Worldwide Growth, Global Equity, Growth,
Value, International Growth and Income, High Yield, Strategic Bond, Global
Government Bond, Investment Quality Bond, Lifestyle Aggressive 1000, Lifestyle
Growth 820, Lifestyle Balanced 640 and Lifestyle Moderate 460 Trusts were added
to the Separate Account on May 1, 1997 as investment options for variable
universal life policy holders of Manufacturers Life of America.
The Equity Index Fund, Equity, Value Equity, Growth and Income, U.S. Government
Securities, Conservative Asset Allocation, Moderate Asset Allocation and
Aggressive Asset Allocation Trusts were added to the Separate Account on
February 14, 1996 as investment options for policy holders of Manufacturers Life
of America.
Effective December 31, 1996, Manulife Series Fund, Inc. was merged into the
Manufacturers Investment Trust (formerly the NASL Series Trust). As a result,
the following sub-accounts of the Separate Account were renamed to correspond
with the fund names of the Manufacturers Investment Trust.
<PAGE> 81
Separate Account Four of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
1. ORGANIZATION (continued)
MANULIFE SERIES FUND, INC. MANUFACTURERS INVESTMENT TRUST
SUB-ACCOUNTS SUB-ACCOUNTS
Emerging Growth Equity Fund Emerging Growth Trust
Common Stock Fund Quantitative Equity Trust
Real Estate Securities Fund Real Estate Securities Trust
Balanced Asset Fund Balanced Trust
Capital Growth Bond Fund Capital Growth Bond Trust
Money Market Fund Money Market Trust
International Fund International Stock Trust
Pacific Rim Emerging Markets Fund Pacific Rim Emerging Markets Trust
Equity Index Fund Equity Index Trust
All references hereinafter to Manufacturers Investment Trust would have been to
Manulife Series Fund, Inc. prior to December 31, 1996.
Manufacturers Life of America is the legal owner of the Separate Account.
Manufacturers Life of America is required to maintain assets in the Separate
Account with a total market value at least equal to the reserves and other
liabilities relating to the variable benefits under all policies participating
in the Separate Account. These assets may not be charged with liabilities which
arise from any other business Manufacturers Life of America conducts. However,
all obligations under the variable policies are general corporate obligations of
Manufacturers Life of America.
Additional assets are held in Manufacturers Life of America's general account to
cover the contingency that the guaranteed minimum death benefit might exceed the
death benefit which would have been payable in the absence of such guarantee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Account in preparation of its financial statements:
a. Valuation of Investments - Investments are made among the thirty-six
Trusts of Manufacturers Investment Trust and are valued at the reported
net asset values of these Trusts. Transactions are recorded on the
trade date. Net investment income and net realized gains on investments
in Manufacturers Investment Trust are reinvested.
<PAGE> 82
Separate Account Four of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
b. Realized gains and losses on the sale of investments are computed on
the first-in, first-out basis.
c. Dividend income is recorded on the ex-dividend date.
d. Federal Income Taxes - Manufacturers Life of America, the Separate
Account's sponsor, is taxed as a "life insurance company" under the
Internal Revenue Code. Under these provisions of the Code, the
operations of the Separate Account form part of the sponsor's total
operations and are not taxed separately.
The current year's operations of the Separate Account are not expected
to affect the sponsor's tax liabilities and, accordingly, no charges
were made against the Separate Account for federal, state and local
taxes. However, in the future, should the sponsor incur significant tax
liabilities related to the Separate Account's operations, it intends to
make a charge or establish a provision within the Separate Account for
such taxes.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. MORTALITY AND EXPENSE RISKS CHARGE
Manufacturers Life of America deducts from the assets of the Separate Account a
daily charge equivalent to an annual rate of 0.65% of the average net value of
the Separate Account's assets for mortality and expense risks.
4. PREMIUM DEDUCTIONS
Manufacturers Life of America deducts certain charges for state, local and
federal taxes from the gross single premium and any additional premiums before
placing the remaining net premiums in the sub-accounts.
<PAGE> 83
Separate Account Four of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
5. PURCHASES AND SALES OF MANUFACTURERS INVESTMENT TRUST SHARES
Purchases and sales of the shares of common stock of Manufacturers Investment
Trust for the period ended June 30, 1998 were $63,493,756 and $37,435,367
respectively, and for the year ended December 31, 1997 were $82,099,182 and
$43,206,372 respectively.
6. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
Registered representatives of either ManEquity, Inc. or other broker-dealers
having distribution agreements with ManEquity, Inc. who are also authorized as
variable life insurance agents under applicable state insurance laws, sell the
Policies. Registered representatives are compensated on a commission basis.
Manufacturers Life of America has a formal service agreement with its
affiliates, Manulife Financial and The Manufacturers Life Insurance Company
(U.S.A.), which can be terminated by either party upon two months notice. Under
this Agreement, Manufacturers Life of America pays for legal, actuarial,
investment and certain other administrative services.
<PAGE> 84
Financial Statements
Separate Account Four of
The Manufacturers Life Insurance
Company of America
Three years ended December 31, 1997
with Report of Independent Auditors
F-1
<PAGE> 85
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
FINANCIAL STATEMENTS
Three years ended December 31, 1997
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-3
Audited Financial Statements
Statement of Assets and Liabilities......................... F-4
Statements of Operations.................................... F-6
Statements of Changes in Net Assets......................... F-16
Notes to Financial Statements............................... F-25
</TABLE>
F-2
<PAGE> 86
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
We have audited the accompanying statement of assets and liabilities of Separate
Account Four of The Manufacturers Life Insurance Company of America as of
December 31, 1997 and the related statements of operations and changes in net
assets for each of the three years in the period then ended. These financial
statements are the responsibility of The Manufacturers Life Insurance Company of
America's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Separate Account Four of The
Manufacturers Life Insurance Company of America at December 31, 1997 and the
results of its operations and the changes in its net assets for each of the
three years in the period then ended, in conformity with generally accepted
accounting principles.
/S/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
January 30, 1998
F-3
<PAGE> 87
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
SUB-ACCOUNT
NET ASSET UNITS NET ASSET
VALUE OUTSTANDING VALUE PER UNIT
------------ ----------- --------------
<S> <C> <C> <C>
Assets
Investment in NASL Series Trust -- at market value:
Emerging Growth Trust, 2,572,854 shares (cost
$53,335,356) .......................................... $ 62,082,970 985,538 $62.99
Quantitative Equity Trust, 1,538,349 shares (cost
$25,536,654)........................................... 34,612,842 838,471 41.28
Real Estate Securities Trust, 1,223,838 shares (cost
$18,828,988)........................................... 24,562,432 585,031 41.98
Balanced Trust, 2,566,305 shares (cost $40,736,425)...... 49,606,670 1,673,314 29.65
Capital Growth Bond Trust, 1,156,348 shares ($12,733,397) 13,702,722 634,378 21.60
Money Market Trust, 651,683 shares (cost $6,516,833)..... 6,516,833 405,767 16.06
International Stock Trust 585,099 shares (cost
$6,763,961)............................................ 6,711,083 564,394 11.89
Pacific Rim Emerging Markets Trust, 327,300 shares (cost
$3,499,065)............................................ 2,343,464 314,757 7.45
Equity Index Trust, 554,062 shares (cost $6,900,704)..... 6,914,699 456,400 15.15
Equity Trust, 372,734 shares (cost $7,721,678)........... 8,013,789 598,385 13.39
Value Equity Trust, 324,916 shares (cost $4,941,787)..... 5,601,556 384,812 14.56
Growth and Income Trust, 344,786 shares (cost $7,309,943) 8,236,938 534,426 15.41
U.S. Government Securities Trust, 48,952 shares (cost
$650,865).............................................. 660,852 60,219 10.97
Conservative Asset Allocation Trust, 48,041 shares (cost
$548,689).............................................. 565,927 48,861 11.58
Moderate Asset Allocation Trust, 143,650 shares (cost
$1,765,274)............................................ 1,860,264 151,848 12.25
Aggressive Asset Allocation Trust, 223,612 shares (cost
$3,110,389)............................................ 3,211,067 249,829 12.85
International Small Cap Trust, 40,459 shares (cost
$569,422).............................................. 554,288 44,121 12.56
Blue Chip Growth Trust, 301,138 shares (cost
$4,281,141)............................................ 4,517,068 283,306 15.94
Science & Technology Trust, 106,411 shares (cost
$1,481,032)............................................ 1,449,315 103,504 14.00
Pilgram Baxter Growth Trust, 23,164 shares (cost
$291,371) ............................................. 289,545 20,008 14.47
Small/Mid Cap Trust, 116,648 shares (cost $1,838,763).... 1,797,552 118,271 15.20
Worldwide Growth Trust, 14,336 shares (cost $202,912).... 201,276 14,765 13.63
Global Equity Trust, 175,361 shares (cost $3,255,628).... 3,398,506 234,026 14.52
Growth Trust, 101,948 shares (cost $1,711,584)........... 1,754,522 117,710 14.91
Value Trust, 92,766 shares (cost $1,378,207)............. 1,372,938 95,372 14.40
International Growth and Income Trust, 1,913 shares (cost
$22,155)............................................... 21,058 1,694 12.43
High Yield Trust, 61,865 shares (cost $861,542).......... 838,893 60,819 13.79
Strategic Bond Trust, 32,872 shares (cost $396,279)...... 406,950 30,002 13.56
Global Government Bond Trust, 575 shares (cost $7,900)... 8,086 615 13.15
Investment Quality Bond Trust, 38,731 shares (cost
$464,328).............................................. 469,813 34,727 13.53
Lifestyle Aggressive 1000 Trust, 34,945 shares (cost
$469,603).............................................. 470,707 33,008 14.26
Lifestyle Growth 820 Trust, 168,071 shares (cost
$2,306,612)............................................ 2,314,333 163,331 14.17
Lifestyle Balanced 640 Trust, 62,700 shares (cost
$833,040) ............................................. 850,217 60,557 14.04
Lifestyle Moderate 460 Trust, 7,298 shares (cost
$97,071)............................................... 97,432 7,065 13.79
------------
Net assets................................................. $256,016,607
============
</TABLE>
See accompanying notes.
F-4
<PAGE> 88
(This page intentionally left blank.)
F-5
<PAGE> 89
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EMERGING GROWTH QUANTITATIVE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
-------------------------------------- ------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income................................. $ -- $ 8,843,524 $1,225,634 $ -- $3,890,071 $ --
Expenses:
Mortality and expense risks charge.............. 373,014 368,823 270,835 197,730 151,076 105,143
----------- ----------- ---------- ---------- ---------- ----------
Net investment (loss) income...................... (373,014) 8,474,701 954,799 (197,730) 3,738,995 (105,143)
----------- ----------- ---------- ---------- ---------- ----------
Realized and unrealized gain (loss) on
investments:
Realized gain (loss) from security transactions:
Proceeds from sales........................... 10,933,692 6,561,190 2,832,896 3,733,685 3,065,148 1,361,365
Cost of securities sold....................... 9,991,336 4,628,761 2,206,988 2,720,036 2,226,724 1,152,296
----------- ----------- ---------- ---------- ---------- ----------
Net realized gain (loss)........................ 942,356 1,932,429 625,908 1,013,649 838,424 209,069
----------- ----------- ---------- ---------- ---------- ----------
Unrealized appreciation (depreciation) of
investments:
Beginning of year............................. 586,387 8,388,250 111,061 2,395,112 3,250,703 (784,068)
End of year................................... 8,747,614 586,387 8,388,250 9,076,188 2,395,112 3,250,703
----------- ----------- ---------- ---------- ---------- ----------
Net unrealized appreciation (depreciation)
during the year............................... 8,161,227 (7,801,863) 8,277,189 6,681,076 (855,591) 4,034,771
----------- ----------- ---------- ---------- ---------- ----------
Net realized and unrealized gain (loss) on
investments..................................... 9,103,583 (5,869,434) 8,903,097 7,694,725 (17,167) 4,243,840
----------- ----------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets derived from
operations...................................... $ 8,730,569 $ 2,605,267 $9,857,896 $7,496,995 $3,721,828 $4,138,697
=========== =========== ========== ========== ========== ==========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996.
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997.
See accompanying notes.
F-6
<PAGE> 90
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES BALANCED CAPITAL GROWTH BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------------ -------------------------------------- -------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $3,089,196 $ 226,773 $ -- $ 6,191,018 $ 46,122 $ -- $ 813,220 $ 886,880
138,789 97,165 78,656 312,899 274,346 212,093 88,739 86,787 68,677
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
(138,789) 2,992,031 148,117 (312,899) 5,916,672 (165,971) (88,739) 726,433 818,203
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
2,341,949 2,069,989 1,615,880 7,720,982 3,782,322 3,475,264 2,670,789 2,257,680 933,993
1,932,587 1,848,111 1,447,729 6,543,277 3,146,020 3,283,870 2,837,578 2,354,529 952,316
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
409,362 221,878 168,151 1,177,705 636,302 191,394 (166,789) (96,849) (18,323)
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
2,357,828 829,392 (567,347) 2,233,057 4,756,710 (2,255,674) (322,754) 29,751 (1,013,152)
5,733,444 2,357,828 829,392 8,870,245 2,233,057 4,756,710 969,325 (322,754) 29,751
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
3,375,616 1,528,436 1,396,739 6,637,188 (2,523,653) 7,012,384 1,292,079 (352,505) 1,042,903
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
3,784,978 1,750,314 1,564,890 7,814,893 (1,887,351) 7,203,778 1,125,290 (449,354) 1,024,580
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
$3,646,189 $4,742,345 $1,713,007 $7,501,994 $ 4,029,321 $ 7,037,807 $1,036,551 $ 277,079 $ 1,842,783
========== ========== ========== ========== =========== =========== ========== ========== ===========
</TABLE>
F-7
<PAGE> 91
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
MONEY MARKET INTERNATIONAL STOCK
SUB-ACCOUNT SUB-ACCOUNT
------------------------------------ ------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income................................... $ 363,575 $ 522,633 $ 268 $ 91,567 $102,007 $ 42,811
Expenses:
Mortality and expense risks charge................ 47,049 38,258 36,426 31,392 18,357 7,535
---------- ---------- ---------- ---------- -------- --------
Net investment (loss) income........................ 316,526 484,375 (36,158) 60,175 83,650 35,276
---------- ---------- ---------- ---------- -------- --------
Realized and unrealized gain (loss) on
investments:
Realized gain (loss) from security transactions:
Proceeds from sales............................. 6,596,321 4,574,935 3,529,055 1,816,518 481,615 71,517
Cost of securities sold......................... 6,872,137 4,366,887 3,419,405 1,550,916 416,277 69,179
---------- ---------- ---------- ---------- -------- --------
Net realized gain (loss).......................... (275,816) 208,048 109,650 265,602 65,338 2,338
---------- ---------- ---------- ---------- -------- --------
Unrealized appreciation (depreciation) of
investments:
Beginning of year............................... (275,826) 165,832 (31,424) 231,185 110,424 (924)
End of year..................................... -- (275,826) 165,832 (52,878) 231,185 110,424
---------- ---------- ---------- ---------- -------- --------
Net unrealized appreciation (depreciation) during
the year........................................ 275,826 (441,658) 197,256 (284,063) 120,761 111,348
---------- ---------- ---------- ---------- -------- --------
Net realized and unrealized gain (loss) on
investments....................................... 10 (233,610) 306,906 (18,461) 186,099 113,686
---------- ---------- ---------- ---------- -------- --------
Net increase (decrease) in net assets derived from
operations........................................ $ 316,536 $ 250,765 $ 270,748 $ 41,714 $269,749 $148,962
========== ========== ========== ========== ======== ========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996.
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997.
See accompanying notes.
F-8
<PAGE> 92
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
PACIFIC RIM
EMERGING MARKETS EQUITY INDEX EQUITY VALUE EQUITY VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------------------------------- -------------------------- -------------------------- ------------ -------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96
------------ ----------- ---------- ---------- ------------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6,802 $ 152,468 $ 16,639 $868,880 $ 79,858 $1,074,319 $ 37,137 $406,015 $ 14,881
22,205 18,290 5,651 21,448 4,113 39,559 12,389 24,945 6,019
----------- --------- -------- -------- -------- ---------- -------- -------- --------
(15,403) 134,178 10,988 847,432 75,745 1,034,760 24,748 381,070 8,862
----------- --------- -------- -------- -------- ---------- -------- -------- --------
1,610,390 936,603 56,135 170,943 42,748 1,651,482 646,845 573,549 90,317
1,704,271 774,951 56,923 133,983 39,927 1,627,042 622,356 498,698 88,968
----------- --------- -------- -------- -------- ---------- -------- -------- --------
(93,881) 161,652 (788) 36,960 2,821 24,440 24,489 74,851 1,349
----------- --------- -------- -------- -------- ---------- -------- -------- --------
5,325 114,318 (5,485) 46,173 -- 270,657 -- 162,428 --
(1,155,601) 5,325 114,318 13,995 46,173 292,111 270,657 659,769 162,428
----------- --------- -------- -------- -------- ---------- -------- -------- --------
(1,160,926) (108,993) 119,803 (32,178) 46,173 21,454 270,657 497,341 162,428
----------- --------- -------- -------- -------- ---------- -------- -------- --------
(1,254,807) 52,659 119,015 4,782 48,994 45,894 295,146 572,192 163,777
----------- --------- -------- -------- -------- ---------- -------- -------- --------
$(1,270,210) $ 186,837 $130,003 $852,214 $124,739 $1,080,654 $319,894 $953,262 $172,639
=========== ========= ======== ======== ======== ========== ======== ======== ========
</TABLE>
F-9
<PAGE> 93
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT CONSERVATIVE
GROWTH AND INCOME SECURITIES ASSET ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------------------- -------------------------- --------------------------
YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96
---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income.......................... $ 274,008 $ 461 $ 19,990 $ -- $34,960 $ --
Expenses:
Mortality and expense risks charge....... 32,434 4,797 2,737 849 2,565 685
---------- -------- -------- -------- ------- -------
Net investment (loss) income............... 241,574 (4,336) 17,253 (849) 32,395 (685)
---------- -------- -------- -------- ------- -------
Realized and unrealized gain (loss) on
investments:
Realized gain (loss) from security
transactions:
Proceeds from sales.................... 912,556 376,632 590,817 322,161 13,446 43,255
Cost of securities sold................ 705,805 332,811 580,482 317,325 12,672 40,504
---------- -------- -------- -------- ------- -------
Net realized gain (loss)................. 206,751 43,821 10,335 4,836 774 2,751
---------- -------- -------- -------- ------- -------
Unrealized appreciation (depreciation) of
investments:
Beginning of year...................... 145,719 -- 3,780 -- 7,208 --
End of year............................ 926,995 145,719 9,987 3,780 17,238 7,208
---------- -------- -------- -------- ------- -------
Net unrealized appreciation
(depreciation) during the year......... 781,276 145,719 6,207 3,780 10,030 7,208
---------- -------- -------- -------- ------- -------
Net realized and unrealized gain (loss) on
investments.............................. 988,027 189,540 16,542 8,616 10,804 9,959
---------- -------- -------- -------- ------- -------
Net increase (decrease) in net assets
derived from operations.................. $1,229,601 $185,204 $ 33,795 $ 7,767 $43,199 $ 9,274
========== ======== ======== ======== ======= =======
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996.
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997.
See accompanying notes.
F-10
<PAGE> 94
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
**PILGRAM
MODERATE AGGRESSIVE INTERNATIONAL BLUE CHIP **SCIENCE & BAXTER
ASSET ALLOCATION ASSET ALLOCATION SMALL CAP GROWTH TECHNOLOGY GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------------------- ----------------------------- ------------- ------------- ------------- -------------
YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 98,004 $ -- $ 63,599 $ 2,110 $ 46 $ 55,879 $ 22,881 $ --
8,091 2,050 6,368 1,342 2,815 6,989 853 764
-------- ------- -------- ------- -------- -------- -------- -------
89,913 (2,050) 57,231 768 (2,769) 48,890 22,028 (764)
-------- ------- -------- ------- -------- -------- -------- -------
474,116 31,213 294,332 86,943 461,080 205,667 19,777 4,772
439,434 29,641 275,851 82,784 450,930 217,790 18,232 4,339
-------- ------- -------- ------- -------- -------- -------- -------
34,682 1,572 18,481 4,159 10,150 (12,123) 1,545 433
-------- ------- -------- ------- -------- -------- -------- -------
36,462 -- 19,871 -- -- -- -- --
94,990 36,462 100,678 19,871 (15,134) 235,927 (31,717) (1,826)
-------- ------- -------- ------- -------- -------- -------- -------
58,528 36,462 80,807 19,871 (15,134) 235,927 (31,717) (1,826)
-------- ------- -------- ------- -------- -------- -------- -------
93,210 38,034 99,288 24,030 (4,984) 223,804 (30,172) (1,393)
-------- ------- -------- ------- -------- -------- -------- -------
$183,123 $35,984 $156,519 $24,798 $ (7,753) $272,694 $ (8,144) $(2,157)
======== ======= ======== ======= ======== ======== ======== =======
</TABLE>
F-11
<PAGE> 95
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
**GLOBAL
**SMALL/MID **WORLDWIDE EQUITY **GROWTH
CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT
SUB-ACCOUNT SUB-ACCOUNT ----------- -----------
------------ ------------ PERIOD PERIOD
PERIOD ENDED PERIOD ENDED ENDED ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Investment income:
Dividend income........................................ $ -- $ 1,726 $ -- $ --
Expenses:
Mortality and expense risks charge..................... 1,669 142 2,697 1,748
-------- ------- -------- -------
Net investment (loss) income................................ (1,669) 1,584 (2,697) (1,748)
-------- ------- -------- -------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) from security transactions:
Proceeds from sales............................... 95,793 3,228 28,974 4,007
Cost of securities sold........................... 96,560 3,203 27,932 3,543
-------- ------- -------- -------
Net realized gain (loss)............................... (767) 25 1,042 464
-------- ------- -------- -------
Unrealized appreciation (depreciation) of investments:
Beginning of year................................. -- -- -- --
End of year....................................... (41,211) (1,636) 142,878 42,938
-------- ------- -------- -------
Net unrealized appreciation (depreciation) during the
year................................................. (41,211) (1,636) 142,878 42,938
-------- ------- -------- -------
Net realized and unrealized gain (loss) on investments...... (41,978) (1,611) 143,920 43,402
-------- ------- -------- -------
Net increase (decrease) in net assets derived from
operations................................................ $(43,647) $ (27) $141,223 $41,654
======== ======= ======== =======
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996.
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997.
See accompanying notes.
F-12
<PAGE> 96
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
**INTERNATIONAL **GLOBAL
GROWTH AND **STRATEGIC GOVERNMENT **INVESTMENT
**VALUE INCOME **HIGH YIELD BOND BOND QUALITY BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ------------ --------------- ------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
- ------------ --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$42,077 $ -- $ 31,277 $ -- $ -- $ --
1,979 61 1,095 827 17 391
------- ------- -------- ------- ---- ------
40,098 (61) 30,182 (827) (17) (391)
------- ------- -------- ------- ---- ------
10,858 4,308 80,117 6,519 131 2,867
9,724 4,568 75,733 6,233 128 2,800
------- ------- -------- ------- ---- ------
1,134 (260) 4,384 286 3 67
------- ------- -------- ------- ---- ------
-- -- -- -- -- --
(5,269) (1,097) (22,649) 10,671 186 5,485
------- ------- -------- ------- ---- ------
(5,269) (1,097) (22,649) 10,671 186 5,485
------- ------- -------- ------- ---- ------
(4,135) (1,357) (18,265) 10,957 189 5,552
------- ------- -------- ------- ---- ------
$35,963 $(1,418) $ 11,917 $10,130 $172 $5,161
======= ======= ======== ======= ==== ======
</TABLE>
F-13
<PAGE> 97
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
**LIFESTYLE **LIFESTYLE **LIFESTYLE **LIFESTYLE
AGGRESSIVE GROWTH BALANCED MODERATE
1000 820 640 460
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------ ------------ ------------ ------------ ---------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/96 DEC. 31/95
------------ ------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income........... $ 954 $ 16,099 $ 6,641 $653 $ 3,479,952 $23,738,584 $ 2,445,127
Expenses:
Mortality and expense
risks charge............ 798 5,554 2,300 32 1,380,695 1,085,346 785,016
------ -------- ------- ---- ----------- ----------- -----------
Net investment (loss)
income.................... 156 10,545 4,341 621 2,099,257 22,653,238 1,660,111
------ -------- ------- ---- ----------- ----------- -----------
Realized and unrealized gain
(loss) on investments:
Realized gain (loss) from
security transactions:
Proceeds from sales..... 22,090 139,748 10,642 227 43,206,372 25,369,596 13,876,105
Cost of securities
sold.................. 20,473 133,241 10,202 229 39,511,965 21,316,576 12,588,706
------ -------- ------- ---- ----------- ----------- -----------
Net realized gain
(loss).................. 1,617 6,507 440 (2) 3,694,407 4,053,020 1,287,399
------ -------- ------- ---- ----------- ----------- -----------
Unrealized appreciation
(depreciation) of
investments:
Beginning of year....... -- -- -- -- 7,902,612 17,645,380 (4,547,013)
End of year............. 1,104 7,721 17,177 361 34,648,009 7,902,612 17,645,380
------ -------- ------- ---- ----------- ----------- -----------
Net unrealized
appreciation
(depreciation) during
the year................ 1,104 7,721 17,177 361 26,745,397 (9,742,768) 22,192,393
------ -------- ------- ---- ----------- ----------- -----------
Net realized and unrealized
gain (loss) on
investments............... 2,721 14,228 17,617 359 30,439,804 (5,689,748) 23,479,792
------ -------- ------- ---- ----------- ----------- -----------
Net increase (decrease) in
net assets derived from
operations................ $2,877 $ 24,773 $21,958 $980 $32,539,061 $16,963,490 $25,139,903
====== ======== ======= ==== =========== =========== ===========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996.
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997.
See accompanying notes.
F-14
<PAGE> 98
(This page intentionally left blank)
F-15
<PAGE> 99
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EMERGING GROWTH QUANTITATIVE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
---------------------------------------- ---------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment (loss)
income..................... $ (373,014) $ 8,474,701 $ 954,799 $ (197,730) $ 3,738,995 $ (105,143)
Net realized gain (loss)..... 942,356 1,932,429 625,908 1,013,649 838,424 209,069
Net unrealized appreciation
(depreciation) of
investments during the
year....................... 8,161,227 (7,801,863) 8,277,189 6,681,076 (855,591) 4,034,771
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets derived from
operations................. 8,730,569 2,605,267 9,857,896 7,496,995 3,721,828 4,138,697
------------ ----------- ----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums... 10,968,515 14,023,834 15,756,405 5,269,678 4,853,989 5,345,309
Transfer of terminations... (5,398,115) (5,184,577) (4,775,355) (3,038,289) (1,960,658) (2,397,088)
Transfer of policy loans... (624,209) (629,038) (383,960) (229,614) (199,046) (139,168)
Net interfund transfers.... (10,114,334) (4,559,177) 808,068 (447,386) (1,140,965) 601,941
------------ ----------- ----------- ----------- ----------- -----------
(5,168,143) 3,651,042 11,405,158 1,554,389 1,553,320 3,410,994
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets................. 3,562,426 6,256,309 21,263,054 9,051,384 5,275,148 7,549,691
NET ASSETS
Beginning of year............ 58,520,544 52,264,235 31,001,181 25,561,458 20,286,310 12,736,619
------------ ----------- ----------- ----------- ----------- -----------
End of year.................. $ 62,082,970 $58,520,544 $52,264,235 $34,612,842 $25,561,458 $20,286,310
============ =========== =========== =========== =========== ===========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996.
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997.
See accompanying notes.
F-16
<PAGE> 100
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES BALANCED CAPITAL GROWTH BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------------------------------- --------------------------------------- ---------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ (138,789) $ 2,992,031 $ 148,117 $ (312,899) $ 5,916,672 $ (165,971) $ (88,739) $ 726,433 $ 818,203
409,362 221,878 168,151 1,177,705 636,302 191,394 (166,789) (96,849) (18,323)
3,375,616 1,528,436 1,396,739 6,637,188 (2,523,653) 7,012,384 1,292,079 (352,505) 1,042,903
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
3,646,189 4,742,345 1,713,007 7,501,994 4,029,321 7,037,807 1,036,551 277,079 1,842,783
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
3,087,313 2,765,182 4,283,407 7,548,194 8,726,978 10,932,103 1,927,024 2,665,999 3,119,374
(2,187,862) (1,467,190) (1,478,397) (5,118,735) (3,748,227) (3,544,462) (1,630,139) (923,256) (1,316,692)
(150,861) (101,471) (43,920) (520,775) (345,242) (305,026) (60,413) (81,852) (67,747)
1,362,290 (1,015,253) (1,220,289) (5,272,252) (2,422,119) (1,831,364) (1,458,915) (809,388) 730,548
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
2,110,880 181,268 1,540,801 (3,363,568) 2,211,390 5,251,251 (1,222,443) 851,503 2,465,483
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
5,757,069 4,923,613 3,253,808 4,138,426 6,240,711 12,289,058 (185,892) 1,128,582 4,308,266
18,805,363 13,881,750 10,627,942 45,468,244 39,227,533 26,938,475 13,888,614 12,760,032 8,451,766
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$24,562,432 $18,805,363 $13,881,750 $49,606,670 $45,468,244 $39,227,533 $13,702,722 $13,888,614 $12,760,032
=========== =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
F-17
<PAGE> 101
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
MONEY MARKET INTERNATIONAL STOCK
SUB-ACCOUNT SUB-ACCOUNT
-------------------------------------- ------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment (loss)
income...................... $ 316,526 $ 484,375 $ (36,158) $ 60,175 $ 83,650 $ 35,276
Net realized gain (loss)...... (275,816) 208,048 109,650 265,602 65,338 2,338
Net unrealized appreciation
(depreciation) of
investments during the
year........................ 275,826 (441,658) 197,256 (284,063) 120,761 111,348
----------- ----------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets derived from
operations.................. 316,536 250,765 270,748 41,714 269,749 148,962
----------- ----------- ---------- ---------- ---------- ----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums.... 3,105,289 2,628,791 2,577,889 2,524,804 870,119 468,861
Transfer of terminations.... (1,271,291) (956,767) (782,380) (503,518) (194,570) (114,292)
Transfer of policy loans.... 17,308 (13,756) (36,007) (88,083) (27,661) (8,567)
Net interfund transfers..... (2,379,177) (1,146,057) (642,476) 871,148 1,135,964 1,045,046
----------- ----------- ---------- ---------- ---------- ----------
(527,871) 512,211 1,117,026 2,804,351 1,783,852 1,391,048
----------- ----------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets...................... (211,335) 762,976 1,387,774 2,846,065 2,053,601 1,540,010
NET ASSETS
Beginning of year............. 6,728,168 5,965,192 4,577,418 3,865,018 1,811,417 271,407
----------- ----------- ---------- ---------- ---------- ----------
End of year................... $ 6,516,833 $ 6,728,168 $5,965,192 $6,711,083 $3,865,018 $1,811,417
=========== =========== ========== ========== ========== ==========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996.
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997.
See accompanying notes.
F-18
<PAGE> 102
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
PACIFIC RIM
EMERGING MARKETS EQUITY INDEX EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------------- -------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96
----------- ---------- ---------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (15,403) $ 134,178 $ 10,988 $ 847,432 $ 75,745 $1,034,760 $ 24,748
(93,881) 161,652 (788) 36,960 2,821 24,440 24,489
(1,160,926) (108,993) 119,803 (32,178) 46,173 21,454 270,657
----------- ---------- ---------- ---------- ---------- ---------- ----------
(1,270,210) 186,837 130,003 852,214 124,739 1,080,654 319,894
----------- ---------- ---------- ---------- ---------- ---------- ----------
858,191 683,676 339,577 3,106,131 279,042 3,023,077 961,034
(808,786) (201,928) (84,460) (166,672) (38,180) (778,177) (85,993)
(65,080) (20,049) (7,956) (3,054) (3,251) (30,340) (8,149)
(58,053) 1,647,145 839,514 1,961,503 802,227 582,252 2,949,537
----------- ---------- ---------- ---------- ---------- ---------- ----------
(73,728) 2,108,844 1,086,675 4,897,908 1,039,838 2,796,812 3,816,429
----------- ---------- ---------- ---------- ---------- ---------- ----------
(1,343,938) 2,295,681 1,216,678 5,750,122 1,164,577 3,877,466 4,136,323
3,687,402 1,391,721 175,043 1,164,577 -- 4,136,323 --
----------- ---------- ---------- ---------- ---------- ---------- ----------
$ 2,343,464 $3,687,402 $1,391,721 $6,914,699 $1,164,577 $8,013,789 $4,136,323
=========== ========== ========== ========== ========== ========== ==========
</TABLE>
F-19
<PAGE> 103
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT
VALUE EQUITY GROWTH AND INCOME SECURITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------------------- --------------------------- ---------------------------
YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96
---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment (loss) income........ $ 381,070 $ 8,862 $ 241,574 $ (4,336) $ 17,253 $ (849)
Net realized gain (loss)............ 74,851 1,349 206,751 43,821 10,335 4,836
Net unrealized appreciation
(depreciation) of investments
during the year................... 497,341 162,428 781,276 145,719 6,207 3,780
---------- ---------- ---------- ---------- -------- ---------
Net increase (decrease) in net
assets derived from operations.... 953,262 172,639 1,229,601 185,204 33,795 7,767
---------- ---------- ---------- ---------- -------- ---------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums.......... 856,465 351,584 2,327,523 316,929 112,190 18,521
Transfer of terminations.......... (394,553) (35,519) (494,932) (36,051) (28,622) (299,154)
Transfer of policy loans.......... (21,910) (4,090) (11,939) (439) (10,083) --
Net interfund transfers........... 2,113,454 1,610,224 3,120,002 1,601,040 378,086 448,352
---------- ---------- ---------- ---------- -------- ---------
2,553,456 1,922,199 4,940,654 1,881,479 451,571 167,719
---------- ---------- ---------- ---------- -------- ---------
Net increase (decrease) in net
assets............................ 3,506,718 2,094,838 6,170,255 2,066,683 485,366 175,486
NET ASSETS
Beginning of year................... 2,094,838 -- 2,066,683 -- 175,486 --
---------- ---------- ---------- ---------- -------- ---------
End of year......................... $5,601,556 $2,094,838 $8,236,938 $2,066,683 $660,852 $ 175,486
========== ========== ========== ========== ======== =========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996.
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997.
See accompanying notes.
F-20
<PAGE> 104
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
CONSERVATIVE MODERATE AGGRESSIVE INTERNATIONAL BLUE CHIP
ASSET ALLOCATION ASSET ALLOCATION ASSET ALLOCATION SMALL CAP GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------------------- -------------------------- -------------------------- ------------- -----------
YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/97
---------- ------------- ---------- ------------- ---------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 32,395 $ (685) $ 89,913 $ (2,050) $ 57,231 $ 768 $ (2,769) $ 48,890
774 2,751 34,682 1,572 18,481 4,159 10,150 (12,123)
10,030 7,208 58,528 36,462 80,807 19,871 (15,134) 235,927
-------- -------- ---------- -------- ---------- -------- -------- ----------
43,199 9,274 183,123 35,984 156,519 24,798 (7,753) 272,694
-------- -------- ---------- -------- ---------- -------- -------- ----------
107,136 44,311 887,517 131,528 2,451,770 67,783 78,736 3,002,085
(13,120) (5,606) (176,631) (12,696) (230,373) (10,117) (20,504) (121,898)
-- -- (10) (1,206) (296) (1,206) (2,010) (545)
285,503 95,230 254,676 557,979 471,051 281,138 505,819 1,364,732
-------- -------- ---------- -------- ---------- -------- -------- ----------
379,519 133,935 965,552 675,605 2,692,152 337,598 562,041 4,244,374
-------- -------- ---------- -------- ---------- -------- -------- ----------
422,718 143,209 1,148,675 711,589 2,848,671 362,396 554,288 4,517,068
143,209 -- 711,589 -- 362,396 -- -- --
-------- -------- ---------- -------- ---------- -------- -------- ----------
$565,927 $143,209 $1,860,264 $711,589 $3,211,067 $362,396 $554,288 $4,517,068
======== ======== ========== ======== ========== ======== ======== ==========
</TABLE>
F-21
<PAGE> 105
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
**PILGRAM
**SCIENCE & BAXTER **SMALL/MID **WORLDWIDE **GLOBAL
TECHNOLOGY GROWTH CAP GROWTH EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment (loss) income..................... $ 22,028 $ (764) $ (1,669) $ 1,584 $ (2,697)
Net realized gain (loss)......................... 1,545 433 (767) 25 1,042
Net unrealized appreciation (depreciation) of
investments during the year.................... (31,717) (1,826) (41,211) (1,636) 142,878
---------- -------- ---------- -------- ----------
Net increase (decrease) in net assets derived
from operations................................ (8,144) (2,157) (43,647) (27) 141,223
---------- -------- ---------- -------- ----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums....................... 1,280,093 52,430 1,504,311 3,589 3,088,398
Transfer of terminations....................... (8,796) (3,413) (24,555) (385) (47,709)
Transfer of policy loans....................... -- -- -- -- --
Net interfund transfers........................ 186,162 242,685 361,443 198,099 216,594
---------- -------- ---------- -------- ----------
1,457,459 291,702 1,841,199 201,303 3,257,283
---------- -------- ---------- -------- ----------
Net increase (decrease) in net assets............ 1,449,315 289,545 1,797,552 201,276 3,398,506
NET ASSETS
Beginning of year................................ -- -- -- -- --
---------- -------- ---------- -------- ----------
End of year...................................... $1,449,315 $289,545 $1,797,552 $201,276 $3,398,506
========== ======== ========== ======== ==========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996.
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
See accompanying notes.
F-22
<PAGE> 106
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
**INTERNATIONAL **GLOBAL
GROWTH AND **HIGH **STRATEGIC GOVERNMENT
**GROWTH **VALUE INCOME YIELD BOND BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ------------ ------------ --------------- ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
- ------------ ------------ --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ (1,748) $ 40,098 $ (61) $ 30,182 $ (827) $ (17)
464 1,134 (260) 4,384 286 3
42,938 (5,269) (1,097) (22,649) 10,671 186
---------- ---------- ------- -------- -------- ------
41,654 35,963 (1,418) 11,917 10,130 172
---------- ---------- ------- -------- -------- ------
1,408,136 811,955 1,816 563,344 174,730 185
(22,975) (29,096) (376) (17,818) (7,767) (187)
-- (4,630) -- (2,703) (83) (52)
327,707 558,746 21,036 284,153 229,940 7,968
---------- ---------- ------- -------- -------- ------
1,712,868 1,336,975 22,476 826,976 396,820 7,914
---------- ---------- ------- -------- -------- ------
1,754,522 1,372,938 21,058 838,893 406,950 8,086
-- -- -- -- -- --
---------- ---------- ------- -------- -------- ------
$1,754,522 $1,372,938 $21,058 $838,893 $406,950 $8,086
========== ========== ======= ======== ======== ======
</TABLE>
F-23
<PAGE> 107
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
**LIFESTYLE **LIFESTYLE **LIFESTYLE **LIFESTYLE
**INVESTMENT AGGRESSIVE GROWTH BALANCED MODERATE
QUALITY BOND 1000 820 640 460
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------- ------------ ------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment (loss) income...... $ (391) $ 156 $ 10,545 $ 4,341 $ 621 $ 2,099,257
Net realized gain (loss).......... 67 1,617 6,507 440 (2) 3,694,407
Net unrealized appreciation
(depreciation) of investments
during the year................. 5,485 1,104 7,721 17,177 361 26,745,397
-------- -------- ---------- -------- ------- ------------
Net increase (decrease) in net
assets derived from
operations...................... 5,161 2,877 24,773 21,958 980 32,539,061
-------- -------- ---------- -------- ------- ------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums........ 298,577 33,139 104,216 30,549 890 60,597,996
Transfer of terminations........ (8,387) (7,521) (42,295) (8,966) (274) (22,612,737)
Transfer of policy loans........ -- (10,340) (91,693) -- -- (1,911,415)
Net interfund transfers......... 174,462 452,552 2,319,332 806,676 95,836 23,790
-------- -------- ---------- -------- ------- ------------
464,652 467,830 2,289,560 828,259 96,452 36,097,634
-------- -------- ---------- -------- ------- ------------
Net increase (decrease) in net
assets.......................... 469,813 470,707 2,314,333 850,217 97,432 68,636,695
NET ASSETS
Beginning of year................. -- -- -- -- -- 187,379,912
-------- -------- ---------- -------- ------- ------------
End of year....................... $469,813 $470,707 $2,314,333 $850,217 $97,432 $256,016,607
======== ======== ========== ======== ======= ============
<CAPTION>
TOTAL
---------------------------
YEAR ENDED YEAR ENDED
DEC. 31/96 DEC. 31/95
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment (loss) income...... $ 22,653,238 $ 1,660,111
Net realized gain (loss).......... 4,053,020 1,287,399
Net unrealized appreciation
(depreciation) of investments
during the year................. (9,742,768) 22,192,393
------------ ------------
Net increase (decrease) in net
assets derived from
operations...................... 16,963,490 25,139,903
------------ ------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums........ 39,389,300 42,822,925
Transfer of terminations........ (15,160,489) (14,493,126)
Transfer of policy loans........ (1,436,456) (992,351)
Net interfund transfers......... 35,877 330,988
------------ ------------
22,828,232 27,668,436
------------ ------------
Net increase (decrease) in net
assets.......................... 39,791,722 52,808,339
NET ASSETS
Beginning of year................. 147,588,190 94,779,851
------------ ------------
End of year....................... $187,379,912 $147,588,190
============ ============
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996.
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997.
See accompanying notes.
F-24
<PAGE> 108
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. ORGANIZATION
Separate Account Four of The Manufacturers Life Insurance Company of America
(the "Separate Account") is a unit investment trust registered under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
investment sub-accounts available for allocation of net premiums under variable
universal life insurance policies (the "Policies") issued by The Manufacturers
Life Insurance Company of America ("Manufacturers Life of America"). The
Separate Account was established by Manufacturers Life of America, a life
insurance company organized in 1983 under Michigan law. Manufacturers Life of
America is an indirect, wholly-owned subsidiary of The Manufacturers Life
Insurance Company ("Manulife Financial"), a Canadian mutual life insurance
company. On January 1, 1996, Manulife Financial merged with North American Life
Assurance Company and, as a result, acquired control of the NASL Series Trust
which, effective October 31, 1997, was renamed Manufacturers Investment Trust.
Each investment sub-account invests solely in shares of a particular
Manufacturers Investment Trust or, prior to the merger, a Manulife Series Fund.
Manufacturers Investment Trust and, prior to the merger, Manulife Series Fund
are registered under the Investment Company Act of 1940 as open-end management
investment companies.
The International Small Cap and Blue Chip Growth Trusts were added to the
Separate Account on January 1, 1997 as investment options for variable universal
life policy holders of Manufacturers Life of America. The Science & Technology,
Pilgram Baxter Growth, Small/Mid Cap, Worldwide Growth, Global Equity, Growth,
Value, International Growth and Income, High Yield, Strategic Bond, Global
Government Bond, Investment Quality Bond, Lifestyle Aggressive 1000, Lifestyle
Growth 820, Lifestyle Balanced 640 and Lifestyle Moderate 460 Trusts were added
to the Separate Account on May 1, 1997 as investment options for valuable
universal life policy holders of Manufacturers Life of America.
The Equity Index Fund, Equity, Value Equity, Growth and Income, U.S. Government
Securities, Conservative Asset Allocation, Moderate Asset Allocation, and
Aggressive Asset Allocation Trusts, were added to the Separate Account on
February 14, 1996 as investment options for policy holders of Manufacturers Life
of America.
Effective December 31, 1996, Manulife Series Fund, Inc. was merged into the
Manufacturers Investment Trust (formerly the NASL Series Trust). As a result,
the following sub-accounts of the Separate Account were renamed to correspond
with the fund names of the Manufacturers Investment Trust.
<TABLE>
<CAPTION>
MANULIFE SERIES FUND, INC. MANUFACTURERS INVESTMENT TRUST
SUB-ACCOUNTS SUB-ACCOUNTS
-------------------------- ------------------------------
<S> <C>
Emerging Growth Equity Fund Emerging Growth Trust
Common Stock Fund Quantitative Equity Trust
Real Estate Securities Fund Real Estate Securities Trust
Balanced Assets Fund Balanced Trust
Capital Growth Bond Fund Capital Growth Bond Trust
Money Market Fund Money Market Trust
International Fund International Stock Trust
Pacific Rim Emerging Markets Fund Pacific Rim Emerging Markets Trust
Equity Index Fund Equity Index Trust
</TABLE>
All references hereinafter to Manufacturers Investment Trust would have been to
Manulife Series Fund, Inc. prior to December 31, 1996.
F-25
<PAGE> 109
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Manufacturers Life of America is the legal owner of the Separate Account.
Manufacturers Life of America is required to maintain assets in the Separate
Account with a total market value at least equal to the reserves and other
liabilities relating to the variable benefits under all policies participating
in the Separate Account. These assets may not be charged with liabilities which
arise from any other business Manufacturers Life of America conducts. However,
all obligations under the variable policies are general corporate obligations of
Manufacturers Life of America.
Additional assets are held in Manufacturers Life of America's general account to
cover the contingency that the guaranteed minimum death benefit might exceed the
death benefit which would have been payable in the absence of such guarantee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Account in preparation of its financial statements:
a. Valuation of Investments -- Investments are made among the thirty-four
Trusts of Manufacturers Investment Trust and are valued at the reported net
asset values of these Trusts. Transactions are recorded on the trade date.
Net investment income and net realized gains on investments in
Manufacturers Investment Trust are reinvested.
b. Realized gains and losses on the sale of investments are computed on the
first-in, first-out basis.
c. Dividend income is recorded on the ex-dividend date.
d. Federal Income Taxes -- Manufacturers Life of America, the Separate
Account's sponsor, is taxed as a "life insurance company" under the
Internal Revenue Code. Under these provisions of the Code, the operations
of the Separate Account form part of the sponsor's total operations and are
not taxed separately.
The current year's operations of the Separate Account are not expected to
affect the sponsor's tax liabilities and, accordingly, no charges were made
against the Separate Account for federal, state and local taxes. However,
in the future, should the sponsor incur significant tax liabilities related
to the Separate Account's operations, it intends to make a charge or
establish a provision within the Separate Account for such taxes.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. MORTALITY AND EXPENSE RISKS CHARGE
Manufacturers Life of America deducts from the assets of the Separate Account a
daily charge equivalent to an annual rate of 0.65% of the average net value of
the Separate Account's assets for mortality and expense risks.
4. PREMIUM DEDUCTIONS
Manufacturers Life of America deducts a sales charge of 3% and a charge of 2% to
cover state premium taxes from the gross single premium and any additional
premiums before placing the remaining net premiums in the sub-accounts.
F-26
<PAGE> 110
SEPARATE ACCOUNT FOUR OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PURCHASES AND SALES OF MANUFACTURERS INVESTMENT TRUST SHARES
Purchases and sales of the shares of common stock of Manufacturers Investment
Trust for the year ended December 31, 1997 were $82,099,182 and $43,206,372,
respectively, and for the year ended December 31, 1996 were $70,957,210 and
$25,369,596, respectively.
6. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
Registered representatives of either ManEquity, Inc. or other broker-dealers
having distribution agreements with ManEquity, Inc. who are also authorized as
variable life insurance agents under applicable state insurance laws, sell the
Policies. Registered representatives are compensated on a commission basis.
Manufacturers Life of America has a formal service agreement with its
affiliates, Manulife Financial and The Manufacturers Life Insurance Company
(U.S.A.), which can be terminated by either party upon two months notice. Under
this Agreement, Manufacturers Life of America pays for legal, actuarial,
investment and certain other administrative services.
F-27
<PAGE> 111
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-29
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................. F-30
Consolidated Statements of Income........................... F-31
Consolidated Statements of Changes in Capital And Surplus... F-32
Consolidated Statements of Cash Flows....................... F-33
Notes to Consolidated Financial Statements.................. F-34
</TABLE>
F-28
<PAGE> 112
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
We have audited the accompanying consolidated balance sheets of The
Manufacturers Life Insurance Company of America as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in capital and
surplus and cash flows for each of the three years in the period ended December
31, 1997. 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 financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Manufacturers
Life Insurance Company of America at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 20, 1998
F-29
<PAGE> 113
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT DECEMBER 31
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS ($ THOUSANDS)
Investments:
Securities available-for-sale, at fair value: (note 4)
Fixed maturity (amortized cost: 1997 $66,565; 1996
$50,456).............................................. $ 67,893 $ 51,708
Equity (cost: 1997 $20,153; 1996 $19,450).............. 19,460 21,572
Mortgage loans......................................... 131 645
Policy loans........................................... 14,673 9,822
Cash and short-term investments........................ 22,012 17,493
---------- ----------
Total investments........................................... $ 124,169 $ 101,240
========== ==========
Guaranteed annuity contracts (note 5)....................... $ -- $ 171,691
Deferred acquisition costs (note 6)......................... 130,355 102,610
Income taxes recoverable.................................... 5,679 10,549
Deferred income taxes (note 7).............................. -- 1,041
Other assets................................................ 9,364 7,378
Separate account assets..................................... 897,044 668,094
---------- ----------
Total assets................................................ $1,166,611 $1,062,603
========== ==========
LIABILITIES, CAPITAL AND SURPLUS ($ THOUSANDS)
Liabilities:
Policyholder liabilities and accruals.................. $ 94,477 $ 91,915
Bonds payable (note 5)................................. -- 158,760
Notes payable (note 8)................................. 41,500 8,500
Due to affiliates...................................... 13,943 11,122
Deferred income taxes (note 7)......................... 1,174 --
Other liabilities...................................... 11,704 7,582
Separate account liabilities........................... 897,044 668,094
---------- ----------
Total liabilities........................................... $1,052,842 $ 945,973
Capital and Surplus:
Common shares (note 9)................................. $ 4,502 $ 4,502
Preferred shares (note 9).............................. 10,500 10,500
Contributed surplus.................................... 98,569 98,569
Retained earnings (deficit)............................ (1,910) 1,726
Foreign currency translation adjustment................ (5,272) --
Net unrealized gains on securities available-for-sale
(note 4).............................................. 380 1,333
---------- ----------
Total capital and surplus................................... $ 106,769 $ 116,630
---------- ----------
Total liabilities, capital and surplus...................... $1,166,611 $1,062,603
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 114
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
($ THOUSANDS)
<S> <C> <C> <C>
Revenue:
Premiums............................................... $ 5,334 $ 12,898 $ 15,293
Fee income............................................. 41,955 40,434 24,986
Net investment income (note 4)......................... 8,275 19,651 18,729
Realized investment gains (losses)..................... 118 (119) 3,084
Other.................................................. 544 668 82
------- -------- --------
Total Revenue............................................... $56,226 $ 73,532 $ 62,174
------- -------- --------
Benefits and expenses:
Policyholder benefits and claims....................... $ 6,733 $ 14,473 $ 16,905
Operating costs and expenses........................... 41,742 34,581 30,728
Commissions............................................ 2,838 10,431 5,859
Amortization of deferred acquisition costs (note 6).... 4,860 13,240 5,351
Interest expense....................................... 2,750 12,251 12,251
Policyholder dividends................................. 1,416 872 1,886
------- -------- --------
Total benefits and expenses................................. 60,339 85,848 72,980
------- -------- --------
Loss before income taxes.................................... (4,113) (12,316) (10,806)
------- -------- --------
Income tax benefit (note 7)................................. 477 3,909 3,960
------- -------- --------
Net loss.................................................... $(3,636) $ (8,407) $ (6,846)
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE> 115
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
NET
UNREALIZED FOREIGN TOTAL
RETAINED GAINS (LOSSES) CURRENCY CAPITAL
CAPITAL CONTRIBUTED EARNINGS ON SECURITIES TRANSLATION AND
STOCK SURPLUS (DEFICIT) AVAILABLE-FOR-SALE ADJUSTMENT SURPLUS
------- ----------- --------- ------------------ ----------- --------
($ THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31
1997
Balance, January 1.................... $15,002 $98,569 $ 1,726 $1,333 -- $116,630
Net loss during the year......... (3,636) (3,636)
Change in unrealized gain (loss)
net of taxes (note 4).......... (953) (953)
Other............................ (5,272) (5,272)
------- ------- ------- ------ ------- --------
Balance, December 31 (Note 9)......... $15,002 $98,569 $(1,910) $ 380 $(5,272) $106,769
------- ------- ------- ------ ------- --------
1996
Balance, January 1.................... $15,002 $83,569 $10,133 $1,816 -- $110,520
Net loss during the year......... (8,407) (8,407)
Change in unrealized gain (loss),
net of taxes (note 4).......... (483) (483)
Issuance of shares (note 9)...... 15,000 15,000
------- ------- ------- ------ ------- --------
Balance, December 31.................. $15,002 $98,569 $ 1,726 $1,333 -- $116,630
------- ------- ------- ------ ------- --------
1995
Balance, January 1.................... $15,002 $70,999 $16,979 $(1,141) -- $101,839
Net loss during the year......... (6,846) (6,846)
Change in unrealized gain (loss),
net of taxes................... 0 2,957 2,957
Issuance of shares (note 9)...... 12,570 12,570
------- ------- ------- ------ ------- --------
Balance, December 31.................. $15,002 $83,569 $10,133 $1,816 -- $110,520
------- ------- ------- ------ ------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE> 116
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
--------------------------------
1997 1996 1995
--------- --------- --------
($ THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss.................................................... $ (3,636) $ (8,407) $ (6,846)
Adjustments to reconcile net loss to net cash used in
operating activities:
Additions (decreases) to policy liabilities............ (2,147) 3,287 7,329
Deferred acquisition costs............................. (33,544) (36,024) (28,147)
Amortization of deferred acquisition costs............. 4,860 13,240 5,351
Realized (gains) losses on investments................. (118) 119 (3,084)
Decreases to deferred income taxes..................... 2,730 777 1,168
Other.................................................. 7,144 6,540 (5,336)
--------- --------- --------
Net cash used in operating activities....................... (24,711) (20,468) (29,565)
INVESTING ACTIVITIES:
Fixed maturity securities sold.............................. 73,772 120,234 67,507
Fixed maturity securities purchased......................... (89,763) (108,401) (76,402)
Equity securities sold...................................... 10,586 25,505 6,500
Equity securities purchased................................. (11,289) (22,203) (1,726)
Mortgage loans repaid....................................... 514 6,669 77,086
Policy loans advanced....................................... (4,851) (2,867) (2,461)
Guaranteed annuity contracts................................ 171,691 (16,356) (79,710)
--------- --------- --------
Cash provided by (used in) investing activities............. 150,660 2,581 (9,206)
FINANCING ACTIVITIES:
Receipts from variable life and annuity policies credited to
policyholder account balances............................. 7,582 5,493 9,017
Withdrawals of policyholder account balances on variable
life and annuity policies................................. (3,252) (2,994) (3,173)
Bonds payable repaid........................................ (158,760) -- --
Issuance of shares.......................................... -- 15,000 12,570
Issuance of promissory note................................. 33,000 -- --
Issuance of surplus notes................................... -- -- 8,500
--------- --------- --------
Cash provided by (used in) financing activities............. (121,430) 17,499 26,914
--------- --------- --------
CASH AND SHORT-TERM INVESTMENTS:
Increase (decrease) during the year......................... 4,519 (388) (11,857)
Balance, beginning of year.................................. 17,493 17,881 29,738
--------- --------- --------
BALANCE, END OF YEAR........................................ $ 22,012 $ 17,493 $ 17,881
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE> 117
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company of America ("ManAmerica" or the
"Company") is a wholly-owned subsidiary of The Manufacturers Life Insurance
Company (U.S.A.) ("ManUSA" or the "Parent"), which is in turn an indirectly
owned subsidiary of The Manufacturers Life Insurance Company ("Manulife
Financial"), a Canadian-based mutual life insurance company. The Company markets
variable annuity and variable life products in the United States and traditional
insurance products in Taiwan.
2. BASIS OF PRESENTATION
a) Adoption of Generally Accepted Accounting Principles
The accompanying consolidated financial statements of The Manufacturers Life
Insurance Company of America and its wholly-owned subsidiaries have been
prepared in accordance with generally accepted accounting principles ("GAAP").
Prior to 1996, the Company prepared its financial statements in conformity with
statutory accounting practices prescribed or permitted by the Insurance
Department of the State of Michigan which practices were considered GAAP for
mutual life insurance companies and their wholly-owned direct and indirect
subsidiaries. Financial Accounting Standard Board Interpretation 40,
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises" ("FIN 40") as amended, which is effective for
1996 annual financial statements and thereafter, no longer permits statutory
based financial statements to be described as being prepared in conformity with
GAAP. Accordingly, the Company has adopted GAAP including Statement of Financial
Accounting Standards 120 ("FAS 120"), "Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain Long Duration
Participating Contracts", which addresses the accounting for long-duration
insurance and reinsurance contracts, including all participating business.
Pursuant to the requirements of FIN 40 and FAS 120, the effect of the changes in
accounting have been applied retroactively and the previously issued 1995
financial statements have been restated for the change.
The adoption had the effect of increasing net income for 1995 by approximately
$6,859.
b) Recent Accounting Standards
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("FAS") No. 129 "Disclosure of Information about
Capital Structure," FAS No. 130 "Reporting Comprehensive Income," and FAS No.
131 "Disclosures about Segments of an Enterprise and Related Information." These
new accounting standards, which will be effective for the 1998 financial
statements, will result primarily in additional disclosures in the Company's
financial statements and are not expected to have a material effect on the
Company's financial position and results of operations.
c) Reorganization
On December 20, 1995, Manulife Reinsurance Corporation (U.S.A.) ("MRC")
transferred to the Company all of the common and preferred shares of
Manufacturers Adviser Corporation ("MAC"), an investment adviser registered
under the Investment Advisers Act of 1940.
On December 31, 1996, ManUSA transferred to the Company all of the common and
preferred shares of Manulife Holding Corporation ("Holdco"), an investment
holding company. Holdco has primarily two wholly-owned subsidiaries, ManEquity
Inc., a registered broker/dealer, and the Manufacturers Life Mortgage
F-34
<PAGE> 118
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Securities Corporation ("MLMSC"), an issuer of mortgage-backed US Dollar bonds.
The Company then transferred all the common and preferred shares of MAC to
Holdco for two shares of $1 common stock of Holdco.
These transfers have been accounted for using the pooling-of-interests method of
accounting. Under this method, the assets, liabilities, capital and surplus,
revenues and expenses of each separate entity are combined retroactively at
their historical carrying values to form the financial statements of the Company
for all periods presented to give effect to the reorganization as if the
structure in place at December 31, 1996 had been in place as of the earliest
period presented in these consolidated financial statements. The accounts of all
subsidiary companies are therefore combined and all significant inter-company
balances and transactions are eliminated on combination. In addition, the
capital and surplus of the Company has been restated retroactively to reflect
the capital structure in place at December 31, 1996.
The revenues and net income reported by the separate entities and the combined
amounts presented in the accompanying consolidated financial statements are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
-------------------
1996 1995
-------- --------
($ THOUSANDS)
<S> <C> <C>
Revenue:
ManAmerica................................... $54,404 $45,655
Holdco....................................... 15,543 13,828
MAC.......................................... 3,585 2,691
------- -------
Total revenue.................................. $73,532 $62,174
======= =======
Net Income (loss):
ManAmerica................................... $(8,676) $(7,402)
Holdco....................................... (670) (10)
MAC.......................................... 939 566
------- -------
Total net loss................................. $(8,407) $(6,846)
======= =======
</TABLE>
In October 1997, MLMSC was absorbed into Holdco subsequent to the maturity and
repayment of the mortgage-backed US dollar bonds. All assets and liabilities of
MLMSC were transferred to Holdco at their respective book values.
3. SIGNIFICANT ACCOUNTING POLICIES
a) Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those estimates.
b) Investments
The Company classifies all of its fixed maturity and equity securities as
available-for-sale and records these securities at fair value. Realized gains
and losses on sales of securities classified as available-for-sale are
recognized in net income using the specific identification method. Changes in
the fair value of securities available-for-sale are reflected directly in
surplus after adjustments for deferred taxes and deferred acquisition costs.
Discounts and premiums on investments are amortized using the effective interest
method.
F-35
<PAGE> 119
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mortgage loans are reported at amortized cost, net of a provision for losses.
The provision for losses is established for mortgage loans which are considered
to be impaired when the Company has determined that it is probable that all
amounts due under contractual terms will not be collected. Impaired loans are
reported at the lower of unpaid principal or fair value of the underlying
collateral.
Policy loans are reported at aggregate unpaid balances which approximate fair
value.
Short-term investments include investments with maturities of less than one year
at the date of acquisition.
c) Deferred Acquisition Costs (DAC)
Commissions and other expenses which vary with and are primarily related to the
production of new business are deferred to the extent recoverable and included
as an asset. DAC associated with variable annuity and variable life insurance
contracts is charged to expense in relation to the estimated gross profits of
those contracts. The amortization is adjusted retrospectively when estimates of
current or future gross profits are revised. DAC associated with traditional
life insurance policies is charged to expense over the premium paying period of
the related policies. DAC is adjusted for the impact on estimated future gross
profits assuming the unrealized gains or losses on securities had been realized
at year-end. The impact of any such adjustments is included in net unrealized
gains (losses) in Capital and Surplus. DAC is reviewed annually to determine
recoverability from future income and, if not recoverable, it is immediately
expensed.
d) Policyholder Liabilities
For variable annuity and variable life contracts, reserves equal the
policyholder account value. Account values are increased for deposits received
and interest credited and are reduced by withdrawals, mortality charges and
administrative expenses charged to the policyholders. Policy charges which
compensate the Company for future services are deferred and recognized in income
over the period earned, using the same assumptions used to amortize DAC.
Policyholder liabilities for traditional life insurance policies sold in Taiwan
are computed using the net level premium method and are based upon estimates as
to future mortality, persistency, maintenance expense and interest rate yields
that were established in the year of issue.
e) Separate Accounts
Separate account assets and liabilities represent funds that are separately
administered, principally for variable annuity and variable life contracts, and
for which the contract holder, rather than the Company, bears the investment
risk. Separate account contract holders have no claim against the assets of the
general account of the Company. Separate account assets are recorded at market
value. Operations of the separate accounts are not included in the accompanying
financial statements.
f) Revenue Recognition
Fee income from variable annuity and variable life insurance policies consists
of policy charges for the cost of insurance, expenses and surrender charges that
have been assessed against the policy account balances. Policy charges that are
designed to compensate the company for future services are deferred and
recognized in income over the period benefited, using the same assumptions used
to amortize DAC. Premiums on long-duration life insurance contracts are
recognized as revenue when due. Investment income is recorded when due.
F-36
<PAGE> 120
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
g) Expenses
Expenses for variable annuity and variable life insurance policies include
interest credited to policy account balances and benefit claims incurred during
the period in excess of policy account balances.
h) Reinsurance
The Company is routinely involved in reinsurance transactions in order to
minimize exposure to large risks. Life reinsurance is accomplished through
various plans including yearly renewable term, co-insurance and modified
co-insurance. Reinsurance premiums 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. Amounts paid with respect to ceded reinsurance contracts are
reported as reinsurance receivables in other assets.
i) Foreign Exchange
The Company's Taiwanese branch balance sheet and statement of income are
translated at the current exchange and average exchange rates for the year
respectively. The resultant translation adjustments are included as a separate
component in capital and surplus. In prior years, there were no reported
translation adjustments as there were no significant movements in foreign
currency exchange rates.
j) Income Tax
Income taxes have been provided for in accordance with Statement of Financial
Accounting Standards 109 ("FAS109") "Accounting for Income Taxes." The Company
joins ManUSA, MRC, Capitol Bankers Life Insurance Company and Manulife
Reinsurance Limited ("MRL") in filing a U.S. consolidated income tax return as a
life insurance group under provisions of the Internal Revenue Code. In
accordance with an income tax sharing agreement, the Company's income tax
provision (or benefit) is computed as if the Company filed a separate income tax
return. Tax benefits from operating losses are provided at the U.S. statutory
rate plus any tax credits attributable to the Company, provided the consolidated
group utilizes such benefits currently. Deferred income taxes result from
temporary differences between the tax basis of assets and liabilities and their
recorded amounts for financial reporting purposes. Income taxes recoverable
represents amounts due from ManUSA in connection with the consolidated return.
4. INVESTMENTS AND INVESTMENT INCOME
a) Fixed Maturity and Equity Securities
At December 31, 1997, all fixed maturity and equity securities have been
classified as available-for-sale and reported at fair value. The amortized cost
and fair value is summarized as follows:
<TABLE>
<CAPTION>
GROSS
GROSS UNREALIZED
AMORTIZED COST UNREALIZED GAINS LOSSES FAIR VALUE
----------------- ----------------- --------------- -----------------
1997 1996 1997 1996 1997 1996 1997 1996
------- ------- ------- ------- ------- ----- ------- -------
($ THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS AT DECEMBER 31,
Fixed maturity securities:
U.S. government......... $51,694 $ 9,219 $ 937 $ 386 $ (135) $ (98) $52,496 $ 9,507
Foreign governments..... 6,922 9,227 203 221 (14) (8) 7,111 9,440
Corporate............... 7,949 32,010 415 981 (78) (230) 8,286 32,761
------- ------- ------ ------ ------- ----- ------- -------
Total fixed maturity
securities........... $66,565 $50,456 $1,555 $1,588 $ (227) $(336) $67,893 $51,708
Equity securities....... $20,153 $19,450 $1,496 $2,134 $(2,189) $ (12) $19,460 $21,572
------- ------- ------ ------ ------- ----- ------- -------
</TABLE>
F-37
<PAGE> 121
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Proceeds from sales of fixed maturity securities during 1997 were $73,772 (1996
$120,234; 1995 $67,507). Gross gains of $955 and gross losses of $837 were
realized on those sales (1996 $1,858 and $1,837; 1995 $2,630 and $218
respectively).
Proceeds from sale of equity securities during 1997 were $10,586 (1996 $25,505;
1995 $6,500). Gross gains of $NIL and gross losses of $NIL were realized on
those sales (1996 $NIL and $140; 1995 $785 and $113 respectively).
The contractual maturities of fixed maturity securities at December 31, 1997 are
shown below. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
prepayment penalties. Corporate requirements and investment strategies may
result in the sale of investments before maturity.
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- ----------
($ THOUSANDS)
<S> <C> <C>
Fixed maturity securities
One year or less................................ $ 1,654 $ 1,651
Greater than 1; up to 5 years................... 3,876 3,953
Greater than 5; up to 10 years.................. 50,353 50,655
Due after 10 years.............................. 10,682 11,634
------- -------
Total fixed maturity securities................... $66,565 $67,893
======= =======
</TABLE>
UNREALIZED GAINS (LOSSES) ON SECURITIES AVAILABLE-FOR-SALE
Net unrealized gains (losses) on fixed maturity and equity securities included
in capital and surplus were as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
---------------------
1997 1996
------- -------
($ THOUSANDS)
<S> <C> <C>
Gross unrealized gains............................ $ 3,051 $ 3,722
Gross unrealized losses........................... (2,416) (348)
DAC and other fair value adjustments.............. (50) (1,321)
Deferred income taxes............................. (205) (720)
------- -------
Net unrealized gains (losses) on securities
available-for-sale.............................. $ 380 $ 1,333
------- -------
</TABLE>
F-38
<PAGE> 122
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
b) Investment Income
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
----------------------------------
1997 1996 1995
------ ------- -------
($ THOUSANDS)
<CAPTION>
<S> <C> <C> <C>
Fixed maturity securities............................ $4,545 $ 4,447 $ 4,430
Mortgage loans....................................... 67 278 3,076
Equity securities.................................... 331 671 646
Guaranteed annuity contracts......................... 2,796 13,196 9,691
Other investments.................................... 705 1,419 1,235
------ ------- -------
Gross investment income.............................. 8,444 20,011 19,078
------ ------- -------
Investment expenses.................................. 169 360 349
------ ------- -------
Net Investment Income................................ $8,275 $19,651 $18,729
====== ======= =======
</TABLE>
5. GUARANTEED ANNUITY CONTRACTS AND BONDS PAYABLE
The Company's wholly-owned subsidiary, Manufacturers Life Mortgage Securities
Corporation, has historically invested amounts received as repayments of
mortgage loans in annuities issued by ManUSA. These annuities were collateral
for the 8 1/4% mortgage-backed bonds payable. On March 1, 1997 the annuities
matured and the proceeds were used to repay the bonds payable.
In October 1997, MLMSC was absorbed into Manulife Holding Corporation.
6. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
($ THOUSANDS)
<S> <C> <C> <C>
Balance at January 1,................................. $102,610 $ 78,829 $ 60,124
Capitalization........................................ 33,544 36,024 28,147
Accretion of interest................................. 9,357 6,344 4,992
Amortization.......................................... (16,864) (19,159) (10,852)
Effect of net unrealized gains (losses) on securities
available for sale.................................. 1,268 996 (4,091)
Other................................................. 440 (424) 509
-------- -------- --------
Balance at December 31................................ $130,355 $102,610 $ 78,829
======== ======== ========
</TABLE>
F-39
<PAGE> 123
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
Components of income tax benefit were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
($ THOUSANDS)
<S> <C> <C> <C>
Current expense (benefit)................... $(3,207) $(4,686) $(5,128)
Deferred expense (benefit).................. 2,730 777 1,168
------- ------- -------
Total Benefit............................... $ (477) $(3,909) $(3,960)
======= ======= =======
</TABLE>
The Company's deferred income tax liability, which results from tax effecting
the differences between financial statement values and tax values of assets and
liabilities at each balance sheet date, relates to the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31
-------------------
1997 1996
-------- --------
($ THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Differences in computing policy reserves.......... $34,291 $28,508
Policyholder dividends payable.................... 240 283
Investments....................................... 793 --
------- -------
Deferred tax assets.................................... $35,324 $28,791
======= =======
Deferred tax liabilities:
Deferred acquisition costs........................ $30,682 $25,522
Investments....................................... 166 928
Other deferred tax liabilities.................... 5,650 1,300
------- -------
Deferred tax liabilities............................... 36,498 27,750
------- -------
Net deferred tax assets (liabilities).................. $(1,174) $ 1,041
======= =======
</TABLE>
The Company and its US insurance affiliates have available capital loss
carryforwards of $4,800 which will begin to expire in 1999 and can only be used
by Capitol Bankers Life Insurance Company.
8. NOTES PAYABLE
a) The Company has an outstanding surplus debenture in the amount of
$8,500 plus interest at 6.7% issued on December 31, 1995 to ManUSA which
matures on December 31, 2005. Payments of principal and interest cannot be
made without prior approval of the Insurance Commissioner of the State of
Michigan and the Company's Board of Directors, and to the extent the
Company has sufficient unassigned surplus on a statutory basis available
for such payment.
b) The Company has an outstanding promissory note in the amount of
$33,000 plus interest at 6.95% issued on December 5, 1997 payable to ManUSA
which matures on February 1, 2007.
F-40
<PAGE> 124
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. CAPITAL AND SURPLUS
The Company has two classes of capital stock, as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31:
-------------------------
1997 1996
----------- -----------
($ THOUSANDS)
<S> <C> <C>
Authorized:
5,000,000 Common shares, Par value $1.00
5,000,000 Preferred shares, Par value $100.00
Issued and Outstanding:
4,501,860 Common shares.......................... $ 4,501,860 $ 4,501,860
105,000 Preferred shares......................... 10,500,000 10,500,000
----------- -----------
Total.............................................. $15,001,860 $15,001,860
=========== ===========
</TABLE>
During 1996, the Company issued two common shares to its Parent Company in
return for a capital contribution of $15,000.
During 1995, the Company issued one common share to its Parent Company in return
for a capital contribution of $12,570.
The Company is subject to statutory limitations on the payment of dividends to
its Parent. Under Michigan Insurance Law, the payment of dividends to
shareholders is restricted to the surplus earnings of the Company, unless prior
approval is obtained from the Michigan Insurance Bureau.
The aggregate statutory capital and surplus of the Company at December 31, 1997
was $56,598 (1996 $76,202). The aggregate statutory net loss of the Company for
the year ended 1997 was $2,550 (1996 $15,961; 1995 $13,705). State regulatory
authorities prescribe statutory accounting practices that differ in certain
respects from generally accepted accounting principles followed by stock life
insurance companies. The significant differences relate to investments, deferred
acquisition costs, deferred income taxes, non-admitted asset balances and
reserve calculation assumptions.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of certain of the Company's
financial instruments at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------- --------
($ THOUSANDS)
<S> <C> <C>
Assets:
Fixed maturity and equity securities............ $87,353 $87,353
Mortgage loans.................................. 131 131
Policy loans.................................... 14,673 14,673
Liabilities:
Promissory note................................. 33,000 33,000
Surplus note.................................... 8,500 8,220
</TABLE>
The following methods and assumptions were used to estimate the fair values of
the above financial instruments:
F-41
<PAGE> 125
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets as at June 30, 1998 and December 31, 1997
Consolidated Statements of Income for the three and six month periods ended
June 30, 1998 and 1997
Statement of Cash Flows for the six months ended June 30, 1998 and 1997
Notes to Financial Statements
<PAGE> 126
The Manufacturers Life Insurance Company of America
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
As at As at
June 30 December 31
ASSETS ($ thousands) 1998 1997
- ---------------------------------------------------------------------------------------------------
INVESTMENTS: (UNAUDITED)
<S> <C> <C>
Securities available-for-sale, at fair value:
Fixed maturity (amortized cost: 1998 $48,248; 1997 $66,565) $ 50,421 $ 67,893
Equity (cost: 1998 $20,419; 1997 $20,153) 20,642 19,460
Mortgage loans 85 131
Policy loans 16,978 14,673
Cash and short-term investments 22,106 22,012
- ---------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 110,232 $ 124,169
- ---------------------------------------------------------------------------------------------------
Deferred acquisition costs 149,112 130,355
Income taxes recoverable 3,488 5,679
Other assets 9,205 9,364
Separate account assets 1,014,979 897,044
- ---------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,287,016 $ 1,166,611
===================================================================================================
LIABILITIES, CAPITAL AND SURPLUS ($ thousands) 1998 1997
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
Policyholder liabilities and accruals $ 96,625 $ 94,477
Notes payable 8,500 41,500
Due to affiliates 10,195 13,943
Deferred income taxes 2,762 1,174
Other liabilities 14,330 11,704
Separate account liabilities 1,014,979 897,044
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 1,147,391 $ 1,059,842
===================================================================================================
CAPITAL AND SURPLUS:
Common shares 4,502 4,502
Preferred shares 10,500 10,500
Contributed surplus 132,887 98,569
Retained earnings (deficit) (3,573) (1,910)
Foreign currency translation adjustment (6,061) (5,272)
Net unrealized gain on securities
available-for-sale 1,370 380
- ---------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS 139,625 106,769
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 1,287,016 $ 1,166,611
===================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 127
The Manufacturers Life Insurance Company of America
Consolidated Statements of Income (unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
($ thousands) 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE:
Premiums $ 2,208 $ 1,687 $ 4,158 $ 3,642
Fee income 13,344 11,674 26,011 22,405
Net investment income 985 3,406 2,619 6,688
Realized investment gains (losses) 74 (371) (8) (205)
Other 47 48 104 143
- --------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 16,658 $ 16,444 $ 32,884 $ 32,673
==================================================================================================
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 2,406 $ (1,054) $ 7,582 $ 1,693
Operating costs and expenses 9,117 7,538 19,473 16,064
Commissions 743 1,013 1,296 2,346
Amortization of deferred acquisition costs 3,158 3,724 4,486 7,324
Interest expense 976 -- 1,884 2,156
Policyholder dividends 138 411 794 1,233
- --------------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES $ 16,538 $ 11,632 $ 35,515 $ 30,816
- --------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 120 4,812 (2,631) 1,857
- --------------------------------------------------------------------------------------------------
INCOME TAX BENEFIT (EXPENSE) (22) (2,096) 968 (1,060)
- --------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 98 $ 2,716 $ (1,663) $ 797
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 128
The Manufacturers Life Insurance Company of America
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
($ thousands) 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (1,663) $ 797
Adjustments to reconcile net income to net cash used in operating activities:
Additions (decreases) to policy liabilities 304 (835)
Deferred acquisition costs (24,055) (15,209)
Amortization of deferred acquisition costs 4,486 7,324
Realized losses on investments 8 205
Decreases to deferred income taxes 1,110 77
Other 2,674 (6,086)
- --------------------------------------------------------------------------------------------------------
Net cash used in operating activities $ (17,136) $ (13,727)
- --------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Fixed maturity securities sold $ 23,438 $ 60,461
Fixed maturity securities purchased (5,538) (46,244)
Equities sold 4,922 4,359
Equities purchased (5,177) (4,555)
Mortgage loans repaid 46 (43)
Policy loans advanced, net (2,305) (2,868)
Guaranteed annuity contracts -- 171,691
- --------------------------------------------------------------------------------------------------------
Cash provided by investing activities $ 15,386 $ 182,801
- --------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Receipts from variable life and annuity policies
credited to policyholder account balances $ 4,080 $ 4,048
Withdrawals of policyholder account balances on
variable life and annuity policies (2,236) (1,219)
Repayment of bonds payable -- (158,760)
Reduction of notes payable (34,318) --
Conversion of notes payable to contributed surplus 34,318 --
- --------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities $ 1,844 $(155,931)
- --------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS:
Increase during the period $ 94 $ 13,143
Balance, beginning of year 22,012 17,493
- --------------------------------------------------------------------------------------------------------
BALANCE, END OF PERIOD $ 22,106 $ 30,636
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 129
The Manufacturers Life Insurance Company of America
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The
Manufacturers Life Insurance Company of America and its wholly-owned
subsidiaries have been prepared in accordance with generally accepted
accounting principles ("GAAP"), except that they do not contain
complete notes. However, in the opinion of management, these statements
include all normal recurring adjustments necessary for a fair
presentation of the results. These financial statements should be read
in conjunction with the financial statements and the related notes
included in ManAmerica's annual report on Form 10-K for the year ended
December 31, 1997. Operating results for the six months ended June 30,
1998 are not necessarily indicative of the results that may be expected
for the full year ending December 31, 1998.
2. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards (SFAS)
130, "Reporting Comprehensive Income". SFAS 130 establishes standards
for reporting and displaying comprehensive income and its components in
a full set of general-purpose annual financial statements.
Comprehensive income includes all changes in capital and surplus during
a period except those resulting from investments by, and distributions
to shareholders. The adoption of SFAS 130 resulted in revised and
additional disclosures but had no effect on the financial position,
results of operations, or liquidity of the Company.
Total comprehensive income for the six months ended June 30, 1998 and
1997 was as follows:
SIX MONTHS ENDED
JUNE 30
COMPREHENSIVE INCOME: 1998 1997
- -------------------------------------------------------------------------------
NET INCOME (LOSS) $(1,663) $ 797
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gains
on available-for-sale securities 990 1,068
Foreign currency translation (789) -
- -------------------------------------------------------------------------------
Other comprehensive income $ 201 $1,068
- -------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $(1,462) $1,865
- -------------------------------------------------------------------------------
Other comprehensive income is reported net of taxes of $533 and $575
respectively for the six months ended June 30, 1998 and 1997.
6
<PAGE> 130
3. CAPITAL CONTRIBUTION
On June 30, 1998 an outstanding promissory note issued by the Company
on December 5, 1997 to ManUSA in the amount of $34.3 million ($33
million principal plus $1.3 million accrued interest) was converted to
capital and reported as contributed surplus.
4. COMPARATIVE FIGURES
Certain amounts in the 1997 financial statements have been reclassified
to conform to the 1998 financial statement presentation.
7
